Getting a sense of a fair price to pay: UOB KayHian Holdings as a case study.
I was
screening for companies with decent yield and growth for the past 5 to 10
years, using a Google screener, and I decided to do some in depth study of UOB KayHian.
UOB KayHian
pays out about 50% of earnings as dividends for almost a decade. In the earlier
years, the payout was more than 50%. So there is certainty of payment, and it
has been profitable for the past 12 years, and last year was actually the
weakest year in a decade.
I use the
spreadsheet to churn out important numbers such as revenue, NP, margins etc
for the various markets, such as Singapore, Hong Kong, Thailand. I wanted
sustainability of dividend income. So, I want to know what income I can expect
going forward and I gave myself a few scenarios:
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At its peak, net profits is
almost 3 times of what it is in 2012, if you take the average of $100 million
over 12 years, it is still higher than 2012.
1H2013 results has already
recovered, its 1H EPS of about 8 cents, is already almost as high as full year
EPS of about 9 cents in 2012. Assume full year EPS to be 16 cents, they will
pay out about 8 cents, giving a yield of 4.8%. That is my best case scenario.
If you take the average of 12
years, EPS is about 13 cents, so payout will 6.5 cents, giving a yield of 3.9%.
This is my conservative scenario.
Although Singapore
contribution is in decline, it is generally in line with SGX trading income revenue, which reflect the
prevailing market conditions and not loss of competiveness. The “other” and
Thailand operations have been bucking the trend and is contributing more
despite market weakness, this could be due to its expansion bearing fruits.
Next,
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I want to
get a sense of market valuation of the counter throughout the years, so I use
the highest price, lowest price and average price of each year to calculate the
corresponding yield and PE.
If I take
away the super exceptional year of 2007, the average lowest yield is 5% and
average highest yield is 9%, and the average lowest and highest PE is 10 and 17
respectively.
If I take
conservative EPS of 13 cents, and DPS of 6.5 cents. I would like a yield of 6%
and a PE as close to 10 as possible, and what would that price be?
To give a
yield of 6% based on EPS 13 cents, price will be about $1.09 and PE 8.4.
If I am
content with PE 10, I need the price to be $1.3.
To give a
yield of 6% based on EPS 16 cents, $1.33. And a PE of 10 at EPS 16 cents will
be $1.6.
Now, I know
I will not touch this company at price above $1.6, unless I believe the next
few years will see EPS growing to its peak soon. But there were not many years
in which the company had above average results. So, most probably I will only start buying at
$1.6 and below.
Other
considerations like market share, gearing level and positive average FCF are
also looked at, they are not significant enough to offer a further discount or
premium.
I do like
its profit resilience and rather undemanding valuation as compared to SGX and
GK Goh, but given the amount of competition and my estimated calculation of
only 10% Singapore Market share, I would not allow myself to pay a premium
above $1.6.