I have analysed the companies mentioned above.
CH Offshore – Pros:
- Good dividend yield
- Lowest P/E amongst the three
- Highest Gross Profit Margin and Net Profit Margin amongst the three
- Highest Current Ratio
CH Offshore – Cons:
- Extremely high CAPEX
- Thus, no free cashflow for a number of years
This one aspect has put me off and I’ve swept CH Offshore off my radar.
CSE Global – Pros:
- All the ratios and trends are fine expect that the current price ($0.955) is above my calculated intrinsic value ($0.69). Will wait till price comes below intrinsic value. See the thorough analysis as shown right below.
Yangzijiang – Financial statements are given in RMB. Need to convert to SGD to do a proper full analysis. However, a simple analysis of the company is given in the comparison table below.
Comparison of the three companies:
CSE Global thorough analysis:
It can be seen from the table that CSE is a fundamentally very strong company, just that the current price is high in my opinion. If you have any questions, please post it in the comments section. In the future, I will post on how I actually analyse companies and determine if it’s a good buy.
On a side note, before setting up this blog, my analysis were all in Word doc and it wasn’t presentable. The ratios and trends cannot be seen at one glance. After trying out Excel spreadsheets as done by other bloggers, I must say it’s much nicer to look at and faster to analyse the companies with the use of formulas. If I haven’t started this blog, I think I will still be using the Word doc way and struggling through lots of files and scrolling up and down and spoiling my already deteriorating eyesight…
SudhanP.com 
Hi bro,
I have been following your blog with much interest and I must say what you have written and compiled are very good and insightful. I personally found it very useful and good.
I’m looking at your CSE company analysis and looking at some of the figures you’ve compiled on the spreadsheet. I find the figures and ratios analysis of a company really good. As I’m new in reading financial statements, I’m wondering if you can help me identify some of the figures from the financial statement. i.e Capex, average capex, sales revenue etc. Sorry if this is a novice question but I’ve been looking at the statements but couldn’t get the right figures.
I’m also wondering: would % of dividend payout from net earnings be useful and included in the analysis?
Thanks and best regards,
Kenny
Thanks Kenny!
No worries, it’s my pleasure to answer those questions.
Capex: Figure found under “cash flows from investing activities” –> “purchase of property, plant and equipment”
Average capex: Sipmly average of the capex over the years
Sales revenue: It’s actually revenue found in profit & loss statement. Revenue = sales revenue
Dividend payout ratio = total dividends/net earnings. I use dividend payout in my analysis as well. However, I didn’t include it in CSE analysis but u can always use that to find out the company’s dividend payout ratio. U can check out my analysis on Thomson Medical (https://financiallyfreenow.wordpress.com/2010/05/29/what-to-look-out-for-when-investing-in-a-company-2/) and find this ratio there. Feel free to ask any other questions you might have.
Hi,
Thanks for the explanation.
However, I disagree with the understanding that capex should be as low as possible. Capex or “cash flows from investing activities” should be at a reasonable level for a growth company. A good company is one that has a significant level of growth and for that to happen, they must invest for growth. So high capex does not necessary mean that the company is bad. In fact, I would be happy for a coy to put in 70% of earnings into capex as long as it reaps returns in the next few years.
Just like the TMC analysis, if TMC consistently have very low capex, then I know for sure they’re not serious about expanding overseas. And it’s not a company I will be interested in investing in. If they were to build a hospital in china for example, their capex will soar and to me, that’s a good sign. I hope you get what I mean. Cheers.
Hi Kenny,
Firstly, capex is not equal to cash flow from investing activities. Capex is only part of cash flow from investing activities in accounting terms.
Secondly, capex means capital expenditure in full. It means “funds used by a company to acquire or upgrade physical assets such as property, industrial buildings or equipment. This type of outlay is made by companies to maintain or increase the scope of their operations. These expenditures can include everything from repairing a roof to building a brand new factory.” (courtesy of Investopedia). As you can see from the definition, it includes things that does not promote company growth like repairing a roof, etc. Yes, it includes purchasing of factories which may be needed to increase production for growth for manufacturing companies but does it ALWAYS promote growth? To answer that, you need to look at other metrics as discussed below.
Next, I agree with your statement “A good company is one that has a significant level of growth and for that to happen, they must invest for growth.” To see if a company is re-investing into its own business for growth, you don’t look at capex but look at “Retained Earnings” under the Balance Sheet. You can also calculate its ROE and CROIC (Cash Return On Invested Capital) to see if a company is re-investing in itself.
Do you think Coca-Cola is a good company? I certainly think so from their financial statements and also by how famous their drinks are. Did u know that Coca-Cola has extremely low capex? Their capex amounted to only US$1.5 mil on average over the last 5 years (I can only quote 5 years data as that’s what I got from the net. It was much lesser historically). Their revenue for FY2009 was around US$31 mil. Their capex was only 4.8% of total revenue. Their capex is very low as they have outsourced their bottling enterprise which is capital intensive (high capex). Coca-Cola’s stock price is up 3602.58% every since listing. In the long run, rise in stock price is equal to rise in value of company. Coca-Cola certainly has grown tremendously even with low capex.
Low capex and high operating cash flow gives u lots of free cash flow. Free cash flow is what is essential for a company to grow and pay dividends and not high capex. This is the reason Warren Buffett shuns companies with high capex. Capex should not be seen as a figure alone but with revenue. For example, airline companies don’t do well in the long run due to high capex to maintain their aircraft fleet. SIA replaces its planes every six years on average. When money is tied up to buy new planes, how can the company re-invest to generate more growth? This is just one example. There are many such examples I can quote. I’m lazy to type all those in and I’m sure you will get bored reading those examples.
Now, let’s come to TMC. I’m afraid to say you are wrong when you say TMC “not serious about expanding overseas”? Do you know that they are going to have a hospital in Vietnam launching soon and a second one in the pipeline with such low capex? They have chosen Vietnam as Vietnam is an untapped market with huge potential. Vietnam has a birth rate of 17.73 births/1,000 population vs Singapore’s 8.82 births/1,000 population. Also, the hospital in Vietnam is located in one of the most affluent parts of Vietnam. Now, tell me if they serious in the growth of their business?
I sincerely hope I have answered your question.
Hi, whats the instrinsic value of yangzijiang?
Hi Instrinsic,
I didn’t calculate the intrinsic value of YZG. Sorry.
Hello!
Sorry I haven’t been able to reply earlier due to work commitments!
Thanks for taking time to explain the capex portion. So where can we find capex under P/L? And is it true that every cent used under capex is meant for equipment renewal and maintenance only? And there is no growth component?
I’m puzzled because the capex under a lot of shipping and airlines are for fleet renewal and increment. The increment in fleet size should represent growth too correct as that will lead to higher revenue and earnings. So in this respect, high capex actually reflect growth as well.
But yes I do agree with you that coys that require high expenditure to sustain their business models isn’t attractive.
Hi Kenny,
No, you can’t find capex under P&L statement. It’s only found under cash flow statement. Capex is also used for building of factories as mentioned in the definition. Growth depends on how the company actually utilizes the factories and equipments.
Yes, capex for airlines and shipping companies are high due to renewal of fleet and upgrading the fleet. Purchasing of fleet also comes under capex. Yes, increment in fleet size can lead to growth but this comes at a cost as money is tied up to maintain fleet rather than expanding their business or paying to shareholders. It may represent growth for these companies depending on the usage of capex.
may i know which valuation model did you use to calculate the intrinsic value of cse global?
Hi dkyj123,
I used DCF.