Jan 21, 2014

Revalued Net Asset Valuation (RNAV) & Sum-of-Parts Valuation (SOP)


These are 2 common valuation that are rarely used by Retail investors. Reason being because lack of resource and it requires proficiency in understanding and estimating business earning by division/business segment.
Example below are the valuation for CMSB (Cahya Mata Sarawak Berhad). Remember this is NOT a BUY NOR SELL recommendation. I will not be held responsible for any action taken by you.

Revalued Net Asset Valuation
It is based on so called experts' judgement that the market value of certain assets of a company far exceeds that of their book value, and a revaluation is justified. The most well known example would be that of property companies where market benchmarks can be easily established and revaluation based on such benchmarks are credible.


Sum of Parts Valuation
Sum of the parts valuation, in most cases, is done roughly basis. First, a firm is broken down into asset classes or businesses, even though there may be overlap across businesses or centralized support services. Second, the earnings or other operating metric for each asset class/business is converted to an estimated value, using the average multiple at which publicly traded companies in that business trade for. Third, the estimated values of the businesses are added up and compared the actual market value.

What is the different between SOP and RNAV? if you noticed, RNAV is normally used to value land banking asset. SOP is particularly used to project earning (Profit before tax or EBITDA) plus (Net Cash- Net debt) plus holding in other subsidiaries. Of course we can combine both RNAV and SOP into one valuation.

To be on the safe side, we reduce the value using margin of safety (MOS) discount as a buffer against over valuation. MOS discount can be in the form of 30-50%. Considering Market Price versus MOS Price, if the gap is so high, You know what it means. It is massively undervalued.

Of course I bought CMSB when it was RM2.45++. At the time I bought, it is really massively undervalued. Now, Considered as Fairly valued.


Hope you have learned something.