Hopefully it falls below $3, then it starts to get yummy

Yea i get what you mean, it's just that when people assign PE to a TP, they normally do that when EPS is at the peak, without taking into account the historical EPS and reversion to mean, thinking that this time it is different etc. Of course, if people think like me, no one would buy Amazon, Facebook etc lol, but yea, it is all about being conservative.

That is why I use ROE instead of estimating the profit. You can look at all the broker analysts, they have all the information they need and how many of them get their estimation right?

And since you are playing a long term game, it makes even more sense not to estimate profit but rather focus on the competitive advantage of the company. That means asking does CCB have any edge over his competitor? Why does a great competitor like Hapseng, their automotive arm that is also a Mercedes authorised dealership, had a flip flop earnings, sometimes red sometimes black and never seems to grow since 2009, will CCB do better than them etc..

I agree in keeping things simple, but that is not a privilege that I can afford to have, Im not sure about you. Investing is a skill. Just like anything from chess, golf to gymnastic and swimming. The way Michael Phelps swim like a dolphin; that's because he spend 10-15 hours in the pool everyday for 10-15 years. The way grandmaster can make a move in split second on the chess board, that is because they have been doing the drill everyday for 10 years; those gymnast, they trained until they body are so sore everyday to make it look so easy in the olympic, you get my point.

If you decide to keep it simple as in using purely PE, then you better be mindful and have a lot alot of margin of safety in your purchase price. Keep things simple is the best advice, but it can become an illusion to yourself too. Just be careful of that.

1. During market crisis, the correlation of every single stock and asset class goes to 1.
2. If I buy PBB at $80 and Harta at $20, they have negative correlation but boy, the risk is bigger than whale

You are right, so everyone needs to start using more tools other than PE to make judgement. The more tools you have the better you can improve your accuracy. You need to understand the true meaning behind PE multiple.

As i said again the only issue with PE multiple is this - Normally when do people start assign an PE and TP? When the EPS or Q result go up obviously. You don't see people apply a PE and TP after profit falls, they just sell it.

So you have a situation where you are applying a PE multiple on an inflated earnings, the end result you get is a TP that is so aggressive and one that leave you no room for error. And again looking across the historical ROE of CCB, average is close to 10-12%, you won't want to think that 20% is a new era, unless you can find an evident that they do something different. I am sure since 2006, Mercedes has introduced a lot of great models, but doesnt make their ROE sustainable at such high level.

http://globalslant.com/2015/06/black-box-trading-why-they-all-blow-up/

This is the lunacy of PE10. Everyone knows that the market doesn't yield to anyone just because millions of people use a PE 10 to set TP. A stock like CCB has inconsistent ROE and profit growth, those are the 2 most important things that change PE multiple.

I will offer you a better way to come to your TP. Look across the ROE since 2006. 2% - 19%, a strong volatility across one decade. And think for yourself, does a car distributor has competitive advantage? or does a car manufacturer has an edge over others? Using 10% as cost of capital, by the way CCB has failed to achieve ROE of above 10% for past 2-3 years; you would be conservative to assign a long term 12% ROE; and aggressive to assisng 15% long term ROE.

So CCB has NTA sitting at $2.58. 12% ROE implies a TP of $3.10 (2.58 x 1.2); while 15% implies TP of $3.87 (2.58 x 1.5). And you have not apply margin of safety of 30-50%. Once you have apply your buy price should be at $1.50 - $2.70. This is way more 'accurate' than using PE 10

you are right depends on what price you bought it. Now is a stupidity price to get in IMO

when it is selling at 30 cents, nobody wants it, now it is at $1.50, everyone can't get enough of it.

Well too bad if you dont believe. It is written on metric called ROE

Some economic structure of airline industry:

1. Sensitive customers
Price sensitive, little brand loyalty, goes for lowest fare

2. High fixed cost
Airline has high fixed cost from purchasing aircraft to maintenance & capex.

3. Perishable product
An empty seat in the air is a lost in revenue. Airlines are inclined to cut price in order to fill the seat to cover their high fixed cost, which leads to price war.

3. Government/Politics
Airline industry employ large workforce and most have union. When an airline decided to layoff it normally face a strong resistance from union and government. Slow down in layoff means industry is bloated with supply which fuel even more price war.

4. Low barrier of entry
An aircraft has a life span of 20-30 years. It is relatively easy for a new company to lease a plane and begin operation. Any profitable route will soon be filled with competitors enough to erode profitability.

Think about it, Iran and Saudi almost go to war. Destroying Saudi's embassy, and you think Iran going to join suit?

If you read the oil output of countries. Saudi and Russia have been maintaining the same output for many many years. So the freeze doesnt change anything, not one bit.

Cockroach is the best, its been around before Jurassic

IF there is a stock i would short, it would definitely be Hap Seng

Pisanggoreng, thats true, it is like investing in individual stock. One side will paint a good story i.e. expansion, joint venture etc while the other side will paint a less sober story i.e. competition, ROE etc. At the end of the day, story has to connect with the numbers. Many ppl got seduced by the story and think the numbers are not important. Both are important.

Same for macroeconomy. The only difference is that there are too many numbers, with many possible outcomes, and the probability for each outcome is unknowable. That's what make it so difficult, and that's also why many expert can only extrapolate. Plenty of time the market would unfold as they forecasted. But when the market turns, it will sweep almost everyone with it.

How about everyone have a read on Stanley Drunkenmiller's speech from early 2015 on why a crisis is coming. He is talking with facts and figures too. Drunkenmiller used to be George Soros's wing man.

http://www.valuewalk.com/wp-content/uploads/2015/04/Druckenmiller-_Speech.pdf

Points seems valid but economy is non linear. i.e. negative interest rates doesnt mean there won't be market crash. And when you look at the prevalent low interest rates since GFC, it is precisely this kind of low rate market condition that can spark a credit crisis anytime.

I think the market looks more than a few quarters ahead and if you look at the past 10 years ROE, only 1 year exceeded 10%, and looking at the average FCF over 10 years, they don't look that great.

FCF of 10 mil in my opinion is aggressive not conservative. That is the highest figure over the past 10 years. Add in depreciation of 2.5 mil, you need cash flow from operation of 12.5 mil to generate FCF of 10 mil, this hasn't include growth capex.

And another more critical thing why 10 mil is aggressive. Over past 10 years, depreciation stood at 34 mil in total but over the same period, capex is standing at 14-15 mil, that is 50% below depreciation. Although i have not study the annual report, but this can really mean the company is underinvesting in maintenance or upkeeping of their machineries, which eventually they will have to fork out another 20 mil for upgrade or else old machineries will start to pull down revenue.

Compare that with Homeritz, depreciation 17mil in total and capex at 19 mil. And lastly if the company over the long term can only generate ROE of closer to 10%, why should it be worth more than book value? Of course that is unless you are confident the ROE will improve over time.

like you said it is just a paper loss not a permanent loss unless you are forced to sell it. As long the business behind remain intact, nothing will change. I bought Aeoncredit at $15.80, now it is $11. But I cannot find any other financial companies that can compound net asset faster than Aeoncredit besides Public Bank, so I am happy to hold it. The only time that i would sell and realized a loss is when I found another similar quality stock that has a cheaper price in relation to it's value. And that's another reason im looking at SGX companies

I think my time is better spent on understanding the companies im interested to buy and determine their value than studying investment cycle clock. That doesnt mean im ignorance about the market sentiment, we still need to roughly know if investors are aggressive or cautious, optimistic or pessimistic, greedy or fear etc. And going by your sentiment, you are definitely very cautious and pessimistic; i've experienced that for the past 2-3 years, now im on the opposite sentiment

Anyone can always find a reason to disprove that 'stock always go up'. And at the end of the day, everyone in this forum is buying individual stocks not buying the whole stock market. A broader market in Japan hasn't gone up doesnt mean you can't make money in individual stocks.

NOT SURE how to go about - Is there ever a sure thing in market? There are only probability, no certainty.

You are right i dont believe in market timing or I wont have held Scientex from $2.47 all the way to current price, since it would have become 'sotong'. In saying that, doesnt mean im ignorant about the market condition. One needs to know roughly where the market is now, ie is other investors greedy or cautious, are they acting aggressively or more reserved etc. And if you ask me now, the market sentiment is very bearish (obviously), even more so for Singapore; investors are shifting funds into cash or fixed income assets etc.

How low will it continue to go? where is the tipping point? I don't know. But one thing I do know - now is not the time to be cautious. And at the end of the day, we are answerable to the stocks we buy, not the direction of the economy. Although earnings do get drag down by economy downturn, but that's where opportunities appear.

My honest valuation but it can be wrong. When I bought it at $1.40, i think it should be worth $3, and that is at a normalised earnings, aka before currency fiasco. Anything that happen on currency level is merely 'extras'.

N00b start with 1950

https://research.stlouisfed.org/fred2/graph/fredgraph.png?width=880&height=440&id=NIKKEI225

Happy new year Mr Koon Yew Yin. As you have mentioned, that highly respected investor 'thinks'. Many well respected analysts 'thinks' 'oil & gas companies are great investment after 2013 election, they didn't see oil price collapse coming; many think plantations counter are great in 2014 until they arent. And almost no one see MYR depreciation coming in 2015, and now these highly respected people sees MYR will continue to stay week for this year.

It is hard enough to study a company, even more so when studying the whole macroeconomies & it isn't a surprise many ppl cannot consistently get it right. The only way is be prepared but refuse to predict and focus on individual business.

A thing about the Sunway FCF. Large portion of capital expenditure for property companies doesn't come from acquiring property, plant & equipment but comes from buying lands. A manufacturing buy more machines to produce more products; a property needs to constantly buy more lands to sell more house (products).

Therefore the FCF is normally 'overstated' as it doesnt include money spent acquiring lands for development purposes.

Everyone expressing opinion, and opinion on opinions, endless opinions. But no one learns a thing

What ringgit what USD? Focus lumber even without currency factor is worth $3 alone. I bought it at $1.40, it has gone down so much, but like I care.

because their rational thinking tells them VS is 20% above IV

huh? Since when OKA has site in East Msia

"lower birth rates for non-muslim" - how interesting this reasoning is this. So i guess pork producer, genting, GAB Guinness they can't grow much anymore.

like i said it depends on the context. When a company use shareholders' money to initiate buyback at an overvalued price it will destroy value because the price will eventually revert back to the value of the business. And of course, what is considered under or overvalued is contentious.

Another thing is return on equity. Example Ni Hsin have been buying back its own shares for many years yet the share price still remain where it is 10 years ago. The reason is because of their dismal ROE. Any money reinvested back into the business or used for share buyback will destroy value because of poor ROE. It is like patching a sinking boat full of holes, rather than get a new boat.

It depends on the context as well. Many companies announce share buybacks during the up cycle, when their share price is overvalued, and thats a best way to destroy value.

this is never an argument but a discussion. I dont pluck numbers from the skies and if you think you have better reasoning you can always write it down, it is how we learn.

I dont need to look smarter, just logic.

Normally people would take an average of operating cash flow from 2 years. Reasons:
1. Taking the highest year obviously the figure is skewed by working capital
2. In investing you want to be conservative.

Average operating cash flow is (241+140)/2 = 190 mil

I will make this as 'realistic' as I can. Cash balance only 90% is available, 10% cash for working capital use. 245 mil x 90% = 220 mil.

Net Cash 220
Net Operating Cash Flow 190
Net Capex -100
Net Cash after Capex 310
Dividend -204
Net Cash Balance 106

Yes you are correct, they can pay 13% if they want and I already said that in your previous post. But you dont need me to extrapolate what you can see above that doing this is unsustainable and suicidal.

And if you did read the news link, they are always on standby to acquire company. So what is the chance that they are going to dip their fingers into the cash balance to pay such a sky high dividend that is only sustainable for 1-2 years max before they have to either borrow from bank or issue shares to pay 104 mil div or end up having to cut those dividends?

"With the cut in labour force, the group will continue to automate its production process and reduce reliance on manual workers, with a planned capital expenditure (capex) of RM200 million to RM300 million over the next five years.

He said the average capex each year is RM50 million to RM60 million but if it accelerates on automation, capex may even hit RM100 million." - http://www.thesundaily.my/news/1427280

50-100 mil capex, there go your 13% yield

Is airline a declining sector? No. Growth sector? No. But why they have such a large capex?

Capex has nothing to do with the growth of an industry. It has to do with the nature of the industry. The more the industry has to keep upgrading technology, machinery to compete, the more capex there will be.

I have not seen a furniture company that payout 80%, so a HDD company that pays out 80% sounds absurd to me. If you choose to believe your assumption rather than the annual capex figure, well.

Your assumption of 25% growth (10 sen to 12.5 sen) while payout 80% sounds too good to be true even for Microsoft which produce software, needless to say for a hardware company.

Give you another example FLBHD, when it was sitting at $1.40, that is a true 10% yield after they declare 15 sen dividend. You know they can continue to maintain same DPS if they choose to. FLBHD do not reinvest much, maybe 1-2 mil a year, thus they dont grow a lot either. But they throw off a lot of cash, 10-12 mil a year, and they have 90 mil sitting in bank don't know what to do.

How intensive an industry is determine the dividend payout.

And if you look at average capex of 111 mil over past 6 years, you know that is 50% of the profit used up in reinvestment. Therefore you need to verify with yourself if 80% payout is sustainable. Unless they start taking it out from their cash balance.

Depreciation number is an indication how much they need to spend on capex. If capex continue to lag behind annual depreciation figure, that means they are not maintaining & reinvesting their PPE, which eventually effect revenue in the long run.

Capex = depreciation is a very conservative assumption, this doesnt include growth capex. Growth capex is what is needed to grow revenue and achieve your 12.5 EPS. Thus by looking at depreciation, you get an idea what is the capital intensity of the industry. From there, you can deduce if your dividend yield make sense or not.

And free cash flow comes after reinvestment in capex.

yea ok. At least you know what you are expecting. Because payout of 80% is too huge in the long run for me. EPS 12.5sen ure looking at abit over 200mil in profit. And when you look at annual depreciation close to 100mil. That's 50% gone. Leaving 6 sens for dividend. They might very well pay 80%, but it will not be possible in the long run.

Just so there's no miscalculation. $0.765 x 13% = 0.09945 sen. So a company that earns rolling EPS of 10sen, wants to pay 9.945sen of dividend, that's what you are implying right?

JCY rolling EPS is around 10sen, and you are estimating DPS will be 10-13sen? And not including depreciation which needs another 5sen in capex to compensate.

Kai Yee Tan you miss out some info, they won the contract to supply crane to build KL118

"I am sitting on the sidelines until the situation looks better" - if you didn't see it coming, how are you going to know when it is over?

Again it depends how you define risk, if a director keep buying shares and he plans to reap his reward 20 years later. On the other hand your own time frame is to make money in a year, your risk is 20x larger than his. He can sustain 19 years of losing money and make money on the 20th year but you can't

I think you are forcing yourself to find a cause (director buying shares) to explain an effect (stocks undervalued).
I will give you one to disprove your theory. NiHsin buy back 15 million of their own shares over the past 10 years, too bad the share price is still the same since 10 years ago.

Director buyback is just a positive sign, nothing more nothing less.

Hi Noby,

Yea im not sure if that is the fair price as there's nothing for me to compare against. Base on the agreement and orderbook of 100+ mil, they are confident of achieving the 6.6 mil, but should it fell short, they will have to make it up for the difference.

I dont have much details also but they say he is a turnaround guy, he previously turnaround Mercury and Ecofirst. He is the CEO of ecofirst, so he does have experience in construction and property.

Net profit would not increase by much if you take into account the interest expense from their borrowings, if at 6-8% from the banks. The only interesting thing is ROE will potentially revise upward and profit growth. Normally a jump in ROE can boost share price more than growth in profit. And if their paint business gets better or if they land more construction contracts, that's extra. What im seeing is very limited downside, how much is the upside ive no idea. But yea it is for arbitrage not for holding long term.

oh wow you can tell what's my emotion from my typing. so funny you. Which one is vulgar im sorry? if it is vulgar u must be from 1800s. Im curious about yours too, can't find any substance in your sentences either. I dont see an ounce of value in your comments, since you created this account like few hours ago. Don't let Shaun laugh at you empty vase.

You wanna troll, be my guest any day,