Paper what do you mean by 18.5 and 21.5%?

When price starts moving up, suddenly everyone has predictive ability

The reluctant millionaire

In regards to Scientex:

1. You are right, generally dividend cut lower share price (which is foolish), but that is a special dividend, something not expected by investors so it cannot be considered 'disappointment' had mgt never initiate that

2. The special dividend cost them an extra $43 mil in cash flow, compare that to their operation cash flow of over $150, it will be hard to consider that as unsustainable. If they are running at negative FCF while paying dividend, that might be a different story.

3. Dividend does not necessary reduce company value, if reinvestment opportunity yield a lower return.

oh you mean that x-factor. I dont know if I got full X or just X*1%. I bought Scientex in 2012 pre split $2.47 and most likely being lucky, the X swept upon Scientex and went on for a 600% rise. but I've no idea when it will come so I'll focus on the fundamentals

Yea that's good if it works for you. For me, it will take me 20-30 years to master FA, so no time for TA

That's the killer deal isn't it - what cannot be taught becomes priceless. At the same time, what cannot be taught is useless to everyone except yourself. So you are telling ppl dont do value investing when yourself is preaching something that cannot be taught, what kind of rational is that? Talking about sense.

Your VA sounds like just being contrarian, buying when things are going down, so yes sadly that's part of FA.

Patrick the conversion price will be dependent on the market price right?

wait, you saying 'sense' as in me reading your mind? Oh for sure I don't have that sense. Congrats if you have that sense

Well lets wait for your business sense to write a sensible analysis. I haven't seen one yet.

Aeoncr main business is involved in car, motorcycle, credit card, personal and consumer durable loan. Motor, car and personal loan make up the largest portion of their lending.

High ROE comes from high margin because motorcycle loan typically carries 7-9% interest rate, unless the motorcycle is 500cc and above, which is rare in M'sia anyway. Motor loan is their main line when they started many years ago. Personal loan carries high interest rates as well, around 10-18% depends if you are an Aeon card member or not. So these factors contribute to high ROE.

Future ROE is likely to come down as car loan continue to grow faster than other segment, and car loan only carries 4.8-5.5% interest, depending on the age of the car. Therefore, net interest margin for Aeon continue to shrink just like over the past 3 years when car started to occupy a larger portion of their assets, current sitting at 29% of total receivables. Net interest margin for the past 3 years has came down from 13% to around 11% now. But compare this to big banks NIM of average 2.2%, it is still extremely good.

Didn't receive anything for 2nd interim dividend on 28th?

Yes, and im not quite sure how does arguing with everyone else here and failing to win anyone over count as benefit yourself. You don't owe anyone here, but you do owe yourself a serious reflection if all these are worth it at all.

I'm always so curious why you spent so much time toiling in this forum, not that there's anything wrong spending time here (although personally, I think there's far better things to do). But my conservative guess you are here 80% to satisfy your own ego and self confidence and 5% on educating others, the other 15% only you can explain to yourself. Here's why.

Everyone know's you have been preaching (not teaching) dynamic investing. Which is good if it is a sound method and add value to someone's life is the best thing one can do. But I place it at 5% because you never provide a proper framework that is tested with empirical evidence. So at the end it is just an untest theory that remains a ideological theory that satisfy your belief but disconnect from reality. 2nd reason why i place it in 5% is because if you are so passionate about teaching dynamic investing, how many value investor have you convinced to switch into dynamic, which you preach to be a better method? If that number is nil, then shouldn't you be examining your approach of preaching/teaching? Clearly if something doesn't work there's no point trying to force everything to look like a nail (hence my deduction that you think like a hedgehog).

So the deduction is simple. No one could care less whether dynamic is better than value when you can't provide a clear framework to reason and explain what you are trying to say. You never win by accumulating enemies (Dale Carnegie if you want to read). And if your real incentive here is to satisfy your ego by lowering others, which is a fixed mindset (read Carol Dweck's book), the net loser is going to be yourself not others. And im not writing this to defend value, growth or whatsoever investing approach. I am giving you an honest opinion just like how any respectful person would deserve. And you deserve no less.

You are just like a hedgehog, if you have read superforecasting.

I am a value investor, but I never tried to calculate everything. And on the other side, just because many important things cant be calculated, doesn't mean you don't need to measure it and resort to using hope, wishful thinking and astrology

Just an alternate thinking, KYY was the founder of Mudajaya, Gamuda & IJM, had he never sold any of his stakes in those 3 stocks, will his wealth accumulate more than what he currently has or will it likely to be less?

IJM has a market cap of $66 mil in 1986 when it went public, current market cap is 12 bil, CAGR 30 years of 19.14% (excluding dividend etc). Put this in another perspective, it is 191 bagger

Gamuda has a market cap of $581 mil in 1998 (listed in 1992 but can't find market cap back then), current market cap is 12 bil as well. CAGR 19 years of 17.5% or 21 bagger.

Mudajaya history is a bit complicated so I'm not going to do it here.

I think competence does not come from spending every day and night commenting on this forum. Or else everyone is a millionaire here

Personally as a value investor I don't think my toolbox is limited. These are what im looking forward to master. Value or growth, they are just a name. It is what you do that defines you not the name you call yourself by.

Basic Algebra
Extrapolation
Power laws
Normal distribution
Fat-tailed distributions
Correlation vs causation
Reversion to the mean
Outliers
Bayes rule
Precautionary Principle
Paradigm shift
Skin in the game
Optionality
The expert problem
Logical positivism
Ease of Recall
Retrievability
Confirmation bias
Bias from anchoring
Conjunctive and disjunctive-events bias
Bias from over-confidence
Hindsight Bias
Utility
Diminishing Utility
Supply and Demand
Scarcity
Elasticity
Economies of Scale
Opportunity Cost
Marginal Cost
Comparative Advantage
Trade-offs
Price Discrimination
Positive and Negative Externalities
Sunk Costs
Moral Hazard
Game Theory
Prisoners' Dilemma
Tragedy of the Commons
Groupthink
Economies of scale
Diseconomies of scale
Misinterpretation of p-values
Misunderstanding of randomness
Curse of knowledge
Ludic fallacy
Lucifer effect
Porter’s five forces analysis

How to detect BS 101

1. Write title in ALL CAPS asking readers for trust
2. A 10 years PAT with zero capex
3. An equity risk premium of 2.12% for a loss-making stock
4. Paying PE 14 when COE > ROE
5. End an article with a reminder it is not a recommendation

Why is someone that is long term come out and defend a short term issue?

Hi you are right, ROE is not the best if you compare it to ROIC or ROCE. My purpose of writing is targeted towards investors that are new to the concept of return. So taking into that consideration, I choose to brush through most of the things and keep it simple, and as always, when you keep things on a high level, you will miss out a lot of 'what ifs'. And I do so to avoid overwhelm readers. And any reader like you that is familiar with this concept will definitely find me oversimplify and generalize things

Valuelurker, good to see you are back again. You either understand the article or you don't, or read again, that's life indeed.

Probability I know there are many things we can discuss, the topics are endless. I am just showing you everything else the same, you would prefer B over A, even if both are bonds, because you are taking into the consideration of opportunity cost right?

yea dont worry about whether it is dividend or not. If both are a sure thing, majority would go for 2nd over 1st even though CAGR wise, both are the same.

And you are right you get those amount out to reinvest whereas on 1st case you have to wait to year 5. It is time value of money concept. We discount them differently because the difference in the timing of cash flow. It is a form of opportunity cost. You get compensated earlier for 2nd than the 1st.

ok probability, you are right, it is all about how much you put in vs how much you can take out.

If there's 2 investment, one you put in $100 now, and you get $200 (including principle) by year 5, in between you don't get any.

Another you put in $100 as well, and you get $20 Yr1, $20 Yr2, $20 Yr3, $20 Yr 4 and $20 + $100 principle on Yr 5.

Both have the same amount of in and out, same CAGR, would you value both differently or the same?

ok all, that's why I title this 'How not to do valuation' not how to. If I write it as how to, there will be countless valuation methods that can be use besides DCF depending on the business. DCF is a model, thus it is not perfect, everyone needs to understand its limit, so does every other valuation model out there - Dividend model, Ben Graham model, Steady State + Future State valuation, Net-net, assets-based, reverse DCF etc.

But the more pressing problem is people not considering the cost side of growth.

Don't quite get you. You saying only risk free rate should be used but not other stuff like risk premium?

@ Cikgu Zhang, this is mental model not philopshy

Tell me if risk free rate doesn't form the leg of cost of capital then what is?

I appreciate anyone to come forward and enlighten me on my question. Thanks

Quick question - I assume your target price for 2017 & 2018 @ $2.52 and $3.09 respectively are the true and fair value of the business.(not share price)

From my understanding a company fair value tracks closely to its ROIC yoy if someone bought it at fair price. CAB has ROIC of 8-9% and lets give it 10%, and with no dividend, at most the true value would compound at 10%-11%, means from $2.52 to $2.77.

Your valuation indicate an intrinsic value growth of 22.6%, mind to explain if I miss out something? Unless you are talking about share price not the value of business, which I hope you're not, considering all the hardwork you put in to produce all these. Thanks.

It is a good move for Aeoncr from business point of view, but business point of view can be different from ICULS holders point of view. ICULS holders are getting a bond + equity hybrid. First 3 years you get fix 3.5%, a bond like feature and not entitle for dividend or capital gain unless you choose to convert, and after conversion, you become a normal equity holder like the rest.

As a normal shareholder, if I can reasonably predict Aeoncr will become a $5 bil market cap company in the next 5 years, I can sit tight and don't worry about a thing. ICULS holder is different. The variable introduced to ICULS holders are conversion price and a 3 years timeframe which you hope the ICULS will be 'in the money' some point within the 3 years or you are not better off compare to a normal shareholder.

Think it differently, the 15% or whatsoever discount you are getting + the 3.5% p.a guarantee for ICULS is essentially a 'compensation' for those variables (uncertainty) - Conversion price and the market price over next 3 years. As a normal shareholders, you don't need to worry abt conversion price or what is the share price in 3 years time, because you will not be forced to convert. Or sell is another word to put it.

But on a side note, I suppose if you plan to hold Aeoncr for the next 10-20 years, whether you decide to subscribe or not to, and whether the outcomes turn out favourably or unfavourably, it is unlikely to be significant. Since as all put it, it is a weighting machine in the long term.

There are many that says Aeoncr price is inefficient, personally I like it, or else you won't get a swing of close to 30%, twice from $15 down to $10 over the past 2-3 years

There's nothing wrong, but there's opportunity cost. If the gain from subscribing to ICULS is unlikely to exceed (not equal or less) the gain in mother share upon maturity, there's no reason to subscribe, make sense?

Exactly, if the market is efficient and the ICULS is priced correctly, and conversion price is 'right', then buying ICULS = buying normal share, since business value = market price. But this may not always be the case.

http://disclosure.bursamalaysia.com/FileAccess/apbursaweb/download?id=78532&name=EA_GA_ATTACHMENTS

Page 4, just hypothetical, not confirmed

I think the potential and the growth of Aeoncr is not the issue here. The risk here is conversion price and mispricing. But it is far from saying buying ICULS is same as riding on the growth of the business because basically you are converting or 'selling' the ICULS after 3 years. The risk is on selling price. Put it to the extreme, if there's a big bear 1 week before conversion, and price becomes $3. convert you must at a loss.

And as the paper, if there's a high probability of mispricing, the ICULS will be out of the money for the entire 3 years compare to mother share, thus you won't have the chance to convert it, and upon conversion, you are actually losing money as compared to buying mother share.

I don't know much about ICULS so I had a read through some papers.

https://mpra.ub.uni-muenchen.de/12764/1/MPRA_paper_12764.pdf

So the basic characteristics of ICULS is the annuity feature - you get 3.5% p.a for the next 3 years, and it is converted back to the mothershare upon maturity, hence called 'irredeemable'

The key point of the paper is that - they found that most ICULS issued in Malaysia are either overpriced and underpriced, or 50/50. Buying underpriced ICULS by right should result in superior return however that's not the case.

"First, not only do we not get superior returns, the returns are hugely negative. The simple, buy, hold and sell stock strategy is much superior...This we believe, is testimony to how inefficient the
market for ICULS are....why are the returns to the ICULS strategy so disastrous relative to their stocks eventhough they are underpriced?.. this must be because the ICULS are mostly out of the money, i.e., their exercise price is higher than the current stock price. Thus, a strategy of buying the underpriced ICULS though sensible, incurs losses when we then convert them to stock, by buying at the predetermined exercise price and selling them at the lower market prices. As such, while their being underpriced should provide positive returns, the substantial loss incurred on exercise leads to overall negative returns."

They did the same to overpriced ICULS by shorting them and buying it back later and produce the same negative results.

Although I must say the sample size is very small, only 34 ICULS are studied.

The main risks here are 1) Conversion price 2) Prolonged mispricing 3) Forced conversion.

Although they are likely to set the conversion price at 15% discount to market price, which at first, might sounds safe, cheap or whatever you want to call it. But i think the current price should not be used as an anchor given that outstanding shares will almost doubled when all ICULS are converted. Not to mention you will be forced to convert all ICULS regardless of the price at the time upon maturity, and dealing with mispricing.

Thoughts?

Stock Kingdom

1. Peter Lynch definitely can teach you a lot, but if you look at things at skin deep, the problem is on you, not others. I could have asked you to buy Scientex in 2012 at $2.50 pre-split (now $15), SKPRes at $0.30 in 2013, and you wouldn't have hold it until today because of the prevalent idea of profit taking. And now I wrote about APM and Favco, but you won't have the temperament to buy them. Even if you did, you will only hold them for few months, same goes for CAB.

2. If you don't understand, I would appreciate you ask. If you don't understand something that doesn't mean the universe will make things easier to suit your taste. I have explained things as simple as I can.

Let me guess - you checked what I wrote and compare the price, and make a conclusion. How convenient. It is always easy to shout around than sit down and write, cause it is hard work, and no one would bother doing that.

@ probability - consumption per capita growth is far from being certain if it will catch up to Malaysia. Coca-cola entered Indonesia market ages ago and see the growth potential due to huge population, extremely low Coke consumption vs US (1.4% of US consumption in 1988), massive muslim population that rules out alcohol, but today it remains below world average level. So something worth while to investigate why Indonesia consumption is 25% of M'sia. Might have to do with income per capita I don't know.

@ Iamgoogle - I am always interested to hear and learn what I don't know. You are right. There are many factors that influence business decision and what strategy the company decides to take. And there are many things that can't be readily captured by figures i.e the culture of PBB and LPI that make them a standout in their own industry. But at the same time, it is also true that strategy shapes decisions, decisions drive result, which eventually reflects in financial statement, although there will be a time lag.

Today CAB strategy is to grow, thus their decision is to take over Farm Best and move into Indo. Thus our role as investors is to ask "Given these strategies, how much would they need to put into the business (capex), how much cash flow, and when will they be generated?" Discounting those 3-5 years cash flow back to present gives you a valuation. I will be BS-ing you if this is easy to do, it's not. But 3 simple things, how much they going to put in, how much will they take out, and when.

I don't need to convince anyone do I. I don't feel remorse if you lose money, neither do I cheer you if you make money. But what's important is I lay out my thesis. If you going to talk, better come with facts and figures. And it is simple. If you tell me you run really fast in a race, how do you define 'fast', if you can't define it in figures, how are you going to improve it next time? Same thing here. Talking at high, vague level at best sounds intelligent, at worst it's nothing but ignorant and the inability to improve.

I am surprised you can make connections without knowing the figure.

Here is a rule of thumb, the easiest way to know if a person know his stuff is to strip away all these vague, broad, meaningless, fancy, lack of substance BS talks and go down to the fundamental. If he refuse to do so, that says a lot on his level of understanding.

When I walked into the Geneva office years ago to understand how do they generate 3% per month for all the customers and the sales lady can't explain it, that's a big red flag. They can sell you all these promises but can't describe on fundamental level, you know there's a lot BS going on.

You are welcome to ask me anything you don't understand. I'm more than happy to explain if you have the patience. I don't have a degree or masters in finance or accounting, I fail CFA level 1 if you wonder how smart I am. I learn investing by myself. There's no point to show off ego here. It is your money and I couldn't care less.

This is not Manchester United vs Arsenal fan club. And I didn't say anything that put you down. If you want to be a businessman, then start talking like one, stop carrying the word 'businessman' around, who is the one 故作深沉? The one that put out the numbers or the one that keep telling people he thinks like businessman and nothing else to say beyond that?

If you are talking about my body, yes I would do the operation given the probability because I'm not Ghost in the Shell, I can't swap my body.

In investment I don't need to swing because I have a choice. As long you have done your independent judgement, not swayed by the price movement, then you have done your job as an investor.

The big picture is this - if those growth capex can generate a higher return than the cost of capital then they are creating value. Compare that to the price you pay determines your return as an investor. If the return is lower than cost then it is destroying value, which will ultimately square against your buy price too, which if low enough, will still make you money; high enough, then opposite happens.

Stories that contain words like capable, prudent, moat, monopoly etc - you still have to translate them into numbers. Einstein can tell you the wonderful universe, he still need turn it into one math equation E=MC2. No one can do valuation base on stories, I can't, maybe you can.

So here's my take, at current price, if CAB can continue to earn $55 mil profit and current revenue till the end of time with 50% reinvestment, I would value it at 300-350 mil for 10% require return. The remaining 150-200 mil (EV=510 mil) will come from future value creation. So it is for you to figure out how many birds are in the bush

if past is an indication, maintenance capex would already eaten up 50% of the operating cash flow. CAB's full capex is likely to continue exceed profit due to aggressive expansion. The thesis here is simple, these growth are good but how good? A bigger CAB is good if they can improve their return, or else it will be like an obese person taking in too much unhealthy calories.

That's why I'm asking you. You are the one owning the stock. And correction here, 10 years return is 9% instead of 5%. Every dollar invested in the business generated 9 cents in the past, so will the assets from Farm Best change that? CAB generated 35-55 mil from operations, 50% goes into maintaining current revenue, the rest into working capital, capex etc to integrate and grow Farm Best, so how much is the FCF for next few years? That's what you've to answer.

But these are only relevant if you plan to hold it more than 3 years. Or else we will be wasting our time. Not saying long term is great & short term is bad, but business takes time. Remember ppl talking about the great prospect of IFCAMSC not long ago? They were riding the beautiful story while it last. Same goes for QL at PE30, that's a lot to pay for chickens.

accountant type? The company puts in 260 mil and generate 15 mil, is that too technical for you? I'm literally talking business here - how much the owner is taking out from a business compare to how much he is putting in.

I'm not a perfectionist, I got Tropicana, Affin, they are far from the perfect stocks. But I do have some contradict opinion calling management capable and prudent.

For a company that plowed around 260 mil into the business to increase net income by 15 mil over the past 10 years, or a return of just over 5% - would you call it prudent and capable?

Mind to explain:

1. If revenue has been growing at less than 2% over the entire past 10 years, how did you come out with a 10% growth rate on FCF?

2. IF the 10% FCF growth doesnt come from revenue, that means it has to come from operational efficiency, which is improving margin. At current margin, are you expecting PPHB margin to reach 20%?

It isn't surprise that why revenue hasn't grown much, given the capex level matching depreciation, there are not much capex left over for growing operation, and hence the ballooning in cash. But for whatsoever reason, management is happy not to pay any dividend.

And if a company has no intention to really grow, i would apply a steady state valuation. IF assume steady state is the current income of $12-15 mil per year, you'll get about $120-150 mil valuation at 10% cost of capital, very close to current price.

The thing with moat. It cannot be high barrier to entry when it operates in a commoditized industry - unless it is the lowest cost producer - and I would find it hard to confirm this despite having highest and growing gross margin. And capital intensity is relative. It is nothing 'intensive' if they can continue to grow their margin higher and higher, ultimately they will attract competition which eventually reverse their margin.