This purpose of this article is to demonstrate the power of fundamental value investing. It is not a recommendation to buy or sell any stock. Buying or selling should be the sole responsibility of individuals.
This article is also not meant to trumpet how one had made so much money from investing in a stock, but merely to show how value investing has worked so wonderfully, over the long-term, and surprisingly, the short-term too in Bursa. I hope you can understand better what value investing is, and if it is a plausible investing strategy so that you can utilize it for your better investing outcome.
I have shared an article on using fundamental value investing (FVI) on the forgotten and beaten path, where no institutional investors and few retail investors dwell in order to obtain extra-ordinary return in the link below,
In the above article, I gave my reasoning why such strategy works, and provided evidences how some super investors have achieved extra-ordinary return using FVI.
I have also provided my own personal experience, with two established long-enough portfolios of mine for a period of four years to show how lucrative it is to use FVI investing in small and mid-capitalized stocks. Yes, I don’t just talk, but showed records and evidences.
That was when my article attracted this comment below which was repeated scores of times in the article, as well as other places in i3investor,
if KC is genuine value investor, he will recommend stock ) instead of recommending small little manufacturing company with a few million revenue per quarter. That is what irritates me.....KC, the self proclaimed value investor is but actually small cap speculator....hang pig head to sell dog meat.]
Subsequently, I wrote another article on how I had selected Willowglen as a stock pick in my “Stock Pick Challenge: 2H 2013”, with my investment thesis, to show Willowglen, a small capitalized value stock, has a total return of 172%, in less than four years, or a CAGR of 30%.
Here are some more interesting comments from the same guy,
I will bet you, neither Tong or KC sailang Willow the way KYY sailang Jaks.................How much they earn? I have no idea.............
Probably not much more than I tembak tembak HSS at 40 sen , sell at 70 sen , only to see it go to $ 1.00 a few days after sold.
Willow was a stock pick in my “Stock Pick Challenge 2013 2H” on 1st August 2013 ....................hahahaha
Willow like Gandalf will conquer all in April 2017. Place your bets in April 2013...got magic formula that can see the future 4 years later.
well.....in i3 2017 competition even better. 230 entries, 230 winners.
1000 stocks, 1000 stocks up.
If in 2013, the CEO had told OLH about ROIC instead of developing new markets, OLH would have the CEO sacked because the market in which Willow was operating in was just too small for a listed company.
Frankly, who cares how rich you are, how much shares you hold or make from Jaks etc. I don’t give a damn. Bear in mind, the story just started, and there is still a long time before the outcome is clear.
The purpose of the article is not to show how much one makes, how rich somebody is, how much one “sailing” and made a killing etc. These have no education value. The purpose of the article is merely to share how one can use the proven FVI in the forgotten and beaten path, to earn satisfactory return from his investment for the long term. The four years holding period has shown the more than satisfactory long-term results from using the Magic Formula.
The last comment above by this guy is particularly amusing. I am just out of words.
OLH would sacked the CEO telling him the ROIC for the business?
Any investor will first ask if you want his money, what will be the return you can give him? Won’t you? Does he care whether the market is too small or too big for Willow, more than what his return would be? When you “sailang” in Jaks, do you insist that the business must be in Vietnam where there is full of political, currency, bureaucracy, social, corruption, execution and all kinds of other risks? Wouldn’t you care more about its promise of a good return to you, whatever it does?
Yes, we often use ROIC in searching for small or medium capitalized stocks to invest for long-term. High ROIC enables a business to grow its business from cash generated from the business, without having to issue more shares and as a result, dilutes the earnings per share, or have to borrow more to grow its business. That is why we like that. We dwell in the ACE market as there are more candidate to have that kind of quality for investing. Here is another one in the ACE market, JHM Consolidation Berhad.
I must say I do not have any established record to show you I own JHM, none in i3investor. By the way, all my sharing about stocks has nothing to do with how rich I am, how much I have made etc. They are all merely for sharing of investment knowledge, and education purpose.
JHM is a stock in one of my course participants in 2016 i3investor stock pick challenge. At about 50 sen then, its market cap was less than RM100m then. My students, many of them, also practice FVI like I do, and hence this one selected JHM.
JHM has a very high return on invested capital, ROIC of 36.2% based on its latest trailing twelve months’ results, more than three times its costs of capitals.
One year later today on 17th April 2017, JHM’s share price closed at RM4.14, for a gain of 728%! That is the return of a small cap stock listed in ACE Market, with high ROIC, in just one year.
Please note that I have given you just one component, the "goodness" of the company, one has to determine the other companent; the price versus value, the "price reasonableness", as the price has gone up a lot recently.
So, how is the return of this small cap stock listed in ACE with high ROIC, compared with the return of Genting in the last one year of less than 10%?
Appended below is an article in The Edge Magazine about JHM today.
JHM expects to continue double-digit revenue growth
April 17, 2017 08:29 am MYT
GEORGE TOWN: JHM Consolidation Bhd, whose net profit nearly tripled in 2016, sees its diversification into the aerospace sector bearing fruit, with its new aerospace light-emitting diode (LED) lighting business segment expected to help the group sustain its double-digit revenue growth for the second year in a row for the financial year ending Dec 31, 2017 (FY17).
The group slipped into a loss in FY14, but quickly rebounded the following year. Its net profit surged 196% to RM20.62 million in FY16 from RM6.96 million in FY15, on the back of a 47.5% growth in revenue to RM193.73 million from RM131.34 million the previous year.
According to JHM executive chairman and managing director Datuk Tan King Seng, the ACE Market-listed company expects net profit to come in above RM20 million over the two years, thus qualifying it for a Main Market listing by FY18.
“We are confident about achieving the goal,” he told The Edge Financial Daily in an interview.
The group expects its manufacturing activity in the aerospace LED lighting to stabilise in FY18, and that of its aerospace mechanical parts kicking off at the same time. “Revenue contribution from the aerospace mechanical parts will come in FY19,” said Tan.
In February, JHM’s wholly-owned subsidiary Morrissey Assembly Solution Sdn Bhd was granted the British Standards Institution’s AS9100 certification for the manufacturing and assembling of electronic lighting modules for the aerospace industry.
The qualification enables it to diversify and broaden its market share from the traditional automotive lighting module to the aerospace or aircraft supply chain parts manufacturing globally.
Tan noted that in the aerospace business segment, the production of mechanical parts such as engine casing for jets could command a higher revenue in the future as they are of high value.
“Even the materials that go into it such as tungsten carbide, ceramic and titanium are expensive, but the profit margin [for these aerospace mechanical parts] is very good,” he added.
JHM is spending RM20 million to revamp its existing 15,000 sq ft facility in Sungai Petani, Kedah in order to cope with the anticipated increase in production volume from the aerospace business segment. The allocation includes purchasing new equipment.
“We have to separate the manufacturing of both the auto and aerospace divisions, although they are both related to lighting, because the expectations are different. Both require different resources, quality control and raw material,” Tan explained.
JHM will start production of the aerospace LED lighting modules towards the end of this year.
While the traditional auto LED lighting segment will continue to be JHM’s mainstay, Tan believes that the aerospace LED lighting segment will overtake it in three to five years. The auto LED lighting unit now contributes 80% of the group’s revenue.
“The remaining 20% of our revenue comes from the manufacturing of microelectronics for industrial product (12%) and the mechanical division (8%).
“We recently ventured into general lighting, which would contribute 5% to the LED lighting business segment’s revenue [in the first quarter ended March 31, 2017]. We expect it to increase to 10% by the end of FY17,” he said.
Going forward, JHM aims at manufacturing LED lighting for trucks and bus vehicle applications. Tan said it recently secured a contract to make full lamp units for trucks and buses serving the North American Free Trade Agreement markets, but declined to disclose the contract value.
“The two-wheeler contract would be our first project for first-tier manufacturers in Japan. It is very big in terms of revenue because motorcycle turnover is high [in the region].
“We target production for both these projects to start in the second half of FY17. So based on this business unit alone, we can see our revenue grow by 20% this year,” he said.
The group has set up a marketing and technical support contact in Southeast Asia to directly engage with Japanese passenger automobile and two-wheeler makers so as to manufacture lighting modules for the vehicles.
Tan said there are also plans for the group to move into the European auto LED lighting market next year, but did not elaborate.
On its two-month-old venture into the general lighting business segment, JHM is in the process of getting a qualification to build street lighting units for a US customer and ceiling lights for a European-based LED manufacturer that markets to a well-known home products retailer.
“In the meantime, we are developing agricultural LED with a customer in Europe. Agricultural lighting is used in greenhouses in cold countries. The lights would need to emit heat and ultraviolet rays for plants to grow during the cold season,” he said.
Tan holds the biggest stake in JHM at 36.3%, followed by Noble Matters Sdn Bhd at 20.2%. Noble Matters is co-owned by JHM executive director and shareholder Cheah Choon Ghee and Ong Hock Seong.
Year to date, JHM’s share price has risen 126% to close at RM3.71 last Friday, with a market capitalisation of RM428.11 million. The counter was slapped with an unusual market activity (UMA) query by Bursa Securities on April 6 over the sharp rise in price of its shares recently. In response, JHM said it was unaware of the reasons for the UMA, but pointed to the progressive improvement of the group’s results since FY15.