Logan are u wanking if ure not talking? lol

It's true roe and roic is useless if all a person know is PE. Keep it up

Hey thanks Noby for the tip, I though it is a pure play, but looks like Hexza can be an arbitrage play with ROE revision considering the Myanmar venture ROE is >20%. But just need to study more if the effect has already been priced in.

If you are interested in arbitrage play, you can look at Mercury. Similar cases. Used to hold large sum of cash, but used it all up to acquire a construction sdn bhd, Profit guarantee 6.9 mil for each year for next 3 years. It just started last quarter, that why there is a jump, but I am expecting ROE to revise upward soon.

Yea EBIT is fine. FCF is similar to earnings over the long run.

I get what you mean but you need to look at where does the growth comes from. Growth in EBIT that comes from higher margin, forex gain is very different from growth in EBIT coming from higher volume, in this case selling more woods.

FY16 or even FY15 is abnormal as in those growth in numbers are pumped by currency factor, not because the business sell 664% more woods compare to last quarter. That means you are expecting currency factor to last for 5 years in order to achieve 40% CAGR, which is practically not possible.

Another thing is even at such an aggressive growth rate, your margin of safety is less than 50%, you have to watch out seriously.

wow you are going to the moon using 5 years 40% per annum growth rate. That means in 5 years, SHH is going to triple in everything.

Taking SHH best ROIC/ROE of 23% (which is all time high), how does it grow 200% in 5 years?

For example, you use capex of 27%. Current EBIT is around 10 mil. That means SHH reinvest 3 mil a year in capex. Their depreciation is around 2.3 mil a year, that means roughly 2.3 mil is for maintenance, 0.7 mil is for growth capex,

So how can SHH grow 40% a year when they only invest 0.7 mil into growth capex? Your 40% growth on EBIT means 3-4 mil extra every year.

Desa you are right it depends. Berkshire decide not to distribute dividend because WB can compound their book/IV at around 20%, which he think it is hard for his shareholders to find that kind of opportunity.

And in the end it really looks at this business. In the early days Digi decided not to pay out any div too which I believe is to invest in capex to establish a solid foundation. Now that they have a solid market, not much reinvestment opportunity they started distribute large amount of earnings in div. Same as what Amazon is doing, people are buying it in anticipation of future cash flows.

And it depends how you define high growth. I think Scientex is growing pretty healthily and they think a % of div would not hurt their growth.

Noby how did you get 3x for Hexza? Their FCF for 2013-15 is 18mil, 4mil, -6mil. I don't know much about Hexza except they are in chemical/property business. From a glance, their average FCF from 2006-2015 is about 9-10 mil, against current EV of 131 mil at 13x I think it looks okay.

Just need to be aware the past 4 years FCF can be inflated because their capex is only about 1 mil every year. But when you look at the depreciation rate of 5-6 mil a year, you know they are under investing in capex, they are not spending enough maintenance capex to keep their assets working well, which might potentially hurt future earnings and cash flows.

Hm you can look at Favco. Again their 2015 FCF is abnormal, but if you look at past years average of 70-80mil FCF. EV/FCF is at 5x. Even if you include the possibility of FCF dropping 50% because of O&G sector collapse which to me highly unlikely (they build offshore crane), it is still 10x.

Past few weeks I have a look at Oka Corp. Still studying it. Their FCF turned black since 2013, average FCF of 15mil against EV of 136mil, that's 9x. They just turned net cash these past 1-2 years, so cash is going to start piling up. Other metrics are improving too like ROIC and profit margin. But Im still studying it not much info I can provide. They don't seems to have many competitors, most are private companies. Only competitor is Hume Industries, subsidiary of Hong Leong, previously bought out Narra for their precast concrete business.

I understand what you mean, maybe there's not many bursa companies with 14x, but doesnt mean you have to pay more because you can't find opportunity. The odds (probability) is not in our favour when we pay too much. Let me know if you have any good ones in your list too thanks

Probability I bought it at $1.40, and personally I think it is very closely to fair value of $3. Everyone has different estimates of IV. I know you are creaming at the FCF of Flbhd currently at 28 mil after 3rd quarter. But you need to know these quarters not a normal year cycle. Normalised FCF is mostly sitting at 12-15 mil. If using normalised FCF, EV/FCF of 14x is considered fair for me. In saying that, there are many tailwinds for FLBHD mainly currency and potential corporate exercise on their cash pile since they are not intending to expand the business aggressively. But if you look it as a business that has no moat with healthy balance sheet, good ROE, minimal capex and slow growth, I think $3 is fair. And I agree with management not to invest too much in capex but rather distribute as many cash possible to shareholders. And of course any decision by mgt to distribute those 90 mil cash will change my valuation.

Please understand Philip 66 is not an upstream oil player, upstream as in oil exploration. Phillip 66 was separated from ConocoPhillips so they can focus on mid & downstream. Majority of their revenue comes from refining. This has nothing to do with oil bet.

IMO I would not want to be so sure on what's going to happen to the macro this year, everything looks obvious on the hindsight but no one saw the oil collapse coming, no one saw MYR depreciation coming, and certainly no one will see a bull or bear coming because ure in either one.

yea i get what you mean, most family run business are hardworking except cronies. But it is also a very unforgiving environment out there. UMS is cheap from a valuation sense. But im just worried it can be a value trap.

That is actually very good you know Michael Porter. Study the 5 forces more, it will give you an edge over other investors.

I am not good at making money. Not many interesting stocks right now. Maybe you want to look at banks? Valuation is appearing especially CIMB & RHB. Aeon Credit you might want to look at. ROE >20% since listed. Besides Public Bank, no other financial companies is compounding book value as fast as Aeoncr, close to 20% pa. And current market cap you are paying 5x NOPAT. That is like PE 5.

Favco still look attractive for me I think at current price. ROE >20% since listed. Their cranes built World Trade Centre, Freedom Tower, Petronas Tower, Taipei 101, Burj Dubai etc. Not surprise if they build KL118. Market cap 642 mil. 40% of that is swimming in cash.

Other than these cant find any interesting ones anymore lol.

This isnt a question about who is cheaper. If competitors find msia to be cheaper, they will open factory here. And profit will be competed away. ROE will eventually return to cost of capital

If you want to know the past, look at the present which is the result of it. If you want to know the future, look at the present which is the cause of it! - How wrong is this statement

Just a few points

1. ROE 16% is during one of their good year, average is closer to 10%
2. Using the growth % of a sector, in this case E&E, has very poor predictability on how the company is going to do. Example when cars are being invented in early 20th century, there are 2000 car manufacturers in US alone, and as you would expect, super strong growth. How many car manufacturers in US today? 3

The key point is a growth in sector doesnt mean companies will make money. Competitors don't sit there and let you make all the profit.

Chang sadly it wont go to $2.00 anytime soon

Erm Bursa Dummy wrote that not Tan

You need more people like M.A Wind to provide a balanced and counter view rather than just taking whatever the management tells you

Think Enron, before the scandal blew up, im sure if you question this used-to-be one of the most respected companies in US, you probably gonna get death threat. Not saying Hevea is Enron, but that's the joy of investing.

to be frank, Marcus is a sell side analyst. He was previously given a positive coverage on Hevea. Im not saying he is, but there is always a chance that he can also being biased if CIMB has the opportunity to grab some corporate exercise opportunities from Hevea down the future. And again, even if he has clarified the matter with Hevea mgt. Well it is like asking the barber if you need haircut, of course the mgt will tell you everything is fine but you have to read between the line.

And think Robert as the Short-Only Hedge Funds kind of person. Around the world there are so many short-only funds targeting stocks that are controversial, especially accounting discrepancies, just like what happened to Airasia previously. Just a fact of life, 2 sides of a coin. Thats investing.

On the other way round, im curious why Hevea did not sue Robert? Since their reputation got damaged by David. David vs Goliath.

When the analyst turn bull after runup, im starting to get cautious

oh wow WB use PE of 12 too lol. Stop using someone name to be a salesman

Well it is a free forum right, im not doing any personal attack. I am expressing my opinion and i don't own hevea. But I find that attack other people doesnt bring any benefit.

I find it funny people arguing like kids and im surprise this news even got picked up by The Edge. If you are Hevea shareholder and sold because of the rumor, then you are dumb. If you are still a shareholder and start personal attack on those that spread rumor, you are not that better yourself either.

Those that accuse Robert et al for spreading lies trying to bring the share price down so they can get in at low price, do they have the balls to say CIMB or editor of The Edge wants to prop up the share price so they can offload their shares to mood-swing-PMS investors? Stupid

YOLOOOO every company writes that in their report. They copy and paste

My layman way of valuation

Moat: No
Valuation at Net Asset = $0.48

ROIC: 17% (2014)
Valuation at ROIC = $0.48 x 1.7 = $0.82

Free Cash Flow: 11.2 mil (2015) x 8x = 90mil = $1.17

DCF: EPS$0.13. WACC 10%. Growth 5%. Terminal 3% = $2.22


Valuation range: $0.48-$1.20

In the truest sense of calculating the value of a business - Forex gain does not changes the value of a business. Yes forex gain does increase FCF which in turn affect the value, but in the long term, what ultimately counts are the competitive advantage of a business.

And also remember forex changes has a multiplier effect on everything on income statement from revenue to gross profit margin to profit and profit margin. So FLBHD can be selling the exact volume of woods to US compare to previous several quarters, but revenue, profit and margins can all improved because of currency effect.

I think it is a fact - anyone that are involve in export theme play is going to find themselves naked, especially the ones that came into the party late.

I own FLBHD. From my point of view, I bought it at $1.40. That price was deem undervalued purely because of the stability of the business and the cash pile. I never bought it for currency theme purpose. But indeed currency is the catalyst that pushes the price to current level. And no doubt when the tide goes out, FLBHD will get dragged along. But I am fully confident my buy price would not suffer any permanent loss of capital. And the dividend yield of 15%, too good for me until I find something better.

In saying that, I think people that enter at current price does not have margin of safety at all. The risk/return for current price level is starkly different from $1.40

Hi Icon, I think you mean Joel Greenblatt not Greenberg.

1. Buffett and Greenblatt operate in a totally different approach. Buffett focus on moat and as you know holds Washington Post, American Express, Coca-cola for decades. Greenblatt doesnt look at moat. He focus on portfolio systematic approach. Find a list of stocks with high ROIC and high earning yield, rank it, buy them, sell on last day of the year, repeat every year.

2. I do not believe Buffett focus on 23% hurdle rate. A great example is Burlington Northern Santa Fe. BNSF market cap sits at 44bil when acquired by Berkshire. You don't expect a company that size to compound 23% a year.

3. Buffett is so interested in newspaper because newspaper is like a 'toll road'. And newspaper has efficiency of scale. In a small town, the size and market of it is small enough to only accomodate one newspaper, any other newspaper that wants to come in will have to steal market shares and make a profit loss. Thus newspaper is a monopoly in small town.

4. He bought Washington Post after the bad drop in share prices to 80 mil market cap. He mention that in the superinvestors speech saying anyone can look at Washington Post assets and easily know it is worth 400 mil. He bought it with a margin of safety and the moat. He sat on the board, become great friends with Katherine Graham, the heir of Washington Post, and guided her to turn the company around, hence the growth in margin and revenue.

5. If by your categorisation of value traders & value investors, then Buffett is a former then become a latter. He uses pure Ben Graham net-net style when he was running his partnership. Finding cheap companies, and yes thats how he bought Berkshire Hathaway, and sell them when they reaches fair value. Over time under the influence of Charlie Munger and buying Sees Candies, he started to appreciate the power of franchise aka moat, thats how he move into looking for moat companies. Another major reason is that as Berkshire grows and cigar butt stocks are getting rare during the 70-80s, their capital are ballooning, those are the reasons why he prefer moat companies. In an email he replied to a student asking if he has 10 million now would he use Ben Graham or moat style, he thinks cigar butt still works with small sum (<10mil) and moat works better for larger capital.

6. And as some would aware few years ago during a crisis in South Korea, a fund manager send a booklet that contain all the korean listed companies. He spend half a day going through all of them, picks a bunch of them using his own money, not Berkshire and make a healthy return.

7. By my honest opinion, 99% of ppl on here are value traders especially when you look at all the analysis using ratio and metrics. But it is a fact there arent many moat companies in Malaysia to begin with, unless you venture out into other countries. Studying moat starts with studying competitive advantage, that means looking at the 5 forces. Power of supplier, barrier of entry, substitute, forces of competitions and power of buyer. I never really see anyone analyse those. And it is not easy consider the disclosure and information is very limited on Annual Reports.

Normally ppl collect when there is a big fall like >10%. Why ppl wana collect when it is down few cents.

Ezra you must be brainfull lol

chshzhd dont be fool by cause and effect

Stanley so the forces of good is the one that own Hevea. Are you high?

"CCB had done tremendous jobs in managing its cash flows to rewards its shareholders in the past"

You mean like -26% return on share price for the past 5 years?

You mention 4 pillars of success and you went and explain all of them as 4 pillars for potential pitfalls.

A quick run through on Hevea valuation

- 3 years of free cash flow is around 34 mil, current market cap is 20x of FCF.

- ROE/ROIC has improved significantly in 2015 but there is question about sustainability considered the track record of ROE sits at closer to 10%.

- To find out ROE sustainability, company needs to have moat or competitive advantage that others cannot easy replicate, i.e. process advantage, cost or consumer advantage.

- It is in my opinion that Hevea has none of the advantage. Anything Hevea does can be easily copied by competitors.

- That means paying a company for 2x book value is considered 'rich' for me. Hevea is a buy but not at this price IMO.

- News & plans such as Japan and currency advantage is 'temporary'. Temporary I mean any company can go into Japan market if they choose to and Hevea has no advantage against them. Currency doesnt matter in the determining the value of a company in the long run.

I saw the liihen video too years ago, i decided not to buy. I never regret. It is ok to earn abit less than making a deal with devils

Icon just my opinion. As everyone is aware, you are a value guy. When you do those stocks writeup, those list of stocks are generally 'cheap' & has 'low expectation' if not undervalued, because I do not study all of them. To use your list of stocks to proof the theory that 'profit increase lead to share increase', and as we all know, it is a positive correlation. It proof the theory applies to reality.

But if you use that theory and applies to a bunch of high PEs stocks, that is when the theory is very likely to generate a very different outcome in real life and fall apart.

And now to people that just take KYY golden rule at face value, they dont really look at all these, they will think 'oh topglove will grow, public bank will grow, lets buy it' So it become indiscriminate that what people call 'buy at any price, as long profit is growing'. And I say it many times, public bank profit will grow whether you buy it at RM1 or RM100, but your investment return on one end is beggar and another end is millionaire. That is the problem with this golden rule.

KYY I never doubt you, but you need to elaborate your golden rules.

Ricky maybe you can teach me the golden rules

Hey Icon yea ure right. Mercury is an arbitrage opportunities which can still never materialized. Previously full of cash (low ROE) as you are aware, used it to bought a company venture into construction (higher ROE), and profit guarantee for 3 years. So we will see.

lol i dont do fine dining, i would even go for stock like Mercury.

ok thats good. A list of stocks, that would take me a year just to come up with their IV not few days.

I think investing there are many shades of grey, more than 50 shades. Value traders and investors are just a rough classification but still a useful one. i.e. those that buy moat and those that doesnt etc so you can differentiate it.

But from my understanding, i can be wrong. OTB strategies never really put any mention on intrinsic value. He talks about many ways to skin a cat, as long it is a good cat. He doesnt care about value & price, as long there's a ride, ride we will. If one doesnt look at IV, there's no more 'value' in the strategy.

And thats another conflicting thing. If someone is successful riding the wave here and there, why would he be sitting there and do nothing like what most value investors do?

yea make sense, we can only try to make full use with the information we've got on hand and make decisions. Thanks for that.

Hi Livingston, just seeking your advise.

As you are aware companies listed in bursa isnt like those on NYSE or Nasdaq, the disclosure is crap. You can add the information on quarter and annual report up and all you have is probably 2-3 pages of useful information.

All the solid information lies in the income statement, balance sheet and cash flow statement. Besides that if you really wants to get deeper like how do they win tender, target customers etc, it gets messy from there. Any advice how you dig those info?

So a dollar given to Leno in 2003 will turn into $11.5 after 12 years. CAGR of 22.57%. You are Walter Schloss caliber already. Hopefully I get to learn from you.

2012 - 21.22%
2013 - 43.12%
2014 - (15.76%)
2015 - 32.32%

"Many shall be restored that now are fallen and many shall fall that now are in honor" - Horace