Sunday, January 21, 2018

Analysis of AEONCR in Peter Lynch's way

AEONCR is a financial company and Peter Lynch provides a specific set of fundamental analyses for investors to determine financial companies' financial soundness and valuation.

Note: This analysis is conducted using its latest number of outstanding shares (248,355,252) as announced on 16/01/2018. 
According to Lynch's 6 categories of company, AEONCR is considered as a "Fast Grower". Since its IPO, AEONCR has grown its earnings at 25.9% CAGR.

AEONCR's revenue has grown at 23.2% CAGR within the same period. Given that the growth rate of earnings is higher than that of revenue, AEONCR has demonstrated improved operating efficiency.

AEONCR would fall into the "Dividend Payers" sub-category according to Lynch. Its dividends paid to shareholders have increased at 30.1% CAGR.

According to Lynch, the Equity/Assets Ratio is the most important metric of all. It measures a way to determine a financial company's financial strength and survivability. AEONCR's Equity/Assets ratio is 19.1%. It is healthy and above Lynch's minimum requirement of 7.5%. It is, at the same time, higher than the statutory 16% requirement.

The Return on Assets measures a financial company's profitability. AEONCR's ROA is 3.9%, way above Lynch's 1% minimum requirement.

Although Lynch suggests that the Yield of a "Fast Grower" should be low, which includes being lower than the index benchmark average. However, the dividend yield for AEONCR is 3.5% versus approximately 2.5% yield of KLSE index.

The trailing P/E/G ratio for AEONCR is 0.43 (divide trailing P/E 11.22x by 25.9% CAGR of earnings). When our calculation is based on the average of the 3, 5 and 10 year historical diluted EPS growth rates, their respective P/E/G ratio also suggests that AEONCR is undervalued. 

Although Lynch does not emphasize Price/Book Value ratio, Warren Buffett has used it in conjunction with Return on Assets to extrapolate if a profitable bank is reasonably valued.

In many occasions, Buffett said that a financial company generating ROA above 1% should see its stock pricing above 1x P/BV.

P/Book Value RATIO:
The trailing P/BV ratio for AEONCR is 2.23 (divide stock price RM13.46 by RM6.04 book value). In view of its ROA 3.9%, the P/BV ratio suggests that AEONCR is undervalued. 

Would you invest in AEONCR?