Hi Rusmin, re your talk on last nite webinar pertaining to the intrinsic value of Raffles Medical, could you explain how you derived at the intrinsic value of $3.02. Also could you also explain how do you value Breadtalk, which valuation method do you use ?

Hi CB,    
 
To be conservative, Victor used a P/E of 20 to value Raffles Medical Group. With a historical EPS of $0.151, our intrinsic value is estimated to be $3.02. Due to their predictable earnings and recession-proof business, many companies in the healthcare industry trade at high P/E multiples. For instance, in Singapore, Q&M trades at 46 times earnings. In Malaysia, IHH Healthcare trades at 63 times earnings. It’s an industry norm (most tech-related companies also trade at extremely high earnings multiples – but for different reasons altogether).    
 
As for BreadTalk’s valuation, I used P/OCF and PEG. Can you find a new “Case Studies” navigation tab at the top? The answer will be uploaded there this coming week. I will cover more in-depth analysis on BreadTalk. Stay tuned… :)

Hi Augustine,
 
Discounted Cash Flow will be added to the Valuation module soon. It will answer your questions then. So look out for it!

Hi Augustine,  
 
The formula and lesson on the Price-to-Cash-Flow ratio can be found in the Valuation Quadrant module: https://investmentquadrant.com/the-valuation-quadrant/price-to-cash-flow-ratio/  
 
You can take the example of BreadTalk and calculate their Price-to-Cash-Flow ratio using the last four quarters to be more accurate.

Hi,
 
I have question bout the cash flow statements as well..Why do they put all the “Gain” as “-ve” value and all the cost as “+” value?
Exp like below:
CASH FLOW FROM OPERATING ACTIVITES
Profit before taxation                                             = 48,013,673
Adjustment for: 
Bade debt                                                     = 9,136
Depreciation                                                 = 5,470,305
Dividend Income                                           = (1,069,032)
Gain on disposal of non current asset               = (26,400)
Gain on disposal of property, plant equipment = (212,604)
Interest Income                                            = (925,523)
Property, plant and equipment written off        = 22,551
Unrealised gain on foreign exchange               = (191,618)

 Operating profit/(loss) before working capital = 51,090,488
 changes
 
 
 

Hi Eric,    
 
The cash flow statement tracks the actual ‘inflow’ and ‘outflow’ of cash of a company. For example, depreciation is a non-cash item (which is deducted from the income statement) that should be added back to the cash flow statement to determine the actual cash inflow in running the business operations. Another example, unrealised gains is recorded for the purpose of drafting out the income statement. However, in actual business operations, there wasn’t any actual transaction involved or currency being converted on the ground. So the amount is only a ‘paper gain’ and must be deducted from the cash flow statement.    
 
After some time, I just let accountants do the job on how to reclassify these things. After all, they are being paid by the company to do so. Lol

Hi RusminI saw the formula on price to cash flow. One question, regarding the operating cash flow per share, you take the operating cash flow before changes in working capital or you take the net cash generated from operation ie after the changes in working capital?

Hi Augustine,  
 
It depends. Since I knew BreadTalk’s working capital is mainly financed by their suppliers, I decided to use a more conservative figure — operating cash flow before working capital minus tax for the financial year ended 2011. For other businesses which do not enjoy such a high negative CCC, I prefer to use cash flow after working capital. 

Hi Neo,  
 
Unlike knowledge-based companies, i.e. Microsoft, retail businesses are highly capital intensive. Currently, BreadTalk is still in its aggressive expansion phase that requires a huge amount of capital expenditure. So using free cash flow would distort the true value of the company. 

Yes, you could. But just be aware that method will be extremely conservative.    
 
BreadTalk spent $64 million (one-time CAPEX) to build the new iHQ building in Singapore. These expenditures were captured in the Purchase of Property, Plant and Equipment mainly in year 2012 and 2013. So if you take these expenditures into valuation, it will be tough to derive an entry point since the FCF for both financial years will be negative.   
And if you refer to the CAPEX lesson, there are two main types of expenditures: maintenance and development. Logically, maintenance CAPEX should be deducted from Operating Cashflow to determine a proper valuation. But again, the challenge is that not many companies provide the breakdown of these two expenditures. Should you pose this question to the company, from my experience, the management will usually direct you to depreciation figures as their maintenance expenses.