Pintaras Jaya; good stuff, cheap kcchongnz

Know what you own, and know why you own it. Peter Lynch
In the appended link below, we talked about if one wishes to have a good chance of earning good return from the market; he has to find a good company to invest at a cheap price.
http://klse.i3investor.com/blogs/kcchongnz/45693.jsp
But how do we go about to identify a good company? We will use Pintaras jaya, a construction company specializing in foundation engineering as an example.
Pintaras Jaya just announced its 2^nd quarter 2014 results ended 31 December 2013 with revenue and net profit increased by about 33% and 71% to 47.9m and 17.9m respectively. Net profit margin remains very high at about 30%.
Figure 1 below shows the growth in net profit for Pintaras Jaya since 2006. Except for the year 2009 just after the US sublime crisis, net profit has been growing steadily from 10m to 52.3m, or for whopping compounded annual growth rate of 27%. Can anyone find another great company, especially a construction company which has such a steady high growth?
Figure 1: Growth in net profit of Pintaras

In the previous article, I mentioned that a good company is one which provides a high return of capital. Pintaras uses just $1000 to create $300 in a year. The return on invested capital (ROIC) has been consistently more than 30% for the last few years. I challenge you to find another construction company which replicated the success of Pintaras, or even close to that.
Table 1 below shows the comparison of the return of equity (ROE) using the Du Pont analysis of some construction companies.
Table 1: ROE of construction companies

Company	Kimlun	Ptaras	HSL	Cresbld	Gamuda	IJM	WCT
Net profit margin, NPM	5.5%	30.3%	15.0%	7.0%	14.2%	12.1%	22.5%
Asset turnover, AT	1.22	0.52	0.80	0.61	0.40	0.31	0.29
Financial leverage, FL	2.66	1.22	1.58	2.92	1.92	2.07	2.85
ROE=NPM*AT*FL	18%	19%	19%	13%	11%	8%	19%

DuPont equation provides a broader picture of ROE of a company. It tells where a company's strength lies and where there is room for improvement. It is the epic of financial statement analysis of a company. Investopedia has a very good explanation on why is it important to carry our DuPont analysis on a company’s business as shown in the link below:
http://www.investopedia.com/articles/fundamental-analysis/08/dupont-analysis.asp

A discussion on the performance of the companies and the Du Pont analysis can be viewed from the following link:
http://klse.i3investor.com/servlets/forum/600043762.jsp
It is not hard to see from Table 1 above that Pintaras has the best performance with ROE of 19%, achieved with very high net income margin of 30.3%, at a low equity multiplier (or low leverage) of just 1.2. This is because Pintaras has no debt at all. Pintaras’s asset turnover (AT) is relatively low at 0.5. All it has to do is to grab more jobs and its ROE will further improved.
We also discussed about other complementary attributes of a good company; i.e. good cash flows and free cash flow to ensure quality earnings, and a healthy balance sheet as a prudent risk management. Without cash flows, a company will have to continue to borrow money for preservation of its business, business expansion, buying back shares or distributing dividends.
Table 2: Cash flows

Year	2,013	2,012	2,011	2,010	2,009	2,008	2,007	2,006	Average
Net profit	55,438	42,149	25,682	20,737	16,053	26,314	20,399	10,004	27,097
CFFO	49,090	52,882	22,740	11,624	31,751	19,707	17,214	18,655	27,958
Capex	(8,494)	(20,298)	(30,292)	(10,137)	(1,581)	(10,146)	(11,235)	(6,679)	(12,358)
FCF	40,596	32,584	(7,552)	1,487	30,170	9,561	5,979	11,976	15,600

Table 2 above shows that the quality of earnings of Pintaras is good with consistent positive cash flow from operations approximates that of net profit. For free cash flows, except for the year 2011 when 30.3m was spent on purchasing of new plant and equipment, they have been positive.
The cash generating business of Pintaras provided it with abundant cash for distribution as dividends to shareholders. Adjusted dividends have been increasing from just 5 sen in 2006 to an expected 15 sen per share as shown in Table 3 below, or a prospective dividend yield of more than 5%, much better than the 3.5% from bank fixed deposit. The rest of the free cash flow is left as cash or cash equivalent in the balance sheet. Net cash backing per share alone has increased from 35 sen 8 years ago to 98 sen now.
Taable 3:  Dividend and net cash backing per share

Year	2,014	2,013	2,012	2,011	2,010	2,009	2,008	2,007	2,006
Dividend, sen	15.0	12.5	10.0	9.5	7.5	5.0	6.0	5.0	5.0
Net cash per share	98	97	76	64	61	59	46	41	35

Pintaras Jaya as described above is clearly a great company, or a good stuff. It earns high return from capital, good cash flows and a healthy balance sheet, and distributes good dividends. It even had high growth too. Don’t you want to invest in one like this? Wait until we talk about if its price is right at RM2.95 at the close on 13^th February 2014.
KC Chong (14/2/14)