Koon Yew Yin's Blog
Different types of loan for doing business - Koon Yew Yin
Koon Yew Yin
Publish date: Mon, 25 May 2015, 11:32 AM
Koon Yew Yin
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An official blog in i3investor to publish sharing by Mr. Koon Yew Yin.
All materials published here are prepared by Mr. Koon Yew Yin
All materials published here are prepared by Mr. Koon Yew Yin
With due respect to those qualified accountants and investors without having actual doing business experience, my advice is not to be too worried about listed companies having some borrowing when they select shares to buy. If they are too concerned with loan, they often miss out buying really good shares with tremendous profit growth prospect.
I am aware that a famous financial analyst who often posts articles on i3investor.com, emphasizes the importance of cash. He would not recommend to buy shares of companies which have loan.
They must bear in mind that in all business schools, MBA students are taught that to trade or do business with only their own capital is considered inefficient. They must borrow from banks or their parents to do more business. They must remember that the bank’s business is to receive cheap money from a lot of poor people and house wives and lend it to business men to help them to do more business.
Ask yourself why do you borrow money to buy your house?
When I started Mudajaya and Gamuda in 1966 before they were listed and became IJM Corporation Bhd, I had to borrow as much as possible to do business. As construction contractors, we have great difficulty to borrow money because Banks would not accept bull dozers and other construction equipment as collaterals. They considered construction equipment unsafe as they were movable assets. We did not have fixed assets, like land and office buildings at that time. We even had to mortgage our family homes to borrow more money to do business.
Listed Company Status
It is every business man’s dream to list his company because the listed status is like getting a license from Bank Negara to print money. Initially he can sell his company listed shares for cash during the IPO stage and subsequently he can place out shares to fund managers. Moreover, the company get loan from Banks without his personal guarantee.
The first lesson I learnt how to borrow money from Banks without fixed assets was to assign our progress payment certificates certified by the official engineering consultants or architects. Banks would give us the money and charge interest while they waited for the actual payment from our clients.
Subsequently I learned more tricks to borrow money to earn more profit.
Currently I have tens of million ringgit margin loan from CIMB, Kenanga, TA Securities, HL Investment Bank and Maybank Investment Bank. I do not recommend novice investors to use margin loan to buy more shares.
Although I am not a qualified accountant, I know how to read and understand the company balance sheets. I appreciate when I see companies with loans of different types such as current and non-current, term loans, finance lease liabilities, unsecured term loans, Bank overdraft, short term loan, trust receipts, finance lease liabilities, acceptance certificates, revolving credit etc. With due respect, not all qualified accountants can explain the meaning of all these terms. I think some qualified accountants with actual experience in doing business, would be able to explain to you the meaning of all these terms.
Nevertheless, my advice is not to be afraid to buy shares from companies with loans, provided they have good profit growth prospect and they can make more profit in the current year than last year.
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Discussions
7 people like this. Showing 30 of 30 comments
Agreed. It relates much to personal risk preference. Your risk-taking and rewards thereafter was a testament to the success of business loans (And thank you since I've had a short tenure with IJM my first employer, which I will always be grateful for).
2015-05-25 13:25
Risks are always there in any business venture. The important thing is to have the confidence to take such risks. Past experiences in running successful businesses will definitely narrow down the risks.
2015-05-25 18:40
Hi Mr Koon, thank for sharing.
I agree to you, we have to maxi the loan amount in order to maxi the profit(if we are confident to get return better than % of loan).
1)May i know the detail how you judge for the debt gearing ratio?
(example you will look detail into the annual report, what kind of debt this company loan)
2)What is the max level(of a company) gearing ratio that you can accept(let said this company is having good profit growth prospect)?
(for examples 1.2???).
2015-05-26 17:13
With due respect sir, I dont think the financial analyst that you mentioned ask his follower to "avoid loan"...
I, myself interpret the analyst idea as "importance of cashflow - importance of generate enough cash for the operation and expansion and the payment of the debt , but not keep on depending on loan to achieve growth " .
2015-05-27 00:47
what you talking about?
if i borrow , I take control, what to worry?
now it is other borrow, I join as minority, no control, moreover my sifu already show clearly he is not efficient to generate cash from his huge borrowing compare with other like scientx, can I not worry?
Please my respected KYY, you are PR , I am PR, do not come out with such statement that make our PR look so stupid
2015-05-27 08:25
Friend, dont get too sentimental with your PR status....PR doesnt mean much thing except your political stance
2015-05-27 08:29
A PR man still can cheat, can steal, can kill, can shit....just as others...
2015-05-27 08:30
Your own business : We even had to mortgage our family homes to borrow more money to do business.
Listed company: the company get loan from Banks without his personal guarantee.
any different?
you want me to cry no tear?
2015-05-27 08:32
KYY : I do not recommend novice investors to use margin loan to buy more shares
well said, I like
2015-05-27 08:33
The rational behind Koon Koon's above posting is to defend on VS for it's high borrowings, as raised by KC n others....the underlying message of Koon Koon is still the same...buy VS, pls buy VS, my wife n I owned 15 million shares which we bought at low pries and we want to take profit now at this high level...you dont buy how am i going to sell??
2015-05-27 08:36
KYY :Nevertheless, my advice is not to be afraid to buy shares from companies with loans, provided they have good profit growth prospect and they can make more profit in the current year than last year.
Me; nothing wrong, I agree, but buy those company that can generate more cash from borrowing like scientx not lousy company like VS that generate little cash from huge borrowing
2015-05-27 08:37
Whatever Koon Koon posted here, u may just ignore...he may open another 10-100 threads in I3 with noble intention to teach people how to invest....but the message is only one and it's clear cut....buy VS , buy Latitude, we have 15 million shares to sell now....just bear with all these until he found another most undervalued stock to recommend...stay tune...
2015-05-27 08:42
OTB, sincerely, I like you very much, but if you have no bxxls to say no and keep on doing the dirty job for the old man i will still whack you
2015-05-27 08:43
The old man asked you to follow and assist him to promote these counters at the current levels to the public in seminars/forums etc. You recommended to him and your subscribers to buy at low prices last year n you also admitted that you dont recommend I3 people to buy at current prices not long ago...making money is certainly important, but can you sleep tight after helping him to promote to the public at these levels knowing very clearly that the old man is waiting to sell now...
2015-05-27 08:51
Made a firm stance and say no to all these rubbish.Trust me...the old man needs you very much (more than you need him n his commission)...he will go nowhere without your guildance in stock marke...make money with dignity!!!!
2015-05-27 08:54
Murali,
you must be BN, otherwise you won't come with such statement
now I doubt the truth behind your comment
Posted by murali > May 27, 2015 08:30 AM | Report Abuse
A PR man still can cheat, can steal, can kill, can shit....just as others...
2015-05-27 09:22
Aiyo, dont be fanatic lah..u meant all BN people are bad guys n all PR people are good guys???
2015-05-27 09:32
So would you happily accept Koon Koon's noble intention and buy in VS at current level..Koon Koon is a strong supporter of PR...
2015-05-27 09:34
MURALI,
what's wrong PR become my religion and this religion can bring good living to you and me
isn't BN is your religion? what do we get for more than 50 years?
so all this while you attack on KYY just because he is strong PR supporter and you are BN
so to you whatever KYY share here is wrong,
he told us what he has invested, wrong ?,
does he has the obligation to guarantee you must win if you follow him?
why must he give give you free lunch?
why you are that nieve that KYY must share something that help you make money in the share market?
murali, murali
you always claim you are the smartest, you don't follow KYY recommendation.
then what the hell you make so much noise here?
for fun, or motivated by your political stance
murali, murali,
do you think people will believe you are not BN?
then what is your motive to smear PR?
you want to form a new party better than PR to replace BN?
let me know
if it can bring living to us, I join you
2015-05-27 11:27
When I attack Koon Koon i become BN, when I attack Dr.Mamaktir I become PR? Your theory is very funny...if that works then I will have identity crisis...coz I hentam both Mamak n Koon Koon quite oftenly...so who am I? What is your intention of labelling me as BN just because I hentam Koon Koon? I also sayang Koon Koon sometimes when he screw BN over some wrongdoings...I do love him very much when he donates money to the poor students...I will love him more if he donates more this year from the good profit made from VS n Latitude....So who am I?? When I kiss Koon Koon I become your friend, when i screw Koon Koon I become your enemy? Like that can change identity faster than transformer....
2015-05-27 14:26
http://klse.i3investor.com/blogs/koonyewyinblog/71737.jsp
Go thru the above then you will know why so many people "love" him in I3....mostly on his "noble intention" etc...or you could just simply label them as BN supporters, as you wish...
2015-05-27 14:29
murali Hope Koon Koon can consider to give more this year in view of the good profit made from VS n Latitude...thank you in advance. Good karma!!
27/05/2015 09:00
Deep inside my heart I love the old man very much,just feel sad n upset when he used this forum to promote his shares for personal gain, again n again...Not worth to spoil his good reputation built over the years justfor some monetary gain...not worth at all....sigh.....
2015-05-27 14:34
Murali,
put politic aside, we are on the same front
I did hentam KYY and doubt his intention to promote VS at the current price and advise people to ignore the cash flow and high borrowing of a business
2015-05-27 15:52
Again, let us consider the facts of the matter. Last year, I invested in KPJ Healthcare when no one wanted to invest and all Analysts were "killing" the share. I invested because I had the unfortunate (maybe fortunate!) experience of getting admitted in a KPJ Hospital near my house. I had to wait 3 hours before getting admitted and not only that, I saw queues of people at the outpatient and also the carparks, day and night are full of cars. It is like a popular restaurant where no one cares what the price is and simple "hantam" because the food is fabulous. So I checked out the charts. Lo and behold, it was falling like a waterfall. Now, I checked online all the reports on KPJ and all the Analysts were saying that the results will be poor because the company tool a lot of loans and they are taking that to construct new hospitals in Rawang and a couple of other places. Now if a loan is taken to expand one's lucrative business, it is different from taking a loan to buy a Mercedes for "sendiri shock" only! One generates future income, the other generates future depreciation with no value added to revenue or profits for that matter. I bought at RM2.98, RM3.00, RM3.01. Within a short time, the share rose to RM4.00 and today, it is at 4.23. So use your common sense to invest and if you have an understanding of charts, fundamental analysis, etc, it will do you well. Do not believe that the Analysts are smarter than you. If they were, they will be Millionaires and not working for a stock broking firm in Malaysia as they have all their TPs lined up to make money!
2015-05-29 10:43
To add......in an environment of low interest rates,......low meaning interest rates lower than inflation rates... cash is not king.
The real king is borrowing to add productive assets.
Such an environment punishes savers and rewards investors, exactly the effect the FED engineered since 2008.
2015-12-26 22:22
Would a company borrow to expand business that will give a 10% return if the interest rate is 4% ?
2015-12-26 23:09
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Thank for sharing.
2015-05-25 11:38