1) P&O will take pole position in the market for motorcycle insurance business.
2) It's extremely cheap, trading at a PE of 3 times FY2011 earning or 0.55 times its book value.
3) Based on (2), its base case valuation is about RM1.15- giving an upside of 92% from its then close of RM0.63.
4) There is potential for M&A as the general insurance sector is quite fragmented & the owner is contemplating divesting his shares in P&O. Based on Price to Book of 4.2 times, P&O's M&A valuation could be about RM1.65.
While P&O's valuation is very undemanding, I found it very hard to get excited about a company that is so dependent on motorcycle business. A quick look at the chart (plotted on logarithmic scale) made me reconsider my skepticism. The stock looks set to break above its long-term downtrend line at RM0.75. As at 3.00pm, P&O was trading at RM0.79- gaining 8 sen above its close of RM0.71 yesterday.
Chart: P&O's monthly chart as at July 5, 2010 (Source: Tradesignum)
Based on cheap valuation & bullish technical outlook, P&O could be both a trading BUY & a long-term BUY.
17 comments:
Dear Alex
Do you mind comment on Quillcapital? these REITs is expect to declare its income distribution soon, based on 1.02, the yield is almost 8%
Hi hng
Quillcapital is trading in a range between RM1.03 & RM1.06. One normally buys REITs for the decent yield & the capital gain (if any) is the icing. At 8%, Quillcapital is an attractive investment.
You may note that the 2 mega REITs, Sunreit & CMMT have been rising slowly over the past few days. Sunreit closed at 93 sen as compared to its IPO price of 90 sen. CMMT closed at RM1.02 as compared to its IPO price of 98 sen. I think our REITs may be due for a re-rating given the sharp rise in property value over the past 12 months.
Dear Alex,
Enjoy yr in depth analysis and views.
Any comments about Yee Lee?Taking forever to announce ex date for share split and bonus issue.All approvals appear to be in hand.Tx
Hi Alex,
Can U pls comment on Integra. Thanks
Hi Alex,
What will be the next resistance for P&O?
thanks.
hi alex,
can you comment some on SCOMI. will it benefited by it child's dividen n kaspadu s/b shares dispose?
thank you.
Hi @h Tong
P&O tested its first resistance of RM0.90 this morning. This stock rose from RM0.60 over the past few days and some correction can be expected. A 50%-retracement of the recent gain would mean that the stock can pull back to RM0.75.
Hi Alex,
Thanks for the reply.
May i know what was the different between E&O-LA & E&O-LB. Both are almost at the same price as for now.
Hi Mr.Ling
SCOMI should benefit generous dividend from its subsidiaries. Scomien has given out a special dividend of 29.5 sen. The market is expecting Scomimr to do the same after the disposal of 2 big investment recently.
So far, the market reacted predictably by buying into the subsidiaries first. The market would slowly come around to buy the parent stock later.
For a signal that the upside move for Scomi is at hand, look out for a breakout above the RM0.44 level.
Hi Ahmad Rozian
Integra may re-test its recent high of RM1.39 recorded in June this year. If it can break above that mark, it may test its high of RMRM1.51 recorded in November 2007.
The catalyst for a re-rating of Integra would be the new business from the iron ore pelletizing plant to be built by Vale. This is expected to happen end of next year.
Hi Richard
Since my BUY call in December 2009, Yee Lee has risen by 150%. Its quarterly net profit has risen from about RM4 million to about RM5 million. Its last 4 quarters' EPS stood at 34 sen compared to 26 sen previously. At the close of RM3.58 yesterday, Yee Lee is trading at a PER of 10.5 times. At this level, Yee Lee's upside is fairly limited, say another 10%.
Yee Lee is holding an ace in the form of the proposed share split and bonus issue. That may propel the price a bit higher. If it does, it could be a good idea to start taking profit on this stock.
Thanks Alex ..
Alex,
Thanks for yr opinion
alex, what a good call on P&). You think there will be a takeover like jerneh? What is your assessment on the To price, 1.5-1.8 of book value like the edge says?
Hi ccdev
Thanks. I don't know how much Prudential will pay for P&O. If you rely on Kenanga's numbers- its base case valuation is about RM1.15 and its M&A valuation of RM1.65- then you can see that P&O may still have some further upside despite a 46%-jump in the share price from RM0.79 to RM1.15 yesterday.
Hi Alex,
May I know how to derive the 1.65target? That is 1.5 times of its P/BV, right? But how to derive the P/BV? Is it already consider the recent share split activities?
Thanks.
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