More On Pelikan Again

I wrote on Pelikan a couple of times already and in my flawed opionion, I reckon that this stock could be interesting in the context of the posting Valuations Stretched To Unjustifiable Levels But....

March 20, 2009 Some Comments On Pelikan Holdings

Ok, CIMB had a trading buy on it because they reckon that the market was pricing Pelikan as if it was going to bust.

But the bottom line or the facts still remained that Pelikan fourth quarter earnings was utterly shocking as it lost a huge rm43.4 million. And here is the opening lines from a Edge Financial Daily write highlighted in the blog posting.

• PELIKAN’S recent fourth-quarter (4Q08) results came as a shocker and raised the spectre of worse to come, said CIMB Research in a note yesterday.
  
  While the RM43.4 million net loss for the quarter was a worry, the bigger concern is the 29% year-on-year (y-o-y) top line compression, which is a sign of just how bad the recession in Europe is, particularly in Germany, CIMB Research added.

Note Pelikan then was below 60 sen at 59.5 sen when CIMB wrote their report. When I posted the posting a couple of days later, the stock was at 70 sen!

Note the sticky issue of the disposal of shares by the Executive Chairman mentioned in that blog posting.

• Look at all the buy and sell transactions on the same days!! !What's up doc??? And then there are share buybacks done on 3rd March to 11th March which lapse with some of Mr. Loo's transactions!!

* cough *

On 2nd June 2009, I wrote an update Yes, CIMB Did Downgrade Pelikan To Underperform

• Upping target price. Although we are keeping our earnings forecasts, we are raising our target price from RM0.78 to RM0.92 as we narrow the discount to the 13x sector target P/E from 40% to 30%. The smaller discount reflects a lower equity risk premium in view of more bullish investor sentiment.
  • Downgrade to UNDERPERFORM. However, we are downgrading the stock from trading buy to UNDERPERFORM. The share price resurgence by more than 60% since our upgrade in mid-Mar has taken it past our target price. We think it is likely to underperform given the potential de-rating catalysts of i) weaker-than-expected revenue in 2Q09, ii) further economic slowdown in Europe and iii) unattractive dividend yields of around 2.7-3.0%.

Here is a fast snapshot Pelikan's earnings. Data is from KLSE Tracker.

Not exactly the worst set of earnings one would see but then it doesn't look like a set of earnings from a world class company, yes?

Now one could use Trailing Twelve Months earnings of 24.535 million as a gauge. Nothing wrong.

Now Pelikan has some 343.168 million shares. Trailing EPS based on earnings of 24.535 woud equate to some 7.1 sen. (Hmm.. KLSE probably missed out the dilution of EPS caused by Pelikan's ICULS.)

Pelikan last traded at 1.11, which works to an earnings multiple of around 15x. Not exactly cheap.

Now is Pelikan valuations stretched to unjustifiable levels using a TTM eps valuation?

For me, in my flawed opinion, because Pelikan earnings tanked big time in Q4 and also was rather poor in Q1 and when one compare Q4+Q1 and compare it to Q2, Q3. For example Q4+Q1 earnings, Pelikan's latest two quarters earnings, was a loss of 35.4 million. Q2+Q3 earnings were at 59.9 million. Too huge a difference.

Too simplify it more, the previous fiscal year 2008 Q2 Pelikan's earnings used to calculate the TTM were 44.160 million. Now Pelikan's last reported earnings 2009 Q1, Pelikan made only 8.022 million. To expect Pelikan to record an earnings of 44.160 million for the next quarterly earnings given current economic envirobment would probably be very far fetched. Of course I could be flawed. :p

Anyway, let's assume. Give it all the benefit of the world and Pelikan records a 200% increase for its next quarter. :p

So let's assume Pelikan makes 24 million.

Fair?

So Pelikan's next quarter TTM could be something like this: 24 million + 15.773million + (-43.42)million + 8.022 million = 4.375 million only!

Which would equate to an eps of 1.3 sen only!! oO

And this is with an 'assumed' 200% increase in earnings on a q-q basis!

Rather stretched valuations eh?

Of course, there would some that say that using TTM earnings is simply bullocks! This is because it's still rather too rear-view-mirror-ed.

Yes, I would agree for the markets, they like to price the stock's based on forward estimations.

Well.. how then would you want to estimate Pelikan's earnings?

Well.. take OSK.

• Maintain NEUTRAL. We maintain our earnings forecast but increased our TP to RM1.07
  as we peg the stock at a higher PE of 6.5x FY10 EPS and 0.8x P/BV as we expect the
  economy to recover gradually in 2H09 and hence a recovery in its profit, leveraging on its
  strong worldwide brand and the fact that it is involved in selling basic necessities.

OSK's estimate earnings for Pelikan in fy10 is some 37.8 million. Rather fair imo. CIMB's estimated earnings is some 34 million for Pelikan's fy10.

And here is how Pelikan is doing.

Last but not least, the sticky issue is again the rather huge disposal of shares by the Executive Chairman again during this Pelikan impressive stock performance.

For example, on the 8th June 2009, the following transactions reported.

• Disposed 27/05/2009 50,000
  Acquired 28/05/2009 6,500
  Disposed 28/05/2009 10,700
  Acquired 29/05/2009 154,000
  Disposed 29/06/2009 1,518,500 (hmm... this should read 29/05/06!)
  Disposed 01/06/2009 292,800
  Disposed 02/06/2009 90,000
  Disposed 03/06/2009 60,000

Again.. if you are a looooooooong term investor, surely you would want to know why! And why the buying and the selling of shares? What's happening?