The Telltale Signs of Better Things to Come
If we were to turn the clock back to 2001, what were the signs that MISC would achieve its present-day financial strength and share price performance? Following are some simple and readily available financial data which could have helped investors:
- PER Valuation: MISC’s PER had been on a declining trend since 1997. Whilst it was conceivable to blame the overall downward re-rating of the stock market as a whole following the regional financial crisis, a PER of 7.8x was just too low for a blue chip like MISC.
- Sales: The Group’s topline showed a commendable cumulative average growth rate (“CAGR”) of 18% - another good sign. (Note: FY2000 was a bumper year of 15-month results following the change of financial year end from December to March.)
- Net Profit / Earnings Per Share (“EPS”): In tandem with the growth in sales, MISC achieved a CAGR of 35% net profits for the period. Investor should have noticed the company’s impressive growth.
- Operating Cash Flow: Operating cash flow simply reflects the cash-generating capability of a company’s business operation. Thus, a business should be considered healthy if it is capable of generating more than sufficient cash to cover capital expenditure (capex) and interest payments. In the case of MISC, its operation has been generating cash receipts of RM3.0bn per year. With an annual capex of RM700-900m, coupled with interest cost of RM400-500m, the national shipping company would still have excess cash of RM1.6-1.9bn for loan repayment and/or dividends to shareholders. This is a healthy level of operating cashflow by any standard.
- Return on Equity (“ROE”): The fact that MISC had been achieving an average ROE of 17% for the past four financial years was another reflection of its strong financial performance.
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