[Investing] Colex (567) Vs 800 (5TG)

I have been collating and filtering stocks data and Colex Holdings Ltd (567) has been appearing in the top 10 stocks for me to KIV. I have noted the stock for and been watching it appreciate from 30-ish Singapore cents to 40-ish cents. Pain, I know.

Recently a friend discussed with me about the stock again, and he was also recommended 800 Super Holdings Ltd (5TG), which is  also a similar company.

First, why Colex ((567) caught my eye:

Profile:
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Stock Symbol = 567
Price = 0.481
Dividends Yield = 0.021
Price/Sales = 0.800
Price/BV = 1.500
Price/Cash Flow = 5.590 

Profitability
------
Earnings per Share (EPS): 0.048
Net Profit Margin % : 7.960
Return on Equity % = 15.890
Return on Capital % = 12.640
Return on Assets % = 12.640
Inventory Turnover % = nan
Assets Turnover % = 1.590 

Financial Strength
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Book Value = 0.280
Current Ratio = 4.050
Quick Ratio = 3.900
Interest Coverage = 305.870
Debt-to-Equity Ratio = nan

The data is collated from [1] using a Python script I wrote. What drew my attention about Colex is its efficiency, namely that its Return on Capital (or Assets) is 12.6%, that is, for every dollar of capital, Colex is able to bring 12.6% of earnings. It also has a very strong current ratio of 4X! Oh, and that interest coverage too! Not shown here is that the P/E of Colex is 16x.

Next, why 800 (5TG) is a potential alternative:

Profile:
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Stock Symbol = 5TG
Price = 1.207
Dividends Yield = 0.025
Price/Sales = 1.310
Price/BV = 2.400
Price/Cash Flow = 6.160 

Profitability
------
Earnings per Share (EPS): 0.096
Net Profit Margin % : 10.800
Return on Equity % = 21.170
Return on Capital % = 11.120
Return on Assets % = 11.120
Inventory Turnover % = 31.630
Assets Turnover % = 1.030 

Financial Strength
------
Book Value = 0.480
Current Ratio = 1.490
Quick Ratio = 1.420
Interest Coverage = 27.940
Debt-to-Equity Ratio = 0.470

Indeed, 800 (5TG) seems to have a better valuation. Its Return on Equity is much higher, its Return on Capital (or Asset) is almost on-par with Colex's. Financial strength-wise it is not as impressive compare to Colex. 800 (5TG) has a P/E of about 12X. Based on this metric, it seems like it is somewhat under-valued.

Just by comparing the data I just shown, it is difficult to decide which to buy. At 11-12% Return on Capital it is equally enticing at any price. I have to dwell deeper into the financials. I did not refer to the respective Annual Reports, but rely on [2]. Again, I will be doing the Profitability, Financial Strength and Cash Flow analysis, quick and hopefully not too dirty.


Profitability

Comparing the Net Income for the past 5 years, Colex has a increasing net income, whereas 800 seems to have plateau or at least not showing a solid consistency.


Financial Strength

In terms of cash stash, 800 has more (25M Vs 14M). 800 also has a comparatively larger amount of receivables. I learnt that receivables, although is in the Asset account, can be a potential write-off risk. Total Assets for 800 and Colex are 159M and 44M respectively.

However, if we compare liabilities, based on the data [2], Colex has close to 9M, whereas 800 has close to 77M.

Both companies' retained earnings are growing.


Cashflow Analysis

In this analysis I took the Operating Cashflow and added back depreciation and minus of CAPEX. Then I divide by the outstanding number of stock. This yielded 0.62 for 800 and 0.74 for Colex. Stock to stock, Colex stock can generate more cash. Colex stock is at 40cents but each stock can churn 74 cents of cash! (OK this part I need to review the calculations, again).


Conclusion

When I look for stock, I look for efficiencies based on ratios such as Returns on Capital and the Free Cashflow generated per share. At this point, Colex at approximately 12% Returns on Capital and a better cashflow number makes a better choice between the two.

Please feel free to comment!

*** Note: This is my personal analysis and is not a recommendation for a stock buy or a stock tip. 

~ZF


References:
[1] MSN Money
[2] Yahoo! Finance

[Investing] Efficiency Measures in Investing

Just a quick question:

If you have a dollar, would you buy something that is worth 1) $0.90 or 2) $1.10?

My answer is "depends". It depends if I am in a desperate need of that something. It is a question on the word worth, which is also an important element in investing. But if that something happens to be a share, I will definitely choose 2). That way my $1 is well spent! In fact I managed to increase its value by 10%. 

That is a crude way to introduce efficiency. Efficiency is getting the maximum output give fixed resources. In the previous example, my "output", or reward, would be -10% if I choose to buy 1) and +10% if i chose 2).

As you can see, efficiency is a relative measure. It is important as it affects operation costs and also infers the management's capability. In general, if a company is not efficient, it will incur high costs to produce its products or services, which will then be translated to the customers. Unless the company is the price setter, which is not usually the case, customers will stop doing business with them and find alternatives that are cheaper (customers ARE efficient). The company may increase its margin to compensate for the sales lost instead of being efficient, and thereby increase the cost, and continue to lose customers. This cycle will continue until the company realises the need to be efficient, or go bankrupt.

As investors, we want to make sure that our money is used efficiently to benefit the company (to make the company profitable in general) so it will in turn benefit us. I opine that efficiency is the most important factor to assess if a company is worthy investment.

How to assess efficiency then?

Efficiency is a relative measure, hence a single metrics by itself is not meaningful - something has to be measured against another. There are several metrics that can be useful in helping us make investing decisions.

Earnings Per Share (EPS)

While this may not be considered an efficiency measure, EPS is important. The shares do not make the earnings per se, but the EPS infers the earning power, or profitability, of the company. But as with all ratios, it is dependent on the numerator and the numerator. If the number of shares (denominator) is massive, it dilutes the earnings. Imagine having a piece of 16" pizza to go around 10 people. How about 20? 100? 1000? EPS gives us a quick glimpse of how much of that "pizza" are we going to be entitled to. The next question is, how much should we pay for it?

Earnings Yield

This is the proportion of the price paid that can be accounted by the earnings. (Although there is another interpretation, that is, how much earnings is there for every dollar of the shares paid. I find this interpretation a little warpy). This is a measure of how efficient our (the investor) capital can be used. Suppose a stock with EPS $0.20 that is going for $1. The earnings yield is 20%. Obviously, the higher the number, the better.

"Return in" Ratios

There are a number of return ratios, and the Return on Assets (or Capital) are particularly useful. It compares the earnings over the assets of the company. It shows how efficient the company is at deploying its asset in generating earnings.

Turnover Ratios

These are generally used to measure the company's management efficiency. The inventory and receivable turnover ratios are particularly useful if we want to assess if the company is good at managing its inventory and collecting outstanding payments respectively.

~yZhiFa