1. Rockboro Advanced Systems International , Inc.
Payout policy of
Rockboro Advanced Systems International , Inc.
Group one
Harry Chien / Oliver Su / Paul Chen
Eason Wu / Mike Lee

2. Introduction of Rockboro
AGENDA
01.
Introduction of Rockboro
02.
03.
04.
Repurchase Program
Dividends
Changing Name?

3. Introduction of Rockboro

4. ROCKBORO Optimistic for future!! Sales 45% CAD/ CAM
40% machinery parts
15% machine tools
Produce
for War
Sales recover
Profit margin⬇
1923
1980
2008
2014
1940s
2015
(now)
Foundation
Great Recession
Two restructuring
Heavy R&D on CAD/CAM
Refocusing for cost down
CAD / CAM
Machinery Parts
AIW
Optimistic for future!!

5. Repurchase Program

6. Objective : Helps to raise stock price and increase D/E ratio
Repurchase
Program
Objective : Helps to raise stock price and increase D/E ratio
Step1: P/E Multiple
Compares relevant industry data to estimate the projected P/E.
EPS*P/E ratio = stock price
Step2: DCF Model
Calculates the CAPM & WACC
Uses DCF Model to calculate firm value to estimate the stock price

7. P/E multiple Sales Score Annual Growth Rate of Next 3-5 D/E Ratio
P/E Ratio
Total Score
Adjusted By Product Structure
Final Weight
Contributed Stock Price
Rockboro
1135
15%
28.40%
nmf
CAD/CAM companies
(45%)
Cadence Design
1702 1
10.0% 3
26.10%
17.6 7
3.15
17.7%
3.11
Mentor Graphics
1244
4.0%
18.10% 2
16.9 6
2.70
15.2%
2.56
PTC
1357
4.5%
68.70%
26.4 4
1.80
10.1%
2.67
Electrical-industrial equipment manufacturers
(40%)
Emerson Electric Company
22304
3.5%
52.80%
1.20
6.7%
1.19
Hubbell Inc.
3359
6.0%
31%
21.3 9
3.60
20.2%
4.31
Rockwell Auto
6624
5.5%
34.10%
19.9
2.80
15.7%
3.13
Machine tool manufacturers
(15%)
Actutant Corp.
1400
38.50%
19.2
1.05
5.9%
1.13
Lincoln Electric Holdings, Inc
2813
0.20%
18.3
0.60
3.4%
0.62
Snap-On Inc.
3278
8.5%
39.10%
16.8
0.90
5.1%
0.85 53
17.80
100%
19.571

8. P/E multiple
EPS= 0.98
Projected P/E =
Projected stock price = 0.98*19.571= $19.18
Compared to the current price of $15.25 per share,
the stock price is underestimated.
We suggest Rockboro could conduct repurchase
program.

9. CAPM CAPM Beta Data Risk free rate Market Return Beta Beta Weight
2.5%
Market Return
12.90%
Beta
1.3
Beta
Weight
CAD/CAM companies(Avg)
1.37
45%
0.617
Electrical-industrial equipment manufacturers(Avg)
1.2
40%
0.48
Machine tool manufacturers(Avg)
1.38
15%
0.207
Weighted Average Rockboro Beta
1.3
Risk free rate :
10 year Treasury Note Yield in 2014
Market return :
page 1
Use the companies and the industrial average data to calculate the average rockboro beta is 1.3

10. WACC Weight of Debt 40% Cost of Debt 4.20% Tax Rate 34%
Weight of Equity
60%
CAPM
15.96%
WACC
10.63%
Growth Rate
Stage1
15%
Terminal Growth Rate
Stage2
2.5%
Terminal Growth Rate :
10 year Treasury Note Yield in 2014
Cost of Debt :
AAA Corporate Bond Rate
Tax Rate :
2015 projected Tax Rate

11. DCF Model
DCF = [FCF1 / (1+r)1] + [FCF2 / (1+r)2] [FCFn / (1+r)n]+  [TV/ (1+r)n]
TV=(FCFn x (1+g)/(WACC-g))
CF = Cash Flow
r= discount rate (WACC)
TV= terminal value
g= perpetual growth

12. DCF Model Sales Sources Uses Net Income Depreciation Total
projections
2015
2016e
2017e
2018e
2019e
2020e
2021e
Sales
$ 1,305.00
$ 1,500.75
$ 1,725.86
$ 1,984.74
$ 2,282.45
$ 2,624.82
$ 3,018.54
Sources
Net Income
12.41
60.03
86.29
109.16
136.95
170.61
196.21
Depreciation
33.90
39.00
44.90
51.60
59.40
68.30
78.50
Total
46.31
99.03
131.19
160.76
196.35
238.91
274.71
Uses
Share Repurchase
7.00
Capital expend.
65.30
75.00
86.30
99.30
102.70
118.10
135.90
Change in working capital
29.30
33.60
38.70
44.50
51.20
58.80
67.70
101.60
108.60
125.00
143.80
153.90
176.90
203.60
Excess cash/ (borrowing needs)
$ (55.30)
$ (9.57)
$ 6.19
$ 16.96
$ 42.45
$ 62.01
$ 71.11
Terminal Value $

13. Firm value / shares outstanding = 21.74
Estimated
Stock Price
Firm Value
$598,843,550
Add:Idle Cash
$38,498,000
Less:Debt
$178,500,000
Equity Value
$458,841,550
Shares outstanding
Stock Price
$21.74
Firm value / shares outstanding = 21.74

14. Objective : Helps to raise stock price and increase D/E ratio
Repurchase
Program
Objective : Helps to raise stock price and increase D/E ratio
Decision:
Makes D/E ratio as 40% (after changing name and 25% dividend)
Repurchase Program: 7 million
Repurchase Price: $20
Quantity = 350,000 shares

15. Dividends

16. Dividends Assumptions
Liability - Assume all the borrowing in the following years is just for dividend payout
Equity – Equity will only been affected with the change of net income and dividend payout
Cumulative financing needs
Fraction of D/E Ratio (=Bank loans + Current Portion of Long-term Debt+ Long-term Debt)
Maximum Debt Capacity = Total Equity*40%

17. Payout Ratio=0%

18. Payout Ratio=0%
If not paying any dividend to shareholders, from 2017 Rockboro can apply the excess cash to other usages, for example reinvestment in technology innovation.
Breaking the promise that made with shareholders previously, will have negative impact on stock price and investors’ confidence
Value oriented and long term individual investors (retirement) who expect to receive stable payout might be upset.

19. Payout Ratio=40%

20. Payout Ratio=40%
Payout ratio at 40% is close to the industry of Electrical-industrial equipment manufactures, which won’t let investors down.
High and constant payout ratio is a strong positive signal to market and investors.
D/E ratio will excess 40%.
Won’t have any cash or borrowing flexibility to apply on other usage, Rockboro will be facing high financial risk.

21. Dividends Residual Payout

22. Dividends Residual Payout
It doesn’t need to borrow money in order to pay dividend.
Unstable payout ratio will have negative signal to market and investors.
Use all the cash to pay dividends will restrained Rockboro to apply those cash to reinvestment in technology or other area.

23. Our advice
Payout Ratio=25%

24. Electrical-industrial equipment manufactures
Our advice
Payout Ratio=25%
Years
2015
2016
2017
2018
2019
2020
2021
Payout Ratio
25%
Payout ratio keep steadily is a positive signal for investors.
2. Its policy D/E ratio will not excess 40%, so it can still remain flexible
Comparing to Peers
Since Rockboro’s production will shift gradually and emphasize more on CAD/CAM products, we believe that payout ratio 25% is appropriate for Rockboro and investors.
Industry
Average Payout Ratio
Electrical-industrial equipment manufactures
41%
Rockboro
25%
CAD/CAM companies 0%

25. Changing Name?

26. Changing Name?
New name" Rockboro Advanced Systems International, Inc" transfer 2 main strategies to investors: High tech & international expanding
The ne name will better reflect company's new image
Our dividend payout ratio supports the new image of CAD/CAM focus

27. THANKS FOR LISTENING Group one Harry Chien / Oliver Su / Paul Chen
Eason Wu / Mike Lee