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PART 6 – THE OVERALL CONCLUSION

 

(THIS IS PART 6 OF 6 – THE FINAL PART)

 

 

                          LUXCHEM CORPORATION BERHAD (5143)

(Photo source: LUXCHEM’s official website - http://www.luxchem.com.my)

 

 

(11)      WHAT YOU HAVE WRITTEN IS UNDERSTOOD, HOWEVER ARE THERE ANY INSIDERS TRADING OF THIS STOCK? ANY PURCHASES OF SHARES BY THE MAJOR SHAREHOLDERS SO THAT I AM MORE CONVINCED?

((INSIDERS TRADING OF LUXCHEM STOCK OF 6,652,700 SHARES – 18 TRANSACTIONS))

WELL, this is an important question! The quick answer to this is – “Yes, there are insiders trading of this stock in September and October 2020. One can check this information anytime on BURSA website.” There were insiders’ purchases of this stock months ago when the share price in the market was lingering between RM0.70 to RM0.85. There were done in 18 transactions in different dates by major shareholders. Overall, about 6,652,700 shares were bought between 12/8/2020 to 10/9/2020. During this period, the share price was between RM0.70 to RM1.07. And up to now, these shares are still kept and not sold. This indicates that LUXCHEM share price at this moment is still cheap, undervalued and worth to be bought. 

 

 

(12)      WHAT IS THE CONCLUSION YOU CAN MAKE REGARDING LUXCHEM?

((LUXCHEM, A GOOD BARGAIN – STILL CHEAP, UNDERVALUED WITH HIGH MARGIN OF SAFETY))

Before making conclusion, let us just compile all the previous financial figures and metrics for easy referencing. As you can see, these metrics show that LUXCHEM is a company with stability, consistency and efficiency in its business operations.

 

 Table 3: The summary of financial analysis and metrics for LUXCHEM

 

 

NO.

 

 

 

FINANCIAL METRICS (ITEMS)

 

RESULTS AND PERFORMANCES BASED ON THE LATEST QUARTERLY REPORT

 

ANALYSIS, COMMENTS AND REMARKS

 

 

A.

REVENUE AND PROFIT

 

 

1

Revenue

 

Revenue growth rate

191,260,000

 

36.33%

A good increase from 140,292,000. Made consistent revenues throughout the last 10 years, this time increase of one-third of revenue compared to the previous quarter (same year)

2

Profits for the last 10 years

 

 

Gross profit

 

Gross profit margin

All-round profits for   10 years

 

 

25,097,000

 

13.12%

Makes ALL PROFITS (gross/net profits) continuously and NEVER has losses in these 10 years. Shows it is a stable, consistent, reliable company with profitability

 

Quite high at RM25,097,000

 

A margin of 13.12% - a good figure in the context of growth

3

Net profit (PAT)

 

Profit growth rate

14,169,000

 

86.90%

A huge net profit increase from 7,581,000. The highest profit since 5 years ago. Produced supernormal profit growth rate of 86.90% (more than 10%) -  which is very significant

4

Net profit margin (NPM)

7.41%

An increase from 5.40%. The highest NPM since 4 years ago. Consistent profit margin also for the same 10 years’ time period

5

Earnings per share (EPS)

1.59 cent

An increase of 87.06% – the highest since 3 years ago. It is positive and a good sign

6

 

Return on equity (ROE)

 

ROE for cumulative 3 quarters

 

ROE estimated for year 2020

 

4.40%

 

 

9.56%

 

14.56%

 

 

An increase from 2.41%. The highest since 3 years ago – ROE is always consistent throughout the last 10 years. ROE is very acceptable

Good – a very acceptable rate

 

More than 12% - indicates very encouraging return on equity. This high ROE indicates competitive advantage in its business. There is good capital allocation – making it gains its market standing or position.

B.

ASSETS, LIABILITIES AND EQUITY

 

 

7

Total assets

 

Inventories

 

Trade and other receivables

 

Total liabilities

 

Total equity

420,040,552

 

 

47,276,774

 

127,787,111

 

 

97,820,837

 

322,219,715

Slight decrease and no major concern

 

 

A good sign since it decreases from 68,944,796. Less stocks in storage.

 

A good sign since it decreases from 135,610,389. Less tied up cash.

 

A good sign since it decreases from 124,284,702

 

Steady increase from 308,378,363

8

Debt-to-equity

0.16

Less than 0.5 – indicating the debt is very much manageable

9

Current ratio

3.24

More than 1.5 – it is in good standing since it has very low liquidity risk

10

Quick ratio

2.74

More than 1.0 – it is also in good standing with minimal liquidity risk

11

Equity ratio

0.77

More than 0.5 – it has strong financial strength, it is stable and fine in long term

12

Return on assets (ROA)

 

ROA for cumulative 3 quarters

ROA estimated for year 2020

3.37%

 

7.33%

 

11.33%

The way the company uses it assets to produce profits is very acceptable

 

A very acceptable rate

 

More than 7% - indicates efficiency in using its assets to produce profits

13

Return on invested capital (ROIC) before tax

 

 

ROIC bt for cumulative 3 quarters

 

ROIC bt estimated for year 2020

 

 

9.76%

 

 

 

22.36%

 

 

32.36%

 

 

Has advantage and stability in business – a very acceptable rate. This ROIC (9.76%) is higher than ROE (4.40%), indicating that it has excess cash and less debt – which is a good thing.

 

Good – much higher than ROE of 9.56%

 

More than 15% - EXCELLENT, indicating it is highly efficient in using its cash money (as invested capital) to generate profits (got advantage in business). With high profit margin, high cash and low debt, it is able to manage its company operation wisely.

C.

CASH FLOWS

 

 

14

Cash flow from operations - CFFO (Operating cash flow)

 

 

Net cash flow (Net increase in cash)

 

Cash flow at the end of reporting period

 

 

Overall cash flow growth rate

49,430,921

 

 

 

11,372,731

 

 

131,834,651

 

 

4.24%

 

A very encouraging operating cash flow amount

 

 

A good increase in net increase in cash flow

 

HUGE, POSITIVE CASH – an additional 5,360,565 increase from 126,474,086 (2019). It is very liquid with cash – CASH RICH.

 

A good increment in cash growth – signifying better, higher stability in overall cash flow

15

 

Quality-of-income ratio

 

1.61

More than 1.0 – very good because profit is fully backed up by operating cash. For every dollar of net profit, it generates operating cash flow of RM1.61 (more than 1 time). High position, standing and quality of ROE. Its profit is real money with hard cash.

16

Free cash flow (FCF)

36,588,639

FCF is pure hard cash, which is more “dependable and tangible” than net profit. FCF shows a high number – an enriching, stable free cash flow position which can be used to support the company’s business activities – enriching investment opportunity

17

CAPEX

RM12,853,282 

(26% of its CFFO)

Good - only reinvests a small portion of its cash flows for growth – with its remaining retained as cash

D.

CASH VALUATION - CASH COW, “CHEAP,” BETTER THAN FIXED DEPOSIT

 

 

18

Cash return on invested capital (CROIC)

18.45%

More than 10% - indicating it is effective in producing free cash flow from its invested capital. It is a “CASH COW!”

19

FCF multiple

19.59

Less than 20 – a good stock which is CHEAP, REASONABLE, INEXPENSIVE AND UNDERVALUED

20

Cash yield (CY)

5.10%

A GOOD RATE OF 5.10% – AROUND 3 TIMES OF CASH YIELD. BETTER AND HIGHER THAN FD RATE OF 1.75%. A good bargain!

E.

INTRINSIC VALUE (“FAIR VALUE”) AND MARGIN OF SAFETY (MOS)

 

 

21

Enterprise value (EV)

 

EBIT multiple (2020)

 

628,442,820

 

9.77

 

A positive, ordinary value

 

Less than 15 – EXCELLENT, which is considered as still CHEAP and INEXPENSIVE – A GOOD BARGAIN!)

22

LUXCHEM’S FAIR PRICE (based on EBIT multiple)

RM1.17

EXCELLENT - MUCH HIGHER than the current price at 80 cents – “EXTRA 37 CENTS” to go - and a CHEAP stock

23

 

LUXCHEM’S INTRINSIC VALUE (EPS annual x P/E ratio)

 

LUXCHEM’S INTRINSIC VALUE 

(P/E ratio  = 20)

 

LUXCHEM’S INTRINSIC VALUE

(P/E ratio = 25)

 

 

 

 

 

RM1.27

 

 

 

RM1.59

 

 

 

 

 

 

 

Market price is only RM0.80 – STILL UNDERVALUED BY “47 CENTS”

 

 

Market price is only RM0.80 – STILL VERY MUCH UNDERVALUED BY “79 CENTS”

 

At intrinsic, fair value of around RM1.27-1.59 (using different P/E ratios) – it is still cheap and much undervalued. This is the possible, future scenario for LUXCHEM.

24

 

 

LUXCHEM’S INTRINSIC, FAIR VALUE (balanced, average value)

 

 

RM1.34

 

 

 

 

IN COMPARISON WITH CURRENT MARKET PRICE AT 80 CENTS, IT IS VERY CHEAP AND UNDERVALUED

The average intrinsic value of LUXCHEM is RM1.34. This reflects a much higher valuation compared to its current market price at 80 cents – indicating its cheapness and undervalued condition.

25

 

 

Margin of safety (MOS)

 

MOS rate

 

 

 

 

 

RM0.54

 

 

40.30%

 

 

 

 

 

EXCELLENT – a good price with MOS of “54 CENTS” (POTENTIAL UPSIDE) which is yet to be realized and priced in.

 

MOS is very high at 40.30% - much higher than the usual 30% MOS rate. A VERY GOOD BARGAIN WITH HIGH MOS!

 

Therefore, LUXCHEM is a good, bargain stock – providing a HIGH MARGIN OF SAFETY for investors. LUXCHEM is still very, very cheap!

26

LUXCHEM SHORT OVERVIEW

PRICE IS STILL LOW AT 80 CENTS

LUXCHEM is the ONLY STOCK that has not been rising consistently in line with its profit. LUXCHEM is still a laggard despite having huge profit.

 

 

CONCLUSION (POINTS TO MAKE):

In short, LUXCHEM share price should increase, however the market still hasn’t taken time to fully appreciate and understand LUXCHEM. These are the strengths, benefits and advantages of LUXCHEM based on all these articles:

  1. MARKET SITUATION AND UNDER-APPRECIATED - It is still a CHEAP, UNDERVALUED, UNDER-APPRECIATED stock which many people miss out and DO NOT REALIZE ITS VALUE DUE TO MARKET SENTIMENT. The share momentum for LUXCHEM exists – it comes and goes just like other common stocks.
  2. STABLE, CONSISTENT PROFITS FOR THE LAST 10 YEARS – LUXCHEM is an ALL-ROUND PROFIT-MAKING COMPANY. It makes continuous profits (gross/net profits) for every quarter in these 10 years’ time. There is NO LOSSES at all. This means that it is a company with profitability, stability, consistency and reliability.
  3. HIGHER, ENCOURAGING PROFITS - It has ALREADY EARNED HIGHER (NEAR TO DOUBLE) PROFITS for the latest QR. It is not something that is still unrealized or beyond reach – the money is at hand.
  4. GOOD, HEALTHY BALANCE SHEET – It has an INTEGRATED, CLEAR AND NICE BALANCE SHEET. Inventories and trade receivables have since reduced. Liabilities are in small amount with low debts. This shows that the company has good skills in managing its assets and liabilities. The company is stable with good equity amount.
  5. EXCELLENT CASH FLOW, CASH RICH, “CASH COW” – It has wonderful and huge amount of cash. The company is very liquid with sufficient cash money. And the cash flow is increasing. It is a CHEAP “CASH COW” – CASH RICH with advantage in its business.
  6. OVERBOOKED ORDERS OF GLOVE CHEMICALS – GLOVE CHEMICALS ARE IN HIGH DEMAND and the ORDERS ARE FULLY BOOKED BY NEXT YEAR. This is due to the increased demand in gloves worldwide. Vaccinations need more gloves use. Front liners who have been vaccinated still need to wear gloves, mask and keep social distancing as “double protection” for Covid-19. Vaccinations do not mean that medical staff or workers STOP using protective equipment or tool – this is to protect themselves from the virus.
  7. INTRINSIC VALUE, HIGH MARGIN OF SAFETY (STILL CHEAP, UNDERVALUED) – It is STILL CHEAP and much undervalued since the market hasn’t truly appreciated it. THE SHARE PRICE (80 CENTS) IS STILL LOW COMPARED TO THE INTRINSIC VALUE (“FAIR PRICE”) AT RM1.34. With this, it has a HIGH Margin of Safety (MOS).
  8. HIGH PROFIT POTENTIALITY AND GROWTH IN THE COMING YEAR - It will CONTINUE TO EARN CONSISTENT, HIGH PROFITS in the coming quarters. It has BRIGHT FUTURE ahead of time WITH HIGH POTENTIAL. The generating of continuous profits will likely continue. There is a ROOM FOR GROWTH in the coming year. LUXCHEM is a promising company.

 

          We just compare the average, potential Intrinsic Value (RM1.34) to the market price (RM0.80), there is a Margin of Safety (MOS) of RM0.54 with 40.30% potential upside. Remember this - the “fair value” at RM1.34 is a general and average estimate. The price calculated is based on various estimated prices at RM1.17, RM1.27 and RM1.59. In the real market, the highest, peaking (maximum) price can go lower or higher than RM1.34 - it can be any price level. You should consider selling the shares when it is time.

          With this, you need to realize that share price is always dynamic and changeable - it is not something fixed or rigid. You cannot have a fixed mentality when it comes to shares trading, as the real world market is “dynamic“ and influenced by various factors. You should have a flexible mindset when it comes to selling price. You need to use your own wisdom to decide when to buy/sell. You have to observe the market sentiment, situation, circumstance, environment as well as events – and act accordingly. You need to UPDATE yourself with the latest, current news so that you know what is going on. This is important. 

          You should therefore monitor and check the price from time to time in your trading decisions. THE RM1.34 “FAIR VALUE” IS A POINT OF REFERENCE - SERVING AS A GUIDELINE. At 80 cents, LUXCHEM is a stock with good growth.

          LUXCHEM is very much cheap, inexpensive, undervalued, unappreciated, ignored and less treasured though it is an excellent, concrete, good, stable and promising stock! Let us see whether Mr. Market would realize this undervalued stock in times to come! LUXCHEM should be a RISING JEWEL TO ANOTHER, NEXT BULL RUN!!! This is a sharing about LUXCHEM, you make your own decision and take your own responsibility when it comes to investing. We use our mind to think. What is done here is to offer a holistic, comprehensive and whole analysis of LUXCHEM! This is the potentiality and possibility LUXCHEM is having in the time to come.

          MOST HEALTHCARE, PPE, GLOVE RELATED STOCKS HAVE PEAKED AND INCREASED – BUT LUXCHEM HAS NOT PEAKED AND IS STILL CHEAP! AGAIN, LET THE MARKET RUN ITS COURSE TO APPRECIATE LUXCHEM’S VALUE AND DECIDE ITS PRICE IN THE DAYS TO COME!

          LUXCHEM IS A WONDERFUL, EXCELLENT, STRONG COMPANY WITH GOOD AND HIGH POTENTIAL OF PROFITABILITY, THE PRICE IS STILL CHEAP, MUCH UNDERVALUED – NOT OVERPAID, THERE IS A HUGE MARGIN OF SAFETY! SO, BUYING THIS STOCK AT THE CURRENT PRICE IS LESS RISKY. IN FACT, IT IS VERY MUCH SECURED THOUGH OF COURSE, PRICE WOULD INCREASE AND DECREASE OVER THE TIME (DUE TO VOLATILITY). LUXCHEM IS INDEED A GOOD BARGAIN – AT A GREAT DISCOUNT!

 

 

“WONDERFUL COMPANIES BECOME RISKY WHEN PEOPLE OVERPAY FOR THEM!” 

                                                                                                              – Peter Lynch

 

“BUY A GOOD, WONDERFUL, STABLE COMPANY WHEN IT IS SELLING CHEAP (AT LOW PRICE) – UNDERVALUED BELOW ITS INTRINSIC VALUE (FAIR PRICE) – WITH A HIGH MARGIN OF SAFETY! IT IS LESS RISKY! WITH THIS, IT GIVES YOU A HIGHER CHANCE AND POSSIBILITY OF GAINING EXTRA PROFIT!”                              – THINKING-MAN

 

 

 

DISCLAIMER: Please read and understand this disclaimer. This article is written upon observations and it is intended to be a SHARING – for informational and educational purpose only. The intention is to share knowledge with you all. None of what is written here is to influence your decision to buy or sell shares. REMEMBER, IT IS NOT A BUY CALL, IT IS ALSO NOT A SELL CALL. This article is from one’s point of view – consisting of various opinions. You are welcome to read this article, however you need to do your own research first before buying or selling any shares. You should be aware that you buy or sell shares at your own responsibility and risk. This article doesn’t recommend any buy or sell call decision in shares. Share market investment comes with risk, and no one can guarantee everything. It is only a sharing. AS ALWAYS, you need to do your own diligent and prudent research before investing. To buy or sell any shares ENTIRELY DEPENDS on your own decision, judgment and choice. You make your own call either to buy or sell.


 https://klse.i3investor.com/blogs/thinkingmanblog/2020-12-15-story-h1537478564-A_HOLISTIC_ANALYSIS_OF_LUXCHEM_MOST_UNDERVALUED_STOCK_WITH_A_FAIR_VALUE.jsp

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