Highlights
Social Forum >> Forum Thread

In Search of Excellence: Investing in good companies

Posted by kcchongnz at May 25, 2013 12:03 PM | Report Abuse
119 comment(s). Last comment by kcchongnz at Sep 19, 2013 7:35 PM
Like
 17 people like this.
 
 Post Reply   Back  
Page 1 2 3

yeapmarghee
10 posts

Posted by yeapmarghee > Jun 15, 2013 6:44 PM | Report Abuse

a good exposure of this kind for benefit of beginners.Thanks.


kcchongnz
6610 posts

Posted by kcchongnz > Jun 16, 2013 7:58 AM | Report Abuse

Is P&O a good comapny? Is it a good investment?

Posted by Darren Kho > Jun 15, 2013 02:33 PM | Report Abuse
kcchongnz,
Please have a look at P&O, is it a good company and worth for long term investment? Appreciate your comment so much and thank you for that :)

Sorry Darren, I don't know how much about insurance business. But that won't stop me from giving an opinion too, will it?

Warren Buffet acquired a good insurance company in Geico. It gives him a lot of money paid upfront to invest and earns great return for Berkshire Hart away. So I guess insurance business is a durable one. But once and while insurance company get hit badly too when there is a natural disaster.

P&O makes good ROE and ROIC too and so this is a plus as a good company. However, I don't expect much growth. don't know why cash flows is not good. So this is a minus.

So overall i guess P&O is ok lah as a company. Lets look at whether it is a good investment.

Screens for investing
ROTC ok 17% >WACC
P/B Yes 1.5 <2.0
PE ratio Yes 10.0 <20

apparently P&O meets my requirement as an investment as shown above.


kcchongnz
6610 posts

Posted by kcchongnz > Jun 16, 2013 12:16 PM | Report Abuse

Posted by houseofordos > Jun 15, 2013 05:21 PM | Report Abuse
KC,
Nice sharing... I think Muar Ban Lee, Willowglen also fits nicely into this criteria... To add...
P/B ratio of 2 may not be too expensive if we are looking at asset light companies so again comparison to sector average or peers will tell a better picture
P/E ratio of 25 is a good starting point, P/E =25 = earnings yield of 4% which exceeds FD rate. P/E ratio should be further compared to the sector or index average before decision is made..
Other screens I normally use are :-
Debt to equity < 0.5
Dividend yield > 5%

house, agree with you regarding your P/B=2 and P/E=25 are not high for investing in a good company. I am emphasizing "good" companies here.

Regarding your screen for D/E<0.5, and DY>5%, I am afraid you may lose out some fantastic companies to invest in if you put your requirements too stringent. Many good companies can leverage high with D/E even much higher than 1 to earn good ROE. A good business is good to have more debt because for good business, leverage enhances return to equity holders. I did not study good companies like Nestle, Carlsberg, BAT, Maxis, GAB etc, but i think they make good use of leverage to enhance ROE. Also a good company with steady cash flows have no worry of paying interest payment.

The other DY which at the start I have mentioned that there is no statistically evidence to show that high DY companies provide high total return. Think about it, a company pays out too much dividends is because they have nothing better to do with the money. A growth company which pays out too much dividend will suffer lower growth rate if less money is reinvested in the business.


kcchongnz
6610 posts

Posted by kcchongnz > Jun 16, 2013 3:40 PM | Report Abuse

Is Muar Ban Lee a good company? Is it a good investment?

Posted by houseofordos > Jun 15, 2013 05:21 PM | Report Abuse
KC, Nice sharing... I think Muar Ban Lee, Willowglen also fits nicely into this criteri

First I would look at the business of the company if it is durable. A durable business is whether the business is a good one and will still persist many years in the future.

MBL is principally engaged in three core businesses: the design and manufacture of oilseed expellers and ancillary machinery for oilseed crushing plants; the design, fabrication, installation and commissioning of oilseed crushing plants, and the manufacture and sale of spare parts. It has evolved from a small scale manufacturer to the current position as one of the top manufacturers of oil seed expellers in Malaysia. It went public listing on 11 January 2007.

MBL being closely tied to the palm oil industry which is a durable business. Cheap palm oil is the cooking oil of choice in many parts of the world, and accounts for more than 30% of the world’s vegetable oil production . Palm oil exports bring Indonesia and Malaysia US $40 billion a year.

Secondly I would like to see the quality and credibility of the management of MBL. Dato’ Chua Ah Ba, aged 67, the Executive Chairman is the founder of our Group and has accumulated more than 39 years experience and expertise in the design and manufacture of oil seed expellers, ancillary machinery and spare parts. He is incharge of the overall business operations and strategic planning of the group. He is training his son Chua Heok Wee to take over his place. The business seems to be tightly held and controlled by the Chua family, with a couple independent directors. There doesn’t seem to be any unfair related party transaction.

Total management compensation for last year for the 5 executive directors of RM4.142m, or about 5% (>3%) of the revenue appears on the high side. That may be because the company is small with revenue less than 80m. If we gauge from the profits they made at 17m, or a net profit of 22%, it may be justifiable.

Next important thing for me is the quality of the business. The gross margin and net profit margin of MBL of 43% and 22% is pretty good to me. This is also shown in the high ROE and ROIC of 21% and 36% respectively. The high EBITDA/IC of 40% also demonstrates the high quality of its business.

Fourthly regarding the growth of its business. Revenue and profit has grown by 46% and 26% a year for the last three years since listing. This is a very good growth indeed. Actually if a good company can have a growth rate of 5-10%, I would be happy enough.

So taking all these into considerations, I would rate MBL as a above average company. What how about its price? We have discussed before that a good company may not be a good investment if it is very pricey.

At the close of RM1.15 on 14/6/2013, MBL is selling at a PE ratio of just 6.2. Market Enterprise Value is only 3.7 times EBITDA. Price-to-book is only at 1.3 (<2). I would say a good company of MBL is selling very cheaply.

Yeah, the first quarter result 2013 has shown MBL’s revenue and profit dropped substantially by 35% and 55% respectively. But that has not result in overvaluation of MBL even basing on this “bad” results. Not yet.

So I would say MBL fits in very well as a good company worthy of investing for long term.


yungshen1
2134 posts

Posted by yungshen1 > Jun 16, 2013 4:05 PM | Report Abuse

i like kcchongnz posting. he master every share. he can give u good share to invest. and he will tell u which share can not invest. he told me avoid invest in knm company. now i regret already never listen to him.kcchongnz he was great in share.we must learn from him


chengyee
418 posts

Posted by chengyee > Jun 16, 2013 7:04 PM | Report Abuse

Kcchongnz, have you done study on LBALUM and PMETAL before? Please share if you have. I am interested to know your valuation on them. Thanks.


NOBY
937 posts

Posted by NOBY > Jun 16, 2013 11:59 PM | Report Abuse

Another undervalued company I see is Coastal contracts :-
ROE 13.8239
P/E 8.25
PTBV 1.1399

The company is involved in shipbuilding.. which is having some oversupply right now reason for their depressed earnings. . however, they do have a good management team.. and looking out for opportunities to diversify its sources of earnings.

It previously tried to enter the engineering & fabrication, FPSO and FSO segments but these have yet to take off. We note that it is also now contemplating the offshore drilling segment, in particular, as another avenue of recurring income (From Kenanga research)


kcchongnz
6610 posts

Posted by kcchongnz > Jun 17, 2013 9:57 AM | Report Abuse

Is Willowglen MSC a good company? Is it a good investment?

First I look at the business of the company if there is economic moat. Two important attributes of economic moat is the durability and the quality of the business. A durable business is whether the business is a good one and will still persist many years in the future. High quality business has good cash flows, high margins compared to its competitors and provide excess returns to its capital providers.

Willowglen MSC Berhad is engaged in the research, development and supply of computer-based control systems. Its supervisory control and data acquisition (SCADA) system is used in security monitoring, building management and environmental control systems that has been showing promising growth trends in recent years. Its operations are mainly carried out in Malaysia and Singapore with the Indonesian market in the developing stage. In the Klang Valley, there are some key areas that will lead to the increase in the demand for SCADA and Security Systems applications, such as the High Speed Rail System, MY Rapit Transit andSewerage Non-River. In Singapore, there will also be more business opportunities in line with the Government’s initiative in construction of new infrastructure, facilities for transportation and utilities such as power, water and sewerage plants. This will directly or indirectly provide opportunities for growth and demand for SCADA and Security Systems. This shows the durability of Willow’s business which will continue to exist and prosper for years to come.

From the past years from 2005 to 2012, revenue and net profit of the company was quite flattish at an average of 50m and 8.5m respectively. However the last financial year saw revenue and net profit jumped by 60% and 80% to 83.4m and 15.4m respectively. This good performance continues in the first quarter of 2013. For the past 5 years, cash flows from operations has been about the same as net income and free cash flows abundant at 89% and 34% of revenue and invested capital. This is despite that they were pulled down by the poorer CFFO and FCF last year as a result of its 60% increase in revenue. The net profit margin of Willow has been quite consistent at an average of 18% (>15%) which is pretty good to me. This is also shown in the high ROE and ROIC of 18% and 37% respectively. All these demonstrate that the quality of the business is great.

The Board of directors is strangely just made up by one executive director who is the Managing Director, Puan Sri Khor Chai Moi, age 60, and an accountant by training. There are 4 independent directors. The business appears to be fully controlled by the major shareholder. The composition of the Board is very lean indeed. Total management compensation for last year was only RM512000, or about 0.6% (>>3%). Anyway, the major shareholder Puan Sri Khor and her family hold 52% of the shares and hence the interest of shareholders and management appears to be aligned.

So taking all these into considerations, I would rate Willow as another above average company. What how about its price? We have discussed before that a good company may not be a good investment if it is very pricey.

At the price of 48 sen now, Willow is trading at a PE ratio of just 7.7 (<20). Market Enterprise Value is only 4.6 times EBIT (<8). Price-to-book is only at 1.6 (<2). I would say a good company of Willow is selling very cheaply.


kcchongnz
6610 posts

Posted by kcchongnz > Jun 17, 2013 3:16 PM | Report Abuse

Posted by chengyee > Jun 16, 2013 07:04 PM | Report Abuse
Kcchongnz, have you done study on LBALUM and PMETAL before? Please share if you have. I am interested to know your valuation on them. Thanks.

No, I haven't before you mentioned here. In fact I don't know what this LBALUM is also. But since you asked, I have a look at P Metal.

I saw a "big Head Devil" here. PMetal has impressive projects in Sarawak, the huge aluminum smelting plant which is in full operation now, and a few huge operations in China. Appeared to be very impressive. However, after normalizing its earnings to just about 100m last year (this year doesn't appear to be better), its ROE is only about 7%, way below my required return of 15% for this company.

PMetal has an astronomical amount of debts, 2.6b against its equity of just 1.4b. So yearly interest payment alone is 108m last year. So Pmetal didn't even earn enough to pay interest payment alone! Worst of all, it has no positive cash flow at all from its operations for at least the last two years(mind you I am not taking about free cash flow). So how? I jsut wonder how Pmetal could pay 6 sen a share dividend last year???

Since you want my valuation, I just give a shot. I use a simple but very useful valuation method basing on its ROE. My requirement of return for this kind of financial is at least 15%. With a NTA of 2.52 per share, I value Pmetal equal to 7%/15%*2.52 or just RM1.20 per share, against its market price of RM2.52 now.


fookchng
14 posts

Posted by fookchng > Jun 18, 2013 6:04 PM | Report Abuse

Dear KC, have you studied on PESTECH and CLASSIC SCENIC BHD before? I am interested to know your valuation on them. Thanks.


fatinvest
144 posts

Posted by fatinvest > Jun 18, 2013 8:10 PM | Report Abuse

I think TSH can be classified as a potential good stock simply because it has >110,000 hectares of land , of which only about 50,000 hectares had been planted ( with relatively young oil palm trees ).
Its planted acreage now is roughly the same as United Plantation, whereas the profit is only about one third of United Plant.
If it has fully planted all the 110,000 hectares of land and only making 80% of what United Plant makes, the profit will still be 5x what it makes now.
I see potential in this company.
KC mind to share your view on this?


kcchongnz
6610 posts

Posted by kcchongnz > Jun 19, 2013 12:58 PM | Report Abuse

Is Classic Scenic a good company? Is it a good investment?

Posted by fookchng > Jun 18, 2013 06:04 PM | Report Abuse
Dear KC, have you studied on PESTECH and CLASSIC SCENIC BHD before? I am interested to know your valuation on them. Thanks.

No, I have not studied those stocks before you mentioned here. But since you ask, I will try to look into one of them. And since you ask in this thread which discusses about searching for a good company, i will give my opinion if this is a good company worthy of investing also, before I attempt my valuation here.

Classic Scenic is engaged in the manufacturing of wooden picture frame moldings, and wooden pallets. Operations are carried out in Malaysia, North America, Australia, Europe and other Asian countries.

The business appears to be boring, isn't it? But often a boring traditional business is a good business. It's business has a high net profit margin of about 20% and provides a return of 16% (>12%) of invested capital. The quality of its earnings is good. Free cash flow is abundant at 20% of revenue (>>5%) and 16% (>>5%) of invested capital. That is why it can distribute a high dividend of 9 sen, (DY=8.1% at RM1.11). The only shortcoming is its business is quite stagnant with not much growth at a CAGR of only 4% fro the last 7 years. It is not that bad though as it is still growing in tandem with the broad economy. Last year's growth in revenue of 19% was great. So I can certainly say CScenic is a good company.

At RM1.11, its PE ratio is 10 (<20), EV/Ebit=6.7 (<8) and price-to-book of 1.4 (<2). So it is not expensive and hence may offer investors a good investment.

CScenic's valuation is quite straight forward as its revenue and earnings are quite stable. Assuming CScenic continues to grow in tandem with the economy at 3%, CScenic at RM1.11 is already fully valued as shown below, unless its business can continue to grow at last year's rate for a few more years.

Revenue 62329
Ebit 14753 24%
less income tax -3388 23%
EBIT after tax 11366
Add average D&A 2738
Less average capex -5983
Normalized Ebit 8121
Cost of capital, R 10%
Growth rate 3%
Capitalized earnings=Ad Ebit/R 116007
Add cash 21724
EPV 137731
Number of shares 120500
EPV/share 1.14 >


kcchongnz
6610 posts

Posted by kcchongnz > Jun 19, 2013 3:44 PM | Report Abuse

TSH again? A great company? Not in my book.

Posted by fatinvest > Jun 18, 2013 08:10 PM | Report Abuse
I think TSH can be classified as a potential good stock simply because it has >110,000 hectares of land , of which only about 50,000 hectares had been planted ( with relatively young oil palm trees ).
Its planted acreage now is roughly the same as United Plantation, whereas the profit is only about one third of United Plant.
If it has fully planted all the 110,000 hectares of land and only making 80% of what United Plant makes, the profit will still be 5x what it makes now.
I see potential in this company.
KC mind to share your view on this?

This was what I posted some time ago.

Posted by kcchongnz > Jun 10, 2013 07:30 PM | Report Abuse X
Is TSH a good company? Is it a great investment?

TSH is a darling stock for most investment bankers and analysts. Phillip Capital is one of them who has been continuously recommending this stock since three years ago. They expect TSH will have explosive growth for the next 20 years for its palm oil production! Analysts have projected the planting and increased in acreage in its palm oil crop and I believe they have done a thorough job.

We will let the job of projection to the analysts as this is their rice bowl. But we just peep through the recent past and see how TSH has been doing in its business. The Table below shows it revenue and net income from 2006 to 2012.

Year 2012 2011 2010 2009 2008 2007 2006 CAGR
Revenue, m 984 1134 910 989 1110 862 625 8%
EBIT, m 112 167 115 89 101 117 74 7%
Net Income, m 84 130 92 64 85 110 73 3%
EPS, sen 9.1 14.4 10.3 6.7 9.8 11.5 8.6

I personally don’t see the “explosive growth in this company, especially the last three years since Phillip Capital started to make the projection. Do you? Ok I know I know, it is the future, the next 17 years. It is just that I am a suspicious person who doesn’t easily believe anything until I have seen it.

The following table shows the cash flow of TSH for the past few years.

Year 2011 2010 2009 2008 2007 2006
CFFO, m 17 153 120 147 15 48 91
Capex -225 -225 -225 -225 -225 -225 -225
FCF -208 -71 -104 -78 -209 -177 -134
CFFO/NI 20% 118% 131% 230% 18% 43% 124%

What is the problem with its cash flow? Why is the quality of earnings so bad last year with CFFO only 20% of net income? Do you see any positive free cash flow, even in a single year?

How is its balance sheet then? The table below shows how its debt has been increasing each year and it is now closed to a billion ringgit of total debt now.

Year 2012 2011 2010 2009 2008 2007 2006
Total debt, m 975 740 722 603 468 261 186

How is its performance for the past years in term of ROE, ROIC? Do you find them impressive?

Year 2012 2011 2010 2009 2008 2007 2006
ROE 8.5% 13.7% 10.9% 7.8% 11.6% 15.2% 13.9%
ROIC 5.4% 8.5% 6.9% 6.0% 8.2% 11.6% 10.6%

What about its valuation with its share price closing at RM2.50 today? Judge yourself from my assessment below.

TSH a Good company? 2.500
Good governance ?
Durable business Yes
Growth ?
ROE No 9% <12%
ROTC No 6% <WACC
Balance sheet No 1.10 D/E>1
Cash flow No No FCF for years

Screens for investing
ROTC No 6% <WACC
P/B No 2.4 >2.0
PE ratio No 27.4 >20


Avocado_C
129 posts

Posted by Avocado_C > Jun 20, 2013 1:18 AM | Report Abuse

What do you think about Sapura Resources?


fatinvest
144 posts

Posted by fatinvest > Jun 20, 2013 1:41 PM | Report Abuse

Thanks KC.
Probably just KIV for the time being.


fatinvest
144 posts

Posted by fatinvest > Jun 20, 2013 1:42 PM | Report Abuse

Thanks KC.
Probably just KIV for the time being.


Charles Lee
9 posts

Posted by Charles Lee > Aug 13, 2013 10:45 PM | Report Abuse

Hi kcchongnz,

what professional course did you take to be able to have the skills to analyze a stock?

Is pursuing Chartered Financial Analyst the right path?

your advice, thanks!


kcchongnz
6610 posts

Posted by kcchongnz > Aug 14, 2013 9:58 AM | Report Abuse

Charles, CFA course would be the right one. No, I don't have any. Financial accounting knowledge could be more helpful. Ultimately it is some basic knowledge, the practice of analysis and experience that count more. Just academic is not good enough. I dare to say that.


kcchongnz
6610 posts

Posted by kcchongnz > Sep 19, 2013 7:35 PM | Report Abuse

Is M-Mode good for a long term investment? (19092013)

M-Mode Berhad is engaged in the provision of mobile contents and data application services with platform connected to mobile network operators in Malaysia and China.

M-Mode has a fantastic growth story. From 2006 to 2012, its revenue and net income grows by a CAGR of 37% and 75 to 62.1m and 13.2m respectively as shown in the appended Table 1.

Table: Revenue and net profit for M-Mode
Year 2012 2011 2010 2009 2008 2007 2006
Revenue 62070 75395 29207 22335 16129 13540 9432
Net Income 13232 12867 3425 3026 2096 1189 465
EPS, sen 8.1 8.0 2.2 1.9 1.4 0.9 0.4

M-Mode is one of the rare companies having a gross margin of over 40% and net profit margin above 20%. ROE and ROIC are high at 25% and 51% respectively, much higher than the costs of capitals and my requirement of 15% for a small capitalized company.

Quality of earnings is good with cash flows from operations higher than its net income. Free cash flow is positive every year with FCF above 50% of invested capital and 19% of revenue. MMode has a healthy balance sheet with an excess cash of 33.6m. Hence MMode is great company in every aspect. But is it a good company to invest in?

M-Mode’s share price rose by 4 sen today. At 57 sen a piece now, MMode is trading at a PE ratio of just 7.0. Enterprise value is also low at 4.5 times ebit (<<8 times). The price-to-book ratio is not excessive at 1.8.

Hence in my opinion, M-Mode is a great company good for long-term investment.

 Post Reply   Back  
Page 1 2 3
 

463  260  476  1063 

ActiveGainersLosers
Top 10 Active Counters
 NameLastChange 
 SAPNRG 0.265-0.005 
 KHEESAN 0.48+0.125 
 HSI-C7K 0.24+0.01 
 TDM 0.245+0.02 
 PARLO 0.14+0.025 
 SLVEST 0.905+0.035 
 ARMADA 0.495+0.015 
 SCNWOLF 0.29+0.02 
 MUDAJYA 0.415+0.02 
 INSAS-WB 0.010.00 

FEATURED POSTS

1. Leveraged & Inverse ETF CMS

TOP ARTICLES

1. ANOTHER STOCK PICK THAT MAY RALLY FROM TODAY ONWARDS! The Best Tips
2. 【建造不平凡】——OKA Investman 投资侠
3. Daily technical highlights – (JAKS,FRONTKN) Kenanga Research & Investment
4. REDTONE AGM HIGHLIGHT firerain collection
5. Stocks on Radar - JAKS Resources (4723) AmInvest Research Reports
6. Technical Buy - TEKSENG (7200) PublicInvest Research
7. Does London Biscuit worth anything? kcchongnz kcchongnz blog
8. Daily technical highlights – (FPGROUP,RSAWIT) Kenanga Research & Investment
Partners & Brokers