(25-05-2012, 10:18 PM)shanrui_91 Wrote: [ -> ]for me, i only do a simple extrapolation with the past 3Q results and then pray that results will be much better. just like how i have been praying that stocks will dive down, but it has failed so far despite lousy China's PMI, Germany flash PMI, lower UK GDP on the same day. seemed like more sincerity is needed before it will work
I just stumbled on a paragraph that I find rather meaningful and relevant,
A fundamental question in valuation is how much detail to bring into the process, and the trade-off is straightforward. More detail gives you a chance to use specific information to make better forecasts, but it also creates the need for more inputs, with the potential for error on each one, and it generates more complicated and opaque models. Drawing from the principles of parsimony, common in the physical sciences, here is a simpe rule : When valuing an asset, use the simplest model that you can. If you can value an asset with three inputs, don't use five. If you can value a company with three years of forecasts, forecasting 10 years of cash flows is asking for trouble. Less is more.
.
Success in investing comes not from being right but from being wrong less often than everyone else.
Source : The Little Book of Valuation by Aswath Damodaran <pg 11-12>
I saw that some analysts and forumers attach a value to Boustead huge cash pile. But Boustead also has huge payables on their balance sheet, so that cash pile may not really be free. If i sum up the short-term cash equivalents and payable equivalents at Dec 2011 as shown below, Boustead's excess net cash is only S$22m, which is not much compared to its exiting market cap.
Thoughts???
Cash & bank balances 176
Trade receivables 67
Held-for-trading investments 9
Available-for-sale investments 24
Bank loans & overdrafts 3
Long-term bank loans 20
Trade & other payables 208
Income tax payable 21
Frankly, I don't really attach a value to Boustead's cash pile. It's simply there to take advantage of opportunities which may arise.
As to the high levels of payables, I believe it can be attributed to the DB&L projects where Boustead Projects has liabilities to pay the contractors. These are not immediately due though and trade receivables and payables are part of working capital and these are fluid aspects of the Balance Sheet, as is Cash. So I would generally prefer to focus on their Cash Generation Ability from looking at the FCF generated. For 9M 2012 it was about $66M.
Thanks.
(25-05-2012, 10:18 PM)shanrui_91 Wrote: [ -> ]oops, seemed like i have misidentified the mountain tortise. nonetheless, only a grandmaster is capable of reading from crystal ball - taking into account seasonality, raw material prices and e.t.c.
Shanrui, you're spot on - our grandmaster who is capable of reading a crystal ball is NOT a tortoise (and definitely NOT the mountain variety), he is a kung fu master who loves to drink Kopi.
(27-05-2012, 12:12 AM)Musicwhiz Wrote: [ -> ]Frankly, I don't really attach a value to Boustead's cash pile. It's simply there to take advantage of opportunities which may arise.
As to the high levels of payables, I believe it can be attributed to the DB&L projects where Boustead Projects has liabilities to pay the contractors. These are not immediately due though and trade receivables and payables are part of working capital and these are fluid aspects of the Balance Sheet, as is Cash. So I would generally prefer to focus on their Cash Generation Ability from looking at the FCF generated. For 9M 2012 it was about $66M.
Thanks.
Thanks Musicwhiz. I am new to Boustead. Keen but hesitant. I have some concerns. Would love to hear your views.
1. Competition will eat into margins of its engineering business and decrease earnings even though revenue is rising. For example in FY2011, energy-related revenue increases from S$122m to S$144m but PBT fell from S$20 to S$17. Chairman statement cited increased competition from Korean players. And Koreans are so good at being low-cost and efficient (think Samsung, Hyundai).
2. Aside from ESRI segment, Boustead revenue is project-based. In order to post higher revenue year after year, you must chase one more project year after year. Sounds tiring, sounds like it will stall one day.
(27-05-2012, 02:30 PM)Choon Wrote: [ -> ]Thanks Musicwhiz. I am new to Boustead. Keen but hesitant. I have some concerns. Would love to hear your views.
1. Competition will eat into margins of its engineering business and decrease earnings even though revenue is rising. For example in FY2011, energy-related revenue increases from S$122m to S$144m but PBT fell from S$20 to S$17. Chairman statement cited increased competition from Korean players. And Koreans are so good at being low-cost and efficient (think Samsung, Hyundai).
2. Aside from ESRI segment, Boustead revenue is project-based. In order to post higher revenue year after year, you must chase one more project year after year. Sounds tiring, sounds like it will stall one day.
Hi Choon,
Haha interestingly, those were the two questions which I asked Boustead during the last two AGMs which I attended! I guess we do think along the same wavelength especially on these aspects.
1) Their O&G arm is not doing as well as expected because of the GFC and yes also because of Korean EPC contractors under-cutting Boustead with more aggressive bids. This had been highlighted as one of the key reasons for the lower margins even though revenue may hold steady. The fact that the division is contract-based also makes it lumpy and I won't place a very high value on this division due to this fact. That said though, one positive is that the O&G arm consisting of upstream, downstream and waste-to-energy does have a lot of experience doing projects in many countries; and so can be expected to continue to target niche segments to drive the business along a steady path. I won't count too much on growth in this division, though, especially when margins are pressurized. I look more to their Real Estate arm, ESRI and now their Mining investment in OMH to generate future returns.
2) FF Wong knew from some time back about Boustead's order book nature resulting in lumpy revenue recognition and earnings. That was why he embarked on a path to secure more DB&L projects for Boustead Projects, and also upped Boustead;s stake in BP to 100% from 91.8%. Currently, BP has a stable of 10 leasehold properties (including the recent Jabil Circuit contract) which will provide more steady, recurring income and cash flow. This DB&L portfolio takes up about 107,400 sqm currently and BP looks set to grow this further. The other two properties which are due for completion in Jun 2012 and CY 2013 are for the clients Continental Alloys and Bombadier respectively.
Regards.
Here's some interesting insight from the audiocast:
FF Wong is looking to size up their stake in OMH if price comes down further. He seemed to have the intention to build up to a stake where equity accounting (20% I supposed) can be achieved. He sees OMH from a viewpoint that we have not been able to. Here's roughly what he says
"not only has he built up the expertise, he has sales network in China unlike others in the industry. They have no problem selling into China while everyone else including BHP has problem currently, despite BHP having lower price, lower cost and higher quality. BHP is selling ore at $3.50, while OMH selling price is at $4.50. They have competitive advantage.
They have signed up for 500 MW from Sarawak authority, the price and the rate is half of what the Chinese are paying. They will be able to generate recurring income, projecting $200m Aussie profit per annum once full steam."
From what I(not FF Wong) see, OMH is not building the smelting plant for its own usage. It should be planning to provide huge smelting services to others, else I don't think it should be labelled as recurring income.
Other insights include
Real Estate:
The DBL portfolio will be able to generate $18m rental revenue annually based on the current portfolio size, assuming the construction is completed.
No specific critical size defined at the moment
The rental income from IBM could have been substantial if not for the buyback,
REITs are now a competitor with Boustead in this area
Might have higher construction cost now that Indonesia is clamming down on granite.
Salcon:
Revenue needed to breakeven is $30m. Though revenue for Salcon is $40m this year, PBT is only $0.1m as a result of the project in Abu Dhabi which suffered quite a loss.
Main aim is still to continue building the orderbook
Oil & Gas:
They have healthy backlog and capacity is tight. They intend to bid for project at higher price as such.
Geo-spatial:
Very comfortable with the existing income and orderbook, no challenge foreseen.
Driven by government agencies from Indonesia and Singapore.
However, growth of professional service leads to expansion of workforce in Australia which may affect profit margin..
Their annual results have been released
recurring income in OMH probably is referring to the off-take signed with Japanese companies, if I am not wrong.
(28-05-2012, 08:22 PM)freedom Wrote: [ -> ]recurring income in OMH probably is referring to the off-take signed with Japanese companies, if I am not wrong.
The recurring income is a projection of full capacity. So I think the question to ask will be how much of the 600,000 tonnes capacity will be used by OMH itself and how much for sales?