Thus, an interesting counter stands out from the list of companies in my portfolio.
That is Chuan Hup Holdings Ltd (CH).
|Chuan Hup Holding Logo|
However, a meet up with Simple Investor reminded me about Warren Buffett’s quote - “Price is what you pay, but Value is what you get.”
Therefore, I decided to look at the valuation of CH before deciding further. In my view, CH should be consider from a book value perspective rather than earnings or DCF perspective. This is because it act more like an investment firm due to the associate and subsidiary it has invested in. Hence, I settled on a “Sum of All Parts” calculation for CH.
From CH's 2017 annual report, it owns the following:
- 76.17% of PCI Ltd (PCI) (Subsidiary)
- 19.7% of Finbar Group Ltd (Finbar) (Associate)
- 35.5% of Pacific Star Development (PSD) (Associate)
All other assets are deem to be fully owned by CH. Do note that CH also own Keyland Ayala Properties Inc (formerly known as Security Land Corporation), but this is actually located under available for sales investment. So I will not be calculating it separately.
Do also note that only PCI financials are incorporated into CH Group financials. Therefore, its asset and liabilities will be deducted from CH Group financials. Associates, which consist of only Finbar and PSD, will also be deducted from CH Group financials.
The 3 companies will be calculated separate based on their market cap.
Based on the ownership and market cap as of 16 March 2018, CH ownership of the following companies will translated into the following:
PCI – 76.17% x S$169.234 million = S$129.802 million
Finbar – 19.7% x A$223.232 million = A$43.293 million => S$44.3 million
PSD – 35.5% x S$109.925 million = S$39.023 million
Based on the CH and PCI financials ending Dec-17:
|Calculation of Sum of All Parts|
As per the above calculation, the value of each share is 44.8 cents.
After giving it 20% discount, CH will be valued at 35.8 cents.
I believe giving discount is important in the current market because it is still on a bull run. With so much uncertainty in the world right now, the market will be very volatile moving forward.
With all the calculation done above, I will deem each CH share to be 35.8 cents (after a 20% discount – which is the least we should do for a satisfactory margin of safety). This will be about 19% of gain based on a share price of 30 cents.
Nevertheless, it is important to note that CH is a counter that will do well in bull run and WILL FALL significantly in a bear market. Over the last 3 years, I recalled the lowest share price seem to be 23.5 cents in 2016. That will be 16.7% of loss based on a share price of 30 cents.
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Do note that the author is vested in Chuan Hup Holdings Ltd.
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