ACCT201: Corporate Reporting & Financial Analysis

Section: G4
Group: 2
Company: 800 Super Holdings Ltd.
Submission Date: March 2015
Instructor: Professor ZANG Yoonseok

Team Members:
Chua Qi Neng (S9130526G)
Kashminder Singh Mohan (S9005870C)
S. Raveen Krisan (S9102237J)
Yim Hui Yu Daphne (S9302984D)

800 Super Holdings Ltd.

Rating

Buy

Super services, Superb buy

Target Price (SGD$)

0.55

Our analysis of 800 Super Holdings (800 Super or the

Upside (%)

25.14

Date

20/3/2015

Group) has prompted us to recommend a BUY on the

stock, attributing this to the Groups competitive
advantage over competitors, strong financials &
stable cashflows, and favourable fundamentals.
Using a cost of equity of 5.38%, and a conservative

Stock Information

terminal growth rate of 0.5%, we arrived at our target

price of SGD$0.55 with an upside of 25.14% using the

Stock Chart

Residual Income Model. This represents a forward P/E of

8.64x compared to TTM P/E of 6.27x. Compared to 800
Supers closest competitor, Colexs P/E of 8x also
signals potential undervaluation of 800 Supers stock.

Investment Thesis
Source: Yahoo! Finance, retrieved on 18/3/15

Competitive Advantage
First we have to recognise that 800 Supers core
businesses operates in an monopolistic competition

Key Information

market with high barriers to entry. By providing both

Financial Year End

30th June

waste management and public cleaning services, 800

Industry

Environmental
Services

Super is able to package themselves as a one-stop

Stock Ticker

5TG.SI

environmental service provider who can cater to both

aspects. The eventual shift towards recycling also
brightens the outlook for 800 Super, as the firm prepares
for the recycling boom by investing in Material Recovery
Facilities that are essential in the recycling process.

Stock Information
Share Price (SGD$)

0.44

Share outstanding (millions)

178.8

Market Capitalisation (SGD$m)

78.672

EPS (SGD$)

0.0633

also acknowledge the fact that environmental services is

52-week Range (SGD$)

0.24 - 0.57

resistant to seasonality and market factors, and is

Stable Cashflow
With the uniformed fee in placed by the National
Environmental Agency, 800 Supers ability to increase
prices through service dierentiation may be limited, but
it also prevents an overly price-competitive market. We

Source: Bloomberg, as of 20/3/15

essentially recession-proof. This ensures stable

cashflows that are resistant to price competition.

Key Financial Ratios

Year

2012

2013

2014

2015F

2016F

2017F

2018F

2019F

Revenue ($000)

89,455

97,881

115,419

145,313

148,219

150,442

151,946

1522,707

EBITDA

10,385

10,782

16,392

20,638

20,324

19,130

17,808

17,897

Net Income

5,960

5,641

9,051

11,394

10,598

8,825

7,267

6,601

P/E

12.8x

13.4x

8.6x

8.64x

9.28x

11.14x

13.53x

14.90x

P/BV

2.5x

2.2x

1.9x

1.94x

1.66x

1.48x

1.37x

1.29x

EBITDA Interest
Coverage

17.1

11.6

12.3

12.55

10.01

7.54

6.40

6.03

ROE

19.62%

16.39%

21.78%

22.48%

17.90%

13.32%

10.13%

8.63%

Strong Financials

boosted the Groups business and strengthened their

Despite 800 Supers FY2014 revenue not capturing the

position as an environmental service provider. Currently,

full value of the new contracts awarded, revenue growth

the Group only operates in Singapore and is seeking for

surged by approximately 18% y-o-y as compared to

opportunities to expand in the region.

FY2013. As part of our revenue forecast, we have taken

this into account and expect revenue growth to increase

Services

further to 26% in FY2015 (Refer to Appendix 2 for our

revenue forecast). 800 Super has also maintained a
gross profit margin and net profit margin that surpasses
both the industry average and Colex, who is 800 Supers
closest competitor.

Waste Management and Recycling

800 Super is one of the four licensed public waste
management companies appointed by the National
Environmental Agency (NEA). Services are provided to
public housing estates, shop houses, trade premises,

Favourable Fundamentals

landed residential premises, as well as private

Compared to Colex, 800 Supers fundamentals may

apartments and condominiums in the sector. Apart from

seem less than desirable, but it is still performing well

public projects, 800 Super also takes up projects from

compared to the industry average. The high debt level is

industrial and commercial sights, including shopping

attributed to expansion plans to accommodate the

complexes, hotels, factories and shipyards.

increase in market share, and the firm is financially

capable to meet its financial liabilities (A Z-score of 2.57).
Overall, we believe that the industry as a whole is being
undervalued due to the unglamorous nature of the
operations. Refer to Appendix 3 for financial ratios.

Company Overview

Cleaning & Conservancy

800 Super also provides cleaning services and is
responsible for the cleansing of public areas in the
North-East district of Singapore. These includes public
roads and pavements, and Pasir Ris and Punggol
beaches.

800 Super provides integrated environmental services

Horticultural

such as solid waste management, horticultural services,

More recently, 800 Super diversified into horticultural

and cleaning services to clientele in both private and

services such as grass-cutting, planning, and

public sectors, giving it the one stop shop brand that

maintenance of landscape. They also provide

the firm prides itself in. While waste management

aboricultural services such as planting and pruning of

remains as the Groups core revenue driver, strategic

trees and plants.

ventures and acquisitions in the recent years has

Industry Analysis

1,260 tonnes a day in 1970 to a peak of 8,289 tonnes a

day in 2013. Waste management has become an integral
part of Singapores planning and is constantly provided

Environmental
services:

3 Main Growth Drivers

1. Population Growth
Assuming waste generated per pax remains
constant, a growing population will increase
total waste.

with the Governments support. As part of the

Governments eort to improve the industry, Singapore
was consolidated from 9 to 6 sectors to reduce duplication
of services and encourage greater cost savings from
economies of scale.

A uniformed fee has also been implemented to ensure a

2. Economic Growth

consistent fee structure across sectors. This reduces the

Economic growth is often accompanied with

eects of product dierentiation and forces the players to

higher levels of consumption due to increased

engage in cost reduction activities to increase margins.

disposable income from higher wages. The

Public waste management contracts are awarded by the

increase in consumption will fuel waste

National Environmental Agency on a tender basis and

generation and increase the need for waste

usually lasts for 7 years. Apart from public waste

management.

management, NEA also awards contracts for integrated

3. Environmental Initiatives
As more emphasis is placed on environmental
awareness, campaigns promoting a green

public cleaning (IPC) of which 800 Super was awarded IPC

contracts for the South West and North West regions of
Singapore.

Singapore are gaining popularity. Recycling

initiatives are encouraging households to

Total Waste Generated (mn tonnes)

recycle more and thus increase demand for

recycling collection.

While 800 Super deals with various environmental

services, the sub-sector that drives the Groups revenue
is waste management and recycling. This sub-sector is
dominated by the four main players licensed by NEA to
provide public waste collection. Of the four players,

Waste Treatment (mn tonnes)

only Sembcorp, Colex, and 800 Super are listed.

Breakdown of Public Waste Management Operations

Waste Treatment by Percentage

Source: National Environmental Agency

Since 1970, Singapores growing population and

booming economy have contributed to a 6-fold
increase in the amount of solid waste disposed from

Source: Ministry of Environment and Water Resources, PhillipCapital

Looking into the details, we noticed that recycled waste

Porters 5 Forces

has been increasing at a rapid speed, overtaking

incinerated trash in 2004 as the most utilised form of
waste treatment. As recycling starts to play an increasing
importance in our lives, the demand for recycled trash
collection and sorting will definitely surge in the future. The
Inter-Ministerial Committee on Sustainable Development
projected that the domestic recycling rate will hit 65% by
2020 and 70% by 2030 respectively. Moreover, IE
Singapore has also expressed its intentions to develop the
waste management industry and position Singapore as a
centre for waste management technology in the region.

Buyer Power: Moderate

Customers are mostly large statutory boards or
corporates that are financially strong. However, the

Year

2009

2013

Amt of skyrise
greenery (ha)

10

61

Amt of green
space (ha)

3602

4040

Length of park
connectors (km)

110

216

customer pool is still big as compared to the 4 major

incumbents in the industry. As such, the loss of a
customer would have a moderate eect on revenues.

Supplier Power: High

Source: Sustainable Singapore Blueprint

Suppliers include foreign technology firms producing

automated machines and equipment for cleaning and
landscaping purposes. The number of firms that focus

The Ministry of Environment & Water Resources also

on production of such equipment are very minimal,

initiated the Sustainable Singapore Blueprint in 2009, to

especially in Asia, which means that most suppliers are

promote the use of green practices and to give

based in Europe or North America.

Singapore an environmental facelift. The table above

shows the amount of green space which has risen by

Threats of New Entrants: Moderate

12% in half a decade since the initiation of the program.

As this is an asset-reliant industry, the high initial capital

As a result of these initiatives, the Ministry of Trade and

together with the uniformed pricing act as high barriers

Industry (MTI) recently highlighted that the horticulture

to entry. The time taken for new entrants companies to

and landscaping services cluster would be seeing

establish themselves would take a considerably long

steeper annual growths with demands rising in both

time.

residential areas as well as public and tourist spots.

Threats of Substitutes: Weak

Given the rapidly rising domestic demand for waste

Threats of substitutes is weak. The rapid pace of

management systems and infrastructure, there is a

technology change means that newer equipment

myriad of opportunities for Singapore-based waste

continually replaces older products, and oers

management companies to pioneer new waste recovery

incumbent companies an added advantage.

techniques in order to remain competitive and

sustainable. This provides a conducive business

Degree of Rivalry: High

environment that will support 800 Supers operations in

The market is highly competitive and characterised by

Singapore and would go a long way to ensure continued

rapid technological change. Competitors range from

growth at a healthy rate in the coming years.

small companies that compete with a single product in a

single region to global and diversified companies with a
range of products.

We believe that its current value chain capabilities,

Value Chain Analysis

especially its integrated services, cannot be easily

imitated and substituted and thus is able to oer a

Value Chain Analysis Framework

sustainable competitive advantage. As a result, the

combination of integrated services and innovative
operations is able to oer scope for dierentiation and
cost advantage for its value chain.

In terms of positioning, 800 Super currently owns 2

Material Recovery Facilities (MRF) where collected
recycled waste is delivered to be sorted and shipped to
re-processing plants, and a 3rd MFR is currently in the
pipe-line. The Group is also able to provide horticultural

Integrated Services

services through its subsidiary. This puts the Group in a

800 Super has been successful in diversifying its

very advantageous position to capitalise on the potential

business scope by specialising in complementary

boom in the recycling and horticultural industry, as it is

services such as landscape maintenance and contract

considered an incumbent in a monopolistic competitive

cleaning in addition to its core business, waste

market with high barriers to entry.

management. This has enabled the company to share

resources and expertise across the dierent services

SWOT ANALYSIS

and develop its capabilities as a one-stop shop for its

customers. The integration of its services has aided the
company to maximise productivity, thus, creating more
value for its shareholders and customers.

Strengths

Innovative Operations

Integrated and diversified services for

environmental solutions and management, which
gives 800 Super a strong competitive position.

800 Super has attempted to automate its operations to

Major player in waste management and

landscaping services in the domestic scene.

cater to the unique needs of its diversified customer

base. Its innovative business and operational processes

Has strong commercial relationship with

governmental bodies and public organisations.

play a vital role in its value chain by allowing it to

diversify across industries, thus enabling greater volume

Possess highly automated systems in its

operations, which has developed its eciency.

and stream of revenue, maximising services as well as

equipment utilisation.

Weaknesses

It is relatively less established as compared to its

major rivals, Sembcorp and Colex Holdings,
which possess a first mover advantage.
Taking a closer look to evaluate its value chain
capabilities, we believe that its integrated services play a
paramount role in the firms recent growth. The ability to
complement services that fit its clients various needs
helps to build client relationship and thus justifies its
investment into diversifying its business scope.

Lack of foreign exposure in terms of its business

operations.

Opportunities

cost reduction through improved

Potential

process automation new advancements in

technology in the waste management industry
promises improved process automation.
Organisations like IE Singapore and SPRING
Singapore are oering platforms for local waste
management companies to expand overseas
and develop their expertise.
Rising demand for waste management and
landscaping services especially in Singapore,
with the NEA initiating several nation-wide
programs.

800#Super#Holdings#Financials#
!140.0!!
!120.0!!
!100.0!!
!80.0!!

Revenue!

!60.0!!

Gross!Prot!

!40.0!!

Net!Income!

!20.0!!
!0!!
2010!

2011!

2012!

2013!

2014!

2014!
LTM!

Source: 800 Super Annual Reports

Threats

More recently on 16th February 2015, 800 Super

Intensifying competition in industry Diversity of

competitors from large major players to smaller
firms that oer various forms of specialisation
may erode 800 Supers profitability and market
share.

$39m by the Ministry of Home Aairs to provide cleaning

Rising cost of operations in Singapore,

especially since 800 Supers operations largely
involve the utilisation of its equipment and labour
for its diversified services.

close working relationship with large public institutions

announced that they were awarded contracts worth SGD

and horticultural services for the east and west regions of
Singapore. The contracts span three years, starting from
1 April 2015 and ending on 31 March 2018. 800 Supers
and the long-term contracts ensures stable cashflows for
at least the next seven years. At the same time, 800
Super is able to take on more projects within the private
sector to boost revenues further.

Financial Performance

For the past 3 years, 800 Supers revenue has been

experiencing growth of at least 10% y-o-y, and other
profitability margins are improving as well. This is a good

The Group experienced a remarkable 17.9% growth in

indicator of 800 Supers investments in cost-reduction

total revenue from 2013 to 2014, with gross profit

technology, as well as reaping economies of scale from

margin increasing from 20.5% to 23.5%. Net income

the consolidation of sectors. We can expect the trend to

margin for 2014 also outperformed that in 2013,

continue in the coming years, but with growth tapering to

recording a net income margin of 7.8%. All in all, 2014

lower levels. This is mainly due to the implementation of

has proved to be a stellar year for the Group and this is

the uniformed fee for public projects and diminishing

expected to continue into 2015.

cost savings from investing in cost-saving technology.

Despite that, 800 Supers establishment in the industry

Since their appointment in 2006, 800 Super has been

will give it some form of market retention so long as it

providing waste collection services to the Ang Mo Kio-

continues to provide ecient and quality service.

Toa Payoh sector. The contract, worth SGD$160.6m

was recently renewed by NEA for the period of 1st

With the diversification into horticultural services and the

January 2014 to 30th September 2021. In addition, NEA

increased emphasis on waste recycling, we can expect

also awarded 800 Super with a 7-year SGD$204.9m

high growth potential in these two sub-sectors which will

contract to provide integrated public cleaning services

add onto 800 Supers already stable cashflow.

for the South-west region of Singapore and a 6-year

SGD$97.3m contract for public cleaning services in the
North-west region.

Favourable Fundamentals

Short-term Liquidity Ratios

Current Ratio

*Refer to Appendix 3 for Financial Ratios

800 Supers ability to service its short-term debt has

been fairly decreasing over the years from 2012 to 2014.

Profitability Ratios
Our group selected three ratios to discuss the
profitability of 800 Super as an entity. EBITDA margin
ratio is used as the basis to compute the profitability
index of 800 Super. From Appendix 3, it can be seen that
the industry average for EBITDA margin is eectively
much higher at 25.0% while 800 Super and its closest

This is mainly due to short term debt obligations for

warehouses that 800 Super acquired in the Pasir Ris
region as part of its expansion plan to facilitate
operations in the east. This however, is of no cause of
concern as it is still at a relatively liquidated position with
a liquidity ratio of 2 which is very similar to Colex.

competitor, Colex are very similar in terms of the EBITDA

Long-term Solvency Ratios

margin at approximately 13.6%. The justification is that

EBITDA Interest Coverage Ratio

the industrial average constitutes of other firms that

As 800 Super is an asset intensive firm, we believe that

provide more services beyond just waste management

using EBITDA as our numerator for the interest coverage

that includes trucking and waste treatment to name a

ratio would better reflect 800 Supers economic reality.

few. We attribute this to the waste management

From the ratio analysis, 800 Supers interest coverage

industrys high reliance on labour, resulting in extremely

ratio of 12x is way above the industrial average of

high levels of sta costs. 800 Supers sta cost reached

approximately 5x. While this pales in comparison to

an astounding level of 47% of revenue in 2014, bringing

Colexs coverage ratio of 62x, we believe the Colex is an

its EBITDA margin down significantly. Overall, 800 Super

exception due to its low levels of debt. Colex has been a

outperforms the industry and Colex in net profit margin

100% equity firm until recently in 2013. We believe that

and our group believes that this is due to the relatively

Colex was initially funded by equity injection from its

lesser reliance on high depreciation equipments as

biggest shareholder, Goldvein Pte. Ltd., which is in turn

compared to other environment services (e.g. water

owned by Bonvest Holdings. This made Colexs

treatment).

fundamentals look extremely favourable due to low

levels of debt but may not necessarily be sustainable.

Return on Capital

Adjustments

Return on Equity
The return on shareholders equity from its invested

Adjustments for Non-recurring Items

capital for 800 Super stands at 23.5% compared to

Removal of components in Other Losses which

Colexs at 18%. 800 Super has been providing

includes losses and gains on disposal of property, plant

consistent dividends as well as capital gains since it was

and equipment. This makes up a very small component

able to utilise its retained earnings to bring back value

of the Group's total revenue, amounting to only 0.08%

through investing in its landscaping businesses and

in 2014. There were no other non-recurring items.

private contracts.

Adjustments for Operating Leases

Return on Assets

Adjustments for operating leases were made from 2011

Apart from its dip in 2013, 800 Super has recently been

to 2014 by capitalising operating leases and including

showing ecient management in using its assets to

them as part of total debt. For the year of 2014, total

generate earnings at close to 10%. However, Colex

d e b t i n c re a s e d 1 5 . 7 % f ro m $ 3 4 , 8 2 7 , 0 0 0 t o

being an industry veteran in waste management uses

$40,278,000 after capitalising the lease. Total debt to

much more mechanised equipment such that it is able to

equity ratio increased from 0.84 to 0.97.

bring back a higher value in generating earnings at

11.9%.

There were no further adjustments required.

Main Forecast Assumptions

Revenue

We forecasted 2015 revenue using a bottom-up approach by taking into account contracts awarded and expired. For
the subsequent years, we believe revenue growth will reduce due to the long term nature of the contracts awarded.
Starting at 2% in 2016 revenue growth is tapered down to our terminal growth rate of 0.5% by the end of year 5. Refer
to Appendix 2 for our 2015 revenue forecast calculations.

Balance Sheet Items

For 800 Supers projected revenue growth to be sustainable, we believe that it will be accompanied by a similar growth
in their operations. As such, we forecast that the operating balance sheet components of 800 Super including its assets
and liabilities as a constant fraction of 2014s ratio.

Interest Rate
Given 800 Supers relatively fixed interest rate of about 2.5% over the last 5 years, we believe that it is reasonable to
assume that 800 Supers interest rate will increase slightly higher due to the improving economic conditions. Thus, we
compute the interest rate by taking the average of the yearly interest rates across the last 5 years and at the same time
considering the potential rate increase, a conservative increase consistently to 3.5% over the next 5 years.

Tax Rate
800 Supers tax over the years has been fairly consistent ranging in the band of 12%-14% over the decade. Our group
estimated the tax rate by computing the total tax expenses divided by the total net income over the last ten years. As of
now it is computed at a 13.68% eective rate.

Valuation: Comparables

Source: CapitalIQ

Using comparable companies analysis, we have identified the high, low and median stock prices for companies in the
similar industry. We use this as a second line of check for our stock price, as we believe this is a good representation of
the range in which the Groups stock price should fall in. Using the mean equity value across all multiples, we arrive at a
range of SGD$5.8 - SGD$0.31, with a median price of SGD$0.88. While our target price of SGD$0.55 falls into this
range, we feel that the use of P/BV will provide us with a better representation of reality as 800 Super is an asset
intensive firm that depends on assets to generate revenue. Using the P/BV multiple, the median stock price of our
relative valuation gives us a value of SGD$0.53 which is in line with our target price.

Valuation: RESIDUAL INCOME

Our residual income model has returned a intrinsic value of $0.55 per share for the Group. Our choice of a conservative
0.5% terminal growth rate comes as we acknowledge the fact that in the long run, revenue growth will be limited by the
uniformed fee and high competitive nature of the industry. Revenue growth will be driven mainly by population growth
and will definitely be less than proportionate. To discount our abnormal earnings, we used a cost of equity of 5.38%, as
retrieved from Bloomberg. Currently, the stock is trading above its net asset value of $0.23 and we believe that there is
more potential for growth, with an upside of 25.14%. This will imply a forward P/E of 8.64x, which is similar to Colexs
current P/E of 8x. From our sensitivity analysis, our bull case scenario will return us a price of $0.62 while a bear case
will give us a price of $0.50, which is still higher than our current stock price of $0.40.

Valuation: FOOTBALL FIELD ANALYSIS

To support our valuation, we utilised various conventional valuation methods such as Discounted Cash Flow (Free Cash
Flow to Firm), Dividends Discount Model (DDM), and Comparable Companies Analysis. We have consolidated the price
range acquired from each valuation method through our sensitivity analysis into a football field analysis for comparison.
From the analysis, we see the 800 Supers stock price falls largely in the lower bound of most valuation methods,
indicating that there is high upside potential for the firm. For more details on other valuation methods, refer to
Appendix.

Football'Field'Analysis'
7"

Median Price:
SGD$0.88

6"

Median Price:
SGD$0.54

5"

4"

Target Price:
SGD$0.59
Target Price:
SGD$0.21

Target Price:
SGD$0.55

3"

2"

Current Stock Price

1"

as of 20/03/15:
0"
DDM"

FCFF"

RIM"

P/BV"

Average"Mul<ples"

SGD$0.44

Risks to our recommendation

Needless to say, our buy call for 800 Super comes with a certain degree of scope. There are a number of factors
involved which could eectively change our recommendation and these factors can actually pan out in the long run.

Possibility of Losing Market Share

As mentioned earlier, 800 Supers main revenue income comes from its waste management and recycling operations.
This business is eectively based on a contract basis and currently is being dominated by four players including 800
Super. As much as geographical extent is concerned, 800 Super has the smallest being the contractor only for the Ang
Mo Kio-Toa Payoh sector. As such, the need to diversify their businesses into landscaping for example would allow
them to stay relevant and competitive in the market. While 800 Super does have an competitive edge by providing
integrated environmental services, we acknowledge that competitors will follow suit in the long run and erode this
competitive advantage. The basis of our buy call is bent on the case that 800 Super continues excessive R&D into
cost-reduction technologies and diversifying into other business, so as to capture markets and provide an alternative
avenue for investors ROI.

Beyond Government Tenders

800 Supers ability to truly reflect its market valuation would only be a possibility by going beyond tendering
government contracts. These contracts are eectively mid-range contracts that last from a range of 3 to 7 years.
Though these contracts are more preferred as a source of steady cash flows, it is important to note that dependence on
just these contracts would make it dormant. More so, since waste management companies depend on tendering by
grassroots constituencies, and with every election, there is a possibility that they may not get a tender. Thus the need
to expand to other countries may allow them to find other avenues. This can be done through joint-ventures or jointalliances as this sector is highly asset intensive and the asset turnover is quite high as well. This arrangement would
allow them to share their expertise overseas without the need to invest a huge capital outlay.

Appendix 1: Forecasted Statements

Appendix 2: Revenue Forecast

Appendix 3: Financial Ratios

Gross%Margin%

Long%Term%Debt/Equity%

80.00%$

1.2"

70.00%$

1"

60.00%$
50.00%$

0.8"

800$Super$

40.00%$
30.00%$
20.00%$

Colex$

0.6"

Industry$Average$

0.4"

800"Super"
Colex"
Industry"Average"

0.2"

10.00%$
0.00%$
2012$

2013$

0"

2014$

2012"

EBITDA'Margin''

2013"

2014"

Total&Debt/Equity&

30.00%$

1.2"

25.00%$

1"

20.00%$

0.8"

800$Super$

15.00%$
10.00%$

Colex$

0.6"

Industry$Average$

0.4"

5.00%$

800"Super"
Colex"
Industry"Average"

0.2"

0.00%$
2012$

2013$

0"

2014$

2012"

Net$Prot$Margin$$

2013"

2014"

Return'on'Assets''

9.00%$

14.00%$

8.00%$

12.00%$

7.00%$
6.00%$

10.00%$

800$Super$

5.00%$
4.00%$

Colex$

3.00%$

Industry$Average$

8.00%$

2.00%$

4.00%$

1.00%$

2.00%$

0.00%$
2012$

2013$

800$Super$

6.00%$

Colex$

0.00%$

2014$

2012$

Current'Ra*o'

2013$

2014$

Return'on'Equity'

5"
4.5"
4"
3.5"
3"
2.5"
2"
1.5"
1"
0.5"
0"

25.00%$
20.00%$
15.00%$

800"Super"
Colex"

800$Super$

10.00%$

Colex$

5.00%$
2012"

2013"

0.00%$

2014"

2012$

EBITDA'Interest'Coverage'Ra3o''
120"
100"
80"

800"Super"

60"

Colex"

40"

Industry"Average"

20"
0"
2012"

2013"

2014"

2013$

2014$

Appendix 4: DDM

Appendix 5: DCF

Key Assumptions
Two key assumptions made in the valuation analysis. First, the expected market return is assumed to be 9.68%.
In arriving at this figure, we considered the following:

1.

Although the 10-year annualised return for the STI Index through 2013 is about 2.92%, its annualised

return between 1978 and 2014 (after adjusting for inflation) is 9.2%.

2.

The 10-year annualised return for the ST Index through 2014 is 9.78%, while the 5-year annualised return

is 8.9%.

3.

Taking the market-cap weighted values of the STI between the prior and post the financial crisis, we get an

expected market return of 9.68%.

Second, the risk-free rate is assumed to be 2.75%. This is the yield of the 10-year Singapore Treasury bonds as of
20th March 2015. The Cost of equity is estimated based on CAPM model through a regression of 800 supers
weekly stock return against that of the Straits Times Index. With an applied beta for EQRP of 0.38, the return on
equity for 800 Super is estimated at 5.38%. With regards to the cost of debt, as mentioned above, it is calculated
through taking the average of the interest rates as well as lease obligations which is a big share of its debt
portfolio to account for its debt obligations over the last decade. As for the weighted-average cost of capital
(WACC), it is calculated using the weighted average cost of equity and cost of debt, based on a tax rate of
13.68%, and market capitalisation of $78,672 (In 000s) assuming the last close share price of $0.44.

However, we noted that the firm has a small market capitalisation with a 30-day average trading volume that is
very little in comparison to its competitors. It has also been giving consistent dividends over the past 5 years and
the group believes future dividends would surpass that of 2014. It has also seen an 84.56% increase in the stock
price in the past one year. However, prior to that, 800 Super has been fairly weak in its capital returns in the last
decade. We have also noted a market risk premium of 6.93% however, this might only be due to recent shift in
prices.

Using the DCF model with a WACC of 4.75% and terminal growth rate of 0.5%, the estimated stock price is
$0.60, which also lends support to the residual income model that the stock is currently undervalued. Given the
current estimate GDP growth is said to exceed expectations, the group predicts that 800 Super would be able to
provide good returns for its investors in the end of the coming fiscal year.

Sensitivity Analysis
For valuing the stock using the discounted cash flow model, we used the above terminal growth rate and WACC
figures. We calculated the FCFF using these values as well as the EBIT and accounting for any change on capital
expenditure as well as net working capital. This gave us our free cash flows inclusive of the terminal value, which
was then discounted by the WACC to give us present value of the company. Using these parameters we derived a
share price of $0.59, which is higher than the current price of $0.44. We also ran a sensitivity analysis on the
eects of dierent WACC and Terminal Growth Rates on share price. The volatility of share price is very high at
low rates of WACC and high terminal growth rates, and vice versa at the other end of the spectrum. The volatility
of the share price of 800 Super is more apparent at the same growth rates with varying WACCs ranging from
$0.97 at a WACC of 3.25% and growth rate of 0.5% and reduced by more than half at $0.40 when the WACC is at
6.25%. This provides sucient analysis to derive that the share price is very volatile and would only bring
accurate results depending on the forecast periods.