PMCORP
5TH FEB 2016 27 SEN
7TH MARCH 2024 18 SEN

PMCORP
5TH FEB 2016 27 SEN
7TH MARCH 2024 18 SEN

MPHB CAP

15TH JAN 2015 1.50 MYR PER SHARE
7TH MARCH 2024 1.08 MYR PER SHARE

MPHB CAP

15TH JAN 2015 1.50 MYR PER SHARE
7TH MARCH 2024 1.08 MYR PER SHARE

MPHB CAP

15TH JAN 2015 1.50 MYR PER SHARE
7TH MARCH 2024 1.08 MYR PER SHARE

NYLEX
JAN 2016 7.9 SEN PER SHARE
7TH MARCH 2024 24 SEN PER SHARE

NYLEX
JAN 2016 7.9 SEN PER SHARE
7TH MARCH 2024 24 SEN PER SHARE

NYLEX
JAN 2016 7.9 SEN PER SHARE
7TH MARCH 2024 24 SEN PER SHARE

NYLEX
JAN 2016 7.9 SEN PER SHARE
7TH MARCH 2024 24 SEN PER SHARE

Dutaland
8th Jan 2016 44 sen
7th March 2024 31 sen

Dutaland
8th Jan 2016 44 sen
7th March 2024 31 sen

Dutaland
8th Jan 2016 44 sen
7th March 2024 31 sen

15th Jan 2016 Opcom was priced at 0.77 MYR per share.
7th March 2024, Opcom is priced at 0.38 MYR per share

On 8th Jan 2016, Jayatiasa was priced 1.73 MYR per share.
On 7th March 2024, Jayatiasa is priced 1.46 MYR per share.

On 8th Jan 2016, Jayatiasa was priced 1.73 MYR per share.
On 7th March 2024, Jayatiasa is priced 1.46 MYR per share.

Share price of PMCorp is 20 sen per share today.

>>>

Felix888999

1,423 posts

Posted by Felix888999 > 1 hour ago | Report Abuse

Repost from TG forum:

Which shameless liar posted this whopping 688% TP 2.00?
Dare to post but no balls or no brain to proof it? Hahahahahahah

Stock: [PMCORP]: PAN MALAYSIA CORPORATION BHD

2013-12-10 19:53 | Report Abuse

Hi Chrollo

Welcome to this thread.

This counter is for long term investors. My timeline is 5 years and I expect rm2.0 by then with a steady dividend payout. Others may have other TP.

Your entry price now is lower than most of us here. My average entry cost is .245. Cumulated from .19 till .35

Cheers .

>>>

The classic most well known value trap company is Berkshire Hathaway.

Buffett acquired BH as he assessed it to be very undervalued. It was in the textile mill business which was in a long period of decline. Its assets were depreciating. To update its manufacturing facilities, it required injection of much needed new capital. Yet, these new capital did not achieve any returns, probably negative returns. He was forced to restructure his business, closing down plants, retrenching workers and not putting new capital into existing business. Competition was fierce from international companies which had lower cost advantage.

BH was indeed a classic value trap. It was comforting to know that even Buffett was not infallable.

Eventually, he restructured BH to be what it is today, a totally different company from the time he bought it.

When a undervalued company with good fundamentals become value trap?

Benjamin Graham, the father of value investing, specialised in this group of stocks. He has a check list to select these stocks. His advice is to buy a group of them, and based on probability, the outcome of the group will be a positive, though at an individual stock level, this maybe unpredictable. (This approach is unlike that of Buffett, another value investor.)

According to Benjamin Graham, he observed these stocks and locked in the profits through selling when the prices crept upwards towards its "intrinsic value". Those undervalued stocks that did not "perform" by the end of 2 years, he sold. There is an opportunity cost for holding onto underperformers or poor performers for too long.



The approach of Buffett was different. He identified a severely undervalued stock. He bought a lot of it. Then he became an activist to get the management to take actions to realise the full value of the stock. He even got into the board of director of the company to influence the management. Then he cashed out with his profits.

Oriental Holdings
.
Is this another value trap? It is undervalued, no doubt.

It holds valuable asset. Possibly, asset play.

However, it is not growing its business. Where are the growth areas?

It pays dividends. Its dividends have increased yearly.

Its DPO ratio is low and it retained most of its earnings at low ROE.

Will you be willing to hold this stock with a low dividend income and no good growth prospects for the short and medium term?

What will unlock the full value of this stock .. and when?

Was KAF a value trap when it was listed?

This company was taken private by its major shareholders a few years back at ?2.80 per share.

For a very long time, it was trading at a price of 1.50 per share. For this, you obtained a regular dividend equivalent to 5% yield, well above the risk free fixed deposit rate at that time.

For those who knew the assets within this company, it possessed a valuable piece of land in the KLCC area, which was not re-valued. Of course, this real estate got more and more valuable each year.

Those who bought into this company, which was "undervalued" based on its assets was at least able to console themselves that they received regular dividend incomes equivalent to 5% annually.

Nothing moved for years and decades. One fine day, the major shareholders (Khatijah & Friends) made an offer to take the company private. Those who had this share were thus rewarded for their patience. And yes, a lot of patience indeed. Yet, can one be certain that the investment will play out according to your book?

I have this stock since its listing and when it was taken private, it was a 5x + multibagger, excluding the dividends.

>>>
In past, Juan Kuang paid little dividend, kept most of the retained earnings in the company, the directors enjoy good remunerations and perks, and at the appropriate time, the company was taken private for a song. The minority shareholders did not benefit from the good fortune of this company. Thus, it was appropriately priced at very low valuation in the stock market at that time. (I do not own this stock, but know the history.)

>>>

Previous listed and taken private many years ago, Juan Kuang is a very good past example of a value trap stock. It was profitable, the company grew its equity yearly through continuous retained earnings, it distributed pittance dividends (if at all?), its valuation was by various measures "cheap" (*low PE, low P/BV, DY relatively high*) and finally it was taken private at a small premium to its very low market price.

Those who invested into Juan Kuang hoping for its price to climbed closing the price to book value gap were all disappointed.

>>>

BLee Please also ask "if majority holders control 51% of a company, how to break out of value trap? Tq
06/03/2024 8:39 AM

>>>

Yes. Many Malaysian companies are controlled by families. The rewards to the minority shareholders are dependent on the generosity and thinking of the major controlling shareholders.

Some examples: KSL did not pay dividends, though profitable. However, development and construction company are best avoided, as it is difficult to value such company. Also, difficult to track its true accounts.

SAB is another. It pays dividends but has not increased its dividends for many years. Its NTA continues to grow due to retained earnings. It is undervalued, an asset play and also I suppose, if you wish to get your reward quickly, a value trap. :-)

There are many companies in the same category. In past, Juan Kuang paid little dividend, kept most of the retained earnings in the company, the directors enjoy good remunerations and perks, and at the appropriate time, the company was taken private for a song. The minority shareholders did not benefit from the good fortune of this company. Thus, it was appropriately priced at very low valuation in the stock market at that time. (I do not own this stock, but know the history.)

User
How do value traps unfold to deliver value eventually


ChatGPT
A value trap may eventually deliver value if certain conditions change, leading to a positive reevaluation of the company by the market. Here are some scenarios in which a value trap might unfold to deliver value:

Operational Turnaround:

If the company successfully implements strategic initiatives to improve its operations, cut costs, or innovate its products and services, it could lead to improved financial performance. Investors may recognize these positive changes, causing the stock price to rise.
Industry Rebound:

If the industry in which the company operates experiences a turnaround or a period of growth, the company's fortunes may improve. A broader industry recovery can positively impact even struggling companies within that sector.
New Leadership:

A change in leadership, particularly if it brings in experienced and effective executives, can lead to a revitalization of the company. Strong management can implement new strategies, improve efficiency, and restore investor confidence.
Market Recognition of Undervaluation:

Sometimes, the market may eventually recognize the undervaluation of a stock. As more investors become aware of the discrepancy between the stock's price and its intrinsic value, demand for the stock may increase, driving up its price.
Resolution of Temporary Issues:

If the company is facing temporary challenges, such as legal issues, regulatory hurdles, or short-term economic difficulties, a resolution of these issues can pave the way for the stock to rebound.
Strategic Partnerships or Acquisitions:

Strategic partnerships, mergers, or acquisitions that enhance the company's competitiveness and market position can contribute to a positive reevaluation by investors. Such moves may improve growth prospects and overall business stability.
Positive Earnings Surprises:

If the company consistently outperforms market expectations and delivers positive earnings surprises, investor sentiment may shift, leading to increased confidence in the company's ability to generate value.
Market Rotation or Trends:

Changes in market trends or investor preferences can lead to a rotation into previously overlooked sectors or stocks. If the market starts favoring value stocks, the stock that was once considered a value trap may attract renewed interest.
Share Buybacks or Dividend Initiatives:

Companies using excess cash to repurchase shares or initiate dividend payments may signal confidence in their future prospects. These shareholder-friendly actions can attract investors and contribute to stock price appreciation.
Macroeconomic Factors:

Improvements in macroeconomic conditions, such as interest rate changes, economic growth, or regulatory shifts, can positively impact a company's outlook and contribute to a reevaluation by the market.
It's important to note that not all value traps eventually deliver value, and investing always involves risks. Thorough research and ongoing monitoring of the company and its industry are essential to identify any positive developments or changes that may contribute to a turnaround. Investors should remain vigilant and adapt their strategies based on evolving market conditions and company fundamentals.

Main difference between an undervalued stock and a value trap is:

one is a genuinely undervalued stocks with strong fundamentals and the other is not; it is valued low for a reason (a value trap).

Accordingly, a stock is trading at a low PE and maybe appropriately priced or even a value trap. Still has to do a lot of analysis of its quality, management and fundamentals.

Define a value trap in share investing


ChatGPT

A value trap in share investing refers to a situation where a stock appears to be undervalued based on traditional financial metrics such as low price-to-earnings (P/E) ratio, price-to-book (P/B) ratio, or dividend yield. Investors may be attracted to these seemingly cheap valuations, hoping for potential future gains as the market corrects and recognizes the stock's true value.

However, the danger of a value trap lies in the fact that the stock may be cheap for a reason. The company might be facing fundamental problems, such as declining revenues, poor management, industry headwinds, or an outdated business model. Despite the apparent value, these issues can prevent the stock from recovering or experiencing the expected growth, leading to a prolonged period of underperformance or even permanent loss of capital for investors.

Investors need to be cautious and conduct thorough research to distinguish between genuinely undervalued stocks with strong fundamentals and those that are value traps. Simply relying on low valuation metrics without understanding the underlying reasons for the low valuation can expose investors to significant risks. Due diligence, analysis of the company's financial health, competitive position, and future prospects are essential to avoid falling into the trap of investing in a stock that may not deliver the expected returns.

How can someone who claims to be Jesus fearing spread so much lies and untruth deliberately?

He is so different from many believers whom I have the pleasure to acquaint.

The low PE for KSL is appropriate.

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.

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.

Are you able to value KSL? Valueing a property company is extremely difficult. I find that it is better to put these companies in the too hard to understand tray. Look for other "easier" companies to study and value.

Is it not true, that the really big fortunes from common stocks have been garnered by those who made a substantial commitment in the early years of a company in whose future they had great confidence and who held their original shares unwaveringly while they increased 10-fold or 100-fold or more in value?

The answer is "Yes."

I have DLady and Nestle in my portfolio since 1993.

Over these long years, the prices of these 2 stocks fluctuated: nothing surprising here.

Over these long years, the prices of these stocks have increased multiple folds. These are facts.

Over these long years, there were periods when their share prices stagnated for many years too. These are facts.

Over these long years, there were periods when their share prices fell. Recently DLady's share price fell a lot. These are facts.

Stocks are safe for the long term, and very unsafe for tomorrow. If you think you can jump in and out, and know the time to come in and to get out, you are making a mistake.

I have DLady and Nestle in my portfolio since 1993.

Over these long years, the prices of these 2 stocks fluctuated: nothing surprising here.

Over these long years, the prices of these stocks have increased multiple folds. These are facts.

Over these long years, there were periods when their share prices stagnated for many years too. These are facts.

Over these long years, there were periods when their share prices fell. Recently DLady's share price fell a lot. These are facts.

Stocks are safe for the long term, and very unsafe for tomorrow. If you think you can jump in and out, and know the time to come in and to get out, you are making a mistake.

Selling is often a harder decision than buying
"If you have bought a good quality stock at bargain or reasonable price, you can often hold forever."

Investing is fun. For every rule, there is always an exception.

The main reasons for selling a stock are:

1. When the fundamental has deteriorated permanently, (Sell urgently)
2. When it is overpriced, whereby the upside gain will be unlikely or very small and the downside loss will be big or certain.

We shall examine reason No. 2 through the property market. The property market is also cyclical. There were periods of booms and dooms.


If you have a good piece of property that is always 100% tenanted and which gives you good consistent return (let's say 2x or 3x risk free FD rates), would you not hold this property forever? The answer is probably yes.

Then, when would you sell this property?

Note that the valuation of property, as with stocks, is both objective and subjective.

Would you sell when someone offered to buy at 500% above your perceived market price?

Probably yes, as this is obviously overpriced. You could cash out and probably easily re-employ the money to earn better returns in another property (or properties) or other assets.

Would you sell when someone offered to buy at 50% above your perceived market price?

Maybe yes or maybe no. You can offer your many reasons.

However, all these will be based on the perceived future returns you can hope to get from this property in the future. This is both objective based on past returns obtained and subjective and speculative on future returns.

However, unlike reason No.1 when you would need to sell urgently to another buyer to prevent sustaining a permanent loss, you need not sell just because someone offered to buy the property at high price. (However, there are also those who "flip properties" for their earnings; they will sell quickly for a quick profit.) You will not suffer a loss but only a diminished return at worse. You can take your time to work out the mathematics.

You maybe surprised that you may still achieve a return higher at a time in the near future by rejecting the present immediate gain based on the present high price offered.

Also, you would need to price in the lost opportunity cost when the property is sold at this price, even though it is 50% above the perceived normal market price. Could you buy a similar quality property with the same sustainable increasing income or return by offering the same price?



Similarly, the same line of thinking can be applied to your selling of shares.

When should you sell your shares?

Yes, definitely when the fundamentals have deteriorated permanently. The business has suffered for various reasons and going forward, the earnings will be permanently impaired and deteriorating.

Yes, when the price is very very overpriced. However, you need not sell your shares in good quality companies that you bought at fair or bargain price. As long as the fundamentals are strong and the business is adding value, selling now at a higher price may mean losing the return that you could have obtained in the future years from owning this stock and the opportunity cost of reinvesting the cash into another stock of similar quality and returns.

Once again, the importance of sound reasoning and doing the mathematics in making a decision whether to sell or not.

Is it not true, that the really big fortunes from common stocks have been garnered by those
who made a substantial commitment in theearly years of a company in whose future they had great confidence and
who held their original shares unwaveringly while they increased 10-fold or 100-fold or more in value?

The answer is "Yes."

ht tp://myinvestingnotes.blogspot.com/2012/07/my-18-points-guide-to-successfully.html



Additional notes:

Other reasons for selling a stock (or property) are:
To raise cash to reinvest into another asset with better return.
A certain stock (or property sector) may be over-represented in your portfolio due to recent rapid price rises and you need to reduce its weightage to reduce your risk of over-exposure in this single stock (or property sector).


Footnote:

This is a true story. A rich man was approached by a buyer to sell his property. A few neighbouring lots were sold for $1.6 m the last 2 years. What offer will ensure that you sell your property to me? Please let me know. The unwilling owner replied, "$5 million". There is a lesson here too. :-)

Selling is often a harder decision than buying
"If you have bought a good quality stock at bargain or reasonable price, you can often hold forever."

Investing is fun. For every rule, there is always an exception.

The main reasons for selling a stock are:

1. When the fundamental has deteriorated permanently, (Sell urgently)
2. When it is overpriced, whereby the upside gain will be unlikely or very small and the downside loss will be big or certain.

We shall examine reason No. 2 through the property market. The property market is also cyclical. There were periods of booms and dooms.


If you have a good piece of property that is always 100% tenanted and which gives you good consistent return (let's say 2x or 3x risk free FD rates), would you not hold this property forever? The answer is probably yes.

Then, when would you sell this property?

Note that the valuation of property, as with stocks, is both objective and subjective.

Would you sell when someone offered to buy at 500% above your perceived market price?

Probably yes, as this is obviously overpriced. You could cash out and probably easily re-employ the money to earn better returns in another property (or properties) or other assets.

Would you sell when someone offered to buy at 50% above your perceived market price?

Maybe yes or maybe no. You can offer your many reasons.

However, all these will be based on the perceived future returns you can hope to get from this property in the future. This is both objective based on past returns obtained and subjective and speculative on future returns.

However, unlike reason No.1 when you would need to sell urgently to another buyer to prevent sustaining a permanent loss, you need not sell just because someone offered to buy the property at high price. (However, there are also those who "flip properties" for their earnings; they will sell quickly for a quick profit.) You will not suffer a loss but only a diminished return at worse. You can take your time to work out the mathematics.

You maybe surprised that you may still achieve a return higher at a time in the near future by rejecting the present immediate gain based on the present high price offered.

Also, you would need to price in the lost opportunity cost when the property is sold at this price, even though it is 50% above the perceived normal market price. Could you buy a similar quality property with the same sustainable increasing income or return by offering the same price?



Similarly, the same line of thinking can be applied to your selling of shares.

When should you sell your shares?

Yes, definitely when the fundamentals have deteriorated permanently. The business has suffered for various reasons and going forward, the earnings will be permanently impaired and deteriorating.

Yes, when the price is very very overpriced. However, you need not sell your shares in good quality companies that you bought at fair or bargain price. As long as the fundamentals are strong and the business is adding value, selling now at a higher price may mean losing the return that you could have obtained in the future years from owning this stock and the opportunity cost of reinvesting the cash into another stock of similar quality and returns.

Once again, the importance of sound reasoning and doing the mathematics in making a decision whether to sell or not.

Is it not true, that the really big fortunes from common stocks have been garnered by those
who made a substantial commitment in theearly years of a company in whose future they had great confidence and
who held their original shares unwaveringly while they increased 10-fold or 100-fold or more in value?

The answer is "Yes."

ht tp://myinvestingnotes.blogspot.com/2012/07/my-18-points-guide-to-successfully.html



Additional notes:

Other reasons for selling a stock (or property) are:
To raise cash to reinvest into another asset with better return.
A certain stock (or property sector) may be over-represented in your portfolio due to recent rapid price rises and you need to reduce its weightage to reduce your risk of over-exposure in this single stock (or property sector).


Footnote:

This is a true story. A rich man was approached by a buyer to sell his property. A few neighbouring lots were sold for $1.6 m the last 2 years. What offer will ensure that you sell your property to me? Please let me know. The unwilling owner replied, "$5 million". There is a lesson here too. :-)

Selling is often a harder decision than buying
"If you have bought a good quality stock at bargain or reasonable price, you can often hold forever."

Investing is fun. For every rule, there is always an exception.

The main reasons for selling a stock are:

1. When the fundamental has deteriorated permanently, (Sell urgently)
2. When it is overpriced, whereby the upside gain will be unlikely or very small and the downside loss will be big or certain.

We shall examine reason No. 2 through the property market. The property market is also cyclical. There were periods of booms and dooms.


If you have a good piece of property that is always 100% tenanted and which gives you good consistent return (let's say 2x or 3x risk free FD rates), would you not hold this property forever? The answer is probably yes.

Then, when would you sell this property?

Note that the valuation of property, as with stocks, is both objective and subjective.

Would you sell when someone offered to buy at 500% above your perceived market price?

Probably yes, as this is obviously overpriced. You could cash out and probably easily re-employ the money to earn better returns in another property (or properties) or other assets.

Would you sell when someone offered to buy at 50% above your perceived market price?

Maybe yes or maybe no. You can offer your many reasons.

However, all these will be based on the perceived future returns you can hope to get from this property in the future. This is both objective based on past returns obtained and subjective and speculative on future returns.

However, unlike reason No.1 when you would need to sell urgently to another buyer to prevent sustaining a permanent loss, you need not sell just because someone offered to buy the property at high price. (However, there are also those who "flip properties" for their earnings; they will sell quickly for a quick profit.) You will not suffer a loss but only a diminished return at worse. You can take your time to work out the mathematics.

You maybe surprised that you may still achieve a return higher at a time in the near future by rejecting the present immediate gain based on the present high price offered.

Also, you would need to price in the lost opportunity cost when the property is sold at this price, even though it is 50% above the perceived normal market price. Could you buy a similar quality property with the same sustainable increasing income or return by offering the same price?



Similarly, the same line of thinking can be applied to your selling of shares.

When should you sell your shares?

Yes, definitely when the fundamentals have deteriorated permanently. The business has suffered for various reasons and going forward, the earnings will be permanently impaired and deteriorating.

Yes, when the price is very very overpriced. However, you need not sell your shares in good quality companies that you bought at fair or bargain price. As long as the fundamentals are strong and the business is adding value, selling now at a higher price may mean losing the return that you could have obtained in the future years from owning this stock and the opportunity cost of reinvesting the cash into another stock of similar quality and returns.

Once again, the importance of sound reasoning and doing the mathematics in making a decision whether to sell or not.

Is it not true, that the really big fortunes from common stocks have been garnered by those
who made a substantial commitment in theearly years of a company in whose future they had great confidence and
who held their original shares unwaveringly while they increased 10-fold or 100-fold or more in value?

The answer is "Yes."

http://myinvestingnotes.blogspot.com/2012/07/my-18-points-guide-to-successfully.html



Additional notes:

Other reasons for selling a stock (or property) are:
To raise cash to reinvest into another asset with better return.
A certain stock (or property sector) may be over-represented in your portfolio due to recent rapid price rises and you need to reduce its weightage to reduce your risk of over-exposure in this single stock (or property sector).


Footnote:

This is a true story. A rich man was approached by a buyer to sell his property. A few neighbouring lots were sold for $1.6 m the last 2 years. What offer will ensure that you sell your property to me? Please let me know. The unwilling owner replied, "$5 million". There is a lesson here too. :-)

>>>>

Posted by JohnD0ugh > 43 minutes ago | Report Abuse

At the beginning, I asked a very vital question - should we still think and focus on the long term. It is very easy to sell an investment. You are told it is never wrong to take a profit or do not get emotional with your investment. Charlie Munger has a simple answer for this question.

"The first rule of compounding: Never interrupt it unnecessarily" - Charlie Munger

Munger's advice is one of the most important principles of compounding and a principle that few investors are aware of. Everyone acknowledges the power of compounding.

If you earn 15% per year for 35 years, you will end up with 133 times your money. Unfortunately, investors forget the arithmetic of this is heavily back-end loaded. After 35 years, you have 133 times; after 20, about 16 times and after 10 years, you have about 4 times. So, you do not want to interrupt that compounding unnecessarily.

You better have a compelling reason to sell a winning investment just because the stock has risen 50% for example. Otherwise, your sale is going to look really expensive years later.

A willingness to see your portfolio value rise, fall, and rise anew is required. You cannot get blown out or abandon ship every time the market has a correction. Otherwise, you interrupt the compounding of your investment, which in this case is icapital.biz Berhad.

The combination of Malaysia entering a new and better era, icapital.biz Berhad being able to hold more investments (although this is a function of stock valuation) and a high quality share ownership structure can produce an exciting future for your Fund's NAV and share price.

In the process, let us build and leave behind an icapital.biz Berhad that will be a role model for Malaysian individual investors, and other listed companies to emulate. This way, we can also do our part to contribute to a better Malaysia.


i Capital.biz Berhad 2023 Annual Report

>>>>

The power of compounding is truly magical at the end of a long period. Everytime the value of your portfolio doubled, the incremental value is greater than sum of all the values of all the previous period doublings added together.

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.

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.

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. 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.

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

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.

What factors drive the housing prices?

Among the factors are:
1. A dropping interest rate
2. Increasing liquidity in the banking system
3. A growing economy

All the above factors drive the demand for residential and other real estate. This causes the prices of these real estate properties to rise.

Property prices in Malaysia
Are they rising or have real estate prices softened in the Klang Valley?
Are property transactions rising or dropping compared to the previous years?


Asking the right questions

Will property prices in the Klang Valley soften?
Will interest rates rise and adversely affect the demand from the end-users or end-buyers?
Is there a rise in the inventory of unsold property in the real estate sector?
Are builders able to meet their loan repayment liability as well as complete their already started projects?
Are builders turning prudent through cutting prices to sell their units and to generate cash?

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?]

Is it not true, that the really big fortunes from common stocks have been garnered by those
who made a substantial commitment in the early years of a company in whose future they had great confidence and
who held their original shares unwaveringly while they increased 10-fold or 100-fold or more in value?

The answer is "Yes."

Selling is often a harder decision than buying

"If you have bought a good quality stock at bargain or reasonable price, you can often hold forever."

Investing is fun. For every rule, there is always an exception.

The main reasons for selling a stock are:

1. When the fundamental has deteriorated permanently, (Sell urgently)
2. When it is overpriced, whereby the upside gain will be unlikely or very small and the downside loss will be big or certain.

We shall examine reason No. 2 through the property market. The property market is also cyclical. There were periods of booms and dooms.


If you have a good piece of property that is always 100% tenanted and which gives you good consistent return (let's say 2x or 3x risk free FD rates), would you not hold this property forever? The answer is probably yes.

Then, when would you sell this property?

Note that the valuation of property, as with stocks, is both objective and subjective.

Would you sell when someone offered to buy at 500% above your perceived market price? Probably yes, as this is obviously overpriced. You could cash out and probably easily re-employ the money to earn better returns in another property (or properties) or other assets.

Would you sell when someone offered to buy at 50% above your perceived market price? Maybe yes or maybe no. You can offer your many reasons. However, all these will be based on the perceived future returns you can hope to get from this property in the future. This is both objective based on past returns obtained and subjective and speculative on future returns.

However, unlike reason No.1 when you would need to sell urgently to another buyer to prevent sustaining a permanent loss, you need not sell just because someone offered to buy the property at high price. (However, there are also those who "flip properties" for their earnings; they will sell quickly for a quick profit.) You will not suffer a loss but only a diminished return at worse. You can take your time to work out the mathematics. You maybe surprised that you may still achieve a return higher at a time in the near future by rejecting the present immediate gain based on the present high price offered. Also, you would need to price in the lost opportunity cost when the property is sold at this price, even though it is 50% above the perceived normal market price. Could you buy a similar quality property with the same sustainable increasing income or return by offering the same price?

Similarly, the same line of thinking can be applied to your selling of shares. When should you sell your shares? Yes, definitely when the fundamentals have deteoriorated permanently. The business has suffered for various reasons and going forward, the earnings will be permanently impaired and deteriorating. Yes, when the price is very very overpriced. However, you need not sell your shares in good quality companies that you bought at fair or bargain price. As long as the fundamentals are strong and the business is adding value, selling now at a higher price may mean losing the return that you could have obtained in the future years from owning this stock and the opportunity cost of reinvesting the cash into another stock of similar quality and returns. Once again, the importance of sound reasoning and doing the mathematics in making a decision whether to sell or not.

Additional notes: Other reasons for selling a stock (or property) are:
To raise cash to reinvest into another asset with better return.
A certain stock (or property sector) may be over-represented in your portfolio due to recent rapid price rises and you need to reduce its weightage to reduce your risk of over-exposure in this single stock (or property sector).
Footnote: This is a true story. A rich man was approached by a buyer to sell his property. A few neighbouring lots were sold for $1.6 m the last 2 years. What offer will ensure that you sell your property to me? Please let me know. The unwilling owner replied, "$5 million". There is a lesson here too.

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.

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.