Wednesday, August 18, 2010

A Look At Dufu's Earnings

For some strange reason, many repeatedly tried to compare Dufu with Notion. The gulf in the quality between the two companies is so clear. See Regarding DuFu as reference.

And the things is, in our markets, folks are implanted with the notion that stocks in a sector moves in tandem. Generally that's true but in the long run, quality ultimately shines. Leaders of the sectors will always remain top. They are leaders because they are usually the best in the sector (ah.. on some 'strange' occasions, the markets do have a mind of their own! LOL!). They are leaders because they lead. And they lead for justifable reasons.

And in that blog posting, I wrote..

  • See? I do not understand this issue at all. If DuFu business model should be compared to Notion, then perhaps the investing public should ask a rather simple logical question. Which is better? DuFu or Notion? To suggest that there is a huge differential in pricing as an excuse to buy, is rather a no-no in my opinion.

    Hey, it's just an opinion, hor.

    So how good is Notion?

    Notion current earnings is 27 million. Previous fiscal year it did 22.3 million. Indicating another solid fiscal years with storng earnings growth of around 22%. Net profit margins based on current earnings is extremely, very impressive at 27%.

    Dufu? All one has is to refer to is a set of IPO proforma numbers. It did a 8.3 million in earnings with a net profit margin of only a mere 7.5%. ( see Quarterly rpt on consolidated results for the financial period ended 31/12/2006 ). The managment projects an earnings of 11 million for current fiscal year. That's about a growth expectations of 32%, in case you are wondering. Well for a company with no proven listed track record, would you base ur investing based on management's projections?

    Simple common sensing asking... if given a choice, based on these simple yardsticks, which would you go for? And if so, isn't it clear why the other one, Notion, trades at a much higher earnings multiple?

    So why shouldn't DuFu trade at a higher earnings multiple?

And I for one believes that the earnings multiple is not an indication of the quality of a stock.

It's insanity.

A stock that trades at a low earnings multiple simply means that the stock is trading at a low price when compared against the earnings. And to make the matters worse, the P is never a constant and the E, the E could be interpretated so differently! That's all it means, to me, at least. And if you ask my Auntie for a shorter, simpler and sweeter version, "he low earnings multiple does not make the company good. It's just says that it's simply NOT laku!" :D

Yes the low earnings multiple does not means the company is good, it's simply means the stock is traded cheaply versus its current earnings.

And sometimes, stocks are traded cheaply for a strong reason.

Remember Megan Media? The couple of years before it went bust, it traded at an earnings multiple between 4-7 times earnings! (hope my memory fails me not. :P)

Anyway Dufu reported its earnings last night.

Here's Dufu's updated numbers.


The decline in earnings is drastic eh?

And Dufu blamed it all on the strong RM! ( perhaps I should use the WEAK dollar! :P )

  • The Group recorded profit before taxation (“PBT”) of RM1.52 million in the quarter under review (“Q2 2010”) as compared to RM2.39 million in the preceding year corresponding quarter (“Q2 2009”), a decrease of RM0.87million or 36%. The decrease in PBT is mainly due to appreciation of Ringgit Malaysia against the US Dollar during the quarter under review. However, the Group recorded PBT of RM5.86 million in the cumulative quarter to date until 30 June 2010 as compared to RM4.07 million in the preceding year corresponding cumulative quarter, an increase of RM1.79 million or 44%. The increase in PBT is mainly due to increase of sales which was resulted by better performance compared to prior year cumulative quarter.

Here is Dufu's performance since 2007.

Since I talked about the 'alternate' option, Notion Vtec, here's the comparison numbers...

And here's the interesting one year stock performance comparison chart.


TK said...

Heh..heh. Due to your continue effort. When I see Notion dive. I throw out Dufu.

Thanks. Your opinion does matter & highly respected.

K C said...

I agree with you 100% (again) Notion is better than Dufu in terms of growth and profitability. However, I do not think Dufu is a lousy company as implied by you (did you?). With 4 years of financial results since public listing, Dufu's annual compounded growth of revenue, net profit, equity and operating cash flow has been 8%, 13%, 29% and 43% respectively. Its average return of invested capital is 14%, with the last 2 years poorest at 12% (can blame on financial crisis ah?) is still respectable to me (of course Notion's is much better). It seemed to be recovering from the slump in 2008 until the last reported quarter (just like other tech companies). Tech stocks tend to be seasonal and may be we should not be too particular about the performance of a single quarter. Dufu has a healthy balance sheet. Market capitalization is small though (negative). I think Dufu is justifiable to be rated higher than the PER of 5.2, P/B of 0.7, P/S of 0.5 and P/OCF of 2.1 as presently given by the market. Don't you?

Moolah said...

K C: No, I did not imply Dufu was lousy.

My main initial article was because a couple of years ago, Insider Asia kept insisting that Dufu should trade at valuations on par with Notion but as argued back then, Notion was clearly much better than Dufu.

Anyway, I seriously have no idea how Dufu should trade. As you are aware I lack motivation and desire to engage in such talk. Sorry. :-)

ps: Thanks for sharing your views. :D

ps/ps: If I was forced to and HDD is the sector I want to invest in, I would focus on the opportunity to invest in the one I think is the best.

ps/ps/ps: not everyone think the same and I do not think everyone would agree with me. :D