MyEG has now emerged as a new substantial shareholder of Heitech Padu. According to the news, MyEG acquired Heitech for about RM 2.21 per share.

Now that we know why there was a run up in the share price for the past few weeks. But from a fundamental perspective, is the current price at RM 3.05 per share justified?

This will depend on whether there are projects that MyEG can help to secure for Heitech that would boost Heitech earnings.

I last blog about Heitech in 2022 where I compared the performance of a number of ICT companies. The average ROE achieved by Heitech was negative 5 % compared to MyEG average of 31%.

Based on the 2021 book value and assuming that Heitech can match the 31% ROE, we will have an EPS of RM 0.33 per share. So for those excited about Heitech Padu, you can imagine a PE valuation based on this earnings?
https://i.postimg.cc/cJgzhp5C/HT-peer-results.png

Are we going into the realm of speculation? The best I can say at this stage is that MyEG price would probably be a floor price but the ceiling would depend on the new business of Heitech.

Its historical businesses is not going to give it the earnings multiplier to justify even the floor price. And to achieve the 31% ROE, Heitech has to take care of its historical businesses to ensure that there are not loss making.

OSK Holdings carried out a corporate exercise in 2014, to merge PJ Development Holdings Berhad and OSK Property Holdings Berhad into the group. Effectively OSK Holdings is now a property counter with property development & construction, investment properties and some manufacturing as it main operations.

But is this really the case? When you look at its profit profile as shown in the chart, you will find that the bigger contributor over the past 9 years was not from its operations. The non-operating segment - its investments in RHB bank - accounted for a bigger part of its profits. https://i.postimg.cc/RhS06qnH/OSK-profit-profile.png

So, is this a property company or something else? If you are thinking of investing in OSK, shouldn’t you be looking at the performance of the Malaysian banking sector rather than the property sector? https://www.youtube.com/watch?v=mQXpcrWj0Sw

According to Damodaran, projecting the performance of cyclical companies based on the current performance can lead to mis-valuations. He opined that for such companies we should look at the performance over the cycle – the normalized performance
When I carried out such an analysis of CSC Steel, I found that there is still a margin of safety based on its current price. Refer to page 20 of the article. https://notice.shareinvestor.com/email/newsletter/invest/pdf/Vol197_Invest-01Mar.pdf

You may think that company with lots of cash can be a good thing. Afterall many would not challenge the mantra that “cash is king”
But in the case of Eksons, you may have to think differently. As of the end of 2023, Eksons had about 2/3 of its total assets held in cash and short term securities. The huge cash position is because the company had scaled down its plywood business and its property development business had yet to scale up.
So it ended with tons of cash where a significant amount is now invested in securities. Unless they have a Warren Buffett in the company, you should worry about whether this is an effective deployment of cash.
My point is that the large cash holding is because of the lack of operations. This large cash holding has been there for many years. I used to think it was a good thing. But it a company is holding onto cash for years, it may not be a good thing. In this case, cash is actually a value trap.
https://focusmalaysia.my/eksons-dont-be-mesmerised-by-the-cash-hoard/

Pintaras Jaya incurred a loss in 2023 but this is due to a “perfect storm” of lower revenue and higher costs. Its performance in Malaysia over the past few years was affected by the slowdown in the property and construction sector. As such the bulk of the contribution over the past few years has been from its Singapore operations.
https://i.postimg.cc/DzJd8mDL/Pintaras-valuation.png
As the leading foundation and sub-structure contractor in Malaysia, I expect the
Group to rebuild the Malaysian business. When this happens, I expect the market to re-rate it.

For more insights refer to page 22 of https://notice.shareinvestor.com/email/newsletter/invest/pdf/Vol195_Invest-16Feb.pdf

AmBank is one of the smaller Bursa banks in terms of total assets or market cap. For those of you who have been following the 1MDB case, Ambank took a hit in 2021 to “settle the 1 MSB issues”. You can see this clearly in its ROE trends. https://i.postimg.cc/DyN6wjBC/Ambank-ROE-NIM.png

Notwithstanding the IMDB issues, its return is slightly lower than the sector median. One of the reason for this is its lower Net Interest Margin (NIM) relative to the sector median. I am sure this has nothing to do with 1MDB

From a relative performance perspective, Ambank did better than my reference bank - Affin. https://www.youtube.com/watch?v=4W7Lnw_hT0w

Of course the share price of Affin had move recently due to the news about the Sarawak Stage govt increasing its stake.

But there is no such news catalyst for Ambank. So Ambank will it be able to improve its returns and do better than the sector median for its share price to move higher. Can they do this

Alliance Bank is the smallest Bursa Malaysia bank. While smaller than Affin Bank, its performance as measured by the ROE is far better than that of Affin. https://www.youtube.com/watch?v=4W7Lnw_hT0w
When you look at the ROE trend of Alliance, you can see that it had recovered from the Covid-19 years and overtaken its pre-Covid-19 peak But the market price has yet to reflect the better performance. https://i.postimg.cc/fyVxJQ5N/Alliance-bank.png
Does the market know something that I don’t or it it merely being irrational?

If you are looking for performance among the Bursa banks, then of course you would chose PBB as it had the better ROE trends. You can see from the chart that Affin has the worse ROE trend.

https://www.youtube.com/watch?v=4W7Lnw_hT0w

But if you are looking to make money, shouldn’t the focus be on companies trading at a discount to its value with some catalyst? The asset value or book value of banks is a good indication of their business value as most of the assets are marked to market prices. So PBV can give a picture of whether a bank is over or underpriced.
In this context, PBB has a PBV greater than 1 whereas Affin is trading below its book value. Affin has been in the news lately about the Sarawak Stateg government planning to increase its stake in the bank. This can be catalyst for re-rating if the purchase goes through.

https://i.postimg.cc/L5VcCMRP/PBB-vs-Affin.png
On the other hand, PBB no longer has its founder Chairman. Will its historical performance that is probably due to its corporate culture be sustained? More importantly, where is the catalyst for re-rating?

The Bursa property companies had a tough few years. Covid-19 affected my companies in Malaysia and the property companies were no exception. But the problems for the property companies started long before Covid-19 with a soft market that began with the govt efforts to curb speculation in the 2016/17.
But I think there is light at the end of the tunnel and as such many property companies could be under priced from a fundamental perspective. One example is Glomac that is currently trading at a discount to its intrinsic value. It is not a value trap. You can read about it from page 19 of the newsletter. https://notice.shareinvestor.com/email/newsletter/invest/pdf/Vol193_Invest-02Feb.pdf

We have been told that to minimize risk, we should have a portfolio of stocks. Does it mean that we can have any stocks (assuming that they are fundamentally sound and cheap)

Take the example of Bursa construction/property company Naim and Bursa oil and gas company Dayang. You can see from the revenue trend chart that there is not much correlation between them. Actually there was a negative 10% correlation.
https://i.postimg.cc/L5GkR9p9/Dayang-vs-Naim.png
But then Naim owns about 25% of Dayang and probably influened its decision making. So are they uncorrelated stocks?

From a statistics perspective, as long as 2 stocks are not 100% correlated, having them in a portfolio will result in a lower volatility compared to their individual volatility. If you looking for less volatility, then having them both is better than just investing in one. https://ujianehc.blogspot.com/2023/12/dayang.html

Of course, the big picture question is if part of the performance of Naim is tied to the performance of Dayang, would it be better to look for another oil and gas stock?

We have been told that to minize risk, we should have a portfolio of stocks. Does it mean that we can have any stocks (assuming that they are fundametally sound and cheap)

Take the example of Bursa contruction/property company Naim and Busa oil and gas company Dayang. You can see from the revenue trend chart that there is not much correlation between them. Actually there was a negative 10% correlation.

But then Naim owns about 25% of Dayang and probably influened its decision making. So are they uncorrelated stocks?
https://i.postimg.cc/L5GkR9p9/Dayang-vs-Naim.png
From a statistics perspective, as long as 2 stocks are not 100% correlated, having them in a portfolio will result in a lower volatility compared to their individual volatility. If you looking for less volatility, then having them both is better than just investing in one.

Of course, the big picture question is if part of the performance of Naim is tied to the performance of Dayang, would it be better to look for another oil and gas stock?

You have a stock portfolio to provide a balanced and risk-adjusted exposure to the stock market. But for this to be meaningful, the stocks in a portfolio should not be correlated.

This then begs the question. Should the correlation be based on price or some business fundamentals?

The ideal case is to have uncorrelated stocks based on both market price and business performance correlation. This will achieve diversification that addresses short-term volatility and aligns with long-term investment objectives.

In practice I seldom look at price correlation in my stock portfolio as I am a long-term investor. I look at correlation from a business perspective.

Take the example of Eksons and Annum. The former was in the plywood and is now attempting to be a bigger property developer. Annum is still in the plywood business although it has ventured into construction and property development. The top chart shows the ROE trends of the 2 companies while the bottom chart shows the share price trend.
https://i.postimg.cc/xCngD2cF/Eksons-vs-Annum.png
Should they be in the same portfolio?

You have a stock portfolio to provide a balanced and risk-adjusted exposure to the stock market. But for this to be meaningful, the stocks in a portfolio should not be correlated.

This then begs the question. Should the correlation be based on price or some business fundamentals?

The ideal case is to have uncorrelated stocks based on both market price and business performance correlation. This will achieve diversification that addresses short-term volatility and aligns with long-term investment objectives.

In practice I seldom look at price correlation in my stock portfolio as I am a long-term investor. I look at correlation from a business perspective. https://www.youtube.com/watch?v=7T7of46Q1Ww

Take the example of Eksons and Annum. The former was in the plywood and is now attempting to be a bigger property developer. Annum is still in the plywood business although it has ventured into construction and property development. The top chart shows the ROE trends of the 2 companies while the bottom chart shows the share price trend.

Should they be in the same portfolio? https://i.postimg.cc/xCngD2cF/Eksons-vs-Annum.png

Ternium is a South American steel company. Although it has some mining operations, these serve mainly in-house and are a small component relative to the steel output. It achieved revenue and profit growth through organic growth and acquisitions over the past 11 years. It has a strong financial position and a good capital allocation plan, creating value for shareholders. A Valuation based on the steel price cycle shows a sufficient margin of safety, making it an investment opportunity. https://i.postimg.cc/kgw7QWJk/Ternium.png

If you are already invested in Bursa steel companies, this might be a good geographical diversification. https://www.youtube.com/watch?v=_O8B0TJGwfs

I have a simple way to get an overall picture of the fundamentals of a company. I look at the top line, bottom line and return trends on one chart.
https://i.postimg.cc/sDG4vTz8/United-Plantation.png

A good example is illustrated in the chart for United Plantations, a Bursa Malaysia plantation company. To enable all 3 to be plotted on the same chart, I converted them into indiced by dividing the value for each year by the base year (2014 in this example)

You can see that revenue, profits and returns all trend in the same direction. This is a good quick and dirty picture showing that all 3 metrics about doubled over the past decade. This is a sign of a company with good fundamentals

The next question is whether there is enough margin of safety at the current price. But this is a different story for another day. https://ujianehc.blogspot.com/2023/11/bursa-plantation-sector.html

According to Professor Novy-Marx, the gross profitability (gross profit/total asset) is a return metric that has the same power as price to book value in prediction cross section returns of a stock. https://i.postimg.cc/6QJy1P2f/United-Malacca.png

When I compared Bursa Malaysia plantation company, United Malacca gross profitability with that of the sector median, you can see that it clearly underperformed. This underperformance is not so clear cut when you look at ROE.

Moral of the story? Return is one key measure of profitability and I normally look at several return metrics – ROE, ROA, Gross Profitability, NOPAT/Capital to get a better picture.

According to Professor Novy-Marx, the gross profitability (gross profit/total asset) is a return metric that has the same power as price to book value in prediction cross section returns of a stock. https://i.postimg.cc/6QJy1P2f/United-Malacca.png

When I compared Bursa Malaysia plantation company, United Malacca gross profitability with that of the sector median, you can see that it clearly underperformed. This underperformance is not so clear cut when you look at ROE.

Moral of the story? Return is one key measure of profitability and I normally look at several return metrics – ROE, ROA, Gross Profitability, NOPAT/Capital to get a better picture. https://www.youtube.com/watch?v=9KhboTCMdEg

The ROE of TSH, a Bursa Malaysia plantation company had under performed my reference planation company – KLK, for many years. https://ujianehc.blogspot.com/2023/11/bursa-plantation-sector.html

But over the past few year TSH’s ROE have been improving. In fact in 2022 it did better than KLK and its 2023 ROE is probably going to match that of KLK.

Is this then a company with improving fundamentals? The plantation sector is cyclical and you have to look at its performance over the cycle for any meaningful conclusion

But from the short term perspective there may be a trading opportunity as the market have yet to price in its improved performance. https://i.postimg.cc/B6JTzfnQ/TSH.png

There has been much controversy about the Bursa energy company - Serba Dinamk Bursa. Its ROE had gone from about 20% in 2019/2020 to negative 100 % in 2023. I will not go into whether this is poor management or poor corporate governance. But I was curious about its Altman Z-score.

The Altman Z-Score is a financial metric that is used to assess the financial health of a company. It was developed by Edward Altman in 1968 and is designed to predict the likelihood of a company going bankrupt within the next two years.

• A Z-Score above 2.99 suggests that the company is likely in good financial health and is not at risk of bankruptcy.

• A Z-Score below 1.81 suggests that the company may be at risk of bankruptcy.


The Altmaz Z-Score for Serba Dinamik based on its Sep 2023 LTM financials is negative 1.9. This is way below the Z-Score for bankruptcy.

Now why would you want to bother about this company when there are better oil and gas companies like Deleum to look into with a LTM ROE of 15%. There has been much controversy about the Bursa enegy company - Serba Dinamk Bursa. Its ROE had gone from about 20% in 2019/2020 to negative 100 % in 2023. I will not go into whether this is poor management or poor corporate governance. But I was curious about its Altman Z-score.

The Altman Z-Score is a financial metric that is used to assess the financial health of a company. It was developed by Edward Altman in 1968 and is designed to predict the likelihood of a company going bankrupt within the next two years.

• A Z-Score above 2.99 suggests that the company is likely in good financial health and is not at risk of bankruptcy.

• A Z-Score below 1.81 suggests that the company may be at risk of bankruptcy.


The Altmaz Z-Score for Serba Dinamik based on its Sep 2023 LTM financials is negative 1.9. This is way below the Z-Score for bankruptcy.

Now why would you want to bother about this company when there are better oil and gas companies like Deleum to look into with a LTM ROE of 15%.

In 2023, the Bursa energy index grew by 5.3 % compared to the S&P500 energy index that declined by 3.7 %



In 2023, the Bursa energy index grew by 5.3 % compared to the S&P500 energy index that declined by 3.7 %

When I screen for companies, I just don’t look at the performance of a metric at a particular point in time. I also look at how it changes over time.

One way to do this is to look at the trend of the metric and compare it with a reference company that I have found to have good fundamentals. It is a quick and dirty way to judge its fundamentals.

One example is illustrated in the charts for Bursa Malaysia TH Plantation. It shows its ROE and Net income margin trends compared to those of my reference company – KLK.

You can see that while TH Plant performance had improved relative to 2018, the results of the 2 metrics is not going to be as good as KLK. So its fundamentals are not so great.
https://i.postimg.cc/2jKjDz9D/TH-Plant.png
I think this is a better way to screen for companies than just look at static numbers. Unfortunately most screens don’t display such trends readily.

After underperfoming for many years, the ROE of Sarawak Plantation (SWKPLNT) managed to overtake that of KLK in 2019. It peaked in 2021 and then began to go below that of KLK in 2022. https://i.postimg.cc/sXnFvbf0/SWKPLNT.png

SWKPLNT share price seemed to mirror the ROE performance since 2019. You can see the share price peaking in 2021 and is today below the 2021 peak.

From a ROE perspective, SWKPLNT was not able to consistently outperform KLK, my reference Bursa plantation company. https://ujianehc.blogspot.com/2023/11/bursa-plantation-sector.html

Given the mirroring feature of the share price, I am not sure that this is a counter worth digging further into. From a value investing perspective, I will dig further if the price drops to the 2018 level. Then I am confident that there will be a margin of safety.

In 2023, the Bursa Malaysia energy index grew at 5.4 %. In contrast, the S&P 500 energy index contracted at 3.7 %. WTI crude oil prices contracted by 9.9 %

Of course the composition of the companies making up the indices for Bursa Malaysia are different from that for the S&P 500.

If you are hunting for oil and gas companies to invest in, doesn’t it makes sence to look at Bursa Malaysia counters. In this context, Deleum looks like a good candidate. https://www.youtube.com/watch?v=WVC1fVZzyaw

It did well when crude oil prices were high. But when oil prices were in the trough part of the cycle during 2015 to 2019, the company performance deteriorated. Its performance improved over the past 2 years due to the better crude oil prices. Over the cycle, the Group delivered average returns that were greater than its cost of funds. The Group is also financially sound
When you compare Deleum ROE trend with the share price trend, do you think that there is still an opportunity to go in? https://i.postimg.cc/KYPBhG5m/Deleum.png

Sarawak Oil Palms (SOP) is a Bursa plantation company. From a ROE perspective, it performed as good as my reference Bursa plantation company – KLK. From a fundamental perspective, it looks like a good company. https://www.youtube.com/watch?v=9KhboTCMdEg

But is it a good investment? A good investment in one that can enabled you to make money. So you have to buy when the price is reasonable. Its current market price is about half its 5 year peak. Its LTM ROE is also about half its 5 year peak.
https://i.postimg.cc/G2gjFDDC/SOP.png
You might think that there is no margin of safety. But its average dividend yield over the past year was about 3.5%. On the balance of probability, it is a company worth digging further into.

Wasco is a Bursa energy services company with a volatile ROE over the past decade. It ranged from negative 34 % to postive 12 % with an average of negative 3%.

Over the same period the ROE of my reference Bursa energy company – Dayang - ranged from negative 27 % to positive 22 % with an average of pos-tive 5%. https://ujianehc.blogspot.com/2023/12/dayang.html

Wasco did not perform as well as Dayang. But Wasco 2023 ROE based on Sep 2023 LTM results show that it is around its historical high. And with the news about coming high crude oil prices, it may mean that the 2024 ROE will also be good.

When you compare Wasco ROE trends with the market price, you can see a reasonable correlation. But the current market price has yet to reach its historical high. Is this a short term investment opportunity?
https://i.postimg.cc/TYTvSy6J/Wasco.png

Malpac, a Bursa Malaysia plantation counter, is a Graham Net Net. The Graham Net-Net is a stock that is trading at a discount to its net current asset value (NCAV).

NCAV=Current Assets−Total Liabilities. The NCAV is often taken as a proxy for the liquidation value. This meant that even if the company were to be liquidated, investors could potentially make a profit because the market is undervaluing its current assets.

Malpac currently has a NCAV of RM 1.37 per share compared to its share price of RM 1.06 per share. Malpac has been a Graham Net Net for most of the past decade. Unfortunately if you have bought it years ago, you would not have been able to make money. This is because the company don’t really have any operations.

I have benefitted from buying Net Nets before. But this is because they were operating companies whose price became lower than the Net Net value due to poor market sentiments. They were not due to poor business prospects.

This is not the case with Malpac which is looking for a major business to get into. While it has submitted its property development plan, it will take some time for this to execute this. So if you are a fundamental investor, there are plantation companies or property companies with track records to hunt for. https://www.youtube.com/watch?v=Wn4p31y0CUQ

This is a Bursa energy services company that was only profitable in 3 out of the past decade. The last positive ROE was in 2019 but it was only a breakeven performance with 1.2 % ROE. The LTM projection is another breakeven return. If you are looking for other Bursa energy companies to invest in, there are better choices such as Dayang https://www.youtube.com/watch?v=quk378SFfCg

When hunting for companies in the wood-based products business, I found that those in Bursa Malaysia are mainly in the furniture sector. But many in the US are in the building materials sector.
This is because in the US, most houses are timber-based whereas in Malaysia, most houses are brick and cement based.
For example, Bursa Malaysia Dominan manufactures and sells engineered wood mouldings and laminated wood panel products worldwide. But is classified as in the furniture sector. On the other hand, NYSE Boise Cascade is one of the largest producers of engineered wood products and plywood in North America. Boise Cascade business is heavily influenced by the US housing sector.
When I compared the ROE trends for the past decade, I found that they shared about the same returns in the first half of the period. But Boise Cascade return in the second half shot up. But this was driven mostly by the past 2 years' outlier product prices, which have since declined.
https://www.youtube.com/watch?v=J--jjPbrc6I

Uzma – a potential fundamental investment.

Uzma is a Bursa energy services company whose ROE over the past decade is about the same as that for my Bursa reference company – Dayang. https://ujianehc.blogspot.com/2023/12/dayang.html

The unusual thing is that I could not find any meaningful correlation between its revenue and the Brent crude oil prices. This is from both a one to two years lagging and leading perspectives. I interpret this to mean that its performance is not so linked to crude oil prices.

When you compare its ROE trend with its share price trend, you can see that the share price has yet to catch up with the improved performance. This is a counter worth digging deeper into.
https://i.postimg.cc/GmLV5mG8/Uzma.png

Since its listed on Bursa Malaysia in Nov 2017, its revenue grew at 24 % CAGR (2018 to Sep LTM 2023). Over the same period net income grew at 56 % CAGR. But its total assets only grew at less than 3 % CAGR.
So, is this a growth company? What do you look at when assessing whether a company is a growth one? Professor Damodaran opined that we should link growth to the business fundamentals. Growth needs to be funded and can be estimated from the fundamental equation of growth = Return X Reinvestment rate.
I estimated that over the past 5 years, its Return as measured by the NOPAT/Capital averaged 6%. Its Reinvestment rate average 12%. Growth was less than 1 %. So is this a growth company?
Why is growth important from an fundamental investor perspective? This is because the intrinsic value depends on what you estimate as the growth rate. https://www.youtube.com/watch?v=9KhboTCMdEg

This is a Bursa energy services company. My analysis shows that over the past decade, there was a 0.72 correlation between the Brent crude oil prices and T7 Global revenue for the next year. This meant that Brent crude prices for the year can explain for about half of T7 Global revenue for the coming year. https://i.postimg.cc/tTYc8nHx/T7-Global.png
For the short term fundamental investor, this is must be a useful forward indicator. Unfortunately the average Brent crude oil prices in 2023 is about 25 % lower than that for 2022. Based on this simple indicator, we would expect T7 Global 2024 revenue to be lower than that for 2023.
This is not exactly good news. Its Sep LTM 2023 ROE was about 10%. Over the past 5 years before this, they were at best about 7%. The market reacts to short term news. Does it mean that the current prices are expected to decline?
If so why look at T7 Global when there are other Bursa companies while having an oil & gas arm is not totally dependent on it? An example is Naim which owns Dayang. https://www.youtube.com/watch?v=quk378SFfCg

SHChan is a Bursa Malaysia plantation company. But when you look at the profit contribution over the past 5 years, the majority came from non-palm oil activies such as from the energy and facilities management segment.
From a fundamental perspective, over the past decade, half the time it lost money. At when it was profitable (excluding 2021 with a one-off recognition of negative goodwill) its ROE was less than 6%.
It is ironic when you have non palm oil companies such as MKH and KFIMA diversifying into plantations while SHChan seemed to be growing its non-palm oil segment.
When benchmarking performance, comparing it with the Bursa plantation sector may not make sense. I guess until it articulate a clear business direction, there are better plantation companies to look at.
https://www.youtube.com/watch?v=m31TkvDgthc

As a long-term value investor, the advice I have received is not to listen to the news or watch market prices daily. However, I have learned over the years to ignore the one about watching prices. This is because a spike in share prices does not last long and you may miss an opportunity if you don’t watch prices daily.
A good example is Heitech Padu. The stock price went up by 22% yesterday compared to its Friday closing price. 22 % over 3 days is not a normal thing.
So the price spike interests me as it cannot be justified based on its historical performance. So is there going to be some announcement that provides a quantum leap in business performance, or it this some speculative play?
To be transparent I have some shares here carried forward from years ago. I have also had a detailed fundamental analysis of Heitech to justify my view.

Propel Global (Bursa Malaysia: PGB) is an energy services company. The Bursa energy sector did not do very well over the past decade as can be seen from the ROA trend of the sector. Refer to the top chart. https://i.postimg.cc/L5cJb3t3/PGB.png
When I looked at PGB performance, I found that for most of the decade, its ROA under-performed my reference Bursa energy services company – Dayang. It only did better over the past 2 years. Refer to bottom chart.
Is PRG turning around? I would not look at its 2022 results as a big part of the profits came from a one-off disposal of assets. I am a long term investor holding onto stocks for > 5 years. So I look for long term performance rather than one particular year. As such I would not look at PGB.
Sure there may be new management, but until there is a longer track record from them, I would KIV this counter. https://www.youtube.com/watch?v=quk378SFfCg

According to the Efficient Market Hypothesis, the market price reflects the “true” value of a company as it incorporates all known information. Behind this is the “wisdom of the crowd” concept. This is the idea that large groups of people are collectively smarter than individual experts when it comes to problem-solving and predicting.

Take the example of Sg Bagan Rubber, a Bursa plantation company. When you look at the ROE and share price trend, you can see the share price spiking currently. The last time it occurred was in mid 2021 when the ROE peak. https://i.postimg.cc/Xvqx0kJ4/Sg-Bagan.png
I suspect that it is because of the proposed takeover of Kuchai Dev. Is the market predicting that the coming ROE will be higher than 7.5 % because of the Kuchai Dev?
I think that the wisdom of the crowd does not apply to projecting business performance. If any, it probably applies to market price.

But then the wisdom of the crowd only works if every individual in the crowd thinks independently. I am have my doubts about this independent thoughts when it comes to the stock market. I think herd and lemming behaviour are more likely.

So what can you make about the Sg Bagan market price? I am more inclined to see it as herd behaviour rather than the wisdom of the crowd.

When it comes to is business performance, I rather trust a fundamental analysis rather than the wisdom of the crowd. While I have yet to do a fundamental analysis of Sg Bagan I think that its current business underperformed KLK, my reference Bursa Plantation sector. Secondly, as my analysis of the property sector has shown, it is not an automatic ticket to making money. https://www.youtube.com/watch?v=Wn4p31y0CUQ

Ever since coming across an article suggesting that the packaging sector would benefit from the growth of online retailing, I have been hunting for packing companies. My search went beyond Bursa and included US.
Why the US? In 2023, the total return (dividend + capital gain) for the Bursa KLCI was about 3%. The S&P 500 achieved 26%. Even accounting for forex losses, you can see why the US is better. But this does not mean buying blindly. You still need to do fundamental analysis. Take the example of Avery.
This is NYSE a global materials science and digital identification solutions company. Despite its acquisitions, its revenue only grew at 4.4% CAGR over the past 10 years. While ROE and net margins have been trending up, there were no improvements in other operating parameters, I think that the stock is fully priced. https://i.postimg.cc/C1cQgNs2/Avery-Dennison.png
On the other hand, Bursa Asia File has diversified into food packaging. Not exactly sexy, but it has a margin of safety. The only concern is how long it will take for the market to re-rate. If I can find an equivalent US packaging company, that would be priority. In the absence, Asia File is there. https://www.youtube.com/watch?v=CPtsfLAnaEc

I have a simple framework to classify each stocks. After I have done a fundamental analysis and valuation, I see which cell it falls into based on the matrix shown below. The cells are formed by the combination of margin of safety on the horizontal axis and business fundamentals on the verticle axis. https://i.postimg.cc/pT31q7pR/Co-rating-framework.png
Conceptually

• Cell A – best investment opportunity

• Cell B – this could be Warren Buffet “wonderful company at fair price”

• Cell C – Ben Graham “cigar-butt” investment

• Cell D – avoid

In this context, I would say that Scomi Energy, a Bursa oil & gas company, falls into cell D. If you want to see a cell A company, have a look at Petron Malaysia. https://www.youtube.com/watch?v=YrMdgjFHHaU

Many investors like to use relative valuations to compare the “worth” of a company. Yet when it comes to fundamentals they don’t follow through by using relative fundamentals.
I illustrate this with the example of Riverview Rubber, a Bursa Malaysia plantation company. My reference company is KLK – this is partly because I have a detailed fundamental analysis and partly because I happen to know some of the senior managers there.
On a PE basis, Riverview is relatively expensive while it is cheap from a PBV basis
Riverview KLK
PE 38 18
PBV 0.6 1.7

When you compare their respective ROE treads as per the chart, you can see that Riverview under performed KLK over the past decade. It is not just the numbers. Because I have a reasonably good picture of how KLK numbers came about, I can have a “qualitative picture” how Riverview under performed. https://i.postimg.cc/MZNbTDq1/Riverview-vs-KLK.png
If you expect Riverview to be taken over like Boustead Plantation, you would look at the PBV. But if there is no sale, the market is likely to rate it based on its earnings.
On a PE basis, Riverview is more expensive yet on a ROE basis it is worse. This is not Buffett wonderful company at fair price. Neither is this a Graham cigar-butt.
If you want to look at some other Bursa companies with some plantation activities, have a look at KFIMA. https://www.youtube.com/watch?v=m31TkvDgthc

Bursa listed Perdana Petroluem is 64% own Bursa listed Dayang. Dayang is basically an oilfield services company with a small marine charter segment. However in 2015 it acquired Perdana which is mainly in the marine charger business.
When you look at the ROE for these 2 companies over the past decade, you can see Dayang outperforming Perdana. From a fundamental perspective, why would you want to own Perdana? From a risk mitigation perspective, Dayang is more diversified.
Of course the elephant in the room is whether Dayang made a mistake in acquiring Perdana. With hindsight it was better not to do so.
Moral of the story? Many companies have both organic and acquisition growth. But not all acquisitions added value to the shareholders. https://www.youtube.com/watch?v=quk378SFfCg

Bursa listed Perdana Petroluem is 64% own Bursa listed Dayang. Dayang is basically an oilfield services company with a small marine charter segment. However in 2015 it acquired Perdana which is mainly in the marine charger business.
When you look at the ROE for these 2 companies over the past decade, you can see Dayang outperforming Perdana. From a fundamental perspective, why would you want to own Perdana? From a risk mitigation perspective, Dayang is more diversified.
Of course the elephant in the room is whether Dayang made a mistake in acquiring Perdana. With hindsight it was better not to do so.
Moral of the story? Many companies have both organic and acquisition growth. But not all acquisitions added value to the shareholders. https://ujianehc.blogspot.com/2023/12/dayang.html

I am a fundamental investor that relies on historical information to analyse and value companies. Whenever I tell this to investors, they will often cite the well known disclaimer used by all financial advisers – past results does not equal future performance.
When I look at a company’s performance, I know that it is due to the “economic and other resources set-up (strategies, management, funding, etc).” that the company has. So if these result in a good performance in the past, there is a good chance that it will continue to do so in the near future.
Don’t think in terms of a continuation of the past numbers. Think in terms of the continuation of the past set-up That is the reason why track record is important in my analysis. It gives me confidence that the company has the set-up in place to deliver good performance.
Take the example of Rimbunan Sawit which had negative ROE yearly for the past 8 years. In contrast, here are many plantation companies (eg KFIMA) that had delivered positive ROE yearly for the past 8 years. So it cannot just be an external problem. I would think that unless there is some major change in the setup, the past = the future.

I am a fundamental investor that relies on historical information to analyse and value companies. Whenever I tell this to investors, they will often cite the well known disclaimer used by all financial advisers – past results does not equal future performance.
When I look at a company’s performance, I know that it is due to the “economic and other resources set-up (strategies, management, funding, etc).” that the company has. So if these result in a good performance in the past, there is a good chance that it will continue to do so in the near future.
Don’t think in terms of a continuation of the past numbers. Think in terms of the continuation of the past set-up That is the reason why track record is important in my analysis. It gives me confidence that the company has the set-up in place to deliver good performance.
Take the example of Rimbunan Sawit which had negative ROE yearly for the past 8 years. In contrast, here are many plantation companies (eg KFIMA) that had delivered positive ROE yearly for the past 8 years. So it cannot just be an external problem. I would think that unless there is some major change in the setup, the past = the future. https://ujianehc.blogspot.com/2023/11/bursa-plantation-sector.html

The top 3 countries in terms of population are China, India and USA. But when it comes to the stock market performance, the number of people doesn’t count.
From the end of 2010 to 2023, the CAGR for their stock market indices were
• S&P 500 (US) – 10.8 %
• Nifty 50 (India) – 10.2 %
• SSE (China) – 0.4 %
• KLCI (Malaysia) – negative 0.3 %

You can see that the US stock market had one of the better growth rates. The common cited reasons for this are because it has better
• Global market intergration
• Liquidity
• Political Stability and Regulatory Environment
• Market Maturity and Investor Sophistication.
• Financial Infrastructure

Moral of the story? If you are a fundamental investor and you want the market to re-rate your stocks faster, shouldn’t you focus on stock in those countries with better track record of returns.
So why look at Petronas when you have the likes of Shell, ExxonMobil, BP? https://www.youtube.com/watch?v=YrMdgjFHHaU

Crude oil prices are cyclical and if the revenue oil & gas companies are closely linked to crude oil prices, we can use crude oil prices as an indicator of its performance.

Take the example of Sapura Energy. When I looked at the past 10 years correlation between its revenue and Brent oil price for the same year, I found that there was a negative 0.31 correlation. Refer to the top chart.
https://i.postimg.cc/L60Y83Pj/Sapura-correlation.png
But when I offset the revenue (eg by comparing the 2015 revenue with the 2013 Brent oil price and so on), the correlation was 0.85. This meant that changes in Brent oil prices explained almost ¾ of Sapura Energy revenue 2 years later. Refer to the bottom chart.

In other words, Sapura Energy 2023 performance was linked to the 2021 Brent oil prices and so on.
We know that Brent prices in 2022 and 2023 were higher than that for 2021. Does the correlation meant that in 2024 and 2025, we will see higher revenue for Sapura Energy?
If so, will this mean that we will see a turnaround for the company? Can we use the same analysis for other Bursa energy companies? https://ujianehc.blogspot.com/2023/12/dayang.html

The Malaysian property sector had been soft for many years. This slowdown long before Covid-19. A few years back I wrote an article about whether the Bursa property sector will recover by 2024. My idea of recovery is to get back to the 2016/17 performance. https://www.youtube.com/watch?v=Wn4p31y0CUQ
I think the sector is going to do well in 2024. If you look at the housing starts data you can see an uptrend since 2020. It normally takes about 3 to 5 years for property projects to be completed from the start of construction. As such housing starts can be a forward indicator. A continuous uptrend will mean that performance of property companies in the coming years will be better.
The chart below “synchronized” the housing starts with the revenue for the large Bursa property companies (those with equity > RM 1 b) You can see that although the housing starts peaked in 2014 the sector revenue peaked a few years later in 2016/17. https://i.postimg.cc/x87BTw7n/Housing-starts-vs-Revenue.png
While we have yet to see the data for the housing starts for 2023 or even the large companies revenue for 2023, I am confident that they will be higher than those for 2022. The questions are whether the 2024 revenue will be at the same level as that for 2016/17. And if so, will the stock price respond accordingly.

The Malaysian property sector had been soft for many years. This slowdown long before Covid-19. A few years back I wrote an article about whether the Bursa property sector will recover by 2024. My idea of recovery is to get back to the 2016/17 performance. https://www.youtube.com/watch?v=Wn4p31y0CUQ
I think the sector is going to do well in 2024. If you look at the housing starts data you can see an uptrend since 2020. It normally takes about 3 to 5 years for property projects to be completed from the start of construction. As such housing starts can be a forward indicator. A continuous uptrend will mean that performance of property companies in the coming years will be better.
The chart below “synchronized” the housing starts with the revenue for the large Bursa property companies (those with equity > RM 1 b) You can see that although the housing starts peaked in 2014 the sector revenue peaked a few years later in 2016/17. https://i.postimg.cc/x87BTw7n/Housing-starts-vs-Revenue.png
While we have yet to see the data for the housing starts for 2023 or even the large companies revenue for 2023, I am confident that they will be higher than those for 2022. The questions are whether the 2024 revenue will be at the same level as that for 2016/17. And if so, will the stock price respond accordingly.

Aptar is a US packaging company that is global leader in drug delivery, consumer product dispensing, and active material science solutions. It achieved revenue and profit growth over the past 11 years, but its ROE in 2022 was what it was in 2012. This was because its operating efficiencies have been declining.

You may think that this is a bad performance until you look at SGX’s New Toyo (the holding company for Bursa’s Tien Wah Press). The ROE of both of them in 2022 were much lower than those in 2012.

Moral of the story? Maybe the packaging sector is a tough one. But then I came across a report stating that the packing sector is expected to boom following the growth on online sales. Online sales are boosting the demand for packaging. So maybe the Bursa packaging companies should relook at their strategies. https://www.youtube.com/watch?v=zuL2PB7Kwkg

Over the past decade, there were only 2 years with positive ROE for PLS Plantation. This is not a Bursa plantation company with strong fundamentals. Yet the share price ranged from RM 0.55 per share to RM 1.55 per share.

Moral of the story? You can make money as a trader or invest based on fundamentals. But you need the skills to be successful in either one.

Me? I have not been successful in trading so I stick to being a long-term fundamental investor. In this context, PLS is a counter that I will pass. There are other Bursa plantation companies with stronger fundamentals. https://www.youtube.com/watch?v=9KhboTCMdEg

Petra Energy is a Bursa oil & gas company providing a range of integrated brownfield services and products for the upstream oil and gas industry in Malaysia. As such you should expect its performance to be link to crude oil prices.

From 2013 to 2022 there is a 72 % correlation between Petra Energy revenue for the year with the crude oil price of the preceding year. This meant that crude oil prices explained about half of the changes in revenue.

Crude oil prices this year is much higher than those in 2019. If you look at Petra Energy ROE trend for the past decade, you can see that it peaked in 2019. Does this mean that the ROE in 2024 would be better than that in 2019? If so, then the share price of the company has yet to reflect this.
https://i.postimg.cc/PJmGZ92C/Petra-Energy.png

Is this a price mismatch? For more insights into the Bursa oil and gas sector, see
https://www.youtube.com/watch?v=quk378SFfCg

According to Professor Damodaran, when you analyse cyclical companies, you have to look at the performance over the cycle. This is because the performance at any one time depends on where they in the cycle. Extrapolating from the current performance will lead to a misleading picture.

The palm oil sector is cyclical. As such when I look at the performance of plantation companies, I look at the past decade or more results to get the cyclical picture.
A good example is Pinehill Pacific, a Bursa plantation company. You can see from the chart that over the past 2 decades there was only one year with positive ROE. https://i.postimg.cc/0NgdV3YN/Pinehill.png

This is a terrible cyclical performance from a fundamental perspective. Why invest when there are better Bursa plantation companies? https://www.malaysiastock.biz/Blog/BlogArticle.aspx?tid=27266

In Malaysia, the Bahasa term “jaguh kampung” (literally “village champion”) is meant to belittle a person who is so full of himself after achieving some record feat in the country. The idea is that the person should be benchmarking himself globally rather than just nationally.
I fell into this “village champion” category when I first started value investing as I had a track record of bearing the KLCI (Bursa Malaysia index) over several years. Then I started to look at investment case studies and invariably the majority of them relate to US stocks.
I am not sure whether it is the stronger economy or the size of the market, but the stock market returns of many US companies far exceed those in Malaysia. To give you a sense of this, over the past 25 years, the KCLI grew at 3.9 % CAGR compared to the S&P 500 CAGR of 5.8 %.
The chart below is another example. It compared the share price trend of Bursa Malaysia Petronas Dagangan with some of the US Oil & Gas companies with petrol stations operations. It is not exactly apple to apple but you can see the better share price performance of the others. https://i.postimg.cc/FHJ829vj/Petronas-Dagangan.png
Beating the KLCI was not so great. If I had set my sights on the US market years ago, I might have made more even if I just matched the S&P 500.
Moral of the story. To max your stock returns, you should focus on those stock exchanges with the better returns. There is no point being the village champion unless your village is the best in the world.
Nowadays I have diversified my investments to cover the US as well. For more insights from case studies to go “Can we learn anything from investment case studies?” https://www.youtube.com/watch?v=0FMpj9iVo9E