Calculating The Intrinsic Value Of Hiap Seng Industries Limited (SGX:1L2)

Hiap Seng Industries Limited (SGX:1L2) is a Singapore-based engineering and construction company that specializes in providing services to the oil and gas, energy, and other industries. With a market capitalization of SGD 26.99 million and an enterprise value of SGD 12.50 million, the company has been the subject of much debate among investors regarding its valuation. In this article, we will explore the various methods used to calculate the intrinsic value of Hiap Seng Industries Limited and determine whether the company is currently undervalued, fairly valued, or overvalued.

Discounted Cash Flow (DCF) Analysis

One of the most common methods used to calculate the intrinsic value of a company is the Discounted Cash Flow (DCF) analysis. This method involves estimating the company's future free cash flows and discounting them back to their present value using an appropriate discount rate. For Hiap Seng Industries Limited, we can use the following inputs to calculate its DCF intrinsic value:

* Free Cash Flow (FCF) Growth Rate: 6.07% (based on the company's historical FCF growth rate)
* Discount Rate: 8.10% (based on the company's Weighted Average Cost of Capital)
* Terminal Growth Rate: 3.5% (a long-term growth rate assumption)

Using these inputs, we can calculate the DCF intrinsic value of Hiap Seng Industries Limited to be approximately SGD 0.01 per share.

Relative Valuation Analysis

Another method used to calculate the intrinsic value of a company is relative valuation. This method involves comparing the company's valuation multiples to those of its peers and the industry average. For Hiap Seng Industries Limited, we can compare its Price-to-Earnings (P/E) ratio, Price-to-Sales (P/S) ratio, and Price-to-Book (P/B) ratio to those of its peers and the industry average.

* P/E Ratio: 1.2x (compared to the industry average of 6.8x)
* P/S Ratio: 1.45x (compared to the industry average of 0.54x)
* P/B Ratio: 1.18x (compared to the industry average of 0.68x)

Based on these valuation multiples, Hiap Seng Industries Limited appears to be undervalued compared to its peers and the industry average.

Asset-Based Valuation Analysis

A third method used to calculate the intrinsic value of a company is asset-based valuation. This method involves estimating the company's liquidation value or book value per share and comparing it to the company's current stock price. For Hiap Seng Industries Limited, we can calculate its book value per share as follows:

* Total Equity: SGD 22.85 million
* Shares Outstanding: 3.37 billion
* Book Value per Share: SGD 0.01

Comparing this to the company's current stock price of SGD 0.008, we can see that Hiap Seng Industries Limited is trading at a significant discount to its book value, indicating that it may be undervalued.



Conclusion

Based on the DCF, relative valuation, and asset-based valuation analyses, Hiap Seng Industries Limited appears to be undervalued compared to its peers and the industry average. However, it is essential to consider the company's growth prospects, risk factors, and other qualitative factors when making an investment decision. Additionally, it is crucial to keep in mind that valuation methods are not foolproof, and there is always a degree of uncertainty involved in calculating a company's intrinsic value.

As an investor, it is essential to conduct thorough research and consider multiple valuation methods before making an investment decision. By doing so, you can make a more informed and confident decision regarding the potential investment in Hiap Seng Industries Limited or any other company.