, Ltd
From quarter 2 through quarter 12, Company has a very low of cash ratio which
measure that is unhealthy for creditor and a bad sign for investors. That would
be greater sing if company maintains enough cash balance to pay off all of their
current debts as they come due. A cash ratio show that the company needs more
than just its cash reserves to pay
off its current debt. The company
should manage higher cash
coverage ratio and maintain more
liquidity of cash ratios, which is
more easily to fund its debt
instead of lay emphasis on
marketable securities. To make a
good view for investor as sure
that company repaid their loan. In
the beginning periods, quarter 212, we feel the amount is too low
as such might not be able to
provide much cushion in case anything goes wrong this eventually leads to shortterm loan penalty in quarter 2. In the later period, quarter 8-12 that company
Company SWC did not pay dividend in quarter 4 to quarter 6 as they expected to
have additional capitals for their investment purposes; which eventually they
started to pay out by quarter 7 and 8 but stop paying dividend for awhile in
quarter 9. That shows this company havent grown to a point where they are now
leaders in the industries, characterized by having slow and steady earning
growth. This company may not concern with keeping shareholder happy with
dividend payment and providing a sense of safety to investors looking to
diversify into the equity market with out the high risks of investment. Therefore,
the company seemed to be typically growth company since expenses from
growth initiatives were close to their net earnings. We feel that the company
have decided not to pay dividends may under the principle with their
reinvestment strategies will through stock price appreciation lead to greater
returns for their investor. And this can be a good for investor who prefer to see
this company reinvest their earning to fund expansion and other projects which
they hope will yield greater return via rising stock price and in the hopes that
management can provide greater returns to shareholders through reinvestment.
The trend of accumulated wealth has made investor confident in the company as
shown by the stock price leading up to the final quarters. Our recommendation is
that they may need to adjust the dividend paid to be higher as for investors; they
may not want to wait until the third year to receive the same amount of dividend
they received in the first quarter.
Capital Structure Policy
Super Wealthy Corporation was operated under conservative approach; they
aimed to control their debt to equity ratio to not higher than 1.25 times. The bar
chart shown below shows that the company could follow their policy.
By using debt, the company tried to match up maturity of assets and debts.
They mostly financed debts by long-term borrowing which comprised of 3-year
loan and bond because these amounts of money will be used to invest in fixed
assets (plant and machine) with for 5 and 2 years useful life respectively. The
new common stock issuing was applied when the company needs to reduce their
D/E ratio or whenever the company requires huge amount of fund for expansion
and cost of debt was too high to bear. Moreover, the company also concerned on
the cash on hand which ensure that the company could have enough cash to
repay the existing loan and need no more refinancing.
Since the company tried to control the capital structure by relying too much on
equity financing and maintaining low debt portion, the company experienced
with high cost of capital (WACC).
kd
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wd
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WACC
(Quarterly)
WACC
(Annualized)
Q1
2.15
%
4.82
%
5.88
%
94.12
%
4.61
%
18.45
%
Q2
2.41
%
3.50
%
9.64
%
90.36
%
3.30
%
13.21
%
Q3
2.36
%
3.40
%
7.99
%
92.01
%
3.24
%
12.97
%
Q4
2.36
%
2.49
%
15.38
%
84.62
%
2.32
%
9.30
%
Q5
2.34
%
2.55
%
11.39
%
88.61
%
2.42
%
9.68
%
Q6
2.32
%
1.79
%
16.10
%
83.90
%
1.73
%
6.90
%
Q7
2.32
%
2.61
%
10.67
%
89.33
%
2.48
%
9.92
%
Q8
2.31
%
2.93
%
10.36
%
89.64
%
2.77
%
11.08
%
Q9
2.31
%
2.75
%
12.12
%
87.88
%
2.59
%
10.34
%
Q10
2.31
%
2.77
%
10.06
%
89.94
%
2.63
%
10.52
%
Q11
2.31
%
2.59
%
8.27
%
91.73
%
2.49
%
9.96
%
Declining in D/E ratio above indicates that the company has very high potential
to borrow but they didnt use this benefit so they couldnt enjoy tax saving as
they could be. Moreover, maintaining too low D/E ratio, the company had a bit
high WACC which affected on the difficulty of the project investment decision
making.
Based on our point of view, we would suggest the company to finance by debt
for the business expansion in the future or the company can also repurchase the
share in order to push up EPS and ROE.
Q12
2.31
%
3.33
%
7.01
%
92.99
%
3.19
%
12.77
%
The company is doing well overall with the increasing income and earning
per share. There was a major drop of profit during the 8th quarter is
because of economy downturn, comparing with other peers also has the
same problem, so we consider the company is having a stable growth in
the last 12 quarters.
We choose 3 multiples to evaluate the value of our target company. The forward
P/E, P/BV, P/S ratio are all calculated from the peers average which has almost
the same scale, went through the same economy conditions. The final target
price we get from those 3 methods are 54.7, 48.9 and 46.9. Comparing to the
current price 52.3, there are 2 methods indicated this company is overvalued. To
be conservative, we suggest a SELL on this company.
Recommendation: SELL