ok lets wait for Kcchongnz to add in lol.

I flipped to P.56 of Deep Value. The only thing mentioned about EV on that page is:

"Enterprise value is the cost an acquirer must pay to take over a company in its entirety. It comprises the full market capitalization, including any preferred stock; any debt, which an acquirer must service; any minority interests; and adjusts for excess cash, which an acquirer can redeploy."

From my understanding, what Toby means by excess cash is - Any cash not required by day to day working operation. So in your example, you are correct, that 20mil is not considered as 'excess' if the business need all of it to meet the current liabilities obligation.

okay, in summary your 'Excess cash" calculation is purely Current Assets - Current Liabilities. aka net working capital.

since your Excess cash = net working capital so can be express as

EV = Market Capitalization +Interest Bearing Debts +Preferred Share Capital + Minority Interest - Net working capital

Don't you think this is weird? Interest bearing debts include long and short term borrowings, but you include all the borrowings again when you calculate your 'excess cash' aka net working capital.

I revisit Joel Greenblatt's book and Tobie Carlisle http://acquirersmultiple.com/faq/. I could not find any mention of that they have used any refined EV to derive their number, especially adjust 'excess cash'. Will be glad if you can enlighten me.

You mention the RM160 mil Scientex has as 'excess cash', which is net working capital, can be used to pay dividend, share buy back etc. I totally lose it there too. In the event if the company liquidate everything, pay off liabilities and yes they will be excess cash, but how can you use net working capital to pay dividend? Please enlighten me on this too.

From my understanding, excess cash in magic formula refers to any extra cash, in the form of 'Cash & bank balance' that is not required by day to day operation. Example Scientex has 90mil in cash, they might need 10% of those to meet daily cash flow requirement, so extra cash will be 81 mil. But generally ppl just take 100% of it.

This is the formula for EV = market value of common stock + market value of preferred equity + market value of debt + minority interest - cash and investments.

Base on Cenbond Annual Report 2015
http://disclosure.bursamalaysia.com/FileAccess/apbursaweb/download?id=171498&name=EA_DS_ATTACHMENTS

EV = 161 mil (Market cap) + 0.74 mil (Debt) - 95 mil (Cash) = 66 mil

Your EV for Tguan is even worse. Actual EV is 171 mil not 18 mil.

After observing these 2 companies, my conclusion is you included a % of inventories and receivables as your 'excess cash'. I think you really followed Graham to the T. Nothing wrong with it, if they indeed liquidate their companies, you can get some from selling those inventories. But that is liquidation value, not enterprise value. Same goes for your analysis for Yi-Lai. And if you going to calculate liquidation value, you have to include ALL LIABILITIES.

Another thing for you to think about is, if you consider inventories & receivables as 'excess cash', would you consider investing in Lionind? Their NTA stands at RM3.80 compare to share price of 60 cents, yes they probably have to sell their steel at scrap value, but how about plastic packaging? Isn't they are the same?

i never said im better than u, but just pointing up some areas for you to rethink. Weather change and Superln business, it is obvious the link is very very weak. GOB, developer need landbank to develop to have future earnings, so if GOB continue selling lands and project, is there any other area where they can buy land with better value? And they definitely need the cash to buy it rather than distribute it.

'如果用投资的态度去想，注定给他们吃' - I havent get eaten so far

fayetan, so you're saying if i had buy at that time i would have made 15-20%, does that profit means your prediction is accurate or because it just happen to head towards the direction you want, which is up? they are very different thing.

1. On one side you analyze the sales of Damen by GOB and gave a TP of 71 cents, you came up with all the analysis and immediate catalyse etc. To me I would have presume you want hold it until it hits 71cents. But here you are telling me, had i sell it at the peak, i would have make 15-20%, contradicting no?

2. Just a comment on your GOB immediate catalyst. Why would a property developer sell one of their property and decide to give special dividend from that sales? isn't that is an obvious suicide?

3. Weather change - I presume you are talking about global warming, is has been happening for the past 10 years, so if your write up is valid that they benefit from weather change, how come you will be losing money had you been holding Superln for the past 10 years until this Feb 2015? Their share price hasnt gone anywhere. Most of the gain happens after March.

4. Weather change 2 - If your weather change write up is valid, why did you wait to invest Superln only after the price has jumped for 190%. Did you get excited because the weather change benefit Superln, or you are excited because the price has jump so much, thus you conclude that weather change benefit them?

you mention GOB will hit 71sen by end of Sept, but until now it havent. So will this prediction more accurate?

Angie let's bet RM10, i say the EV isnt negative

I find people that says millionaires can make money than normal investors because they have millions is the most dumb thing ever heard.

Good write up by the way but

1. Yi-lai market cap is around 134mil. How did their cash end up more than 134mil to give it a negative EV?

2. No doubt base on EV/EBIT it is cheap. But when you look at past 9 years cash level, they have always been sitting at 20-60mil range, Yi-Lai share price during this period ranging between $0.60-1.20. Which means cash has always been around 50% or more of the market cap. So you need to ask what will make the price jump? Doesn't look like their cash will help.

Yi-lai has good positive cash flow for past 9 years, only one negative. But net income has been flat as well, not growing. Unless you have a strong case that net income can start to grow, relying purely on the cash level as an investment case is dangerous. It probably have very limited downside, but can be a trap as well.

I can answer Superb99, Saschi & Grace Ly concern in one go with one word - Market Expectation

Name me some of the hottest counter in last 1 year, IFC, Sign, Ecoworld, MYEG, VS etc. What do they all have in common? Great wonderful future. IFC conquering China, Ecoworld under Datuk Lee with so much landbank, VS got Keurig and USD tailwind etc.

Great future = Great expectation = Bid up price = No room for error

When price has gone up so much, the market is already expecting great results. Just like you will expect Superman to fly to the top of a building, not taking lift or escalator. These companies become 'Superman' already because of the price run up. Everyone have 'high' hopes. Better don't disappoint everyone. If you score 99% in exam all the time, you only have 1% (100% mark) to impress people, 98% (0-97% marks) to disappoint people.

So what happen when suddenly you see Superman cannot fly but can only swing like Spiderman? Still better than taking lift, but you are disappointed right? Same for company share price.

IFC latest quarter report great results, VS reports great results too, why didnt the price go up? Market expectation already priced in and market is expecting MORE than what is reported. You always score 99% mark, now you still score 90%, which is very very good, but market is disappointed!

So let's reverse this. If you see a normal 50 years old uncle suddenly can fly, you are very impressed right. WOW uncle can fly. Because you didnt see it coming. A kid that always score 20% mark suddenly do 75% mark.

Same theory, those companies with shit future, oil and gas for example, or money losing companies, suddenly reported strong profits for few quarters, their share price will jump several fold.

Lesson: The lesson is when you buy something at a certain price, you better know what is the market expectation. If market has high expectation, you better make sure the company can deliver, because you have no room for error.

The higher the price go - Harder to impress market, easier to disappoint market.
Low upside (Low return), high downside (High risk)
From Superman to uncle

The lower the price go - Easier to impress market, harder to disappoint market.
High upside (High return), low downside (Low risk)
From uncle to Superman

Another lesson: If this is so obvious, why everyone want to buy those stocks when the price keep going up and dump those keep going down? - Extrapolate.

IF I give you a sequence of number. 1, 3, 4, 7, 11. What will be the next number, of course you will say something higher than 11. Same if I give you a sequence of number going down, you will EXTRAPOLATE it to go down indefinitely.

People think it is 'safe' to buy when something is going up and 'risky' when something is going down. But it is the opposite.

Answering your question Saachi. Counter goes up and down because of investor psychology. If you can learn how to control your emotion, when people make mistake because of fear or greed, you can take advantage by buying/selling from them.

I hope this helps.

167% yoy gain, where got down...hmmmm....

Saschi, you need conviction in investing. He is just providing his knowledge for people to think, a lot of people doesn't think here, they follow the crowd. That is why you emotion get affected easily.

Go meditate, it helps

Grace Ly, im surprised you believe that good quarter means price will go up. Are you new?

Superb99, sure i know currency can increase profit, so people say that before the price started to run, and one year later, 179% gain later, people still say currency gain will increase profit. But obviously the person that buy before the 179% gain has a very different ending from the one buying now.

Currency can increase VS profit is a fact, has those 'extra gain' being included in the share price? That is the question for you to answer. It is like wah BMW is so so good, but buying BMW at $200k and $1 million is a very different thing.

Companies always rave about how good their future is, but no one ever ask - What is the right price to pay?

I find it funny when people use currency to justify buying a counter. All investors know about this, the 'extra' future forex gain has already been priced into the share price, and yet ppl continue to use silly currency justification.

Another even more funny one is how people say how cheap VS is right now, so VS isnt 'cheap' when the price is RM2-3 before split, suddenly some currency thing and business expansion suddenly everyone 'trust' the management, company become 'reliable', counter become 'good'.

omg my heart is sinful, give me your account number, ill donate u

its true no one deserve to, but every year many ppl 'died' in share market, majority, its a fact.

if someone panic because of comments, that means theyre buying buta buta, they deserve to die.

yalor, if you look at RSI, what's the point of saying how reliable the company is, not like you want to hold for 10 years

kerplunj, since it is a good share and reliable company, if RSI is 50-100, what are you going to do?

anyone surprised it keeps going down? lol

Everyone this is how people set TP, when stock A go from $0.50 to $1, TP is $1.50. When stock A go from $1.50 to $1, their TP is $0.50. One word - Extrapolate. And it is stupid.

Remember those that give DKSH TP of $10? How about those that give IFC TP of $2. Maybe they forgot to inform everyone, that is our TP for year 2020.

anyone surprised it is down? lol

So is anyone surprised why VS didn't fly today?

rohank71, i like to discuss few points you raised, im neutral on SAM

1. Why do you consider illiquid stock as a negatives? Unless you personally wanted to invest a large sum in SAM which will potentially push up the share price. If business performs well, share price shall reflect it in the long run, no matter how illiquid it is.

2. Giving out dividends doesnt mean it is always a positive things. Comes down to how the management allocate their capitals in the most effective ways. If they can reinvest all earnings and earn >20% ROE, that would make the decision to issue dividend looks bad, in contract, if the mgt can't reinvest all earnings due to reasons like business throwing off too much FCF that theyre unable to reinvest 100% and the share price isnt undervalued to warrant buyback, then issue dividend would make sense.

I like to disagree, buying on cheapness means entry price is the most important of all things, if you bought something cheap with a great margin of safety, that is already 50% work done, selling price doesnt matter much

if you know what you are doing, it is catching gold coins, if you dont, it is catching knife

I learnt to take profit that if noticed the market sentiment is weaker -> if you didnt see oil slump coming. how will you know when market sentiment is weaker?

风险和回酬成正比, totaly disagree

Past 10 years CAGR at 8.4%, i know anything can happen, but to hit a 15 years CAGR of 15%, they need to go from currently $2.24 to $8.14 in 5 years. That is 29.44% per year. Given their past track record, isnt that a bit of a stretch too much?

You need to ask, if everyone cut loss just like you, who is the loser?

RicheHo, by inverting this, wont you agree, since this deal looks so good for Inari investor, is it fair to say Amerton shareholders are the 'loser' in this for selling the whole business for so much less? And the minority shareholders in Amerton has been 'sell short'?

If you are talking about yet to be developed lands then yea, but you included already completed projects, how does that generate extra CF?

Why would revalued properties contribute to an increase in intrinsic value? Revalued properties doesnt generate extra cash flow.

I have slight disagreement with your view on K1. At the peak of $0.65, K1 has a market cap of close to RM300 mil. And add any 4 quarters of profit up, highest is RM11 mil. How does one justify a company that generate 11 mil has the right for a RM300 mil market cap? There is simply no fundamentals there. Yea they make money but still not going to worth that much.

Now they have market cap of Rm100 mil, EV 64mil, that makes more sense.

"If when you say whiskey you mean the devil's brew, the poison scourge, the bloody monster, that defiles innocence, dethrones reason, destroys the home, creates misery and poverty, yea, literally takes the bread from the mouths of little children; if you mean the evil drink that topples the Christian man and woman from the pinnacle of righteous, gracious living into the bottomless pit of degradation, and despair, and shame and helplessness, and hopelessness, then certainly I am against it.

But, if when you say whiskey you mean the oil of conversation, the philosophic wine, the ale that is consumed when good fellows get together, that puts a song in their hearts and laughter on their lips, and the warm glow of contentment in their eyes; if you mean Christmas cheer; if you mean the stimulating drink that puts the spring in the old gentleman's step on a frosty, crispy morning; if you mean the drink which enables a man to magnify his joy, and his happiness, and to forget, if only for a little while, life's great tragedies, and heartaches, and sorrows; if you mean that drink, the sale of which pours into our treasuries untold millions of dollars, which are used to provide tender care for our little crippled children, our blind, our deaf, our dumb, our pitiful aged and infirm; to build highways and hospitals and schools, then certainly I am for it." - Noah S. Sweat

Depends how you want to put it, you can always find a reason when you want it.

since when his portfolio went from momentum to value lol

so what strategy are you reconsidering?

Put it simply, in the end investing requires judgement. Thus it will take a long time to prove who is right or wrong, consider you can prove it. But i just find that many people lack a dose of skepticism in them. Many people takes thing at face value. They dont ask, has this positive news been priced into the share price? Do I have any edge over others? Is there any information that i know but not available to others? Everytime when there is a news appear, they have to ask "Dont anyone know that?". If people would have ask such simple question, they wouldnt have got stuck in IFC at the peak price.

Everyone single person that read this comment wants to OUTPERFORM the market. But I can bet 99% people doesn't know what is the long term average return of KLCI, so they never outperform. And also, how are you going to outperform the market when you are part of the market, chasing things everyone is chasing?

Well admin did not warn me, so i think my conversation is appropriate and we are all learning

Hi OTB thanks for the reply. Alright if you say you share all of your strategies and never hold back then I shall take your word for that, and good on you.

I can be wrong since I never look at your strategies but I agree with the points you raise about the problems other investors following you, they tend to 'take shortcut' on your strategies, and I presume it might be due to the complexity of your strategy.

And if you ask me why people 'take shortcut', it can be a combination of complexity, skills, time etc i.e. time commitment on work/family to fully learn the system. So from my point of view, to the average investors, the groundwork always starts with - conservatism, aka better safe than wrong. Your strategy might be 'conservative', but when people take shortcut, i think that turns your strategy into 'risky'.

You, KYY or any investor will agree with me, in investing, rule 1 is never lose money. This is universal. No matter what strategy you use. That is why value investors here have been emphasizing margin of safety and buy on cheapness as the core concept for average investors to follow, and hopefully they dont take shortcut. This runs in opposite direction of your strategy, which does not emphasize the importance of those two, and in particular knowing the intrinsic value of a stock. So this bring us to the 2nd concept - long investing horizon.

Long investing horizon, or a buy and hold strategy, again runs in opposite direction to your OTBGS (OTB's grand strategy). But let me explain why we recommend long investing horizon to average investors. For all active investors, as in anyone that decides not to put their money in index funds but choose to pick stocks themselves, and obviously this group of investors objective is to outperform the market (KLCI). To outperform the market, you need 1. Better insight 2. Reduce error, either one or combination of both. As the name implies, average investor, that means they don’t have better insight, it is capped & limited. Unless they spend 12 hours a day like you, then they won't be called average investors anymore. So the focus is on point 2, reduce error.

Buy and hold strategy promotes inactivity, that is the central concept to reduce error. The less decision you make, the less mistake you make, that is the core concept. And another reasoning to buy and hold is that the chance of losing money drops tremendously when you hold for the long term, well unless you hold crappy stocks that is. And you statement agree that most investors don’t have the discipline or emotional intelligence to follow through your strategy, thus the greater importance to highlight a buy and hold strategy.

And going back to margin of safety and cheapness. For average investors to implement buy & hold and to achieve a satisfactory return in the long term, they must understand the concept of margin of safety and buying for cheapness.

The central concept in value investing is conservatism. And that is achieved through margin of safety + cheapness + buy & hold + long term horizon. Buying something cheap with margin of safety allow average investors to reduce their risk and increase the probability of making good return at the same time in the long term. Buy & hold and long term horizon allow average investors to avoid making unnecessary errors and again, reduce the risk of losing their capital. When investors buy something good at a cheap price and hold it in the long term, something wonderful will happen.

The issue here isn't about who is good or bad. The problem isn't on your strategy, the biggest problem is average investors taking your strategy, use short-cut, and I won't be surprise some will even add their own half-baked strategy and bake it into you strategy, that is where the problem lies.

Zarcan, since OTB is willing to help, just ask him directly, but make sure he tells you when he sells too. Also i find it very conflicting. If OTB let you know when he sell. He will have to tell you AFTER he sell, because if he let you sell first, where is his profit. But if he tells you AFTER he sell, where is your profit? Very very conflicting.

Let's continue, so OTB i get your point here what you are trying to proof, you want to prove that who cares what you use, tarot, astrology, growth, value etc as long you make money, money talks right.

First of all, as long as ive been following i3 forum no one ever says there is only one way to make money, definitely not from value investors. I never heard 'it is either value investing way or the highway', nope, no one ever said that, maybe i missed it.

But you need to understand who are reading your comments. People in this forums are not analysts, they are students, blue collar, white collars, mom and neighbours. They are average investors.

To them your are saying: 'hey as long as i make money, that's all that matters right'.

You did not tell them how many years did you spend refining your trading strategies, how many thousands of cut loss uve made throughout the decades, how many countless hours of back-testing your strategies and how many years you have put into to 'bulletproof' your strategy. And i absolutely (200%) believe you will never reveal your full strategies even if someone become your student, that is like Coca-cola giving away their secret formula.

Yea i know you have share a few vague concepts how you use FA and TA signals to buy and sell, but put it simply, it is called momentum trading. But you see you never fully teach your concept. So what happens? Everyone saw your competition results and adore you and inspire to be like you. But little do they know the 99% of your hard work, they only see your 1% glory. And since you never give them any concept to anchor on, to me it is just like a hopeless hope.

Conclusion is, you proved your point but besides inspiring people to become just like you one day, I am not quite sure there is anything more value given beyond that.

there is no data to justify, im just telling you this is the market expectation right now. Also please reread, terminal is 10 years after not 5. Of course you can input any number you think you like, pluck from the sky, how about terminal growth rate of 10% - I know 10% sounds too little, you must be thinking at least 50%, but wait, 10% will give you target price of $58.69 already. my goodness, 5800% upside, throw everything you can into GHL.

I forgot to tell you, technology that change the world, name you a few, radio, television, automobile, airplane, internet, yes they do change the world, but im not so sure if investors actually make money.

Malaysia is an untapped market tells you nothing about how a company will make money. Many months ago, everyone says IFC have such a big potential going into China, imagine how many property developers in China will use their software, you are talking billions of revenue, but that say nothing about how a company makes money. I can give you $100billion untapped market, and i give you 1000 competitors, and ill let you guess who wins.

Mr Market is Mr Right because you think you can time the market. The winner is of course the one that makes money, but you forgot to add - in the long run. The market is dynamic, cause and effect relationship is never clear, just because you make money in the short run, does that mean you are lucky, or are you skillful? Far from it, it doesnt prove anything at all.

You are absolutely correct there is no right and wrong the market as long you make money, but the key question is have you practice the art of making money by taking substantial risk or minimal risk. Return is always clear and visible, but the underlying risk is always obscure and unknown until things goes south.

Let us do a easy DCF calculation. Using terminal growth rate of 5%, discount rate of 10%. At current price of $1.02, GHL needs to grow at 26% every year for the next 10 years to justify this buying price. For analyst TP of 1.40, GHL need to grow at 30% for the next 10 years to justify it.

Now go and figure if that make sense

that is something interesting, recurring income is great, but generally businessman would hunt for higher margin/ROE sector, that is why so many companies jump into property development. But in contract he decides to jump from construction/property development into plantations which is high capex, low margin and low ROE.

find it interesting that people here can shout out how much machine VS has produce/can produce and continue to shout the price will reach $10 or beyond. But when you ask them what is the intrinsic value of VS, no one know what you are talking about

You have been warned. If you enter right now, the probability of loss has already exceeded the probability of gain, you are treading with no margin of safety. Not going to say it will follow the path of IFC, but if it continues going up, it will be.