12-09-2023, 08:54 AM
Many people use relative valuation with multiples such as PE or PBV to value companies. In the dotcom days, people extended the relative valuation concept to use price per eyeball. Even today we have the price per subscriber based for social media companies. And for plantation companies, you can think of valuing the shares based on the value of the plantation land.
Along this line the recent Boustead Plantation sale of RM 1.55 per share can be translated into about RM 48,000 per planted ha of palm oil land. Imagine using this as benchmark for other plantation companies such as TDM.
TDM has both plantation and healthcare divisions. Using the Boustead Plantation price, the value of TDM plantation works out to RM 0.79 per TDM share compared to its 0.17 per share price. And we have yet to account for the value of the healthcare division.
Is this a realistic basis? Using multiples can provide a misleading picture. For example, the plantation lands are in different locations and different maturity.
At the same time, the returns from the two companies are different. Boustead had an average ROE of the past 3 years of 5 % (excluding the sale of land). TDM total ROE (including healthcare but excluding the disposal of the Indonesian ops) was 4%.
You can see why I prefer to use the DCF method as no 2 companies are the same. I then use base rates based on industry performance as a sanity check. For details of the Bursa plantation sector, refer to “How the Malaysian plantation sector performed over the past 10 years”
Along this line the recent Boustead Plantation sale of RM 1.55 per share can be translated into about RM 48,000 per planted ha of palm oil land. Imagine using this as benchmark for other plantation companies such as TDM.
TDM has both plantation and healthcare divisions. Using the Boustead Plantation price, the value of TDM plantation works out to RM 0.79 per TDM share compared to its 0.17 per share price. And we have yet to account for the value of the healthcare division.
Is this a realistic basis? Using multiples can provide a misleading picture. For example, the plantation lands are in different locations and different maturity.
At the same time, the returns from the two companies are different. Boustead had an average ROE of the past 3 years of 5 % (excluding the sale of land). TDM total ROE (including healthcare but excluding the disposal of the Indonesian ops) was 4%.
You can see why I prefer to use the DCF method as no 2 companies are the same. I then use base rates based on industry performance as a sanity check. For details of the Bursa plantation sector, refer to “How the Malaysian plantation sector performed over the past 10 years”