TDM vs. Glenealy Plantations

The author published the analysis report here is for his own reference only. It is not an indication of the author's business interests for companies being analyzed. It is definitely not an investment advice, please see the full disclaimer located at the bottom of the blog post.

TDM Berhad's (hereafter called "TDM") principal activities including management of oil palm plantation, processing and trading of palm oil and related products, also provision of consultancy and management services to specialist medical centres and owner of specialist medical centres. Glenealy Plantations (Malaya) Berhad's (hereafter called "GNEALY") principal activities including operation of oil palm plantations, oil mills and quarries.

Side-by-side Comparison

Capitalization
Measure by size, both companies are similar, TDM is slightly bigger than GNEALY, 77 millions approximately.

Income Items
Important items under this section is per share earnings and dividend, GNEALY is the all-time winner for per share earning, but TDM pay higher dividend.

Balance Sheet Items
Both companies have solid balance sheet, Cash or cash equivalents is more than enough cover the Current liabilities. Current assets is more than enough cover the Total liabilities. GNEALY is stronger financially as it's Cash or cash equivalents is more than enough cover the Total liabilities.

Ratios
Price-wise, TDM is more attractive at the moment given it sell at lower multiple of earnings currently and historically and much higher current dividend yield. TDM achieved higher return on book value, but with lower profit margin. TDM has much better earning growth rate compared to GNEALY, 381.9% and 103.6%.

GNEALY advantages are higher profit margin and much stronger balance sheet as shown by Net income/sales and Current assets/current liabilities. A question come to mind is ... Is the overwhelming availability of current assets of the company showing the incompetency of management in capital allocation? At the same time, the current dividend payout is less than 25% of earning and yielding much lower return compared to TDM.

Price Record
TDM has much higher growth rate in both the long-term and near-term price record, the growth of price is reflected the growth of earnings.

Financial Summary

TDM's Financial Summary

By looking into detail of the financial summary of TDM, it show an amazing historical growth records, more than 50% in operating income, net income, earning per share, dividend per share with an exception in financial year 2009. It achieved this great result with reduction in total liabilities every year in the past 5 years except financial year 2010. Both return on average equity and assets are moderate, but it perform better in the past 3 years. Every year the company have lower and lower utilization of financial leverages shown by D/E ratio. I particularly like the low operating overhead attribute of the company (5 years average 4.54%) shown by narrow margin of Operating Income/Sales and Net Income/Sales.

GNEALY's Financial Summary

GNEALY has great historical growth record too (more than 20% in operating income, net income, earning per share), but less appealing compared to TDM. Historically, GNEALY is more conservative financially compare to TDM, as it utilized minimal financial leverages (D/E ratio is less than 30%) compared to TDM. But this advantage is disappear compare to recent record of TDM as it achieved D/E ratio 28.5%. Also, the company have much higher operating overhead, 5 years averaging 14.59%, 10% higher than TDM.

As conclusion, the ultimate winner of this comparison is TDM.

How Much TDM Worth?
Given the company CAGR of EPS is 20% (approximately 56.1% in the past 5 years) and Dividend Per Share is 15% in the next 10 years, the EPS of the company will be RM$0.635 in 2020 (included adjustment of 2 bad years in 10 which reduce 50% of group's net profit) and the forecast dividends received over the 10 years period totaling RM$1.30 (included adjustment of 2 bad years).

If the stock price of TDM sell at 10 times earning in 2021, it is RM$6.35 and included total dividends received, it is RM$7.65 per share. Given annual 6% inflation rate in next 10 years, the discounted rate is 0.591898. So, RM$7.65 discounted to today price, it is RM$4.52 per share.

The discounted price is 31.1% higher comparing to today (25 November 2011) closing price at RM$3.45. The stock is a great bargain! What do you think?

I'd love to hear comments from you!