FA - CSC fair value analysis

FY0607 financials (at 31/03/07)

- Rev: $127m (+18%)
- Net profit: $8.6m (+128%)
- Gross profit margin: (8.6m/127m)x100% = 6.8% (* bear in mind a one off asset disposal)
- EPS=$0.0086 (+126%, FY0506: $0.0038)
- Shares as at 31/03/07: 1,112,391,951

1. Analysis based on EPS growth

- 23/05/07 closing price before FY0607 released at $0.385. Market price CSC at historical FY0506 PE 101x (0.385/0.0038), at which CSC is highly over-valued.

- 04/07/07 closing price at year peak high at $0.495, market price CSC at historical FY0607 PE 58x (0.495/0.0086).

- After the recent sell off pressure, closing price on 03/08/07 at $0.35, market price CSC at historical FY0607 PE 41x (0.35/0.0086).

- Assume EPS growth at 100% (lower than FY0607 126% to adjustify no more asset disposal and robust FY0708 financial results due to buoyant construction sector), FY0708 EPS will be $0.017 (0.0086x2).

Verdict

CSC fair trading PE should be at 45x, so in year 2008 (in April - May), bearing unforeseen negative market sentiment, CSC fair value should be trading at $0.77 level (45x0.017) or even higher in year 2008.


2. Analysis based on revenue/profit margin growth (conserativate approach)

- Assume FY0708 revenue at $240m ie, 88% growth
- Assume FY0708 profit margin at 6.8%, ie, same as FY0607 to offset no more asset disposal
- Thus, FY0708 Net profit = $240x6.8% = $16.32m
- Thus, FY0708 EPS = $16.32m/1,112m shares = $0.015

Verdict

Based on fair trading PE of 45x (thought it is high but still not very demanding as construction sector is in red hot boom cycle), CSC fair value should be trading at $0.67 (45x0.015) in year 2008.