Sslee

I invested in OSK because OSK give dividend 2 times per year.

I woukd have invested in KSL if only KSL ready to give dividend.

1 month ago

Integrity. Intelligent. Industrious. 3iii (iiinvestsmart)$€£¥

KSL latest traded share price was Rm 1.53. It is selling at the cheapest price in terms of PE ratio.

Don't use the PE ratio in isolation.

A stock is at a low PE for a reason.

1 month ago

Integrity. Intelligent. Industrious. 3iii (iiinvestsmart)$€£¥

Don't use the PE ratio

The price to earnings ratio (PE) s the most commonly used valuation yardstick by investors.

It is very easy to calculate.

PE ratio = share price / earnings per share (EPS)


In simple terms, shares with high PE ratios are seen as being expensive whilst those with low ones are seen as being cheaper.

Despite its simplicity, PE ratio has many pitfalls that can give investors a misleading view of how cheap or expensive some share really are.

1 month ago

Integrity. Intelligent. Industrious. 3iii (iiinvestsmart)$€£¥

The PE ratio's drawbacks are all to do with the "E" or EPS, part of the calculation


1. EPS is easy to manipulate.

Companies can boost EPS by changing accounting policies.

For example, they can extend the useful lives of fixed assets such as plant and machinery, which lowers the depreciation expense and boosts profits.

2. EPS says nothing about the quality of profits.

It doesn't take into account whether profits have changed due to sales of existing products or services - the best source of profits growth - or whether the company has invested heavily in new assets or bought another company (acquisition).

Share buybacks boost EPS by shrinking the number of shares outstanding, even if profits are static or shrinking. Buyback can be done when the shares are expensive. By paying too much, a large chunk of shareholder value is destroyed; the cash spent is wasted.

3. EPS may not resemble true cash profits.

Quite often a company's true cash profits are significantly more or less than its EPS (more often less).

4. EPS may be based on profits that are unsustainably high or temporarily low.

This means that the PE ratio could be misleadingly low or high.

This is a particular problem for cyclical companies.

1 month ago

Integrity. Intelligent. Industrious. 3iii (iiinvestsmart)$€£¥

Depreciation and amortisation is an expense for a business. By depreciating and amortisation an asset slower or faster, earnings can be boosted or shrunk accordingly. Therefore, when comparing the earnings of 2 companies in a same sector, understanding the differences in the depreciation and amortisation policies is valuable too.

Quality of earnings. How much of the reported earnings translated into cash flow from operation or free cash flow? The more cash generated from earnings, the higher the quality of these earnings. Higher earnings that translated into more account receivables or higher working capital, less or negative cash and more borrowings, huge capital expenditures are less favourable compared to those that generated a lot of operating cash flows and free cash flows. Those companies with huge free cash flows (high quality earnings) are most desired. The strong free cash flows, also known as the "owner's earnings", can be used to pay down debt, to grow the company organically or through acquisition, to be distributed as dividends or to buy back company's own shares.

Sudden increase in earnings in a company need to be analysed and studied. Are these from increasing sales of products or services of the company? Growing revenues and profits in this manner is good, indicating strong organic growth. Some companies reported increasing earnings through frequent acquisitions. At times, growth through acquisitions did not work out for various reasons (paying too high a price, a poor quality business was acquired, cultural integration was difficult, incurring too much borrowings, etc), harming the overall profitability of the company, at times permanently. (An example of this was KNM in its formative years, its acquisition of Borsig and the subsequent change in the business environment in its sector).

Very high earnings during times of extremely favourable business environment (eg glove companies during the pandemic) are not sustainable or temporary and often, a low PE is appropriate. Also, a one off sale of an asset leads to high reported earnings for a year or two and the low PE is appropriate, as such earnings are non-recurrent and forecasted future earnings and projected future PE should be adjusted accordingly. Observation over many years has taught us that the chief losses to investors come from the purchase of low-quality securities at times of favorable business conditions (quoting Benjamin Graham).

Summary:

For the above reasons, EPS can be unreliable and you should not rely on PE alone.

Once again, PE has may pitfalls that can give investors a misleading view of how cheap or expensive some shares really are.

1 month ago

Integrity. Intelligent. Industrious. 3iii (iiinvestsmart)$€£¥

Property counters: How are shareholders rewarded? How exciting are property counters in terms of investment returns?


Property counters
1. Land held for development.
2. Land being developed and properties for sale.
3. Investment properties held for rental income.

How are shareholders rewarded?
1. After successful development and realisation of profits from the projects, the property counter may choose to reward the shareholders by paying half their earnings as dividends.
2. The investment income from properties held as investment can also be partially disbursed as dividends.

[How exciting are property counters in terms of investment returns?]

1 month ago

Sslee

Beside EPS need to look into cashflow because earning can be boosted up/down by revaluation fair value gain/loss of assets and share of profit/loss of associate companies.

KSL cashflow is good but the only problem is the controlling shareholders (3 brothers) pay themselve very well but refuse to give any dividend to shareholders and now they are appointing their children to the post of executive director.

By the way jayatiasa cashflow is very good. (3iii please take a look and tell me is jayatiasa a good or awful company?)

Note: Mike-tikus did not know the share of profit from associate company JHDP is just paper profit. What important is dividend from JHDP. Jaks now have cashflow problems and need another PP.

JHDP although reported very good profit but can't afford to give good dividend because the 75% loans taken to finance the project was changed into 10 years term loans. JHPD going to have cashflow problems depreciation is 25 years (good profit) but your loans 10 years term loans (poor cashflow for the first 10 years)

1 month ago

Integrity. Intelligent. Industrious. 3iii (iiinvestsmart)$€£¥

How to analyze real estate developers

Real estate stocks make up a significant number of companies in Asian stock exchanges and many of them are among the the most volatile stocks. Whether the real estate developer is listed or not, they are influenced by a host of cyclical factors ranging from government policies, interest rates, unemployment rates, affordability, etc. Hence, it is important to understand how real estate companies can be analyzed.

2023-01-16 17:11

Integrity. Intelligent. Industrious. 3iii (iiinvestsmart)$€£¥

Profit Model

Real estate industry can be separated into the following sub-industries or types of real estate developers:

Residential real estate developers
Commercial and mixed use real estate developers
Industrial real estate developers

2024-01-18 10:09

Integrity. Intelligent. Industrious. 3iii (iiinvestsmart)$€£¥

1. Profit model of residential real estate developers

Residential real estate developers are more dependent on economies of scale than ever because of increasing land prices and declining rate of increase in residential property prices. In many developing countries, developers used to be able to acquire land at cheap prices and hope for rapid increase in home prices to make huge profits. In developed countries, land prices are higher, and price increases are more muted. Hence, brands and good management are playing an increasingly important role.


2. Profit model of commercial real estate developers

As prime real estate for commercial developments become more scare, commercial real estate developers tend to prefer to have rental incomes rather than selling units so that they can have consistent income and manage the properties. These developers are also more likely to sell their commercial properties to real estate investment trusts to free up capital and many are REITs that also develop properties.


3. Profit model of industrial real estate developers

Industrial real estate developers operate more like commercial real estate developers as they seek to have stable rental incomes and also sometimes selling their properties. Some industrial estate developers might even have a fund to invest in promising industrial companies so as to achieve higher profits.

1 month ago

Integrity. Intelligent. Industrious. 3iii (iiinvestsmart)$€£¥

Factors that Affect Value


1. Land bank
2. Inventories
Completed developments - properties whose construction has been completed
Construction-in-progress - means the value of properties under construction.
Land held for development - value of land help for future developments.
Investment properties - properties held for rent or sale
3. Customers deposits
4. Housing prices
5. Rental rates
6. Industry consolidation
7. Macro economic factors - government policies play a huge role in controlling property prices and will determine the direction of property prices.

1 month ago

Integrity. Intelligent. Industrious. 3iii (iiinvestsmart)$€£¥

Valuing Real Estate Developers

A common method to value real estate developers is using the Revalued Net Asset Value ("RNAV") approach which basically determines the net asset value of a real estate developer by adding up

(1) the change in value of the investment properties held by the company,
(2) the surplus value of properties held for development using Discounted Cash Flow method and
(3) the net asset value of the company with any other adjustments that are deemed necessary.

1 month ago

Integrity. Intelligent. Industrious. 3iii (iiinvestsmart)$€£¥

Usually a discount or premium percentage is multiplied with the RNAV base on the developers other qualities such as management capabiltiies, branding, track record, etc. A smaller developer with poor record of continuously generating consistent income is usually given a significant discount to its RNAV.

Using the RNAV approach only takes into account of what the developer can earn with the assets that it has in its books at the time of the valuation. If properly applied, it is usually more conservative than the market approach such as P/E multiples.

However, to use this method, it requires a lot of work in revaluing the properties held by the developer, making it difficult to implement by most people as information needed to determine RNAV needs some skill in obtaining.

The price earnings ratio method could also be useful to cross check the RNAV method.

1 month ago

Integrity. Intelligent. Industrious. 3iii (iiinvestsmart)$€£¥

It is not easy to value a property development company. Almost impossible for the long term.

It belongs to the too hard to analyse tray in my book.

1 month ago

Integrity. Intelligent. Industrious. 3iii (iiinvestsmart)$€£¥

Developer No 1: He developed a piece of land for industrial purposes. He completed building these small factories and sold all. He kept the prime locations for his own company, for rental purposes. His excess cash, he reinvested into a piece of land where he built a high rise. He did not sell this property and kept it for rental purposes.

Developer 2: A small time developer. Developed a piece of land he bought many years ago. Mixed development. He sold most of the residential units. Sold many of the shop lots too. His company kept some prime shop lots for rental purposes. He made a good profit and had some excess cash to spend and distribute. Today, he collects rentals. To develop another project, he would need more capital. Land and development costs keep escalating, and these are challenges he faces.

Developer 3: He obtained a prime piece of land in the town. He developed this into a commercial business district. Many shoplots, including a high rise complex. He had difficulty selling these units. Some were popular and snapped up. Many were left unsold and only sold gradually. Upon completion of the project, he still have many unsold units. He experienced cash flow problems, and had to restructure his company with his bankers, suppliers and others. Finally, he managed to sell of the complex to another group. Till today, this complex is poorly occupied, virtually empty. This is a decade or more old story.

2 months ago