Singapore Kitchen Equipment (SKE)

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Why you said oversea business is stagnant ? 2015 2.5%, 2016 10% woh....
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(12-05-2017, 02:49 PM)laowangnextdoor Wrote:
(12-05-2017, 11:59 AM)blackdove88 Wrote: Why you said oversea business is stagnant ? 2015 2.5%, 2016 10% woh....
Are you referring to growth rate? Anyway, my finds are:

1-Overseas segment business revenue growth rate is indeed quite commendable in terms of increase in percentage from 53k 2015 to 252k 2016. But comparing to overall company revenue, it is negligible(about 1%)
2-During the AGM I had asked the management for their overseas expansion plan, they replied that company got no intention to expand aggressively in overseas market in the near future, especially in Myanmar

Very good info and thanks so much. My finding(but not with sense but a lot of sensibility)
1.) 3 bosses holding 80++% of share, so no liquidity, but they got to work hard and get DIV for their income
2.) They are very conservative(they just said not intention to expand aggressively, and full stop.) and their number is good....look like good company with good management
3.) Last time I invest in Malaysia company Homerizt, husband and wife hold 70%++ share, more or less the same...then I earn 100% from it later
4.) However, seeing everyday no transcation, look 0.155, sell 0.164....5.8% different in price...
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Have any one of you asked the IR regarding
- Its escalating distribution cost YoY for the last 3 years.
- under "Segment Info," "Unallocated" losses has always been sizeable.

I have asked and got no replies for a number of weeks.
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SKE's business is not particularly exciting, but could a purchase at a valuation of $31m ($0.20 per share) be a bargain?

FCF history
FY16: $2.7m
FY15: $0.8m
FY14: $0.4m
FY13: -$0.2m
FY12: $1.5m (IPO)
FY11: $1.6m
FY10: -$1.0m

1) Over 7 years -- which is as much public financial information on SKE is available -- free cash flow totals $5.8m, or $0.83m per year. Between 2010 and 2016, there are years of good and poor economic growth, so this average FCF is somewhat representative. Because you're feeling particularly bullish on the demand for kitchen equipment and its maintenance services, let's say you value SKE at 12 times average FCF. You get a valuation of about $10m. Based on its dividend for FY16 and placement valuation of $31m, yield is about 1.2%. But perhaps there is a probability of bumper dividends from excess cash?

2) Its latest HY17 balance sheet shows cash of $8.6m and debt of $3.3m. This leaves it with $5.3m of cash; which it can pay out as dividends. But if 2018 turns out to be a great year for kitchen equipment, some of the cash may be used to purchase inventory or fulfill sales orders. So management will want to conserve some cash. Cash conversion is about 100-120 days so $3m of cash could do an extra of about $10m of revenue a year. If management views the succeeding years to be terrible, it might want to hold on to whatever dollars it has. In any case, $5.3m isn't a lot. But what has been management's behaviour on dividends anyway?

Dividend history
FY16: $0.375m
FY15: $0.6m
FY14: $01.125m
FY13: $0.375m
FY12: $0 (IPO)
FY11: $0
FY10: $0

This may not seem much, but total dividends of $2.475m distributed since listing represents a 66% payout of FCF -- which is $3.7m -- during the same period. This is a rather high payout ratio. In addition, management did not distribute a single dollar of its cash and loaded up on debt prior to IPO, unlike most of the recent listings. Management seems to be opmi friendly. Or are they?

Directors and key management personnel compensation vis-a-vis net profit history
FY16: $1.7m vs NP of $2.5m (68%)
FY15: $1.9m vs NP of $1.5m (126%)
FY14: $1.6m vs NP of $0.6m (266%)
FY13: $1.9m vs NP of $0.1m (1900%)
FY12: $1.4m vs NP of $2.2m (63%) (IPO)
FY11: $1.2m vs NP of $1.9m (63%)
FY10: $1.0m vs NP of $0.7m (143%)

3) I am unable to see a relationship between directors and key management compensation, and net profits. What I do see is a general increase in the compensation for these top executives. In any case, it appears very excessive to me. And much more than what they pay out as dividends.

Is the valuation of SKE closer to $10m or $31m? Is the price paid by Ascapia Capital fair?
A small business, such as SKE, with no or slow growth and no visible growth prospects is usually valued at 6x earnings. Larger businesses generally command higher multiples, for their perceived stability. Faster growing businesses also command higher multiples. So a price to FCF of 12 can be considered generous for SKE.

The trailing P/E of 4.9 is close to 6. If this seems low to you, and you think SKE should be trading at a higher earning multiple, then you'll have to convince other investors that its TTM earnings are sustainable. So far, its records show that it fluctuates. And while a P/B of 0.62 may seem cheap, you need to know what the assets on the balance sheet to determine whether you are truly getting a discount on it. Even then, getting a discount on assets if pointless if the said assets serve operational purposes. It means they will not be sold and shareholders will not get their value realized. I will say $10m is a fair value for SKE, but there will be others who are willing to pay more. Personally, I will move on and look for something else. There are hundreds on SGX.
If you add the net cash of $5.3m to the business valuation of $10m, you will get a company valuation that is close to your net current asset.

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