$$$ KPO and CZM $$$: Capitaland - An Undervalued Blue Chip?

Tuesday, August 14, 2018

Capitaland - An Undervalued Blue Chip?

Capitaland needs no introduction. It is currently the 2nd largest investment in our portfolio and we have recently bought more of it even after the cooling measure.

The green arrow indicates that the latest action within 14 days is an increase in position. To be exact, we bought 1,000 @ $3.13 on 6th August 2018. Besides busy preparing for our wedding, I have been spending some time working on a side project.

The idea is simple and is based on mean reversion which means that everything will return to their mean/average eventually. I first load a bunch of historical stock prices and pull out 3 different financial numbers (NAV, EPS and DPS) from past annual reports.

These numbers will allow me to compute the various financial ratios (PB, PE and Dividend Yield). If you have no idea what they meant or what I am talking about, do read up more first.

1. From 2002-01-02 to 2018-08-10 

That is more than 16 years of data! The annualized return excluding dividends is 3.37%. Unfortunately, the annualized return including dividends is still a work in progress. Note that the mean price is $3.39.

Stock price by itself is meaningless hence the need to use various financial ratios. Based on these data, the mean PB is 1.03, the mean PE is 13.44 and the mean dividend yield is 3.01%. This allows one to know if a stock is undervalued or overvalued simply by looking if the current financial ratios are above/below the mean. To take it further, I try to predict the target price/upside by using the average of both the mean and median.

Current Price (2018-08-10): $3.31 (below mean price)
Predicted Price based on PB: $4.15 (25%)
Predicted Price based on PE: $3.82 (15%)
Predicted Price based on Dividend Yield: $4.13 (25%)

2. From 2010-01-02 to 2018-08-10 

One of the issue/limitation is that the mean can be easily skewed. Before the financial crisis, Capitaland actually once traded at around > $8, PB > 2 and PE > 30! Looking at data after the financial crisis (2010) will remove those ridiculous numbers. Notice how after investing for 8 years, one can actually be sitting at a paper loss (-2.70%) excluding the dividends? The mean price is $3.30 (lower as compared to the above).

The mean PB is 0.881, the mean PE is 12.45 and the mean dividend yield is 2.73%. You can see that the numbers are lower, hence more conservative.

Current Price (2018-08-10): $3.31 (above mean price)
Predicted Price based on PB: $3.79 (15%)
Predicted Price based on PE: $3.64 (10%)
Predicted Price based on Dividend Yield: $4.37 (27%)

3. From 2014-01-02 to 2018-08-10 

After all, 8 years is a long time. The policies/cooling measures then would have been very different from what we have now. If I were to use more recent data (within the last 5 years) to account for the more recent changes, interestingly the mean price remains at around $3.30. We are back to a positive annualized return of 2.01% excluding dividends.

The mean PB is 0.817, the mean PE is 11.41 and the mean dividend yield is 3.11%.

Current Price (2018-08-10): $3.31 (above mean price)
Predicted Price based on PB: $3.56 (7%)
Predicted Price based on PE: $3.39 (2%)
Predicted Price based on Dividend Yield: $3.80 (15%)

Investing is not as simple as just looking at these few numbers. Otherwise, all the mathematician will be millionaires. Hahaha. Notice how by changing the period/historical data, a different picture will be painted? The same stock/investment can be giving one investor positive paper gain over the years and negative paper loss to someone else. Hence, the entry price is pretty important. Having said that, I have yet to include dividends and I do believe the return should all be positive after that.

Is Capitaland an undervalued blue chip? I will leave it to you to decide :)

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  1. Replies
    1. Hahaha. To be honest, not much programming required la.

  2. Hi, Can I check if your calculations took into account the share dilution? eg rights issue, extra units issue, split, etc

    1. Nope. Just daily stock prices from SGX, technically the price will auto correct by all these corporation actions.

      The only way I know is to use Yahoo Adjusted close price but I have yet to incorporate data from other sources.