Ks55 if you don't see the current situation coming unfolded, how do you expect you going to see sept and oct will be the 2 hardest months?

People buying SAM for the dividend is up for a rude awakening

Are people smoking weed? Do you think SAM can continue 80% dividend policy? You think with a contract that worth 8 years as if they don't need to invest in working capital and increase assets to handle those contract? They are a manufacturing company, not a software company with close to zero marginal cost.

Another thing i like to add is your EPS estimation. This is everyone preference, some think it is essential to do EPS estimation some doesnt. But i do like to raise something that you need to be careful of. No doubts you are a person looking for undervalued counter, but i do find that when it comes to EPS estimation, your estimation is close to overly optimistic.

I read back your blog post about Supermax back in Aug 2014. You estimate their EPS starting 2Q2014 all the way to 4Q2015 as below

2Q2014 - 4.5cents
3Q2014 - 6
4Q2014 - 7
1Q2015 - 8
2Q2015 - 8
3Q2015 - 8
4Q2015 - 8

So how did it turn out?

2Q2014 - 3.93cents
3Q2014 - 4.09
4Q2014 - 2.95
1Q2015 - 3.67
2Q2015 - 3.64
3Q2015 - Yet to come
4Q2015 - Yet to come

You overestimate EPS on average every quarter by 14% to 119%, and in total your estimate is 33.5cents, while actual EPS is 18.28cents. And that is something you need to be weary of, and i did warn you back then about your EPS estimation. It is good now you can go back and evaluate how did you come up with such a sky high EPS estimation, or else you going to make all the same mistake on Magni, SAM etc.

1. PE15 is something that you assign thinking that it is 'fair' and the market will agree with you, at the end of the day, you have to rely on the market to agree with you.

2. PE15 is anchored on profit/earnings not revenue. And this PE15 and TP thesis can only survive if profit increase in lock step with revenue, which i think is a bit too simplistic or straight forward. Think of it this way, if this is a software company that gets awarded for more contracts, the marginal cost is minimal, because it is software. Now you are looking at a company that manufacture highly precise equipement for aerospace. In order to handle those contracts, well you will need more highly skilled workers, inventories, manufacturing sites, raw materials, all of them goes into working capital and require high capex. Maybe they can improve their margin or maybe not, not you get my point.

1. Protect capital and avoid permanent loss is critical, but this has nothing to do with volatility of the market, as long fundamental remain intact, selling is foolish, unless you found another opportunity than provide lower downside and bigger upside.

2. In the history of sharemarket, the biggest gain and losses normally happens right next to each other, in lumps, meanings the biggest gains are followed by biggest drops. Assume you stay on the sideline during the bear market, and wait until everything clears up, your portfolio return will be way behind the market in the long run. Unless you think you have the best market timing, and i think everyone thinks that they do lol.

3. Looking back the mirror is always easy, you would have convince yourself that had you bought Citigroup stock at $1 at the peak of GFC you would have made 5000% return as of today. But putting yourself at the peak of GFC, when US banks are falling left and right and lehman brothers are collapsing, do you think you would have the balls to buy Citigroup at $1?

4. Cut loss is only possible during the normal market situation, it is like trying to rescue fire because you didn't properly do your homework. Cut loss is possible when there are 'buyers' liquidity', when someone is willing to take the other side of trade. During the height of market panic, who is going to take the other side of your trade, you will cut your loss but at double digits.

Other factors aside, if ones objective is to own the stock for more than 10 years, liquidity doesnt have much effect

His relative outperform will be less if he include dividend paid for ppl holding the broader market

there is no theory to prove that oil and gold has to go down when USD is up. And the theory itself isnt conclusive either

How companies can create value consist of 2 things, growth and ROIC. In this case, both companies have decent ROE, ROIC would have been higher because of the cash. But growth have been slow or flat so it would makes more sense to growth their revenue even at the expense of lower ROE/ROIC.

i dont know what is the fuss about all this bull or bear, if the price is well below intrinsic value with a huge margin of safety, it is always a buy, doesnt matter whether it is bull or bear or polar bear

If you don't know what you are buying and just follow KYY, guess who is the idiot

I wrote this recently on FB, which i think is applicable to this topic

投资，跑步机，赌马与赌球

当某公司的业绩出现高成长时，市场因为业绩好和期望上升而把股价抬高，就有如你在跑步机上加速。要维持速度（业绩继续成长）已不比过去容易，要跑的更快（超越市场期望）更是难上加难。这就是股价飞了后在去追的愚蠢。

赌马为例（聪明的赌）。赌马不是抓会赢的马而是找最有可能超越众望的马。谁都大概知道哪只马会赢，不然庄家怎么会给某些马赔率那么低，某些马那么高。赌球也是一样，为什么曼联的赔率永远那么低？因为曼联强嘛（我不是曼联fans)。如果你整赛季38场都死抓曼联会发财吗？为什么不会？因为市场期望都反换在赔率里面。庄不是笨，市场也不是笨。

那什么股最能超越众望？当然是市场没有期望的股。市场没有期望的股是怎样的股？应该是那些没人要的，不会动的，没volume的，业绩差的，大家看了都怕的。当然不是指买烂马，烂股你就会发财，而是说冷股比热股更能超越众望。也就是说冷股比热股的风险来的低，都没期望了还有风险吗？超人做超事，不特别（市场期望内）。超人做不到超事（市场期望破灭，股价暴跌）。凡人做超事（超越众望，股价暴飞）。

明白了吗？你可以逆势投资了

Put it this way, long term investing needs two ingredients. 1. Compounding 2. Cheapness.

By right yes, it is ok to buy great companies at a fair price, but you have to define what is 'fair'. If you look at nifty-fifty stocks where everyone go crazy for companies like Xerox, GE etc back in the 70s, they are quality, but if you bought at those price it will take you 20-30 years to recoup your investment and make a decent return. Decent return i mean return similar to broad index.

And another thing about quality stocks such as digi, GAB, Nestle, Dlady. They are considered quality because of their strong track record, therefore they are considered 'large cap' stocks in Malaysia. Their ability to grow in the future is likely to be slow, perhaps close to Malaysia GDP growth rate, unless they have overseas operation. In that sense, if you buy quality companies at a 'fair' price, you need to make sure it is 'fair' and need to make sure the company will continue to do well 10-15 years from now. Any misstep it is very likely you are going to lag behind broad index return.

Conclusion is, what is your desired return? If you are asking for 10%, which is the CAGR return for KLCI for past 30 years, it makes no sense to invest in quality stocks. If you are asking for 15-20%, you have to make sure those quality stocks can deliver that return to you in the long run.

FLBHD generate FCF of $15mil per year. How much are you willing to pay for a business that generate $15mil a year? They dont grow very fast. But you are paying about 6x FCF for it at the current Enterprise value of $96mil. Pretty cheap i think. Catalyst is mgt is doing 10% share buyback, Low PE + share buyback = perfect move to create shareholder value.

why people still love to look at PE, i dont understand

I think if you extrapolate then perhaps it is correct it is sunset business, young generation doesn't subscribe to newspapers anymore or less likely, whether they will do it when they gets old who knows.

The investment can be a successful ones if:

1. These 'sunset' expectation has totally been priced in or overpriced in, which present a relatively low downside risk, but potential high probability upside surprise.

2. The 'sun' actually 'set' slower than many thought, allowing mediac to continue to throw off cash and transition their business away from news print, which they are already doing.

i like it when everyone is so pessimistic, make it sounds like a road-kill. A DCF with 0% growth and 10% discount rate will get you $0.60 using EPS of 0.06, which is consider really low compare to the past 4-5 years EPS. ROE accelerating. Throwing oof FCF 130-180 million each year.

but both being trading at historical PE high, won't that be the same to say PRLEXUS is overvalued, while MAGNI is fair but not undervalued?

A person that has invest in prlexus, 99% of the time they would look at Magni too, so now the question is, why people think Prlexus is worth current PE but not Magni? Why do they discount Magni compare to Prlexus?

Outstanding shares has nothing to do with ROE. Then you have to explain why market decide to give prlexus higher valuation compare to magni?

ok fair enough, even though a PE of 11 is what you consider as 'fair'. what the market considered a fair PE is a different matter, and thats the key

And i dont get the point of comparing revenue and profit of each other? Obvious magni is a bigger company thats why both numbers are bigger, but does that mean it is better? Magni has a lower ROE compare to PRlexus though.

so you just slap at 6.90 tp without coming out with a multiples?

it is always easy looking backwards

Comparing Xinghe to Apple seems like a stretch. Unless Xinghe can earn ROE above cost of capital in the long term, or else long term investors should demand all earnings be distributed and liquidate the business.

Companies that never pay dividend is only an 'ideology'. There will be a point in a company life stage where distributing profits is the best option. And there will be, ultimately the best run company that generate great high ROE - the ultimate reason to reinvest all profits, attract competitions and drive down ROE. And when 1. Reinvestment is unable to generate return better than cost of capital, being driven down by competition 2. Share price is overvalued to consider share buyback, it is best to distribute dividend.

If you ask me comparing Xinghe to GAB, it is obvious which company is better and well run, although i shouldnt compare them because of different industries. And GAB is distribution large portion of earnings precisely because there are no reinvestment opportunities. GAB can start buying land and go into property development like every other 100 companies, but you call that great management for knowing what not to do.

IF you dont learn skills but rely on luck, cut loss only mean killing yourself slowly. Slow suicide

If you can make money in the long term while minimising permanent loss of capital using coconut, fengshui, horoscope, zodiac or tarot then go ahead. But to say FA alone doesn't work, you are saying Warren Buffett, Guy Spier, Mohnish Pabrai, Peter Lynch, Walter Schloss, Howard Marks, Joel Greenblatt, David Einhorn, Bill Ackman, Eddie Lampert, management of Sequoia Fund, Tweedy Browne, Ruane Cunniff that they are all being lucky huh?

Maybe they are, Tweedy Browne has published an empirical studies titled "What Has Worked in Investing", please do publish your empirical studies and analysis to disprove their research. Your past ROI results are not empirical studies, it only proves that you are doing well, well maybe. I can't comment because process is more important than results. You might be the lucky gambler that get blackjack 5 years in a row, or an unlucky master than despite skills, fail to beat the market 5 years in a row. But please do use historical market data to prove FA doesn't work.

This is not MU vs Arsenal, it's not a fan club, and im not siding anyone but you better have something to back you up for your statement because there are overwhelming studies and research stacked against you when you say 'FA alone doesn't work'.

There is nothing wrong using hybrid of both methods, Michael Burry used a hybrid investing style and he saw GFC coming all the way back in 2005, but sorry not through TA.

nothing wrong with qualitative, but you have to make sure they really have one. TBH, don't use PE to get your intrinsic value

i dont clamour high end finance, just that i dont see how qualitative side of this business can make me wanna pay at this price, therefore i focus on quantitative side which has a higher probability of being right

well the answer is obvious, the question is has the current price already reflected the expected future EPS, if it hasn't, you need to tell me what is the intrinsic value of VS at this point in time

"SO THE FACT IS THERE ARE DIFFERING VALUES OF A PARTICULAR COMPANY at one point in time...These VALUES are determined from scoreboard info where the eyes can easily glue onto...Annual Reports, Quarterly Reports.."

So you are saying before 2014, the intrinsic value of VS is $1.50 because AR & QR told you so and suddenly AR & QR tell you now the intrinsic value suppose to be above $4.50?

Or before 2014 after reading AR & QR you already know VS actually worth more than $4.50 not $1.50?

1. If 2 years ago you didnt see VS will have a jump on their EPS today, how are you going to tell it will continue 2 years from today?

2. Internal & External funds to enhance business model. Did their business model changed? From my understanding they're merely expanding existing business model, not shifting. And you are welcome to explain how VS is going to earn ROE above cost of capital because they have not done so for the past decade.

Charity is good but KYY, in investing it isnt picking your favourite soccer team, saying someone is stupid doesnt make you intelligent, VS price shooting up doesnt mean your investment thesis is correct in the short term. Rather you should be asking what is the rational behind that people disagree with your investment thesis? Am i overconfident? Are the facts being questioned valid? Whats my edge in this investment over others?

But then again, since you will be selling once the counter profit has drop for 2 consecutive quarter, quality of the stock is less of importance to you, but more like riding on the trend where all speculators follows, just that you have the ability to do it faster than majority of them. However do be aware that sometimes it can be hard to find out the market expectation of certain counter and if the market has already 'find out' the potential earning growth of the counter, perhaps before you did and you assume you are the first! and thus 'priced in' into current share price. Case in point IFA where quarter report shows tremendous growth and yet share price got decimated, precisely because market expectation are so high and share price has reflected that expectation. The magnitude of going down is way too large than going up. Large downside, minimal upside.

An investment can be attractive at certain price but absurd at another price. Means even low ROE can be attractive investment if price is cheap enough. And this is for the investors.

As for management, the only tools that measures how well they run their company, create value for shareholders, create profitability in the long term is ROE/ROIC, nothing else. Too many managements engage in mindlessly following their competitors, acquisition at any price in the name of 'synergy cost-savings' purpose when the trend comes. And few years later, engage in spin-off in the name of 'unlocking' value.

Ask CEOs in airlines and auto carmakers, how many are willing to admit they never really create value for shareholders for the past decade because ROE is constantly below cost of capital. Not many would admit except recently Fiat/Chrysler CEO.

Business processes is absolutely important to figure out the competitive advantage of a company (i.e economies of scale) but the essence is still in ROE. Unless you are convinced the company has done something different that can increase the ROE.

if you make investment relying on 'may turn out higher in the future' & at this price you are really setting yourself up for alot of speculation and little of fundamentals.

To preserve capital you should be thinking 'may turn out to be lower in the future' and demand margin of safety.

The acquisition can increase ROE if the price being paid is cheap and the co being acquired has a higher ROE than VS itself. But i never really see any management that are so wise to achieve both.

additional note: Keurig or any company would not put themselves at risk by relying on 1 supplier, therefore they would already have 2-3 sub manufacturers ready on standby to ramp up production when and where required.

Manufacturing doesnt really have any product risk as long defects stay within the acceptable standard deviation. If you are talking about critical products like medical or military then perhaps. Coffee machine, here's your warranty and get it fixed.

Well then you have to measure the durability of 'captured' and factor that value into the price. To me, loyalty has little meaning when other manufacturers are knocking at your customers door promising 10-20% lower cost because their geography advantage, raw material advantage, higher tech advantage etc.

You know why IT companies like Oracle or SAP make outrageous profit margins? because of switching cost, switching your data from one IT supplier to another is so painful and jeopardize day to day operations most companies rather stay with the same provider.

For Keurig, any manufacturer can send as many sample machine keurig wants to establish their own reputation. Keurig can test those machines until they are confident to give them contract with small orders and slowly increasing it. There are no switching cost, no risk on product quality.

Not doomsday for VS, just saying what VS can do, everyone can do.

1. 10% discount rate is just a 'standard' way without going into too much details, but it isnt considered high. When you compare to bank rates or EPF rates, you have to factor in liquidity premium, risk premium etc. People willing to accept lower return in bank rates because of the 'safety'. For someone to accept equity investment, rates have to be higher to entice them.

2. Company borrowing future money to invest is no harm if ROE is higher than cost of capital, which isnt the case.

3. PE do not differentiate a company with net cash of 300mil or net debt of 300mil. Therefore using 'PE' and '11' the number to derive your fair value price will end up very wrong.

4. New plants, machineries takes time to come online to meet demand and through efficiency eventually ROE will rise. The burning question is, efficiency/cost savings to who? Keurig or VS?

Keurig "Install this and that, need to meet demand and improve efficiency. If you dont pass the cost savings to us, there are plenty of manufacturers queuing up willing to install new machines and build keurig machine for us."

VS "Yes sure, all savings passed to Keurig". ROE remain the same.

You know the ending, if VS can retain the cost saving/efficiency to themselves yes ROE will improve, can they do that? When other manufacturers can buy the same machines, have the same technology and tell Keurig they can manufacture for them at a lower cost by sacrificing margin?

So it comes down to - what competitive advantage does VS have?

obviously VS didnt have the capability to generate higher return than WACC

lets hope everyone's enthusiasm follows an upward curve, the more it drops the more attractive it is; but not follow a U curve, if it reaches below 1.00, you will dump it like no tomorrow

i looked at the fundamental and i see many people so hype and high, even 1000% profit rise is not enough to satisfy them hence the drop, so imagine if profit failed to rise in that magnitude, you will know what happen to the price by then.

sunztzhe, of course i know you have make alot money, IFC, MYEG people told me that too, but that has nothing to do that your valuation is correct right? Process triumph Results

besides the 32% is real, i didnt not made it up, if I forward looking in 2004, 32% is what im getting now, maybe slightly more if you include dividend.

sunztzhe "however if you are looking for higher capital appreciation, VS maybe a good candidate. "

So how do you justify 32% capital appreciation over the past 10 years?

now everyone realize what it means by 'expectation priced in'. Everyone's expectation is so hype and high that even a 1000% increase in profit fails to lift the price.

I know what you will say, this time it is different...

Sorry typo should be 'you dont need to be precise to know 6-7% ROE in long term will grow your way to bankruptcy'. VS revenue has grow by 300% since 2006, but you have to ask why share price only increase by 32% over past 10 years, if you really love growth.

2006-2014 Operation cash flow on average is around 50mil, capex is very similar, resulting in average FCF for past 8 years is only 4 mil. Look at ROE, besides 2007 & 2008 super high ROE, whatever reason, 2009-2014 ROE are all below 10%. So you have a company with patchy dividend record, reinvesting 80-90% of earnings back into business that generate a return of below 10%. From cost of capital point of view, bad move. From an opportunity cost point of view, you can find way many better business with good value (relative to price) to invest in.

Not sure how you define management competence, considered the share price has only increase 32% for past 10 years, you need to ask why, and that is on top of increase in outstanding shares. 10 years is a long enough judgement for management competence because it would have reflected in the share price.

Everyone talks about strategy this and that, just like IFC wants to conquer China, people pull out how many developers there are in China and look at those numbers. People just think like IFC owns everything, like no one in China or anywhere in Asia or software companies around the world will bother to compete with IFC. What makes IFC different, what makes VS different, is VS the only company that can make Keurig in this world?

FCF is definitely not the best measure, if consider like Amazon, they are plowing all the earnings back in capex to expand their market shares or competitive advantage.

For VS to justify that, you have to trust they have the capability to do the same in increasing their competitive advantage, because to me, manufacturing in the long term there is none.

As for ROE, 6-7% do sounds ok, but you do need to calculate the precise cost of capital to know that in the long term, it will grow itself to bankrupt.

I see your potential to be a good investor, so it is just a guidance. Use it as a filter, but not as something that determine intrinsic value.

1. PE is just a shorthand, can be easily distorted. 2 companies can have exactly same PE, one loaded with debts, another doesnt, PE cant tell you, but their EV enterprise value will be very different. Then which one would you choose, of course the one without debt, because relatively, it is cheaper, it can generate the same earnings without using debts.

2. PE shouldnt be use to compare with different industry because industry structure is very different.

2. ROE effects PE. Gtronic, SKP can command such a high PE partly because of their ROE (another part future expectation), unless you have a certain degree of confidence Frontkn can achieve those ROE level in near term, PE simple would not reach there.

My opinion is going to be based on what you wrote, i dont have a clue what Frontkn does except theyre in semi conductor. If theyre in semi conductor, economic of scale is going to be something you want to research, google minimum efficient scale. Semi conductor industry is high capex, without economic of scale their cost per unit will be way higher than competitors. If competitors decided to bring the price down by sacrificing profit margin, they will not survive because their cost are higher. Example if their cost per unit is RM5, competitors RM4, selling price $6. If competitors lower price to RM5, they will still earn RM1, Frontkn will breakeven. Any lower it will bleed.

Example hartalega, they have the highest margin in glove industry, if they decided to cut margin, other glovesmaker like supermax, topglove will bleed, just that harta choose not to. Altho now as competition get intense, their margin are being squeezed as well.

Last thing, the stock has been neglected mainly because of the low ROE i believe. Cost of capital would be somewhere near 10%, the company hasnt been able to earn ROE of above 10% for more than 6 years. If this continue, the company is going to grow their way to bankrupt and destroy every shareholder value. Then again unless you have a great knowledge in semi conductor industry and confident ROE would rise above cost of capital, think and rethink the downside.

Yistock, never never ever use PE anymore

chyokh someone forgot to tell you everyone in the party wants to leave before it is over, just that the clock at the party has no hands lol