RELATIVE VALUATION OF DIAMOND BUILDING PRODUCTS PUBLIC COMPANY LIMITED.

Abstract

Relative valuation is widely used to value stocks, normally by applying the average multiple from an industry peer group. The multiple has to justify with the historical data to check whether the current price is cheaper or more expensive than the average value (5 years in this study). For Diamond Building Products Public Company Limited (DRT), its current price is cheaper than the average value by using P/E band. P/E multiple is applied to this stock as the company focuses on growing its earnings per share. Other multiples (P/BV and EV/EBITDA) are not applied as DRT had the share repurchasing program in May 2020. From the comparison with peers (SCC, SCCC, COTTO, DCC, and TOA), it is obvious that DRT’s P/E ratio is the lowest (P/E = 9.0x). As the stock market is so volatile, the minimum of P/E ratio from peers is applied which is 11.86x and then multiplied with the earnings per share of DRT in 2019 (0.6 baht per share). Finally, the target price of DRT is 7.12 baht, which is about 18.7% higher than the current price. So, DRT is recommended to “buy”. However, it is difficult to identify when DRT can reach the target price. Nevertheless, this stock is quite interesting for value investors as its yield is high (7%) and EPS keeps increasing, which is the result of DRT’s management’s strategy. DRT’s risks are at the moderate level which comes from the change of customers’ behavior for selecting the material for their homes and from the modern trade that would like to increase the rebate, which may decrease the sales and profit margins in the future. For the limitations, there is no guarantee that DRT will keep performing better than or equal to its peers or even attract more investors to buy.