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QuestionsCategory: Valuation QuadrantSilverlake Axis PE ratio and intrinsic value
Jou Ling Tan asked 5 years ago

Hi Victor,

As I was valuating Silverlake axis AR 2017 using the excel template, I get a PE ratio of 12.3x which is significantly lower compared to of Yahoo Finance and Bloomberg, so I was wondering if there is any error I did in picking the numbers from AR.
For the exceptional items to be excluded from the profit, may I know is it acceptable to only consider commission and rental income from the other income segment? Which resulted in me getting S$116.6m profit attributable to shareholder excluding excp item.

May I know how do we calculate the intrinsic value when using P/CF or P/E valuation?

Lastly, as Silverlake is a software company, so can we assume they dont have any inventory?

Jou Ling

Jieren Zheng replied 5 years ago

Just sharing my thoughts. You could can see what is the PE you want of this company (how much it should be trading at), then you multiple earnings then you will get your intrinsic value. It is the same as P/CF.

Jieren Zheng replied 5 years ago

Ok, ignore me. I didn’t see the bottom ^^”

4 Answers
Koh answered 5 years ago

Hi Jou Ling, I’m also working on the excel template for Silver lake Axis. I’ve get a low PE and I realised its due to the different currency. Share price of $0.54 is in SGD while profits in RM. I’ve converted the share price to RM and you will get a figure closer to 30x PE for 2017.
For exceptional items, I’ve only deduct the gain from disposal of GIT shares. 
For inventory, I have included contract work in progress.
Just for sharing and comments, if any. Thanks

Jou Ling Tan replied 5 years ago

Hi Koh, thanks for sharing.
I have converted the currency, and the number stills fall outside the range by alot.
May I know what earnings do you take account in your calculation?

Koh replied 5 years ago

If you use PAT RM 116.6m, EPS is RM 0.04 (S$0.15)
At share price of S$0.52, PE is about 35x

I have used a higher PAT of RM161m as I only excludes gain from GIT sales, hence a lower PE

Koh replied 5 years ago

Sorry typo should be $0.015 above

Rusmin Ang answered 5 years ago

Hi Jou Ling,
I agree with Koh that we need convert from MRY to SGD before we calculate the PE or PCF. Otherwise it may look inflated as the company is traded in SGD. For CashFlow, it is quite lumpy in some years (although you can try to use average of five years) so it may not be the best valuation metric. Instead, I opted for Profit Before Tax for its maintenance and enhancement and insurance processing which are more stable over its past ten years. Then I multiply the PBT by PE of 25x. I actually presented this company in the IQ workshop. Did you attend? 
Software-based company usually doesn’t have inventory. 

Jou Ling Tan replied 5 years ago

Hi Rusmin,

Yes I attended the workshop last Saturday and asked you abt the reasoning of choosing the PE of 25x After I went home , I try the calculation myself, hence facing this issue.

May I know why do you use Profit before tax instead of Profit after tax (31.2)?

Do you use PBT (EPS:31.2) or Profit attributable to owners of the parent (EPS:111.6) as your Profit attributable to Shareholder to get the EPS?
() is the EPS I get when I use different value for profit.

Thanks in advance.

Rusmin Ang replied 5 years ago

I used PBT mainly because there were a lot of exceptional items in the income statement and I want to focus only on Maintenance and Insurance which are more predictable in nature. In the segmental information, thankfully, they do break it down so I got my answer there.

The other lumpy divisions are also very profitable if the cycle comes back but I excluded them in the calculation as I want to assume that the recovery never take place. Since I am already quite conservative, I decided not to account the taxation which can make the PBT even lower. It is going to be very extreme. Again, this is my own estimate and you should estimate something you’re comfortable with :)

Then I simply multiply PBT (Maintenance and Insurance) with PE multiples of 25. So if we divide the answer by its outstanding shares, we should get the intrinsic value.

Isabel Im answered 5 years ago

Hi Rusmin,
While reading the news coverage on silverlake axis, it is of the opinion that challenges ahead could bring the company’s forward earning adversely through Y2020.  Would this justify a ‘white and see’ position even though the current valuation of 15x looks attractive?

Rusmin Ang answered 5 years ago

Hi Isabel,
Usually we do not get good news at good price. It’s usually bad news with attractive price or good news at expensive price.
Btw, which news did you read?  

alexyeo replied 5 years ago

Recently silverlake got hammered pretty badly. Can’t seem to find any news lately besides this blog article, on why the author will not invest in silverlake. Guess everyone got their own belief and assumptions. One might like it others might not. So do your own DD. :)