Chris, one of my criteria before investing in a company is its earning quality. FY 2012 and FY 2013 showed profit after tax of 4.35 mil and 5.16 mil respectively. However, its net operating cash flow for the same periods showed negative cash flow of (1.60) mil and (4.89) mil.

One item in the cash flow statement stick up like a sore thumb is the increased in inventories of 14.65 mil in FY 2012 and 9.56 mil in FY 2013 which have negative impact on the operating cash balance.

However, the net movement in the inventories shown in the balance sheet showed a net increased in inventories of 2.63 mil in FY 2012 and net decreased of 1.71 mil in FY 2013. These figures diverged from those reporting in the cash flow statement.

Since the report did not offer explanation, i have a bit of doubt on the quality of the reported earnings in 2012 and 2013.

Chris, in your personal assessment. Did GHL perform better in 2012 and 2013 compared to previous years? Do you think the management showed transparency in reporting its financial results?

No doubt Mr Koon intention is noble but most of the readers of his blog are still learning. In order to stop all these controversies, i suggest Mr Koon goes a step further by being more transparent by starting a portfolio of said RM 10 mil (for simplicity).

In respect of his recommendations, he will announce his investment quantum as he deems appropriate relative to his portfolio. Any further buying and selling will be accompanied by reasons. The return on capital will include realized and unrealized capital gain plus dividend received from time to time. He can choose to reinvest his return or leave it at the bank to earn the normal interest income.

In this manner, people like arv18 can appreciate more and learn the final point of investment from the Kung Fu Master.

With so many financial experts around him, Mr Koon will definitely can come up with a model portfolio for this purpose.

It is only a suggestion, it is still Mr Koon decision whether he wants to continue his generosity to share his wisdom to teach us how to fish.

Luckily Mr Koon did not throw out a phrase commonly used by elder to the youngster "我食盐多过你食米”. Literally it means "I eat salt more than you eat rice", it is used to belittle someone who is younger or less experience.

I hope Mr Koon will get over with his emotion and continue to share with us his wisdom and big picture in the corporate world.

First of all, I would like to clarify that I have benefited earlier posting by Mr Koon on Coastal Contract. I have made my own analysis at that time and agreed with Mr Koon assessment that the company has the capability and is thriving in a growing industry.

Though Mudajaya decision to develop a power plant in India faced cost overrun and delayed, it is not the end of the road for the company. It is still financially strong and ready to sprint back once it is able to replenish its order books.

Mr Market will re-rate the company and I am sure those who have the patience to wait and make monies will come back and thank Mr Koon for his recommendation.

Likewise, in the world of investment, there is no such thing as 100% guarantee profit. “If you don’t make mistake then you are not human.”

You must have the conviction in your own assessment and prepare to face the downside, the question is how much you can afford and for how long.
If your risk appetite is low and can’t afford to loose, then better cut loss. If your conviction is strong, you may even accumulate more to average down your costs.

An entrepreneur will always find ways to use other people monies (OPM) and other people time (OPT) to enhance his income. KC Chong and the rest make monies using OPM and Mr Koon use OPT to enhance his wealth. It’s a Win-Win situation, why not? I don’t see anything wrong with that.

One bad apple doesn't mean the whole basket is rotten. You need to pick the right one before you eat.

First of all, I would like to clarify that I have benefited earlier posting by Mr Koon on Coastal Contract. I have made my own analysis at that time and agreed with Mr Koon assessment that the company has the capability and is thriving in a growing industry.

Though Mudajaya decision to develop a power plant in India faced cost overrun and delayed, it is not the end of the road for the company. It is still financially strong and ready to sprint back once it is able to replenish its order books.

Mr Market will re-rate the company and I am sure those who have the patience to wait and make monies will come back and thank Mr Koon for his recommendation.

Likewise, in the world of investment, there is no such thing as 100% guarantee profit. “If you don’t make mistake then you are not human.”

You must have the conviction in your own assessment and prepare to face the downside, the question is how much you can afford and for how long.
If your risk appetite is low and can’t afford to loose, then better cut loss. If your conviction is strong, you may even accumulate more to average down your costs.

An entrepreneur will always find ways to use other people monies (OPM) and other people time (OPT) to enhance his income. KC Chong and the rest make monies using OPM and Mr Koon use OPT to enhance his wealth. It’s a Win-Win situation, why not? I don’t see anything wrong with that.

One bad apple doesn't mean the whole basket is rotten. You need to pick the right one before you eat.

It is very difficult to search for undervalue stock at the moment but i am still holding HuaYang and Uchitec which I have bought a few years back though they still showed good incremental growth but on a declining trend.

Sunreit which I have recommended in your previous forum in early 2014 (around 1.25 then) has upside potential and reasonable dividend yield.

The reasons for holding these stocks are their strong cash flow and good dividend payout and yield.

I have taken profit on SKPRES due to its strong run recently, valuation too steep. Though its’ operating cash flow still strong but incremental earning also on a steep decline.

If you are looking for good dividend yield (around 10%) and slow consistent performer, then have a look at Marco.

But I must warn you that I have purchased these stocks for quite a while and most of them are dividend yield stocks with reasonable capital gain.

Mr Koon, thanks for sharing your wisdom, unfortunately Mr Market will thrive on news rather than fundamental for short-term gain though in the longer term the latter will prevail.

Most fund managers will follow Mr Market else they will be blamed for their contrarian choices if they under-performed.

I would prefer to invest in business that can employ its incremental capital at high rate of return (incremental net earning attributable to shareholders/incremental shareholder equity) over a period of time (after deducting one-off earnings and fair value adjustments).

When a business operates and generates profit, management have a choice of what they should do with the profits. This is known as “capital allocation”.
It includes such choices as how much to return to shareholders as dividends.

You should be looking for a consistent and high return on equity and a strong track record of incremental equity is invested at a high rate of return.

Another issue is earnings quality, the recording of revenues and expenses in accounting terms does not have to (and often may not) coincide with real operating cash flows (as recorded in the cash flow statement).

Income statement is much more prone to accounting distortions. Cash from operating activities, however, can be considered a reliable measure of true cash profit.

If net income against cash from operating activities diverged for an extended period, with lower operating cash flow than reported net income, then one has to be caution before investing.

Most businesses utilised shareholders’ fund and interest bearing borrowings to invest for a return. A true measure of value added if when management able to generate net operating profit after tax (NOPAT) over and above the cost of equity and cost of debts (WACC).

I think Mr Koon will agree with me that all business ventures entail risks; it is a matter of its degree and the associated rewards. The rest depends on entrepreneur skill, risk appetite and affordability to failure.

If we invest in a business and check its financial health from time to time, if Mr Market overpriced we should take advantage and locked-in profit and accumulate when it is undervalued as long as the business is fundamentally sound.

It was a backdoor listing story back in the year 2001 by acquiring Khong Guan Holdings Malaysia Berhad and changed the name to Marco Holdings Berhad. Khong Guan is a biscuit manufacturer and had been incurring losses. It’s accumulated losses prior to Marco take over was RM 20.7 mil.
Since then, the Group saw a significant change in the business direction from manufacturing and merchandise of biscuits and related products to the importation and distribution of timepieces and electronic calculators.

From 2006 till 2012, its earning yield has improved over the years from 3.1% to 14.5% and dividend yield increased from 1.5% to 10%. Despite high dividend payout rate from 36% to 77% of earnings, it has fully recovered from its accumulated losses.

It has been profitable and growing steadily over the years, it is not an exciting business but gave solid, reliable compounding return.

Total shareholder return = Dividend yield +Capital Gain (Earning Growth + P/E multiple revaluation). Companies which have aggressive expansion plan and strong earning growth normally don’t pay good dividend.

If its business model is sound and gave consistent earning growth, then share price will improve with P/E multiple revaluations. Otherwise it will become an undervalue stock.

Stock price rises purely driven by news and not back up by fundamental usually cannot sustain for long.

It is a slow and steady dividend yield stock with low gearing and strong cash flow. If you are looking for short term fast capital gain. This is not the counter for you. But if you prefer holding it for dividend yield and slow and steady capital gain, then it is the right stock.

Without any earning accredited acquisition in the next two years, the projected core net profit is estimated to be around RM 120 mil, assuming average CPO at RM 2,700 per mt.

This work out to be around 7.5 sen per share, forward P/E around 21. With 60% payout, the DY will be 2.8%.

If it can acquire 10,000 hectares of mature plantation land, the average FFB yield in Malaysia is around 20 mt per hectare and OER of around 20%. That will give 40,000 mt of CPO production per annum. If the average CPO price can maintain around RM 2,700 per mt level, the additional revenue will be RM 108 mil.

If its net profit margin maintain at 27% (could be better if there are operation synergy from the acquisition), that will give another RM 29 mil per annum (EPS 1.9 sen per share). The prospective P/E can go down to 17 and DY up another 0.7% to 3.5%.

It has the financial muscle to do the deal but it is a question of when.

As per its 1Q FY14 statistic, its total planted area is 70,990 hectares with 16.7% are past prime which required replanting, 59.3% are prime mature and 16.5% are young mature and the remaining 7.5% are immature. So only a small percentage of palm trees required replanting.

Future prospect...

Post IPO, it plans to use RM 420 mil to acquire 10,000 hectares of earning accredited mature plantation estate within the next three years.

It also intend to use RM 44 mil to replant 4,275.8 hectares of existing past prime plantation land over the next 2 years.

The earning growth prospect in the next three years should be good if everything fall into place. In the meantime, these unutilize excess fund post IPO will also earn interest income.

No doubt FY 2013 profit did include a once off gain on disposal of plantation assets of RM 92 mil.
If you take away this one off gain in its 2013 profit, its P/E though high but will same to those like IJM Plantation Bhd, ie in the region of 30.

Don't forget that the average CPO price in 2013 was around the region of RM 2,334 per mt. That explain why the revenue was lower in 2013 compared to previous year. Its gross margin was in 2013 was 15%. Its operating cost was much higher in FY 2013 compared to post privatization of its REITs.

You can check the 1Q FY 14 un-audited result whereby the gross margin has improve by 10% from 17% to 27%. A combination of better CPO price at RM 2,629 per mt and lower operating cost. The EPS based on the enlarged capital base of 1.6b will come to around 1.9 cent per share for the 1Q FY 14.

With better CPO price in the 2nd half and lower operating costs. Its FY14 profit should improve substantially.

Lorrain breaks his silence, read this article from The Malaysian Bar.

http://www.malaysianbar.org.my/news_features/lorrain_breaks_his_silence.html

Let look at MAS, listed below is an abstract of a study on corporate governance failure and its impact.

For Malaysia Airline Systems (MAS), the governance failure occurred when Tan Sri Tajuddin Ramli via Naluri Berhad who is the single largest shareholder in MAS and held both chairman and Chief Executive Officer position entered into unprofitable business activities whereby he had over expansion the flight destination.

The capital expenditure increased due to placing many orders on planes. The company was in accumulated loss from 1998 to 2001. In the financial reporting, it was simply a mismatch between earnings and expenditure whereby earnings was mostly in ringgit while expenditure (jet fuel, aircraft maintenance and others) was in US dollar.

When MAS made new aircraft orders in 1995 the costing was based on RM2.50 but it ended up paying RM3.80. MAS was then re-purchased by the government for RM 8 per share which was more than double of the market price.

In fact the net tangible assets were only RM1.74 per share. This situation shows that corporate governance failure not only occurred at organization level but at national level as well.

The question was why an audit was not conducted before the government’s buyback which would have a very important bearing on the proper price of the government buyout.

Tan Sri Hassan Marican the former Petronas CEO’s appointment in Singapore showed Malaysia’s failure to plug its talent leak.

Hassan as a rare talent and the latter has been widely appreciated abroad and among big multinational corporations “but not at home”.

This is extremely sad, especially when Tan Sri Hassan is widely credited as the man who turned Petronas into the leading international oil and gas company that it is today.

Will Malaysia let Tan Sri Shamzul Azhar go to Singapore?

The current Petronas CEO Tan Sri Shamzul Azhar Abbas lamented in his recent interviewed with The Edge, "It's so difficult to do an honest day's job".

In his own words: "I'm a Malay too, I'm proud to be one... you think I don't want to help my own people? Of course i want to help them, but in a proper way ...not through handouts and spoon feeding." It is indeed tough to be good. Rumours are rampant that he will leave his post.

http://www.theedgemalaysia.com/business-news/295600-edge-weekly-petronas-president-speaks-out-fearlessly-amid-rumours-he-is-under-pressure-to-leave.html

Sorry, if you count from the year 2009 at US 6,897 to US 37,293, we need to grow at 18.4% per annum in order to reach there in 10 years time.

Well, smartly... depend on which country you are comparing with.

Take Singapore instance, over a period of 29 years, the annual compounded growth rate is 7.5% per annum whereas Malaysia is growing at 4.9% per annum. That is slightly more than 1.5 times faster than Malaysia.

If Malaysia were to continue to grow at the same rate, for us to reach the US 37,293, it will take us another 34 years. That’s how far we are behind.

For us to reach that number in 10 years time, we need to grow at 8.1% per annum, 65% faster than the current rate. Boleh kah?

Basically it boiled down to "how much bang for the buck". The values you get depend on the processes and people you have entrusted to do the job.

In construction, the cost, time and quality of the goods delivered will tell the different. Without open tender, risk of leakages will be there.

It is a well known fact in the past and even now that you need strong cable to pull the string beside financial and technical competencies. The recent practice of Corporate Governance and media pressure have to a certain extent exercise some checks and balances.

It is amazing that high profile scandal like Port Klang Free Trade Zone ended up as an illicit child.

Tan Sri Syed Mokhtar Shah bin Syed Nor Al-Bukhary , the richest Bumiputra corporate figure in Malaysia.

Some of the controversies about him as listed in the Wikipedia:

A major gripe by Malaysians is that Syed Mokhtar is reputed to be just a proxy of UMNO (United Malays Nationa Organisation), the ruling party in Malaysia since independence.

Below are examples of the proof:

A number of companies controlled by Syed Mokhtar have come under attack for development activities on green field sites. For example, the clearance of mangroves for the development of Johor Port has led to some criticisms from local environmental groups.

In 2009, Central Sugar which is owned by Syed Mokhtar's Tradewind acquired Robert Kuok PBB group. Following the Central Sugar acquisition, the government had committed to a three-year raw sugar import deal at US$26 (RM78.54) per 100 lbs (45.3 kg) in January 2012 when the global market price for raw sugar then was at US$23.42 (RM73.57). But by January 2014, the global price had dipped to below US$16 forcing Govt to withdraw the subsidy (34 cents per kilogram) for the sugar. With removal of sugar subsidy in Budget 2013, the profit of Tradewind now escalates to RM 1 billion.

In December 2012, Syed Mokhtar's Puncak Semangat Sdn Bhd is one of the eight companies that are successfully bid the LTE 2600 MHz from Malaysian Communications and Multimedia Commission. But questions were raised as the Puncak Semangat have zero track records prior to the bid and managed to secured 40 MHz band meanwhile the other 8 company secured only 20 MHz of the allocation band.

In March 2014, Syed Mokhtar secure 90% of the PadiBeras Nasional Bhd (Bernas) after buying the shares owned by Nafas and Nekmat through his proxy companies: Perspective Lane (M) Sdn Bhd, Kelana Ventures Sdn Bhd, Seaport Terminal Sdn Bhd, Acara Kreatif Sdn Bhd and Tradewinds Bhd.The critics are opposing this moves as this puts the nation's food security into one tycoon hands which will harm the nation food industry and thus the price of rice will continue to increase further.

He has also been identified as a major beneficiary of political connections that have given his subsidiary companies monopoly control over crucial Malaysian sectors which includes sugar mills, rice (Bernas), power plants and ports.

I think we don't need to have the brain of Albert Eintein to figure that out.

No doubt quality education is a basic right and the stepping stone for a better life, there are many roads to Rome. Most people would prefer the easiest. Some have gone through the unconventional way of achieving professional degree by studying and working at the same time. Though it is a tougher road that required sacrifice and discipline but you gained valuable experience along the way and most of all get satisfaction for your achievement.

“Our life is the creation of our mind.”

Don't worry Mr Koon, they have talent corp program. Poaching is cheaper than grooming talent, especially when you are in a hurry to become a high income nation but lack of talents.

Singapore lack of natural resources forced them to rely on human capital to prosper. Malaysia still can afford to muddle along till the natural resources dry up. By then, without anything to fall back on, it is your ability to compete and survive that matter most.

A smoker will not change its bad habit until he is being diagnosed with terminal illness.

The primary objective of the REIT manager is to ensure the Placement Units are done at optimum prices which reflect the fundamental value of YTLREIT.

The announcement in changing the revaluation of investment properties from triennially to once a year and seeking for additional six months will provide more time to conclude the exercise are steps in the right direction.

The objective is to raise up to RM 800 mil with increase in fund size from 1,324 mil units to maximum of 2,125 mil units. The placement price will be around RM 1.00 per unit if fund size were up to maximum to raise the RM 800 mil proceeds.

In determining the placement price, if you use the current market price as a yardstick, it is at a discount of 26.7% to its current NAV. It is wide gap.

The earning per unit (EPU) up to 3rd Q of FY 14 was 3.71 sen per unit, if the 4th Q EPU is similar to 3rd Q at 1.19 sen per unit. Then the P/E of 18.88 (92.5/4.9) is relative high. Other REITs are in the region of 10 to 14.

The dilution of EPU and income distribution per unit (DPU) after placement exercise will depend very much on place price and YTLREIT future earning potential.

At RM 1.00 per unit, 800mil new units will be issued to raise the required RM 800mil. Repayment of loans with the placement proceeds will reduce interest charges. The total borrowings will reduce by 51% from RM 1.58 bil to RM 0.78 bil. Interest saving per quarter can be around RM 9.24 mil, per annum will be in the region of RM 37 mil which is quite substantial.

Assuming the exercise is completed by end of FY 14 and its FY15 PBT mirrors previous year 3Q result at RM 16.6 mil, annual PBT plus interest saving will come to RM 103.4mil (16.6x4+37). For simplicity, PAT say around RM 100mil, EPU will be 4.7 sen per unit. Annualized depreciation charge is around RM 65mil, which work out around 3.1 sen per unit. Income distribution per unit will be around 7.8 sen per unit.

Based on the above conservative approach of no improvement in earning with maximum placement units to raise the RM 800mil, the dilution impact is not substantial.

A revaluation of unit price is possible if there is a visibility of better earning ahead, especially if the coming 4Q shows better result. This revaluation will improve the placement price and reduce the total number of new units to be issued for the placement exercise.

You can use I3investor's "Disclosures" tab on top to check the dividend payment history. Company with fixed dividend policy (like REITs) will announce and pay consistently.

Reliability of DY depends on your entry price and the anticipated dividend payout. You need to work that out yourself. All dividends declared other than REITs are single tier.

The Ex-date or Ex-dividend date is when you purchase a dividend paying stock one day before the ex-date, then you are entitled for dividend payment. Conversely, it you sell a stock and still want to receive the dividend that has been declared, you need to sell on (or after) the ex-date. Ex-date is used to make sure dividend payment go to the right person.

Since we can receive dividend by purchasing the shares before the ex-date, can we make more money? It’s not that easy, everyone knows when the dividend is going to be paid, and the market sees the dividend payout as a time when the company is giving out part of its earning and reducing its cash. The price of the stock will drop approximately by the amount of the dividend on the ex-date. The actual drop in price can be different due to tax considerations or other reasons.

Don’t forget you also have transaction costs. In YTLREIT case, it pays dividend every quarter. If you go in and out four times in a year for a yield of less than 2% per quarter, your return after transaction costs will be much lower. However, you will be a value client for your remisier and broker. The crux of the matter is there is no free lunch on the ex-dividend date.

Delay in share placement can mean a lot of things; it can be more time to negotiate for better terms, buyers required more time to seek approval and arrangement of funds etc. I am not too worry on this as long as the revenue and earning are improving over time, Its cash flow is positive and continue to support dividend payment. There is still time for the earning to catch up.

Dear LouisChoo, DY stand for dividend yield. In YTLReit case, if the gross dividend distributed is 8 sen per unit, based on 91 sen, its gross DY will by 8/91 = 8.79%.

However, Reit dividend is subjected to 10% tax, hence its net after tax dividend will be 7.2 sen (8x90%). In other word, the actual dividend yield after tax will be 7.91%.

After checking in detail the segmental report for the last 3 Qs of FYE 06/13, YTL REIT recognized the Australia Hotels result only in the 2nd Q. Hence, it is misleading to compare the 9 months results, my apology.

However, the Q to Q comparison on profit after tax per unit showed a slight improvement of 0.08 sen per unit (1.19 sen per unit in the current Q ended 31/3/14 compared to 1.11 sen per unit in the preceding Q ended 31/3/13).

Likewise, its distributable income per unit (after adj for depn and others) in Q3 is 2.3115 sen per unit which is better than 2.0828 sen per unit recorded in previous year Q. In term of gross dividend distribution, it also showed an improvement by 0.1732 sen per unit from 1.9072 per unit to 2,0804 per unit. In term of cash flow, it is able to sustain the dividend payout.

At current market price of 91.5 sen, it is trading at 8% discount to NAV at 99.53 sen per unit.

Unless it’s earning after tax catch up to 2 sen per unit, it is not justifiable for a P/E multiple revaluation at the moment.

As expected, the 9 months result ended 31/3/14 showed vast improvement in its Australia hotels performance in term of growth in revenue and PBIT. Compared to previous years, revenue grew 122.4% from RM 107.7 mil to RM 239.5 mil, PBIT has treble from RM 10.6 mil to RM 32.5 mil. PBIT margin grew from 9.8% to 13.6%.

It has announced a gross dividend distribution of 2.0804 sen per unit to be paid on 24th Jun 2014, 0.1018 sen more than the previous dividend payment of 1.9786 sen per unit. Net after tax dividend is 1.8724 sen (2.0804x90%) which give a yield of 2.05% based on the current price of 91.5 sen per unit.

Those who are new to equity investment and wish to learn more on fundamental analysis, its worth your while to pay a visit to kcchongnz blog. His articles will give you a balance view on business past performances and growth potential.

Total shareholder return = Dividend yield + Capital Gain (earning growth + P/E multiple revaluation). Companies which have aggressive expansion plan and strong earning growth normally don't pay good dividend.

If its business model is sound and gave consistent earning growth, then share price will rise with P/E multiple revaluation. Otherwise it will become an undervalue stock.

Stock price rises purely driven by news and not back up by fundamental usually cannot sustain for long.

Hi Changts, Marco took a backdoor listing in the year 2001 by acquiring Khong Guan Holdings Malaysia Berhad and changed the name to Marco Holdings Berhad. Khong Guan is a biscuit manufacturer and had been incurring losses. Its’ accumulated losses prior to Marco take over was RM 20.7 mil.

Since then, the Group saw a significant change in the business direction from manufacturing and merchandise of biscuits and related products to the importation and distribution of timepieces and electronic calculators.
Since 2006 till 2012, its earning yield has improved over the years from 3.1% to 14.5% and dividend yield increased from 1.5% to 10%. Despite high dividend payout rate from 36% to 77% of earnings, it has fully recovered from its accumulated losses.

I have been accumulating this counter since 2008 and had been holding it for its high dividend yield. Recently, I have accumulated some at 16 sen for the same reason.

It is a slow and steady dividend yield stock with low gearing and strong cash flow. If you are looking for short term fast capital gain. This is not the counter for you. But if you prefer holding it for dividend yield and slow and steady capital gain, then it is the right stock.

The business has been profitable and growing steadily over the years, it is not an exciting business but gave solid, reliable compounding return.

This counter does not have any institutional investors and not cover by analysts.

Accor, the world's leading hotel operator and market leader in Europe, is present in 92 countries nearly 3500 hotels and 440000 rooms.

Another good piece of news is Accor expects room rates across Australia to rise in 2014, with signs that corporate and government travel is growing and with high occupancies achieved in most states year to date.

Over the last 12 months, according to STR Global, occupancy rates have continued to remain strong in Australia’s largest cities, with Sydney at 85.2% and Melbourne at 83.7% overall.

While Brisbane and Melbourne will expect an increase in hotel supply of 11% and 6.2% respectively, new room supply in Sydney (0.7%) and Perth (0.8%) will remain low, putting additional pressure on rates.

It is expected that rates will rise between 7-10% in Sydney and around 7% in Melbourne and Perth, with rates in Adelaide, Canberra and Brisbane to rise between 3-5%.

Hi, kkng. Nothing much. One general announcement on 31 March 2014 stating that the NAV of YTLREIT is RM 0.9957. That means the current market price is trading at 8.1% below NAV.

Another earlier announcement stated that YTLRMTN was incorporated on 6 March 2014 with its present authorized share capital of RM 400,000.00 comprising 400,000 ordinary shares of RM 1.00 each.

The intended principal activity of YTLRMTN is to raise funding on behalf of YTL REIT.

Maybank Trustees Berhad, the trustee of YTL REIT shall hold the Shares in trust and on behalf of YTL REIT. As a result of the Acquisition, YTLRMTN has become a wholly-owned subsidiary of YTL REIT.

I have seen quite a number of high IQ friends with strong EQ but failed due to lack of MQ or BQ. Whatever we do, we should not cross the line of no return.

MQ,EQ and BQ are equally important and should be encouraged from young. Those who are blessed with high IQ has the advantage but to be successful you cannot do without the first three.

Those who look for excitement will choose the latter, its individual preference as long as you are responsible for it.

FA investors look at the inner beauty of the business whereas IA or trader focus on external beauty. So it depends on whether you are looking for a long term relation or a one night stand. No offend to anyone.

Hi KC, after crunching some number on my own. Magni should be able to provide a solid, reliable and compounding return.

This is a consistent performer with steady growth in both revenue and profit margin over the years. Zero gearing with rising free cash flow. PEG only at 0.61 at current price. Potential for better dividend payout.

Good stuff, KC, thanks for sharing.

Earning growth prospect of a business depend very on the robustness of the industry and the ability of the business entity to capitalize on the market trend to drive revenue, control costs and manage its working capital well.

Volatility of share price can be temporary driven by news (good and bad) but the long term growth prospect still need to be supported by fundamental.

Fundamental like sale volume and sale price, ability to control unit cost will determine revenue growth and profit margin. Beside these, good management of working capital and efficient utilization of assets improve Return of Equity.

Question of positive free cash flow and economic value added are cornerstone of successful businesses which will continuously add shareholder value in the long run and increase dividend payout.

Mudajaya financial strength is still intact but its growth prospect is lacking due to depleting order books and its uncertain fate of the Indian Power Plant return on investment (it will be lucky if they can get back their investment capital plus some profit). That's the reason for its low valuation.

I am still confident to invest (though not a lot) in Mudajaya in view of its past performance and undemanding P/E compared to others in the same industry. It will move once it secures big ticket job and improve its order books.

I do not select stock based on short term capital gain, more for dividend yield and long term sustainable earning growth with capital gain.

I will take profit if the price move too far from fundamental in short time and drive the valuation into unrealistic level.

There is no hard and fast rule in investment, there are successful traders who invest purely based on technical analysis. I prefer to base on fundamental and the management ability to drive value for shareholders.

GOB has showed sign of improve earning but still need to know how it can drive higher earning growth without positive free cash flow and more borrowings.

Who knows, Icon8888 may be the early bird that catch the worm. I wish all the best to you. Will not bother you anymore since we have different approach.

Dear Icon8888, i appreciates your passion and untiring effort to unearth an up and coming property developer. Beside the financial numbers published in the annual report, i have done some research on the property development costs. I am interested to invest in GOB, before that there are still some questions which i would like to raise with you concerning the property development costs and the methodology of developers lock in sales, recognizing revenue and profit, progress billing to customers in stages and its impact on cash flow.

Answers to these questions cannot be found in annual report.
a> Land Cost, does this include the stamp duty & legal fees (normally around 1% of land cost), pre-development expenses.
b> Professional fees, like Architect, M&E, land & quantity surveyors etc..
c> Sales & Marketing expenses plus developers' overheads.
d> Contribution to authorities for plan approval, sewerage & sanitary, water & electricity connection etc..
e> Is your construction costs comprised only earthwork, piling & building (foundation & superstructure works), how about infrastructure works like internal roads, drainage, water reticulation/pumps, fire fighting, sewer reticulation, telecom manhole & cabling, street lighting, electrical & water supply, main reservoir/water sumps, sewerage treatment plant, landscaping etc).

The common costs such as land, infrastructure costs are allocated by estimated revenue to be generated from the respective products.

Sales revenue is recorded but billing to customers is based on stages of progress to be certified by architect, such as 10% upon signing S&P, maybe another 10% upon completion of earthwork, foundation etc... Hence, lock in sale is completed only with S&P being signed. Then 1st stage of progress billing can proceed before monies start rolling in.

Recognizing of revenue & costs in based on two things:
a> the ascertainment of estimated profit (revenue minus costs)and this must be revised from time to time as development progresses.
b> the ascertainment of % of completion (actual development cost/budgeted development cost), if 10% of progress is achieved on cost basis, then 10% will apply on the sales revenue lock in and the associated budgeted costs.
In the service apartment case, if only RM 100 mil sale revenue out of the RM 500 mil total estimated GDV as the point of recognition. Then only RM 10 mil will be recognized as revenue.

Developers' ohds and marketing are recognized as periodic costs and cannot be capitalized and to be charged out immediately.

The computation is quite complex and based on a number of parameters. I can create the excel template but unless you have a ballpark figures on those parameters, it is fruitless exercise.

What i meant is longer term earning growth visibility. Let said double the current EPS in the next 5 years.

At current price, GOB prospective P/E in FY 14 already at 7.11 times compared to last year 3.75 times. With marginal improvement in EPS (14.22 sen per share), P/E multiple revaluation was not due to fundamental.

Fundamental has to catch up to justify the higher P/E. Though price to book is 0.84, there is no dividend payout for the last 2 years.

If you compared this with Hua Yang even though it’s EPS is expected to come down, it is around 28.5 sen per share. At current price (reduce price), its prospective P/E is 6.64 compared to last year 4.95. Its dividend yield is around 7%. Price to book is around 1.38.

You can also check counters like Daiman, Glomac, Crescendo etc with comparable P/E. These counters have good dividend yields.

Unless GOB has exciting development up their sleeve in the next few years that yield better profit margin, any further upside in price will not be justifiable. It needs to have more strategic land bank like those in Batu Kawan that you have mentioned in earlier posting. Its land held for development is just too small to give longer term earning visibility.

GOB construction segment profit contribution in FY13 and FY12 were negatives. Only in the recent Q3 (31/12/13), the segment contributed positively at RM 2.3 mil and this represent a miserable 3.2% profit margin.

If you refer to note 8 of FY 13 annual report, the total interest capitalized to development cost in the year was RM 23.45mil, RM 19.6 mil was imputed on interest free financial liability - landowner’s entitlement.

There could be interest costs capitalized as development costs.

Construction costs could be in early stage, don't forget the land costs which form a sizeable chunk of the overall development cost (47.8%). The % of completion based on actual dev cost over budgeted dev costs could be much more than the physical construction progress. In accounting treatment, progress billing to customers can fall behind profit recognition.

Based on the FY13 chairman report, the sale take up rate of service apartment already hit 95%. Hence, the revenue and profit recognized in the earlier years depend on the sale take-up rate then.

Even if you checked the 3Q (31/12/13) result for FYE 03/14. the gross margin for property development is only 15.5% (RM 38.0 mil/RM 245.7 mil.

If the estimated development costs is over-provided and the final total development costs are lowered, then the gross margin could be better. Since the stage of completion is at an advance stage, unless there were contractual issues. The impact will not be much.

Based on the segment report in FY 2013, the gross profit margin shown in the Property development segment was 22.2% (RM59.3mil/RM 266.8mil) and 11.2% in FY 2012 (RM 31.2mil/RM 278.7mil). These gross profit margin does not match the 42.5% (RM 212.5mil/RM 500mil)computed.

It was a commendable effort from Icon8888 to come up with a detail analysis of GOB business potential and financial impact.

I would like to answer Icon question on why "No analyst has ever suggested that GOB will have the potential to report such windfall gain in the immediate future?"

The answer to that question lied in the way Property Developers recognizing revenue and profit in their book.

The revenue & profit is recognized over the development period (usually over a number of years from construction till hand-over of units). It is not recognizing 100% on completion date.

The stage of completion is based on the proportion that property development costs incurred for work performed to date bear to the estimated total property development costs. The percentage of completion is applicable on the sold units only.

Majority of the profit from office and service apartments could have been recognized in the past two years prior to completion in the year 2015.

Dear kkng0819kk, even if Obama wants to contra the MH370 SAR operations, Govt will ask Petronas to foot the bill. If Petronas cannot meet the KPI, open more tenders for risk service contracts.