CENBOND (7171) - RM1.75 Fair Price for Century Bond?

CENBOND (7171) - RM1.75 Fair Price for Century Bond?
Century Bond Bhd engages in the manufacture and trading of paper and plastic packaging products. Besides, it involves in the manufacture of industrial packaging tapes and materials, as well as the manufacture and sale of corrugated carton boxes. It also manufactures stretch films, plastic bags, and liners; and manufacture and sale of cement paper bags. These are the major business segments of the company.

In August 2016, KUMPULAN Perangsang Selangor Bhd (KPS) offered to acquire Century Bond at RM1.75. The question is, was the offer price fair? How should we assess the fairness of the price? Let's do some valuation exercise.

Century Bond raked in net profits of RM15 - 20 mil for the past 5 years without much growth. Please refer below:

With such stability in earnings, I think it is conservative to value Century Bond based on RM15 mil annual earnings. Additionally, the company has a 3-Year average PE ratio of 10 times. Hence, the value of Century Bond should be at least RM150mil or RM1.25 per share. Do note that my valuation perspective is extremely conservative.

But hang on...

As of March 2016, Century Bond had a net cash of about RM0.61 per share. If we include this into our valuation, Century Bond should worth at least RM1.86.

According to estimates, Century Bond has about 60% market share in the cement packaging industry. With this strong track record of generating stable earnings and high net cash position, I think the offer price of RM1.75 slightly undervalues the company.

Before I end this topic, please note again that I used a very conservative profit figure and PE ratio in my valuation. I personally think that it would be fair if the shareholders demand for a higher price.

Please note that as of the time of writing this, my partnership and I are not the shareholders of Century Bond.

CENBOND (7171) - RM1.75 Fair Price for Century Bond?