Tuesday, October 09, 2007

Musing over OSK commentary on KNM

I was just reading OSK commentary on KNM.

  • Within our forecasts. Although this contract can be viewed as a breakthrough for KNM as it expands its business in the minerals industry, it falls well within our expectations. Management had guided that the minerals sector would increase revenue contribution from 10% in 2007 to 12% in 2008. As such, we make no changes to our estimates. Our FY07 net profit is 12.2% above guidance while FY08’s is 24.8% above guidance partly due to our inclusion of Pisces Engineering numbers.

    Still amongst the cheapest O&G companies. With KNM’s upside to our fundamental fair value of RM5.20 pared down, we downgrade KNM to a Trading Buy. Our Trading target fair value (21x PER on CY08 numbers) is RM6.80, providing some 42% upside. KNM remains one of the cheapest O&G companies with a proven track record and our top pick amongst the bigger cap Malaysian O&G peers.

See what is so confusing is that their 'fundie' value for the stock is stated at rm5.20 for KNM but they have placed a trading value of rm6.80 on the stock!

I guess they are saying that the stock should trade higher than their fundie value.

Am I translating it correct here?

Hmm...

4 comments:

sahamgurl said...

Hi Moola, I think ur interpreting it right but er..looks like KNM has performed above everyone's expectations....has ur view changed on them? thanks!

Moola said...

Sahamgurl,

My view still remains as stated in this posting, http://whereiszemoola.blogspot.com/2007/08/them-ong-stocks.html remains.

This is what I had said then:

And as you can see by the numbers, KNM has done pretty well. Despite its aggressive global expansion, it has done a wonderful job with its cash management. Receivables are slightly high and definitely could have been better but it's at a rather acceptable level.

And here is where it gets tricky. On one hand, as explained earlier, one might not be too comfy due to mainly lack of details from KNM on how each acquisitions has fared since. However, on the other hand, as whole, the end result is there. KNM has done brilliantly too! So for me, it really depends on the individual. We are all different and we all have our own mindset. For example, based on current results, one does have the justifications to continue to be bullish about KNM's future prospects. On the other hand, the conservatists, they might hold back since the success was derived from aggressive expansions and there is simply not enough information to gauge what's happening underneath all them acquisitions (they might even question on how long KNM can play this acquisition game!)

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Regarding KNM performing above everyone's expectations.

Currently, because of what KNM had done, KNM is deemed as the market leader in this sector. And market sector, they do LEAD the sector. Hence, in all honesty, I am not one single bit surprised at what has happened and how KNM has performed.

And lastly... it all depends on your own perspective on the market. Are you an investor or are you really a trader?

sahamgurl said...

thanks Moola, actually my boss is a trader, I'm his analyst - so KNM was my recommendation to him and obviously it has done really well...sometimes its hard for traders to let go of winners u know what i mean :)

I agree with u on your fundamental analysis, I see it going to about RM9, then ...anyways..thanks for ur input.

Moola said...

Sahamgurl,

Well, if it's from a trading perspective, then there are some valid reasonings to just sit tight.

rgds