kcchongnz blog
Ever-Sendai: An investment filled with business sense? kcchongnz
“..there are two possible endings to every story.”― Christie Watson, Tiny Sunbirds, Far Away
In my last article published in i3investor, “Margin Finance, EverSendai: A real time case study” below,
https://klse.i3investor.com/blogs/kcchongnz/133708.jsp
I use Eversendai to illustrate the peril of using share margin finance (SMF). Sendai was trading at 80 sen then, just for sharing purpose.
I illustrated that with SMF of 50%, a speculator following the “sailing” call punting on Sendai at RM1.37 would have lost a whopping 83%, in just two months! This has not included the set-up cost, the interest payment for the SMF, and other transaction costs.
That punter would have encountered margin calls, and as he had already “sailing”, and likely had no more money to top up his margin maintenance account. His investment banker would have sold off all his Sendai shares at huge loss, a confirmed and realized loss.
Here I received this interesting comment.
[stockmanmy has left a new comment on your post "Margin Finance, Ever-Sendai: A real time case study kcchongnz":
sendai from 80 sen to 95 sen now...................
KC lousy timing, lousy business sense and lousy analysis.]
What is so interesting about this comment?
"The stock market is filled with individuals who know the price of everything, but the value of nothing." - Phillip Fisher
The fellow above only knows about price movement of Sendai, without the faintest idea what its value is and was so sexcited when Sendai went up from 80 sen to 95 sen. He forgot that he had been asking people in i3investor to “sailing” with margin finance all over the place when it was trading at RM1.37. He doesn’t care that those who followed his calls had got their shares forced sold at about 80 sen, and hence had incurred huge losses, without having a chance to recover.
“Lousy timing”? Lousy timing writing the article when Sendai was trading at 80 sen and now it is 95 sen?
I have been writing about articles telling another side of a story about margin finance all the time, and timing of when to write has never been in my mind. I had no idea whether the share price of Sendai would go up or go down at the time of writing, nor do I know if it will go up or go down in the future. By the way, I have no interest on that.
“Spending an hour trying to predict the future movement of the stock market is an hour wasted in your life.”
“Lousy business sense” not investing in Sendai?
I would like to spend some time discussing the above statement by that fellow.
No business sense not investing in Sendai
Before deciding if to invest in Sendai, I would first seek answers to a few simple questions as below,
- What is the industry it is in, and how is the competitive environment?
- What is the expected bottom line, rather than the size of the order book?
- What are the risks?
Construction industry, which Sendai is involved in, is filled with many problems and uncertainties. It is a dog-eat-dog world. Contractors, unless they have good contacts for negotiated contracts or they have special skills, win jobs by competitive pricing, and hence margins are generally low. Otherwise, forget about getting the job.
There are many reasons which can delay the construction works and causes cost overrun, almost for all construction projects, all the time. There are also a lot of contract disputes, payment problems, which often, contractors are the one who suffer most.
Is Sendai suffering from this predicament?
Please refer to my analysis on Sendai in the thread “Banging On EverSendai: Risk and Return” below,
https://klse.i3investor.com/blogs/kcchongnz/132084.jsp
Low margin, cost overrun
The net profit margins of Sendai were very low at about 3.5% over the last few years. Suddenly last year, it announced a huge loss of RM274m! In the cash flows aspects, it was even more precarious. At the cash flows from operations (CFFO) level, there already huge deficits the last two years, RM53m in 2016, and RM216m in 2015. Free cash flows (FCF), after capital expenses, were negative 4 out of the last 5 years. In the last 4 years, the company bled a whopping total of RM662m in cash.
That is the problem with construction industry when a construction company has to undergo competitive bidding for job. Many companies tender at low margin in order to secure the job. When everything goes smoothly, the company earns a low margin. However, when they encounter problems, most construction companies will encounter problems all the time such as cost overrun, and work delays, their jobs turn into losses, often huge losses like what happen to Sendai last year.
Why is avoiding investing in this type of low margin construction company considered as lousy business sense as claimed?
Construction Disputes
Construction is full of disputes, all the time. Contactor often claims that there are additional work and entitlement of claims for additional time and overheads, whereas the clients and consultants always accused the contractor of work delay and hence impose liquidated damages. There are always two sides of the story, and unfortunately, the contractor is always at the losing end.
The contractor may go for arbitration, or court cases, but ultimately the contractor is always on the losing side. Make no mistake about it.
Ever wonder why there have been growing receivables up to such a whopping RM1.7 billion, and suddenly such a big write off and losses of RM274m last year for Sendai?
Is it really such a lousy business sense avoiding in investing in a construction company with low margin but full of risks and uncertainties like that of Sendai?
Bankruptcy risk
Total borrowings of Sendai in the most recent quarter have ballooned from RM254m in 2012 to RM1190 million now with total debts 1.4 times its equity.
It is no surprise that there will be many cash calls to come for the next few years. The private placements, at 10% discount, as I see it, the company has no choice but to get this money fast, to pay down debts and money for working capital. I doubt the banks are lending more looking at its risks. If I were a shareholder, I would be very reluctant to put in more money too.
Is that really a lousy business sense avoiding investing in a risky company like that of Sendai?
Conclusion
In my opinion, it is full of business sense avoiding investing in a construction company with huge losses, low margins, and a precarious balance sheet.
If one really keens on investing in construction companies, there are so many others with higher margins, more predictable and stable and visibility in earnings, and cash flows. Many of them with solid balance sheet, and good dividends.
Focus on investing in a business of a company, with business sense, true business sense of course, rather than the price movement of a piece of paper.
Think of the downside in investing, the upside will take care of itself.
Invert, always invert.
KC Chong
ckc14invest@gmail.com
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Discussions
13 people like this. Showing 32 of 32 comments
From an experienced top grade Engineer who had involved in construction for a long time we can see the quality of KC's understanding of construction activities.
This couple with his knowledge of stock make KC's writing a MUST read for me.
TQ KC.
2017-10-08 04:24
Sendai is doing high end steel design and build construction, which is different from the general type of construction, where the contractor need to submit competitive tenders.
There are few construction companies in Malaysia have the expertise of high end steel design and build business . I read from the news that Sendai has secured many projects in oversea countries . Being a Malaysian company and having pool of local staff ( design and project management), I think Sendai's cost on running projects should be much cheaper and it will help in the profit margin.
With regards to construction dispute, my opinion is that , unless the project is poorly manage with many mediocre personnel, there should not be unresolvable dispute. Sendai might have such minor problems, in the past, but we should not jump into conclusion that Sendai's future projects will end up in construction dispute.
I sincerely hope that Sendai will succeed in its plan to become a reputable construction company, like Gamuda, IJM , Sunway....
2017-10-08 05:48
Posted by new_in_share > Oct 8, 2017 04:43 AM | Report Abuse
Rather than condemning why not recommend what shares can buy?
Invert, always invert.
If you are new in share, you better change your mind set.
1) Don't look at alternate view as condemning the share you hold, but something to ponder about. By the way, read the article properly; is it about condemning, or sharing of facts and information or different opinion.
2) Think deeply about why people want to recommend you what shares to buy in a public forum. Is there tooth fairy in the stock market?
2017-10-08 07:18
Uncle Koon sialang, KC sailing, nobody sailang. Kikiki... Anyway, I just wonder why nobody interested in INSAS.
2017-10-08 08:14
Investors who follow KC's way of investment are able to survive through the bear & bull markets with minimum of turbulents, but if investors have learned to sailang with borrowed money, then it's very likely that you wil go through a roller ccoater life with a lot cchallenges!
2017-10-08 09:05
Posted by ccmeow > Oct 8, 2017 05:48 AM | Report Abuse
Sendai is doing high end steel design and build construction, which is different from the general type of construction, where the contractor need to submit competitive tenders.
There are few construction companies in Malaysia have the expertise of high end steel design and build business . I read from the news that Sendai has secured many projects in oversea countries . Being a Malaysian company and having pool of local staff ( design and project management), I think Sendai's cost on running projects should be much cheaper and it will help in the profit margin.
With regards to construction dispute, my opinion is that , unless the project is poorly manage with many mediocre personnel, there should not be unresolvable dispute. Sendai might have such minor problems, in the past, but we should not jump into conclusion that Sendai's future projects will end up in construction dispute.
I sincerely hope that Sendai will succeed in its plan to become a reputable construction company, like Gamuda, IJM , Sunway....
I also hope a home-grown construction company can excel internationally. Yes I do.
However, my articles on Sendai aim to provide an alternative view about investing in Sendai, especially with borrowed money, touted by some people in the forums here. This becomes especially dangerous for newbies, who think they will never be wrong following the calls by some respectable figures in our society.
Investing is about the future, not the past. I am not jumping into conclusion that the future will resemble the past, that Sendai may, unlike the past, will be doing very well in the future, with its huge order book.
Its CEO also mention that they will complete all projects on the time, though he never talk about the bottom line.
Will I sailang Sendai based on the two points above?
Hell no! If you do, it is your prerogative. You may succeed too, I don't know.
“..there are two possible endings to every story.”
For me, I like what Winston Churchill said,
“The further backward you can look, the farther forward you are likely to see”
2017-10-08 10:09
in an investment world there are all sort of ppl with all sort of mentality :-
FA
TA
FA + TA
opportunist
day traders
long-term investor
trend follower
contrarian
risk taker
save heaven investor
ignorance
newbies
pure follower
offender
etc etc etc....
all these blend out to be an interesting investment world. hence, some make money some make loses even though both investing on a same stock. the same type of rice raises up a 100 types of diff ppl......no one own a holy grail system that guarantee a profit forever. the one that can sustain long lasting in investment arena will be the winner. no right or wrong in every category, style, sharing, trade behavior or all sort...white cat, black cat, catches mice is good cat.
2017-10-08 10:23
follow big 'shark' macquarie bank never wrong..u think they stupid one invest in those company u think high risk haha..or like those just think they wan few sen earn only ...u knw who im saying haha
2017-10-08 12:15
How many times Kc had written articles about Sendai. Restless tries, what's his intention?
My second round for this counter avrg at 1.08. Tak takut langsung.
2017-10-08 13:56
moneykj, I have lost count how many times you cut loss on Sendai.
Wish you better luck this time.
2017-10-08 14:40
I bot below 0.50 n sold 1.30 for first round. Investment is not about 1 or 2 months. Let's judge after 6 months for my 2nd round.
Fundamentalist like Kc also don't like high gearing Pmetal when the price at 0.71(adjusted price) last year. What's the price now?
Another counter you may not like is Brahims... I start buying last week, judge my ability after 2 months.
2017-10-08 15:13
On the dot by KC. I said it the last time and I will say it again. Sendai is a lousy stock to buy based on its past performance and precarious balance sheet. Wonder why super investor or super speculator thinks it's such a good buy. You guys decide.
2017-10-08 15:35
people who leave behind positive notes are only encouraging lousy timing, lousy business sense and lousy analysis.
2017-10-08 16:56
put in simply, sendai has a poor track record in executing its contracts profitably. for construction companies, focus should not be on how much contract they win but how much they can earn from it
2017-10-08 18:39
actually, if i remember reading uncle KYY's previous advice, he recommended not to touch property and plantation and GLC's stocks. But construction, I need to read back.
btw, sifu KC i guess he purposely type 'sailing'. So we have a new term now =)
sailing dia~
2017-10-08 22:04
i've been following fisher's qualitative approach to investing as per his popular book 'common stock and uncommon profit'. That quote you had there still resonates with me all the time.
2017-10-08 22:07
Posted by kevin008 > Oct 8, 2017 12:15 PM | Report Abuse
follow big 'shark' macquarie bank never wrong..u think they stupid one invest in those company u think high risk haha..or like those just think they wan few sen earn only ...u knw who im saying haha
I recommend you to watch this show,
The Wolf of Wall Street
2017-10-09 13:42
Posted by moneykj > Oct 8, 2017 01:56 PM | Report Abuse
How many times Kc had written articles about Sendai. Restless tries, what's his intention?
My second round for this counter avrg at 1.08. Tak takut langsung.
Luckily you did not take 50% margin finance. Otherwise you would have got friendly margin call from your broker when the share price dropped to 80 sen last week,
So what do you think is my sharing on Sendai here?
2017-10-09 13:53
there is no right or wrong..but i think sendai is not as bad as sapura energy la...i heard a guy keep topping up it from rm4 plus to now..he keep averaging down even though oil price was freefalling.
Should you do it with sendai..the only answer is no one knows...is this price the bottoming price and you managed to average it down and maybe profit from it??
Happy investing.
2017-10-10 12:04
Posted by mamakspecial > Oct 10, 2017 12:04 PM | Report Abuse
there is no right or wrong..but i think sendai is not as bad as sapura energy la...i heard a guy keep topping up it from rm4 plus to now..he keep averaging down even though oil price was freefalling.
Should you do it with sendai..the only answer is no one knows...is this price the bottoming price and you managed to average it down and maybe profit from it??
Happy investing.
Seriously, players in Bursa should also think about the value of the share, rather than only the price.
2017-10-10 12:43
How I turned $500 into $25,000, and will most likely turn that into millions and you can too. [aka Crypto101]
5 months ago
decentralizd62 in cryptocurrency
1. Buy everything you believe in. And keep up-to-date on them.
Remember back in 2012 when Bitcoin started to get semi noticed by the world and had its first glimpse of greatness? Remember when people preached of Bitcoins being worth $1,000,000? Well Bitcoin was worth $90-$400 around those times, back when having a single article on Forbes about Bitcoin was unthinkable. But look around, we are slowly climbing the mountain. Even with all the drama, price dumps, exchange crashes, government stupidity & weak handed sissies, Bitcoin still grows. We are are at all time highs and I wouldn't be surprised if we hit $4,000 Bitcoins this year. Then after Bitcoin corrects, altcoins will boom.
That brings us to altcoins, who's market has also grown tremendously in value as of lately, owning the coins you believe in, have researched and keep up to date with are the ones that will help you grow, you have one advantage everyone else does not, you know why this coin is valuable. All you need now is for everyone else to know it as well and you are in the green. And that day will come.
2. HOLD IT. 3mo-1yr, Buy on mega dumps.
Don't be that guy that bought PIVX at 10 cents just to have sold it at 16 cents... if you buy something and you know why you bought it and have done you research, you are much less likely to get weak hands and sell for minimal profit. All of these projects have so much room for growth and dumping early is one of the easiest ways to kick yourself for years to come. So instead of dumping with the market when everyone starts taking profit, start buying and increase your stash of cheap coins, because one day, all of these coins will be worth 10-1000 times what they are today.
3. Once you are up 200-300%, sell your initial investment. Trust me.
Obviously theres risk involved in crypto, so to be more safe and secure your investments, when your some of your alts have a mega spike, why not sell 1/3 of your coins which usually equals out to your initial investment and put that back into something more stable like Bitcoin until the price corrects? It always happens, no matter the coin. And it helps you sleep at night, or atleast not wake up at 5am to check the price lol.... you know you have all done it...
4. Buy More, Hodl More.
Crypto is bullish. Every chance you get you should be purchasing more BTC with USD, earning more BTC online, buying more Altcoins, increase your positions in your favorite alts and just get involved in general. The only way crypto is going to 'go mainstream' is if everyone adopts this mentality. You can already LIVE on crypto currency and I personally do so quite well. So why not shake the past and start living in the future? FIAT is a dying concept of money and we all know it, therefore we should all be dumping our FIAT for Bitcoins and other cryptos.
5. Oh and don't forget to keep growing your coins, using Steemit for example!
A great way to increase your stash without pulling money out of your pocket is to simply be active, use services like Steemit.com, be active on subreddits about crypto, be active on your favorite forums about your favorite crypto or whatever it may be and I promise it will pay of for you, you will either get in early on a generation 3 currency, earn alot of $$ on Steemit or even find yourself a sweet blockchain funded job! Those seem to be all the craze these days..
6. Crypto is a Bullish market overall, don't forget that folks, FIAT is dying before our eyes.
Like I said before, crypto is bullish, any coin that stays alive for the next 5 years will see insanely gains no matter what, its the nature of the system. While I don't suggest to buy more than you can manage, owning more than 1-2 coins is a very good idea for the next couple years, even if some short term losses occur overall we're all going to make quite a hefty amount of profit due to the nature of the systems we are investing into. We are still early adopters folks!
2017-10-10 18:13
if u follow macquarie bank now u already laugh to the bank
masteel , trive up so much
vivocom and sendai in the process.
still think about business sense or accounting ? think of big shark la
2017-10-11 12:26
SENDAI: Early stage of Wave 3 kicked in ! My target is $1.40/$1.8/$2.40
https://youtu.be/XpOqfOZ7pBs
2017-10-15 17:18
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This book is the result of the author's many years of experience and observation throughout his 26 years in the stockbroking industry. It was written for general public to learn to invest based on facts and not on fantasies or hearsay....
Davidajy
Very well written! :)
2017-10-08 03:04