SUCCESS (KLSE 7207) - Success Transformer Corporation Berhad - Part II

Let's continue with yesterday analysis, for the ROE (return of Equity), it is ~19.23% year 2009 which is the highest among the industry. Also for the past 5 years, the ROE is consistently >15% which met my criteria of ROE > 15%.

For the NTA (Net Tangible Asset), is RM136m vs market capital of RM123M, which mean the NTA/share is ~RM1.135.

Now, let's look at the cash flow, cash from from operating activities increased from RM5.7m to RM29.5m y2005 to y2009, giving a growth rate of 39%. By using the DCF (Discounted Cash Flow) method by Warren Buffett which i set the growth rate as 30%. The target price is actually RM7.78! Which is >700% than the current price ~RM1.03.

Considering the PE of the industry around 12, i will actually set a target price of RM2 with PE ~10 for now. I think this is reasonable enough for a high growth company like SUCCESS.

Remembered that i mentioned yesterday that i will check on the dropping of the net profit from 2009 to 2010? It is due to lower contribution of its process equipment segment following the listing of SEB (Seremban Engineering Berhad) on Bursa Saham Malaysia, which reduce its stake in SEB from 100% to 65%.

However i believe with the expansion plan eoy 2010, the company will be able to grow rapidly, thus i will recommend to buying in this stock with a very attractive price now.