ValueBuddies.com : Value Investing Forum - Singapore, Hong Kong, U.S.

Hi Buddies,

I would need help on some valuation question. As a value investor, I agree that my buy price must be below my establish valuation after conducting my research both qualitative and quantitative. I understand that most investor use commonly known methods such as PE Ratio, Discounted earnings etc. From what I see most P/E ratio ate just simply ratio and acted just like a yardstick for most of us whetby you can used in to compare between companies. For discounted model, it is the best way to establish an intrinsic value however, nevertheless assumption can be wrong. I am a conservative form of person which I do not like to assume growth to be that high as we can't really predict the future. If given few best investor establishing the intrinsic value, I am sure that the valuation itself would be very different as each person has a difference form of perspective. Any senior here would like to share how do you value your stocks?[/quote]

Sngapore based property counters: Intrinsic value = 0.8* RNAV, price to buy is 0.5-0.6* RNAv (this is to achieve MOS). RNAV is calculated by checking the price the company sold its new developments to determine the profit etc.

Manufacturing related stocks, I determine the Free cash flow, then divide it by no of shares. Then divide it by the share price. Intrinsic value is about 7-8% yield from free cash flow. Apply 30-40% discount to obtain my "MOS price".

These are my general ways.

Hi CY,

I agree with you on using NAV value on property counter. I took a look and tried value company using EV method. I understand what the concept behind it however, I am not sure should I take account on company assets such as inventory, receivables other than cash to self as well as payables. Hence sometimes , I feel quite difficult to do a valuation for a newbie dummy like myself.

You are right to say that assumptions can be wrong. So it depends on what you do, how much you know, what efforts have been made on channel checks.

So basically, ask yourself, if there is an acquirer for the business, how much value do you think is fair?
Or as a business owner, what do you look at the pin a value on a business?

So for Singapore property stocks, if you think taking NAV as it is and apply a discount arbitrarily, that is not due diligence. It depends on your understanding of the property market, the interest rate environment, the LTV scenario, the underwriting of banks, the different countries the properties are in, the laws that govern them, the real transaction price at which they are in, how much inventory, receivables, payables are worth as opposed to the book value pinned on. One more special thing for Sg property stocks, there is a prevalence of rights issue that absorbs capital from shareholders. Management will then pay a higher salary for a bigger asset base they manage. So that means 1) You wont pay at a discount if there were to be a rights issue (therefore no MOS) 2) if you were not to buy then you lose out because of dilution, 3) on a per share basis, management is chasing lower yield deals and paying a themselves a higher salary. I dont see how that adds up, but I am only talking about some.

Look for the small easy things for a start. Not a whole lot of competition and easier to understand.