[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
------
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:
------
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] IPO Review - Netlink NBN Trust

There is much hype about this IPO because firstly, it is going to raise $2.3 billion, the biggest since Hutchingson Port Holdings (IPO in 2011: US$1 , current price as of writing: $0.45), and is dubbed as one of the 'blockbuster' IPOs in 2017.

Netlink is not a stranger to household. They were formerly known as OpenNet. Our broadband is set up by them. They (probably) own the optic fibre network here.

A good resource of the 'boring' points are can be found here.

The salient points are:

• Each unit is going for S$0.82
• About 2.9 billion shares is going to be issued
• Total Market Capitalisation is about S$3B
• Average EPS is 1.5 cents
• Cash is S$92M, Debt is at S$1.6B
• Dividend Yield is about 5%
• Use of proceeds - 1) purchase Singtel's assets and 2) repayment of S$1.1B loan to Singtel

Normally, my analysis will cover FInancial Strength, Profitability and Sustainability. But I have many questions, and hence red flags, just by listing the points above, even if I have not read the prospectus.

A Very High P/E

Just from the points above, the P/E of the trust is going to be at 54x. One conventional way to look at P/E is that it is the number of years for our investment to break-even. In this case it will take 54years. I look at it's recipocal which is E/P, the earnings yield, it's going about 1.8%. That is, for every dollar invested in this trust, it accounts for 1.8% of the earnings.

The high P/E could also mean much hype or expectations for the trust.

To me anything that is greater than 30 is too high, although there's really no hard and fast rule for P/E.

Too Little Cash, Too Much Debt

As stated, there is only $92M of cash but $1.6B, or $1600M of debt that's almost 20x. Even if the proceeds from the IPO is used to pay $1.1B of it, there remains $0.5B, or $500M. It is still 5x of cash! 

From the EPS, I infer that there will be challenges repaying that debt just by the business operations, unless they grow there business, which is my next point.

Lack of Growth Plans

It seems that there are no growth plans (or maybe there is). It is stated that the 'fixed residential wired broadband household penetration stood at 88% as of Dec 2016'. I suppose there is still 12% potential. I did not see any other plans like R&D, or expansion overseas. 

Sustainability of Dividend 

I highly doubt the sustainabilty of the dividends at 5%. A 5% dividends  at S$0.80 translate to about $0.04. Recall that EPS is about 1.5 cents, thats S$0.015. I do not know where the trust is going to top up the money.

A Cash Bump for Singtel

It seems that most, if not all, of the proceeds are going to Singtel. Not only does Singtel receive money for the loan to the Netlink, but it is also able to 'dispose' of some of its assets for cash. If you ask me, Singtel seems to be a big winner here.

Conclusion

I believe the red flags I have listed are enough to deter me from participating from this IPO. I could still participate in this IPO, and make whatever earnings after it is launched, but I will not hold it for too long - not with a P/E that high and not when I cannot figure out how it is going to sustain the dividends. I am saying - there are other opportunities around. Remember that after 6 years, Hutchinson Port Holdings is now at 45% of its IPO value.

Other Reference:

1. http://www.theedgemarkets.com/article/blockbuster-listings-pipeline-singapore-2h17-deloitte
2. http://www.straitstimes.com/business/netlink-nbn-trust-set-to-be-biggest-ipo-in-singapore-in-six-years-with-pricing-at-81-cents
3. https://www.shareinvestor.com/fundamental/factsheet.html?counter=NS8U.SI

~Huat