Cash Rich Companies

In such turbulent times, you would want to work for a cash rich company. There are still a lot of cash residing in many listed companies. Below are the companies within the top 100 biggest market cap with the most net cash:

1) Berkshire Hathaway $106bn
2) Bank of China $100.6bn
3) Industrial & Comm Bank of China $89bn
4) China Construction Bank $81.5bn
5) ExxonMobil $28.2bn
6) Apple $24.5bn
7) Cisco Systems $19.9bn
8) Microsoft $18.7bn
9) Google $14.4bn
10) Nintendo $11bn
11) Roche $9.9bn
12) Intel $9.8bn
13) Pfizer $9.7bn
14) Qualcomm $6.4bn
15) CNOOC $6.1bn
16) Visa $5.2bn
17) China Life $4.3bn
18) Nokia $4.1bn
19) Chevron $4bn
20) Genentech $2.9bn
21) Wyeth $2.7bn
22) Statoil Hydro $2.2bn
23) Oracle $1.8bn
24) Axa $1.7bn
25) Bristol Myers Squibb $1.2bn

Out of the top 100 biggest companies in the world, only 29 are in a net cash position. Cash within a company won't be valued at a premium if the company is perceived to be just sitting on it. Cash per share valuation will only be relevant if its a good M&A candidate, thus ruling out most China companies. Cash basically only creates a buffer for NTA valuation, which is good if you are breaking up the company or selling the company, or distributing them as dividends.

Many of the companies use their cash as investing/ corp acquisition strategy: Berkshire Hathaway, the bulk of tech companies and also drug companies - they will acquire strategic stakes to protect their turf or to fuel growth via acquisition.

Companies that uses cash to buyback shares might as well give back as dividends. I am always against share buybacks. Taking them private usually will not happen as the size is too big. Actually if KKR and TPG were to pool their resources together, in a bull market setting, they can very well take some of them private... but certainly not in current market conditions.

Locally, there are very sizable cash rich companies, but to compare on absolute basis is a bit one dimensional. A better measure would be to take the cash per share and divide it as a percentage of market price. All in RM.

Net Cash / Paid up / Cash Per Share / % of Mkt Price
MAS 4.4bn / 1.25bn / 3.52 / 109%
-admirable considering that the company has had to deal with very high jet fuel prices over the past few years, as long as Jala is at the helm, MAS can be a core long term holding
Resorts 4.15bn / 5.68bn / 0.73 / 30%
Genting 2.16bn / 3.69bn / 0.58 / 14.8%
- the cost overruns at Sentosa and slumping revenue at overseas subsidiaries may stretch demand on its cash hoard, share buybacks will have to take a backseat, cautious on both stocks
PetGas 1.53bn / 1.978bn / 0.77 / 7.8%
Sime Darby 1.16bn / 5.997bn / 0.19 / 3.2%
- very low cash position for the world' biggest plantation company, simmering problems with integration of other big plantation firms, avoid for now
Proton 1.14bn / 549m / 2.07 / 110%
- solid buy for cash if the company can be sold to a foreign carmaker, cash alone worth more than the stock, i.e. its auto assembly assets are valued at less than zero
Bursa 1bn / 519m / 1.92 / 33%
Malaysia Airports 766m / 1.1bn / 0.69 / 29.8%
UMW 745m / 521m / 1.42 / 26.7%
DIGI 504.8m / 750m / 0.67 / 2.8%
Bintulu Port 488m / 400m / 1.22 / 21.7%
- often ignored but a good, solid, conservative company, core holding
Star Pub 457m / 738m / 0.62 / 19%
YNH 323m / 356.6m / 0.90 / 75.4%
- one of the better managed property companies
Asiatic 279m / 752m / 0.37 / 8.7%
Amway 244m / 164.3m / 1.48 / 21.5%
Carlsberg 222m / 308m / 0.72 / 19.6%
JT 213m / 261.5m / 0.81 / 18%
TH Plant 204.6m / 196m / 1.04 / 77%
- another conservative plantation company, if it can boost its CPO yield, valuations will fly


p/s photo: Yuri Ebihara

Emerging Markets Valuations

There are many ways to value a market. The usual suspects are dividend yield, price/ book value, p/ cash flow and PER. On average, for emerging markets as a group, dividend yield is 4.2, P/BV is 1.9, P/CF is 9.5 and FY1 P/E ratio is 9.5. In comparison, U.S. dividend yield is 3.14, P/BV is 1.76, P/CF is 6.93 and FY1 P/E ratio is 11.8. On balance we can see that P/BV for US stocks are still lower than emerging markets average. The other danger is that price / cash flow is more attractive in US stocks. In valuation terms, I would see P/CF as the MOST important out of the 4 indicators because its real cash. Dividend yield while good, can be dramatically lower in future periods if earnings get pummeled. Price / book value is a comfort indicator and would only come into play in a liquidation potential or buyout potential, for on going market valuation, its not that important.

Just from the indicators alone, those critics who say that the emerging markets have fallen as hard as the US markets is wrong. Emerging markets may have some way to go to match US stocks' levels. That is not to say that emerging markets will head towards US valuations. But if the markets are at a premium, it may not recover as fast. For both emerging markets and U.S. markets, this level of fundamental valuation has not been seen in decades. You can also check my last post about stock markets valuation two months ago, just before global sell-off had been triggered. Green indicates attractive valuations, red denotes a sell.

Div.Y. P/BV P/CF P/E

Argentina 1.8 / 1.2 / 4.3 / 5.5
Brazil 2.2 / 1.6 / 4.6 / 6.7
Chile 3.5 / 1.9 / 6.5 / 12.2
China 3.3 / 1.4 / 5.8 / 8.2 ( looking OK on all counts, may be ready to rally)
Colombia 2.3 / 1.1 / 8.6 / 12.8
Czech Rep 6.2 / 2.1 / 6.7 / 8.8
Egypt 5.5 / 1.7 / 5.1 / 6.8
India 1.9 / 2.1 / 8.0 / 10.0 (may still have more room to fall)
Indonesia 5.3 / 1.6 / 5.4 / 7.2 ( its cheap, if the rupiah can get out of its rut, its a very good bet)
Israel 4.0 / 1.6 / 7.2 / 10.1
Jordan 1.7 / 1.8 / 6.1 / 15.2
Malaysia 5.6 / 1.3 / 5.9 / 9.6 (very decent on all counts, any further falls should attract sophisticated buyers)
Mexico 2.1 / 2.0 / 4.9 / 9.5
Morocco 2.8 / 3.8 / 20.8 / 20.5 (should have a lot of room to fall)
Nigeria 4.3 / 3.1 / 4.1 / 9.3
Pakistan 6.4 / 1.7 / 5.5 / 7.3
Peru 6.7 / 2.1 / 7.1 / 7.7
Philippines 4.3 / 1.3 / 5.1 / 9.9
Poland 5.4 / 1.3 / 5.5 / 7.5
Russia 2.7 / 5.8 / 81.7 / 3.5 (this market can totally collapse further)
Slovenia 2.2 / 1.5 / 11.5 / 12.8
South Africa 4.7 / 1.8 / 6.4 / 8.1
Taiwan 7.7 / 1.1 / 3.9 / 9.6 (very cheap, probably the best Asian market to go long)
Thailand 7.7 / 1.0 / 3.8 / 5.5 (even better than Malaysia)
Turkey 5.1 / 1.1 / 3.8 / 5.6 (had fallen enough, now to get the currency healthy again)


p/s photos: Tangmo Pattarathida