Should I Be Optimistic On Kencna?

Kencana reported its earnings last night. The numbers were impressive (by itself - hehe.. meaning to say let's discount the local market expectations/comments on it).

Here is a simple compiled table on how Kencana has fared since listing.

ttm = trailing twelve months earnings.

Now using the ttm earnings as a simple gauge, it's most likely that Kencana would register another good profitable year for its current fiscal 2010. That's how I would ass-u-me. ( And for numbers/math fans, that should be about an annual compounded growth rate of 21.48% since fy 2007!)

Now stocks don't get rated by the market based on current numbers. They are always rated based on FUTURE expected numbers. Yeah, in simple terms, expected or estimated earnings. That's what I have been told. Hope I am not wrong.

So what's the current market expectations on Kencana?

Take OSK.

Now as I can see OSK's fy 2010 estimates is about 129 million, which is pretty close to what Kencana is doing now. However, Kencana is rated based on the FY11 estimate numbers.

OSK estimates Kencana fy11 profits to be at 191.8 million and uses a PE multiple of 16x for its fair value recommendation. This gives it a BUY target of 2.06!

CIMB numbers are actually higher than OSK! (LOL!)


CIMB estimates Kencana fy11 profits to be at 213.2 million and uses a PE multiple of 15x for its fair value recommendation. This gives a buy target of 2.15.

LOL! Yeah, OSK numbers are not the highest.

Now on the other side, RHB gave it an underperform rating with a price only 1.27!

RHB estimates Kencana fy11 profits to be at 160.9 million and uses a PE multiple of 13x for its fair value recommendation. This gives a buy target of 1.27.

Hmmm....

Obviously, the key or the bone of contention is the fy11 numbers. OSK gave it 191.8 million, CIMB gave it 213.2 million and RHB only gave it a 160.9 million.

So who should I believe in?

Do I believe that cows can fly? :P

Would a look at Kencana's recent quarterly earnings help. How about we compile Kencana's most recent 8 quarterly earnings numbers to help us gauge if the fy11 numbers are achievable or not.

Anyway, here's the compiled table...

Now would I NOT say that judging by Kencana's most recent or latest 4 quarterly earnings, Kencana is averaging around 30-31 million only.

Now if I take CIMB's estimates of around 213.2 million. Divided by 4, CIMB is telling me that Kencana should be averaging net earnings of around 53 million, per quarter. Based on its ttm numbers, Kencana is averaging only around 31 million! So for Kencana to jump from 31 million to around 53 million, that's a jump or growth of 22 mil ( 53 - 31 = 22 mil) per quarter.

And let's see... this is about 70% increase, yes?

I hope my cow-cool-lator is not as faulty as my brains. :P

70% growth woh.

Hmmm.... so would I be wrong to say that perhaps CIMB is overly optimistic?

Ok.. the least optimistic is RHB and RHB's estimate is around 160.9 million. Divided by 4, that should work out to an average estimate of 40 million per quarter. Again, based on its ttm numbers, Kencana is only averaging about 31 million per quarter. So based on an estimate of 40 million per quarter, this still works out to an increase of around 29%.

Yes, despite being most under optimistic, RHB still expects Kencana's earning to grow around 29%!

Hmmm..... Ken ah?