tag:blogger.com,1999:blog-37872616.post7451097680896110062..comments2024-03-29T12:20:03.199+08:00Comments on BULLy the BEAR: Fundamental analysis on Popularla papillionhttp://www.blogger.com/profile/01372278083694506953noreply@blogger.comBlogger8125tag:blogger.com,1999:blog-37872616.post-44695830461732761942008-05-08T10:11:00.000+08:002008-05-08T10:11:00.000+08:00Hi ec,Thks for reading it!Popular already had the ...Hi ec,<BR/><BR/>Thks for reading it!<BR/><BR/>Popular already had the property built on April 07 on Robin road, named "One Robin". Besides, this property business isn't their core business, it's just something that they do with their cash which is sitting there. I suppose the management realised that their business can't give the sort of returns in the past anymore. They did mentioned, however, that they are going to focus on it. One wonders why the unrelated diversification by the management.<BR/><BR/>Their low ROE (around 10% in recent years) is possibly the reason why management wanted to venture out to property. I personally will not invest in a business with ROE < 15% consistently, but that's me.<BR/><BR/>Take a look at their EPS over the years:<BR/><BR/>EPS(cts)----year<BR/>2.5---------1999<BR/>2.6---------2000<BR/>2.7---------2001<BR/>2.8---------2002<BR/>3.0---------2003<BR/>3.5---------2004<BR/>2.4---------2005<BR/>3.6---------2006<BR/>2.6---------2007<BR/>4.1---------3Q08<BR/><BR/>Their 08 earnings is bound to exceed 07 earnings. It's not growing as much as their turnover, which averages around 10% CAGR over 8 years, neither is it particularly bad. <BR/><BR/>Their net margins is not as high as 16/17% that you mentioned. It's more like 4% (see my attached pics) and there's a trend of getting lower and lower net margins, which testify their rising cost. Books are ultimately a commodity products where prices are the main concern. As such, popular can only compete on pricing, otherwise they will lose market share. It's also why books dun differ much in prices anyway you look.<BR/><BR/>I also did a valuation for popular using the discounted earnings method, assuming a 4.1 cts EPS for 2008 (i'm conservative) and thereafter an EPS growth rate of 5% (which isn't terribly fantastic and is closing to popular's historical earnings growth rate). The time frame for my analysis is 10 years. Discount rate I used is 3% (based on very low risk, 10 years SG bond rate).<BR/><BR/>I got a value of $0.434. If you buy at 0.29, you'll get a compounded CAGR of 4.6%, slightly better than CPF rates. If I use 4% discount rate, then the value drops to 0.411, giving a CAGR of 4%.<BR/><BR/>You still like it? :)la papillionhttps://www.blogger.com/profile/01372278083694506953noreply@blogger.comtag:blogger.com,1999:blog-37872616.post-74822741822639007472008-05-08T03:31:00.000+08:002008-05-08T03:31:00.000+08:00Hi La Papillion,Thanks for the HARD WORK. Salute. ...Hi La Papillion,<BR/>Thanks for the HARD WORK. Salute. <BR/>Just my little sharing:<BR/>Over years, this company just as all mentioned, it's not an "Exciting" company as compare with others listed company. But it is a slow and steady - doing the biz. (That's why the management now enter into others higher margin area for a better prospect, i think) But is it a wise idea enter into property market during that period? I am not sure, because last year is a peak year for property, higher cost right?<BR/><BR/>I do not know much about property market, so not sure is it a good entry point IF one need to start the property biz. But the Management would like to increase the "Other Operation Income", i think. Anyway, we shall just wait and see, because biz need times to shows the result.<BR/><BR/>As for the COGS, i think is due to the high discount given to the customer / members. As far as i concern, "book's margin" is approx. 25% - 45% for retailler. So a 16%/17% net profit is normal. So far i see the company is doing good. Since that, my view is that, this biz is not easy to replicate. It is not as easy as you just open a book shop, then buy some book and sell. As we see the "low % of margin", not many people / biz man really wanted to enter the market, and fight for surviver. But once you survive in the biz, you are hard to be kicked out as mentioned by all people, this biz are able to sustain during bad time too.<BR/><BR/>As for the ROE, well, depand which comapny you compare with; Right? Thay's why i say it is not an "Exciting" company, but it is slow and steady. Just that, at what price is our entry point, make the different. Today, 8 May 2008, (about $0.290) i think it is ok. Ofcause we don't know the coming performance as the company just enter into the property market, but that is so call "Investment" (correct me if i am wrong); If sure win, like "Singapore pool".... Then there is no chance for the ordinary people like me. hahahah.<BR/><BR/>Just my comman sense. Please feel free me to comment. Your post and sharing helps. Thanks again.<BR/>by,<BR/>ec<BR/><BR/><BR/>One thing i like this company is that they don't practice Share Options Scheme. Ofcause there is good and bad for this. I think i no need to state it as most people know already. Just that i see this as an advantage to the shareholders.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-37872616.post-47598576054179141512007-12-05T01:25:00.001+08:002007-12-05T01:25:00.001+08:00This comment has been removed by the author.sm@ll.fryhttps://www.blogger.com/profile/03751757859835343020noreply@blogger.comtag:blogger.com,1999:blog-37872616.post-39008479729622750932007-12-05T01:25:00.000+08:002007-12-05T01:25:00.000+08:00Hi Lp,Didn't think you do finish your analysis so ...Hi Lp,<BR/><BR/>Didn't think you do finish your analysis so quickly! =P<BR/><BR/>I read your analysis after finishing mine. Think it's interesting that we both arrive at quite similar results. (But you perhaps gave a bit more detailed discussion at the end)<BR/><BR/>As you mentioned, I thought its quite weird why margins is so low. I have one conclusion actually, that Popular does have an economice moat in the sense of the a reasonable brand name at home and significant market leadership in the heartlands. But the items the sell are of low margins and very hard to keep customers, who are mainly price sensitive mothers. So combining the two, Popular does not have a economic moat.<BR/><BR/>Just my reflections!<BR/><BR/>fishmansm@ll.fryhttps://www.blogger.com/profile/03751757859835343020noreply@blogger.comtag:blogger.com,1999:blog-37872616.post-61040093934307277492007-12-04T23:59:00.000+08:002007-12-04T23:59:00.000+08:00Hi derek,Thks for your encouragement :)Haha, I'm l...Hi derek,<BR/><BR/>Thks for your encouragement :)<BR/><BR/>Haha, I'm learning to do FA so no choice, have to do a lot until I'm confident of my own analysis. I guess for their industry, price is the main thing here. I don't see how much value-add u can do to the products. I'm starting to rethink my idea of popular economic moat.<BR/><BR/>But thks for your comments, I value it greatly!la papillionhttps://www.blogger.com/profile/01372278083694506953noreply@blogger.comtag:blogger.com,1999:blog-37872616.post-28785166134238422132007-12-04T21:29:00.000+08:002007-12-04T21:29:00.000+08:00Hi la papillion,Great effort, I will probably need...Hi la papillion,<BR/><BR/>Great effort, I will probably need more time to digest your analysis. <BR/><BR/>On industries without economic moat, F&B is one very good example. In fact, any industries with a very low start up cost will have very little barriers of entry. Regulations also play an important part.<BR/><BR/>I would agree with you that Popular has a certain economic moat. Talk about buying text books and Popular will spring out. However, I agree with MW that Popular is more of a dividend yielding stock than a growth stock not because of its economic moat but rather because the market is too saturated for competitors. Imagine that I want to open a bookstore to sell textbooks, I will probably be selling the same books Popular has and given a choice, would you prefer to go to a new unheard XYZ bookstore or Popular which can easily be found anywhere in the heartlands. <BR/><BR/>The above analogy applies only to Singapore. I'm a common sense investor hence my views are pretty simplistic. I don't really go into details of a company such as it's ROI, EPS etc unless I want to.Derekhttps://www.blogger.com/profile/07209385199877338530noreply@blogger.comtag:blogger.com,1999:blog-37872616.post-4482357896528417712007-12-04T18:05:00.000+08:002007-12-04T18:05:00.000+08:00Hi MW,Tks for the encouragement, I needed it! You'...Hi MW,<BR/><BR/>Tks for the encouragement, I needed it! You're right, it's just sheer hardwork sloughing through those data.<BR/><BR/>I haven't finished reading past chapter 4 of Graham's intelligent investor, so it's strange why I'm influenced more by him than others. I haven't read the works of Buffett and Fisher, but since you mentioned it, I'll go and read up on both of them. I'll interested in Fisher, actually, haha :)<BR/><BR/>Actually, I think you're right about the branding. The branding for popular is good for retail only, but anybody can replicate it. I never thought about that before, hmm.. You mean to say that certain industry will never have economic moat? Can you pls give me some examples? <BR/><BR/>I guess I'll work on smaller companies first, to acquire the feel of doing FA. More of such analysis to come, this I promise. Hope that one day I can do those big ones like banks, or even complicated ones like pac andes. Haha, but for now, no more analysis for me, I need a long break to avoid burnout :)<BR/><BR/>Thks again for your comments, I value it!la papillionhttps://www.blogger.com/profile/01372278083694506953noreply@blogger.comtag:blogger.com,1999:blog-37872616.post-59957613458153852322007-12-04T16:12:00.000+08:002007-12-04T16:12:00.000+08:00Hi la papillion,Very detailed analysis, I salute y...Hi la papillion,<BR/><BR/>Very detailed analysis, I salute you for that ! The reason why I don't wanna start on a company is because of the sheer volume of numbers to crunch, as you can tell from analyzing Popular. And Popular is considered small by Singapore standards; imagine analyzing Keppel Corp or DBS or even KS Energy and you end up with a larger headache ! Haha..<BR/><BR/>Anyway, jokes aside, I think your method is essentially very Graham, and less Fisher and Buffett. Graham stresses a lot on quantitative factors such as margins, ratios and FCF. Nothing wrong with that, but sometimes it pays to see if the business has a viable long-term growth in the future. In my view, Popular is in a business which can be easily replicated, as they serve the mass market, and even though they have good branding; a textbook or TYS is still the same no matter who supplies it. That said, I would conclude that there is no economic moat because of the industry it is in. Unless you can justify that its branding is so strong (e.g. Hour Glass, Cortina, OSIM) that people can instantly identify it, I do not think this constitutes a sustainable competitive advantage. Thus, usually I will not bother to analyze the company unless the industry is attractive, it has brand equity and it commands a niche market or a sustainable competitive edge. Just of note: the companies I own possess either one of these traits, which is why I started researching them in the first place.<BR/><BR/>I feel that the work you did is certainly of value for your experience in value investing; however, a company like Popular may not be the right type of company for a long-term investment, as I see it as a cash cow rather than a star (using BCG growth share matrix). Even using Porter's 5-forces (which I prefer over a quantitative analysis), barriers to entry are very low and customer loyalty is not really there. The threat of substitutes is high and as mentioned by yourself, COGS is way too high at 80+%, giving a GP margin of less than 20%.<BR/><BR/>I would say this is more of a dividend company which produces steady FCF, rather than a growth company. For consistent yield, you may wish to invest, but for long-term growth, it's not a good idea.<BR/><BR/>Note: All opinions are strictly my own. I think you have done a splendidly detailed analysis and kudas to you for that !Musicwhizhttps://www.blogger.com/profile/10950754156386935254noreply@blogger.com