VMP Slides PDF

Valuation Mastery Program
Important Disclaimer
1. This programme and its contents contains the opinions and ideas of its
authors. It is not a recommendation to purchase or sell the securities of
any of the companies or investments herein discussed. The programme
is sold with the understanding that the trainers and their associates are
not engaged in rendering legal, accounting, investment or other
professional services. If the participant requires expert financial or other
assistance or legal advice, a competent professional should be consulted.
Neither the trainers nor the associates can guarantee the accuracy of the
information contained herein the programme and its contents.
2. Other than being shareholders of Berkshire Hathaway at the time of

writing, The Trainers are not in any way related to Warren Buffett or any
other Investors mentioned in the Programme notes.
3. The trainers and associates specifically disclaim any responsibility for any
liability, loss, or risk, professional or otherwise, which is incurred as a
consequence, directly or indirectly, of the use and application of any of
the contents of the Programme.
All Rights Reserved by 8VIC Global Pte Ltd

No Copy and Reproduction Allowed
Purpose of Valuation
Dow Jones Industrial Index

Purpose of Buying Undervalued
• Improve Return on Investment
• Reduce time taken to make profit
• Reduce Risks

Your money’s MAIN PROTECTIONS
in the stock market are the RIGHT
STOCK/ASSET & HOLDING POWER

RECAP - PIECERISK
PIECERISK
• P – profitability (EPS)
• I – Inflow of cash (Operating Cash Flow)
• E – Efficiency (ROE)
• C – Conservativeness (Debt/Equity)
• E – Economic Moat
• R – Regulatory Risks
• I – Inflation Risks
• S – Science & Tech Risks
• K – Key People Risks

• 5 Types of Economic Moat
- Intangible Assets
- Cost Advantage
- Switching Cost
- Network Effect
- Efficient Scale

Intangible Assets
• Brands
• Licenses
• Patents / Trademarks
• Trademarks

Cost Advantage
• Lowest Cost Producer
• Achieved through huge scale or efficient process

Switching Cost
• The cost to switch is too high
• Lock down customers

Network Effect
• Companies that controls huge amount of data
• A large network makes the company sticky to their
customers

Efficient Scale
• Companies that serve a niche or market with high
barriers of entry
• Very Few or limited competitors

Valuation
Not All Apples Are Created Equal
• Different Type of Companies requires different type
of valuations.
• 6 Different Type of Companies

- Fast Growers
- Stalwarts
- Slow Growers
- Asset Plays
- Turnarounds
- Cyclicals

Fast Growers
• Expected revenue growth rate > 15%
• Make sure its high quality growth (Growth with stable

margins)
• Management with growth mindset
• Long Runway for growth
• Limited dividend payouts
• Risk level: Moderate

Stalwarts
• Stalwarts are companies that have very dominant
positions in their industry.
• Grows slightly faster than economy (Between 5 -15%).
• Recession-proof.
• Tend to pay “OK” dividends
• Risk level: Low

Slow Growers
• Companies that are growing about the same rate or
maybe slightly better than the economy (0-5%).
• Tend to pay-out very generous dividends.
• Risk Level: Low - Moderate

Asset Plays
• Companies that possess a lot of valuable assets
• They may or may not use these assets to generate

cash flow for their operations
• Valuable Assets:
- Investment properties
- Stocks
- Cash & Cash Equivalents
• Risk Level: Low - Moderate

Turnarounds
• Companies that are facing temporary difficulties that
are non-fatal to the business.
• Usually require a white knight/change in business

strategy to save the business.
• Risk level: High

Cyclicals
• Companies whose products/services are subjected to
market forces outside the company’s control.
• Example: Oil price, Rubber Prices, Commodities
• Extremely hard to time the cycle
• Risk level: High

• Fast Growers
• Stalwarts
• Slow Growers
• Asset Plays
• Turnarounds
• Cyclicals

Valuation Models
PE Ratio
𝑆ℎ𝑎𝑟𝑒 𝑃𝑟𝑖𝑐𝑒
• 𝑃𝐸 𝑅𝑎𝑡𝑖𝑜 =
𝐸𝑎𝑟𝑛𝑖𝑛𝑔𝑠 𝑃𝑒𝑟 𝑆ℎ𝑎𝑟𝑒
• PE Ratio in theory tells us how many years does it take for you
to breakeven on your investment.
• The lower the PE Ratio, the cheaper the company is.
• Also indicates market’s current confidence in the company.
• Criteria to use:
- Long track record of stable revenues and profits

In General…
PE Ratio < 10 ➔ Very Cheap companies
PE Ratio < 15 ➔ Cheap companies
PE Ratio between 15 – 20 ➔ Fairly priced companies
PE Ratio > 20 ➔ Companies trading at a premium
However, cheap doesn’t necessarily indicate if it is undervalued

and expensive doesn’t mean its overvalued. Some companies
trade at a premium/discount for a reason.
Example:
Is the price for a Lamborghini overvalued?
Is the price of a fake ‘night market’ Rolex undervalued?
Relative Forward PE Ratio (RFPE)
• Used to determine if a company is cheaper/more expensive than usual
& take advantage of mispricing of stocks.
• The market values every company/industry differently.
• Defensive companies/industries tend to trade at very high PE Ratios.

E.g. Healthcare, Education, FMCG
• Companies with less consistent/predictable tend to get lower PE Ratios:

Property developers, Oil and gas
• Therefore, need to compare historical PE Ratios.
• Criteria to use:
- Long track record of stable revenues and profits
- No significant change in fundamentals when valuing the company.
Steps
1. Take the past 5 years PE Ratio of the company
2. Eliminate any outliers
3. Calculate the mid-point between them. That is the Fair

value PE Ratio.
4. Multiply the Fair value PE Ratio with TTM EPS to get fair
value of the stock.
(Use TTM EPS to consider future growth of the

company)

Example 1: Hartalega
Year PE Ratio
2014 26.78x
2015 34.70x
2016 44.09x
2017 41.45x
2018 91.72x
2019 45.00x
EPS 0.106
• Remove outlier 91.72x out from analysis

• Highest PE Ratio: 45x; Lowest PE Ratio: 26.78x
• Fair value PE Ratio = 35.89
• Fair value = 35.89 x 0.106 = RM 3.80
Example 2: Magni-Tech
Year PE Ratio
2014 9.80x
2015 9.96x
2016 15.96x
2017 12.00x
2018 7.63x
2019 9.80x
EPS 0.494
• Highest PE Ratio: 15.96x
• Lowest PE Ratio: 7.63x
• Fair Value PE Ratio: 11.80x
• Fair value: 11.8 X 0.494 = RM 5.82
When To Use Other Valuation Models
• For some companies, the PE Ratio valuation will not
make sense.
Eg: Karex (PE:93.44x)

E.g. Sunway REIT (PE: 13.14x)

Other Valuation Models
Dividend Yield Valuation
• Used only on dividend paying companies.
• Before using, ensure that company have very strong

track record and ability to pay dividends.
• - Strong revenue and profit generation

- Strong Cash Flow
- Strong Balance Sheet
- Strong Dividend pay-out track record

𝐸𝑥𝑝𝑒𝑐𝑡𝑒𝑑 𝐷𝑖𝑣𝑖𝑑𝑒𝑛𝑑
𝐷𝑖𝑣𝑖𝑑𝑒𝑛𝑑 𝑌𝑖𝑒𝑙𝑑 = × 100%
𝑆ℎ𝑎𝑟𝑒 𝑃𝑟𝑖𝑐𝑒
• Minimum dividend yield = 5% to be undervalued

Price/Book Valuation
• Used when we are interested mostly in the underlying assets in the
company.
• Assets must either be easily liquidated at market value or able to

generate cash flow for the company.
• PIECERISK must not be ignored!
• Normally requires a catalyst to unlock its value
• Assets that can be confidently classified in an asset based company:

- Investment assets (Stocks/Bonds/Unit Trusts etc)
- Investment Properties
- Cash

𝑃𝑟𝑖𝑐𝑒 𝑆ℎ𝑎𝑟𝑒 𝑃𝑟𝑖𝑐𝑒
• =
𝐵𝑜𝑜𝑘 𝑁𝑒𝑡 𝑇𝑎𝑛𝑔𝑖𝑏𝑙𝑒 𝐴𝑠𝑠𝑒𝑡
• P/B > 1 ➔ overvalued
P/B = 1 ➔ Fair Valued
P/B < 1 ➔ Undervalued

Advanced Valuation Model:
Future Share Price (FSP) Model
Overview
• Calculates the expected return by estimating future
share price.
• Best used on companies with predictable revenues

and profits.
• Requires strong confidence on company’s future

• Formula to calculate future share price:
𝐹𝑢𝑡𝑢𝑟𝑒 𝑆ℎ𝑎𝑟𝑒 𝑃𝑟𝑖𝑐𝑒 = 𝐹𝑢𝑡𝑢𝑟𝑒 𝐸𝑃𝑆 × 𝑃𝐸 𝑅𝑎𝑡𝑖𝑜
• Calculate future EPS:

𝐹𝑢𝑡𝑢𝑟𝑒 𝐸𝑃𝑆 = 𝑇𝑇𝑀 𝐸𝑃𝑆 × (1 + 𝐺𝑟𝑜𝑤𝑡ℎ 𝑅𝑎𝑡𝑒)𝑁𝑜. 𝑜𝑓 𝑌𝑒𝑎𝑟𝑠
• PE Ratio = Use Fair Value PE Ratio/Lowest PE Ratio

Example: DISNEY
• Diluted TTM EPS: $5.50 per share
• CAGR over next 10 years: 5%
• Highest PE Ratio: 27.98

Lowest PE Ratio: 12.31
Fair Value PE: 20.145
• Expected EPS 10 years later: $8.96 per share

Future share price: 8.96 x 20.145 = $180.50 per share
Current share price $139.92
• Return over 10 years from 139.92 to 180.50 : 2.58% per year

➔ Better put money in Fixed Deposit!!
FSP Calculator
• Fill in the yellow columns
• Expected ROI = your

expected yearly returns.
Put 10% minimum
(Conservative), maximum
15% (optimistic)
• The answers will be

generated in blue


VMP Slides PDF

Uploaded by

Document Information

Original Description:

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

VMP Slides PDF

Uploaded by

Copyright:

Available Formats

Valuation Mastery Program

2. Other than being shareholders of Berkshire Hathaway at the time of

All Rights Reserved by 8VIC Global Pte Ltd

All Rights Reserved by 8VIC Global Pte Ltd

• Improve Return on Investment

• Reduce time taken to make profit

All Rights Reserved by 8VIC Global Pte Ltd

All Rights Reserved by 8VIC Global Pte Ltd

All Rights Reserved by 8VIC Global Pte Ltd

All Rights Reserved by 8VIC Global Pte Ltd

All Rights Reserved by 8VIC Global Pte Ltd

All Rights Reserved by 8VIC Global Pte Ltd

All Rights Reserved by 8VIC Global Pte Ltd

All Rights Reserved by 8VIC Global Pte Ltd

All Rights Reserved by 8VIC Global Pte Ltd

• 6 Different Type of Companies

All Rights Reserved by 8VIC Global Pte Ltd

• Make sure its high quality growth (Growth with stable

• Management with growth mindset

• Long Runway for growth

• Limited dividend payouts

• Risk level: Moderate

All Rights Reserved by 8VIC Global Pte Ltd

• Grows slightly faster than economy (Between 5 -15%).

• Tend to pay “OK” dividends

• Risk level: Low

All Rights Reserved by 8VIC Global Pte Ltd

• Tend to pay-out very generous dividends.

• Risk Level: Low - Moderate

All Rights Reserved by 8VIC Global Pte Ltd

• They may or may not use these assets to generate

• Risk Level: Low - Moderate

All Rights Reserved by 8VIC Global Pte Ltd

• Usually require a white knight/change in business

• Risk level: High

All Rights Reserved by 8VIC Global Pte Ltd

• Example: Oil price, Rubber Prices, Commodities

• Extremely hard to time the cycle

• Risk level: High

All Rights Reserved by 8VIC Global Pte Ltd

All Rights Reserved by 8VIC Global Pte Ltd

• The lower the PE Ratio, the cheaper the company is.

• Also indicates market’s current confidence in the company.

All Rights Reserved by 8VIC Global Pte Ltd

PE Ratio < 15 ➔ Cheap companies

PE Ratio between 15 – 20 ➔ Fairly priced companies

PE Ratio > 20 ➔ Companies trading at a premium

However, cheap doesn’t necessarily indicate if it is undervalued

• The market values every company/industry differently.

• Defensive companies/industries tend to trade at very high PE Ratios.

• Companies with less consistent/predictable tend to get lower PE Ratios:

• Therefore, need to compare historical PE Ratios.

2. Eliminate any outliers

3. Calculate the mid-point between them. That is the Fair

(Use TTM EPS to consider future growth of the

All Rights Reserved by 8VIC Global Pte Ltd

• Remove outlier 91.72x out from analysis

Eg: Karex (PE:93.44x)

All Rights Reserved by 8VIC Global Pte Ltd

All Rights Reserved by 8VIC Global Pte Ltd

• Before using, ensure that company have very strong

• - Strong revenue and profit generation