Choivo Capital

Author: Choivo Capital   |   Latest post: Sat, 6 Jul 2019, 5:16 PM


(CHOIVO CAPITAL) An analysis into my 2017 Stock Pick results.

Author:   |    Publish date:

Well, 2017 was a very interesting year.

For some, it was a fantastic year.

We had the Construction Bullrun at the start of the year, which was coupled with the Semiconductors Bullrun for much of the year as well. And we ended the year with the incredible oil refinery and oil producer bull run, which was primarily due to the widening crack spread.

For many, it will also be a year of pain.

Those of chased high consturction stocks and held till today, would have lost alot of money. There is the incredible IWCITY double limit up and down, and the incredible rise for Ekovest, Gadang, Malton etc, as well as the subsequent slide down.

Its also very funny, how at the start of the year, people thought the RM would weaken against the USD until 4.8 or 5, but now we end the year at 4.08 and predicting that it will drop below 3.8 next year. Just goes to show that when predicting, most people extrapolate the now to the future, with no regards to reversion to the mean. Or how that the markets is dynamic and reactive with natural feedback loops.

On a personal level, i am up roughly 20% this year. However, my stock picks for the 2017 stock pick competition had a disasterous performance with a gain of only 3.2%, with a high of 18% during the year.

If im being honest, i think im incredibly lucky with my personal portfolio, considering how foolish i was at the start of the year. And in my stock picking portfolio, considering how foolish i was when i chose them, whatever stocks that went up, i was for the most part lucky to have picked it. Whatever went down, i wholly deserved it.

However, i think i learned also alot this year, i finished reading 5 years worth of annual reports for every company listed in the KLSE and i also built a relatively rudementary latticework of mental models so far.

It is very important to reflect on out sucess and failures, to understand our decision making process, as well as to determine whether our sucess is due to skill or luck, and if our failures are deserved or just unlucky.

So lets start.


1) AEONCR (Up roughly 45% including Loan Stock

I picked this one back then, mainly because i had a feeling then that it was a good business in a great industry and should be undervalued.

I was right, but my lack of precision and understanding of this company back the was incredible. It was mainly luck to caused it to be in my portfolio.

During the year, i understood how to value financial institutions and banks. Rule of thumb, the fair value of a financial institution with a Return of Asset of 1%, and Leverage of 10 times is 1X Price/Book Value. Back when i first chose it, it happened to be somewhat undervalued. Right now, it is a touch above fair value quantitatively.

Why do i say its a great industry? Its simple, people like to live beyond their means. People do not know how to calculate effectuve interest rates when buying. All they see is that, by paying RM60 a month for 3 years, they get a new fridge. This company is primarily based in selling of eletronic goods via finance lease as well as credit cards.

Their cost of capital is 4.3% while they loan out at 21% effective interest rate. Its utterly incredible.

And by virture of being a financial institition, their business is the borrwing of cash. Which means, no onerous or mediocre capex expansion, no bad allocation of capital etc etc.

I can write alot more about the management, but ill stop here. I had some of it in my personal portfolio, and i sold sometime back at RM14.3 for another better (Maybe) and cheaper (definitely) company.

2) AIRASIA (Up 46.36%)

When i bought this, i knew 2 things, airasia is a fantastic company, with incredible management, and in a fat and weak industry filled with GLC's, and they somehow managed to even build a moat, at least as much of a moat one can have in a cut throat cost based industry.

I knew it was undervalued when i paid. Back then at 2.3, it was trading at essentially 2X EV/EBITDA. Buy the company now, it will pay you back in 2 years. 

This was also one of the stocks i got lucky back in the day buying at 0.9 to 1.0, before selling at 2.6.

Through this company, i learnt that markets truly are stupid. It went from 0.9 to RM3.1 in less than a year, before sliding down to RM2.1 and subsequently shooting up to RM3.5 before settling at RM3.3.

Except during these incredible price swings, the company was just as good and fundamentals never changed. Just shows you the incredible stupidity of sentiment, and the power it has in real life.

In my personal portfolio, i bought at 2.4 before averaging down over 3 months to 2.1. A truly painful excercise for a newbie, espeacially when one only knows the price and not the value of the company.

I sold half my holdings when it rebounded to RM2.5 and the rest at RM2.9.

I was so foolish to sell early and not top up during the drop just because of emotions. I learnt to look at shares a fractional ownership of the company since then.

3) FLBHD (Down 23%)

It was cheap then, its even cheaper now. The only fault i could really say, is that back then i have not yet finished reading the annual reports of all the companies in the bursa. They're cheaper ones.

If i made the decision again, i would have lowered the size of this to soemthing like 7-8% instead of 10% of portfolio, or even changed it completely to another one like INSAS.

However, it is no metric for comparision, as if i chose INSAS instead of this and INSAS went down, i might say i should have chosen FLBHD instead. 

Right now, value wise, i will prefer INSAS due to the extremely high NTA that is actually tangible.

In my personal portfolio i bought at 1.6 and sold in early at 1.8. I sold for a stupid reason, ie, it went up, so i should sell, with no regards to the intrinsic value.

I was lucky, well, every dog has its day.

4) GAMUDA-WE (Down 3.5%)

I chose this because it was OTB favourite, and OTB has had fantastic results over the last 3 years.

Again, a mistake, i should have done my own analysis instead of relied on another.

Question is, would i have said the same thing above, if it was GKENT instead and it went up 40%?

Gamuda is a great construction company, but it is not cheap, EV/EBIT it is 19 times. Not cheap at all when compared to other opportunities. Something i found out when i finished the KLSE reports.

One reason why valuations is so high despite being a construction company, is that it has multiple divisions giving some resilience to earnings and it pays out consistent dividends, both of which make this an overvalued stock.

These days, im not keen on any construction company at all, unless it becomes very cheap, because of how difficult it is know future earnings and the complete lack of moat.

5) MAGNI (Up 35%)

I chose this because it was cheap-ish then and it was KCCHONGNZ's favourite.

Well, it worked out, it went as high as 70% at one point during the year. In my personal portfolio, i sold at RM5 to buy AEONCR, watched it go u to RM7.77 before coming down now to RM5.69, feeling both sad and happy, both stupid and brilliant.

Was i lucky? I think so. Another of my picks PRLEXUS was cheaper than MAGNI, but it instead went down 36%. Despite things like ROA or ROIC being roughly the same if RNAV is used.

The only reason this stock went up was due to results being better than expected (Something i could not predict or know),  and that this company does not do any share diluting activities like rights issue (unlike PRLEXUS). And the owner of this company, truly acts like a shareholder with personal share purchases.

Industry wise, not a fan, cost based etc etc. 

6) PBBANK (Up 5.12% not including dividends)

Well, best bank in malaysia, I only bought it as an anchor.

Now that i know how to value banks,
im unlikely to pick this again, as it is the most expensive bank in the bursa if you dont count MBSB.

Having said that, if one were to pick only PBBANK fo this year, one would have made roughly 8% this year including dividend, more than double my entire 2017 stock pick portfolio.

Makes you think a little.

7) PRLEXUS (Down 36%)

I bought it as it was cheap then at 3.5X EV/EBIT. Business wise, fairly decent, but not a good industry. I also held this in my own portfolio. It went up 1.66 at the middle of the year, making me feel brilliant, and not so brilliant when it fell.

I also held the warrants in my own portfolio, but thankfully, i sold that early, as i didnt want my exposure to PRLEXUS being too high.

I'm still holding some of my PRLEXUS shares.

At 0.86 now, its too cheap to sell (2.3 times EV/EBIT and 1.6 times EV/EBITDA), but i like other companies as well, so im not sure i can still buy it.

8) SAPRNG (Down 56%)

By far my stupidest decision. I bought it, because i thought oil was too cheap, and should go up in price in 2017, and being a complete idiot, the only company i could really think of in a pinch was SAPRNG, so i picked it without even looking in the financial statements.

Thankfully, i never touched this in my personal portfolio.

Most indebted company in the Bursa. RM15 billion in debt, and finance cost of more than RM1 bil per annum. Wow.

9) TENAGA (Up 9.5%)

I bought it as it dropped before the year end. Not a smart way to think, but a fairly decent pick.

Utilities are all depressed right now (or were they overvalued before this? I know Malakoff was and still is).

Not the worst investment. The thing i dislike is how inefficient all GLC's are. I know TNB is wasting more money than they should.

10) TMCLIFE (Down 15%)

Great company and hospital, very very overpriced. I made a mistake with this. I purchased this thinking the stupidity of people overpaying for it will continue. I was betting on the greater fool.

Foolish way to buy. Now, i only look at discount to intrinsic value.

My Personal Portfolio

1) VIS - I bought it at 0.6 and sold it at RM1 before the split. I'm not much of a growth investor, nor was i able to identify the moats of the company. It was only a small position. I'm fine with selling it. It was not cheap when i bought it, and it was expensive when i sold it. I'm not one to rely on the foolishness of someone paying more to make money. Its too risky.

2) OKA  - Great business, good moat, fairly nice valuation at EV/EBIT of 6, i bought at RM1.3, sold at RM1.8. Definitely wanted to buy more when it drop to 1.4X but i just didnt have the cash. Position wasnt big. Only like 7% of portfolio.

3) TIMECOM - Fantastic business, valuations are not cheap, and fair at best. But i think its worth paying for. By far the biggest position at 30% of portfolio, still holding today, 5% paper loss so far.

4) EVERGREEN - What i learnt from this, is that just because  stock is close to all time low, does not mean its cheap. And that relative comparision of opportunities is most important. It is overvalued when compared to its peers. 8% position, sold it at a loss of 9% at 0.85.

5) PETRONM - When it first shot up to RM4.6, i didnt dare to buy then, as i knew the price, but not the value (smack head). At RM7.6 i did my research, 4X EV/EBIT cash cow, holy shit, bought some. It then promptly dropped 50 cents. As a newbie, panicked, almost sold, but luckily, i was less dumb than i was at the start of the year, doubled my position and held till today.

6) HENGYUAN - This is one of my stupider moves. The initial mistake itself was not the worst, but it definitely cost the most.

When i first found it through my screener for stocks at all time low, it was RM2. I kid you not. I check malaysiastock.biz, the graph and P/E things were not working at the website for this stock then. Figured might be a rubbish company like chinese ones.

I looked deeper, saw the massive losses previously, thought it might be a typical stupid oil company suffering from the excesses of overspending in 2014, forgetting to check if it was impairment on goodwil or inventory (big difference).

I still wanted to buy, but i saw EPF and KWSP etc selling like nobody business. Again stupid, EPF and KWSP are not gods, they do very very stupid things all the time. I did not buy, and bought Airasia instead.

Then the ICON8888 article came out, and i studied alot more. Bought at RM5.6. Sold it at RM7.4. Saw stockraider start to goreng it like mad, after he stupidly recommend evergreen and sold it all in the middle of the year. But what he said made sense. Buy back at RM7.6, but position was small. Told people not to buy at RM10.6, and then all time record result come out. Doubled my position at RM11.2. Held till today.

Lesson learnt, study harder, read more, listen to yourself. Dont rely on i3 or malaysiastock.biz so much.

7) ELSOFT - Bought as a punt at RM1.7, figured it was a good company, held to Rm2.4 and sold. Like i always said, i dont know what moat it got, and valuations are not cheap.

8) MUIIND, PMCORP - Listened to calvin, bought small 3% positions each. Sold at the crazy jump. May buy again as it is really a nice net asset play.

9) CHOOBEE - A true Graham net net play. Good company, selling less than net net working capital. I put 30% in. Sold half at 1.95, as i was a newbie and cannot tahan the price movement. Sold the rest at RM2.1. I still want to buy back in, but i have other opportunities and my name not KYY or warren buffet.

10) DAIMAN, PLENITUDE, ORIENT - Some of the greatest net asset companies in bursa, total they are about 13% of portfolio, just hold only.

11) PBA - Bought at 1.27, its now 1.15. I dont think i made a mistake, valuations wise, its cheap. Only problem is the incredible 100m a year capex. Only 2% of portfolio, keep only.

12) RCECAP - Great business in good industry, selling at big discount. Not saying more. I firmly believe that if you find what you think is really cheap, you will just diam and buy.

If i knew how good hengyuan was, i would just diam and buy, i wouldnt mind if i bought hengyuan and price never move for a year. Avg cost is RM1.57. i hope it can drop more. 

13) FIMACOR - Cheap valautions, decent company. I didnt like it as it feel crony. And is too reliant one customer, sold at 5% loss.

14) LIIHEN - Bought at RM3.09, sold half at RM4. Kept the rest. Good company, with great growth and cheap valautions even if growth not taken into account. Want to buy more, but prefer another company.

15) LATITUDE -  Bought at 4.65. 2.3X EV/EBIT. Profitable company that grow over the last 5 years. Too cheap. just buy.

16) FAVCO - 2.5X EV/EBIT using lowest earnings on record. Fantastic management, best crane company in the world. Just buy.

17) VS-WA - Bought at RM0.5 sold at RM0.8. Too expensive d. Could go higher, but let someone else make that money.

18) SUPERMAX - Bought a 3-4% position as i felt it was cheap compared to other gloves stocks, almost 3-4 times cheaper in terms of valuations actually. And i figured, the company share buybacks means the owner must really think the stock is undervalued, and this should maintain the price, started buy at RM2, and topped up in RM1.9. Sold at RM1.9 after thinking abit. Before it went up to RM2. Im fairly happy with my thought process when it come to my selling of the stock.

My mistake, if a company is undervalued compared to its peers in an incredibly overvalued industry. It is still overvalued. The glove industry had one hell of a boom in earnings and multiples (goreng) in the last few years, with P/E's at sky high levels, for the expected growth. Every company doubled or tripled capacity with future expansions on the way.

This resulted in oversupply and margin compression even for Hartalega. After i sold, it went down as low as 1.75 and i felt very smart.

And then, suddenly, China decided to save glove shareholders in malaysia by closing vinyl glove factories in china, giving record earnings to all these companies.

Oh well. I'm not going to rely on being lucky or not being unlucky to make money. Good luck to people holding that.

19) ESCERAM - Bought because price was low histotrically, P/E is low compared to its related industry in gloves, say the automation thing. Again, low in an overvalued industry, not low on its own basis and when compared other opportunities. Lost about 15%. Lesson learnt.

Few more but lazy to write d.


Facebook: Choivo Capital
Website: www.choivocapital.com
Email: choivocapital@gmail.com




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  8 people like this.
Flintstones Hi, interested to learn more how to value financial institution. May i know where can i read more? Especially the part of 1x book value given to financial institution with roa 1%
29/12/2017 6:52 PM
cheoky Give a like
29/12/2017 6:55 PM
Choivo Capital Just google how Warren Buffet values financial institution.

Main rule of thumb for me is, ROA of 1%, While Leveraged 10X, Fair value is 1X P/B. I may write a post describing it.

Flintstones Hi, interested to learn more how to value financial institution. May i know where can i read more? Especially the part of 1x book value given to financial institution with roa 1%
29/12/2017 7:50 PM
Flintstones Please do. Nobody in i3 has done that yet. Look forward.
29/12/2017 8:05 PM
shareinvestor88 pls write more
29/12/2017 8:37 PM
CharlesT Good review
29/12/2017 8:51 PM
Fabien "The Efficient Capital Allocater" Implied or Target P / BV = ( ROE – g ) / ( CoE – g )
P = Share Price
BV = Book Value per Share
ROE = Return on Equity
CoE = Cost of (Equity) Capital
g = Long Term Growth Rate
29/12/2017 10:02 PM
godhand 8) MUIIND, PMCORP - Listened to calvin, bought small 3% positions each. Sold at the crazy jump. May buy again as it is really a nice net asset play.

29/12/2017 10:07 PM
Alex™ u focus on too much stock. Play lesser. 7-8.
29/12/2017 11:31 PM
Choivo Capital Possible, i think so too. I'm mixing it up a bit. My top 3-4 holdings is 60% of my holdings already. The rest, are relatively small 1-4% positions.

My problem is that i'm conservative, and the thing about investment is that you don't have perfect knowledge, so when something is a large enough discount to intrinsic value, i'll just buy. If i'm really really sure of something, ill build my position up to a maximum of 30%. I think 30% is the absolute max for me d.

I wont make the kind of money highly concentrated portfolios will make, but i also wont lose the kind of money they lose.

Alex™ u focus on too much stock. Play lesser. 7-8.
29/12/2017 23:31
30/12/2017 12:56 AM
martinam Dry sense of humour. Down to earth, honest and humble. Look forward for more.
30/12/2017 1:41 AM
Pusher_Punisher great write up. i hope u can share more detail maybe top 3 or top 5 of your favourite stock. hope can learn more from you. thank you.
30/12/2017 4:24 PM
Alex™ @Jon Choivo

Thank you for sharing.

i just tabled all my trades for this year for tax filing purpose. I found out that out of 120 trades, only 10% big profitable trades are needed to put me in a good year.

Hence, this 2018 year I'll try to trade lesser, but with more quality, fundamentally strong, technical setup. Wish you all the best also.
30/12/2017 4:30 PM
Choivo Capital Here you go.


Flintstones Please do. Nobody in i3 has done that yet. Look forward.
29/12/2017 20:05
31/12/2017 5:08 AM
yfchong Bro Jon ...you r true. Taiko n take responsibility to review... all the best 2018...,happy investing 2018
31/12/2017 7:36 AM
value88 At this age, u can read all the annual reports in Bursa, I salute.
Being humble, honest and open to admit mistakes and learn from them, i think your stock investment future is very bright. U are kind of a "growth stock".
I look forward to seeing more of your article.
Thank you.
01/01/2018 12:26 PM


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