This feature paper showed how to value the stock price of Synnex (Thailand) Public Company Limited (SYNNEX) which used the concept of discounted cash flow models. Therefore, in our calculation of the share price using the discounted cash flow method, we found that the current appropriate price should be around 6.43 baht per share.
Business Description
Main products are for example external hard drive, media player, USB flash drive, flash card, digital camera and accessories such as earphone/headphone used with computers and smartphones, as well as input devices, namely computer mouse and keyboard. CDG includes communication devices and other equipment and accessories, namely smartphones and tablet computers running on a variety of systems such as Android OS, Windows OS, etc.
Business Strategies
Productivity: Utilize the information technology system to achieve speed in the competition and develop innovation to make the work process modern, fast, concise and efficient and reduce organizational costs in various aspects. M&A: Introduce mergers and acquisitions to create business opportunities with supportive business partners in a step to expand business clusters and maintain a leading position in the market of comprehensive technology solutions.
Business Goals
Overseas Investments: Investing in overseas countries to support the growth of the emerging ASEAN Economic Community, with a focus on countries in the Indochinese region as priorities for deep business expansion that includes both domestic and foreign investments added to the company's portfolio and generate returns for shareholders.
Macro-Economic Analysis
Industry Analysis
IT & Telecoms
Although the overall market continued to see double-digit declines, and even the top vendors saw shipments decline from a year ago, the top 4 vendors fared much better than the rest of the market. Overall, the top 4 suppliers that shipments decreased by -4.5% from a year ago compared to a decrease of almost -20% for the rest of the market.
Thailand ICT Market
This volume represented a fall of -10.8% year-on-year – slightly worse than projections for a fall of -9.2%. Economies of scale, concentration on notebook PCs, deeper penetration of distribution channels in emerging regions, as well as smaller vendors exiting the market, are helping the largest vendors.
Smartphone Vendor Market Share, 2015 Q3
In the global market for brands in the personal computer product group, Lenovo was ranked number 1, followed by HP, Dell, ACER and Apple respectively.
Competition Analysis
The SYNNEX (Thailand) PCL (“The Company”) is the largest distribution for various IT product manufacturers as its market capitalization currently stands at Bt3.71 billion. The company is a distribution agency for computer hardware and software solutions, including full IT services.
Investment Summary
For example, in Myanmar, the marketing plan currently emphasizes product distribution through a single dealer, with personnel from Thailand sent over to the station in the Rangoon office to support the dealer with marketing and to transfer management knowledge to the dealer in Myanmar. Meanwhile, for Cambodia, the company has started to penetrate the market since the fourth quarter of 2014 by selling network devices to a number of system integrators (SIs). For the year 2015, the company plans to enter the IT consumer products market and seek more business partners to be authorized representatives for marketing and distribution of products in Cambodia.
For Lao PDR, the company's most important customers are successful distributors of communication devices and smartphones in the country who have currently formed business partnership with the company. The market expansion plan in 2015 aims to increase sales of network devices and system products to partner system integrators, empowered by the business capacity of Synnex (Thailand) and take advantage of the geographical advantage that reduces transportation costs to win the market share from trading countries such as the Republic of Singapore or the Republic of Vietnam. The Company continues to focus on giving back to the society by continuously patronizing various projects to provide access for the youth of the nation to learning resources along with news and information such as "Library IT by Synnex"; delivered a series of computers installed with the learning software of electronic books to schools across the country, including Bangkok and 76 provinces abroad, and the second project “Chang Nork Krob” (Creative Technician Development) with the aim of improving skills of Promote IT equipment among local vocational training students nationwide to help them generate earnings with the Company's support of IT replacement parts and equipment.
MATERIALS AND METHODS
Valuation
- Discounted Cash Flow Model: FCFF
- Projected Cash Flow and Assumptions
- Summary growth rate
- Revenue growth rate
The growth rate of the IT market is not that high; an average 5-year growth rate rare in the global industry of 1.14%. Proportional Cost of Sales and Selling and Administrative Expenses to Sales: The forecasted cost of sales and selling and administrative expenses figures were calculated by averaging the percentage of these items to sales over the past 5 years at a rate of around 94.90% and 2.90%. or The company's working capital was financed using short-term loans from financial institutions for liquidity.
As in the historical data, the company has lower PPE each year, so we suggested that there would be additional investment in non-current assets such as fixed assets within the next 5 years at 2% of net sales each year based on 5 years of average growth in historical data. Weighted Average Cost of Capital: We use the weighted average of the market value of equity capital to calculate the WACC for Synnex. There is no cost of debt to determine in the cost of capital structure, as its long-term debt was paid only 1%.
DISCUSSION
Financial Statement Analysis
- Summary figures from financial statements (Size analysis)
- Common Size analysis 1. Income statement
- Trend analysis
- Financial ratios: Return 1. Gross profit
Average ROA and ROE of Synnex was higher than SIS because Synnex's returns over the past 5 years were higher than SIS. The average ROA of Synnex was 9.4%, but in 2014 the company had only 5.4% because an increase in assets with stable returns, while SIS only had an average ROA of 5.2%. Synnex's total asset turnover was higher than SIS, it showed that Synnex used total assets to generate turnover better than SIS.
The quick ratio of Synnex was higher than SIS, the average quick ratio of Synnex was 1.01 times and the average quick ratio of SIS was 0.90. The average D/E ratio of Synnex was 1.57 times while SIS was 2.66 times, it showed that SIS had higher risk than Synnex. The average interest coverage ratio of Synnex (11.8 times) showed higher than SIS (4.1 times), it showed that the ability to pay debt of Synnex was better than SIS.
Investment Risks and Downside Possibilities
- Risk Matrix
- Assumption for Investment Risks and Downside Possibilities In case there are investment risks and downside possibilities which may
In addition, the members of the company's management have accumulated many years of work experience in areas related to the company's operations. The Company imports products from foreign countries with quotations and payments primarily calculated in the United States, but the Company has a policy of hedging the risk of currency fluctuations by entering into forward contracts in the foreign exchange market.
In general, the extent to which the Company's measures to control exchange rate risk vary based on situations. The Company needs the steadily increasing working capital to manage the receivables and inventory as sales increase. Currently, the Company has been approved loans from various commercial banks which are sufficient to facilitate the business operations.
APPENDICES
Appendix A: The Business Structure of the Company Group
Appendix B: Major Shareholders and Free-Float
Appendix C: Corporate Governance (CG)
The English languages that are uploaded for public information on the SET website are also uploaded on the Company's IR website. It is a commitment of the Company to operate the business responsibly to all stakeholders for sustainable and mutual benefits. The Board of Directors supervises the company's procedure to ensure the realization of the interested parties.
The company is aware of the importance of disclosing information that is accurate, transparent and completed in a timely manner to benefit investment decisions. The company is aware of the importance of the duties and responsibilities of the company's board of directors in protecting the interests of shareholders and stakeholders by developing a comprehensive system of internal control of finances and operations, which will be in accordance with the laws and regulations set by the Stock Exchange of Thailand, as well as the establishment of an appropriate risk management system with the mechanism of internal audits to ensure transparency and good business management and an appropriate risk management system with effective monitoring of risk management that corresponds to the company's operations. Therefore, the company and its subsidiaries, including the company's employees and associated persons, should participate in the anti-corruption campaign.
Appendix D: SWOT analysis
Their dependence on suppliers and manufacturers forces them to grow only when the number of orders increases or when the demand for certain products increases. This obstacle really affects Synnex's growth potential and can only be fixed internally. A problem with this project would be their margins and their inability to finance the development of business services.
Demand Variance: The method Synnex sells their products and services to resellers is through purchase orders. If Synnex cannot predict demand appropriately, their business could be severely harmed by excess inventory or lack of inventory. Variance in market demand and variance in supply could drastically affect Synnex's operations and finances.
Appendix E: Porter's Five Forces
Their distribution services are their dominant business as it accounts for most of the revenue. Synnex is essentially at the will of the suppliers offering them the ability to resell, allowing them to maintain profits and grow as a business. Medium/Low: The possibility of a replacement of Synnex, a supply chain based corporation, is simply to eliminate them as the intermediary for the retailers.
The big technology companies can make deals with wholesalers and retailers and take Synnex out of the supply chain strategy equation. However, competitors have their own contracted suppliers, and gaining leverage is simply creating more efficient supply chain models. However, if companies that are suppliers to Synnex are not satisfied with their supply chain service, replacing Synnex with a competitor is an easy change.
Appendix F: Statement
Appendix G: Stock and Price
