stock_investor << I agree that value investing do works in bursa. But i had been consistenly investing in nasdaq and hkex for past few yrs... what i can say is many stocks in bursa cannot earn money consecutively for few yrs unlike in nasdaq and hkex... u can hold a stock in bursa but until certain extent
>>

True. Perhaps consumer product stock in Bursa has that quality, like Nestle, DL, or beer business as shown above.

qq3<<
words still fail me. I still cannot find the right words to express myself but I know I am right ......and your method will lead to failure.
>>

<<
In growth investing, you don't talk so much about Margin of safety any more ( Margin of safety is the language of value investors). In growth investing you are guided by your business sense and willingness to take calculated risks. You know some of your bets willl not work out but if you are good, enough of them will work out for you to make money
>>


I like you. You think out of the box, lead me to a next question: How would u know the calculate the risk without FA or if the safety margin is <0% even with whopping growth?

Anyway, to me, value or growth investing is the same, the variables is growth rate estimation. In growth investing, it may be more risky as you may not know how the growth turn out to be.

Of course, I believe you know what u investing as you have a very good business sense.

Good write-up KC.
I don't see why value investing won't work in Bursa (or any other market) as long as the business is generating free cash flow which eventually transformed to growth or paid-out as dividend. It is very logically.

I doubt KFima not a FA stocks..

Posted by Kian Leong Lim > Mar 7, 2015 09:44 PM | Report Abuse
You have to see cost of the Insas-PA and dividend separately:
For the dividend of 4% or RM$40 per year for 5 years total is RM200, you cost is RM0.88 right now or you bought initially at RM1 with warrent compensation is the same. We use the lowest price, so we use RM0.725 (those that bought initially) or the total cost is RM725 for RM200 of dividend payments.
But the dividend payments also must be calculated by the time-value of money because of 5% inflation every year, so you are getting back only RM200*0.787=157.4 which is 157.4/5years=RM31.5 per year of today's money value.

But those who buy at RM0.80 or RM0.80+ they are not compensated by the warrant, and Mr. KCCHONGNZ is telling people the return is 9% (he forgot to subtract inflation of 5%), he didn't tell you whether need to pay tax or not on the dividend too?



Valuation of PA is very simple. Unlike many other complicated valuation model, it is very straight forward. Value of PA can be written as the sum of the present values of an annuity (coupon or it also called dividend) and a single cash flow (face value of bond). This is basically discount cash flow method.


Discount Factor 9.0%
Intervals 1 2 3 4 5
FV of Dividend 0.04 0.04 0.04 0.04 0.04
Discount Factor 0.917 0.842 0.772 0.708 0.650
PV of Dividend 0.037 0.034 0.031 0.028 0.026
Sum PV of Dividend 0.156

FV of PA 1.00 at Year 5
PV of PA 0.650
IV of PA 0.806 (0.156 + 0.65)


For simplicity, I take 5 intervals (instead of 10 interval), but the return shouldn't be far away. From above, the return of PA at RM 0.806 is 9%. Most of assets including stock, bond, preference share, properties and REITs are valued by using discount rate in which inflation risk has been considered. If inflation increased, every assets will be affected too, not only INSAS-PA. They are all under equal foot. Hope you understand that and stop accusing people by using wrong fact.

I believe if you read, learn and understand what KCChongnz has posted so far including his 100 blogs/articles and 4200++ constructive comments in i3, you can be very good investor now. Please open your heart to read and understand what he wrote and tried to convey. I believe you will know the correct path of investing and investing style suit you most.

Yes, I make some losses from Padini and BIMB-WA AT THE MOMENT. But investing is long run practice, say 3 to 5 years, not in months. I believe I will regain the losses in long term. Despite these losses, I actually earned substantially from his pick Pintaras (RM 2.90), KSL (RM 2.20 before split), Latitud (RM 3.05), Homeritz (RM 0.81), Scientx (RM 5.14), MFCB (RM 2.20) and many others.

How about you?

So please be positive and remove all your "50 Shade of Grey" in your heart.

Don't follow blindly the donfollowblindly..
Please wide open your eye and heart to learn and read from others instead of comment blindly...

I from oil and gas industry.. the industry is not good now and my company is currently undergoes retrenchment.. think twice when u pick oil and gas stock..

http://klse.i3investor.com/servlets/pfs/42201.jsp

Hope I not too late..
Thanks in advance.

Hi GemDigger,

1 The CapEx for past few years is much lower than its depreciation (CapEx < Depreciation), do you think this is sustainable? Without CapEx, how much growth you expected?

2. ROIC can be boosted by lower tax rate, do you know why the tax rate is so low (< 10%)and is it sustainable in long term?

3. FCF can be misleading as explained in (1).

4. How you compute the fair value of RM 1.50, especially for cyclic business?

Good write-up and very good discussion here..
I think one should look at a company's operating efficiency (especially ROIC) & risks when coming out the fair PE.

High efficient company (literally high ROIC)can generate higher FCF as compare to a low efficient company for the same amount of capital. FCF is the owner earning, not EPS. Hence, a high efficient company deserved high PE ratio than a low one.

A stable market leader generally has lower risk. I think it is quite risky in investing Supermx as you can see from the recent fire incident. Can you assure no fire incident will happen again in near term?

So, do you think Supermx with PE of 10 is fair, overvalued or undervalued? Don't forget PE ratio can be misleading if you compare a company have huge net debt to a net cash one.

Hi ag397,
please have a deeper look into Bonia. Considering the recent share split and bonus exercise, the PE should be around 21++..

sunztzhe,
Actually, I have negligible holdings in the warrant, hence I have no (or little ^^) intention to push the warrant price.

I have provide the warrant value prospect from 2 different point of view; eg: time value of warrant & growth prospect of underlying BIMB.
Anyway, the value (or price?) of the warrant is always determined by buyer & seller (demand & supply) and hence their view on the warrant.

For the dilution of EPS due to exercise of warrant, bear in mind that once the warrant is exercise, the underlying BIMB will receive RM 4.72 cash per warrant. It can use the cash to generate higher return (for business with high ROE, etc) to boast the EPS,

EPS forecast? If 10% growth assumed, what is the warrant value? Based on my previous post, you can do your own forecast, can work out what should be the warrant value.

Happy investing

Let see the warrant value from another angle.

Assume BIMB will grow (and hence its price) at CAGR of 10% from 2014 to 2023. The underlying BIMB price will grow from current RM 4.39 to RM 10.35 at 2023. The warrant BIMB-WA will worth RM 5.63 (RM 10.35 - RM 4.72) at 2023.

With discount rate of 20%, the present value of the warrant is RM 1.09 [ 5.63 / (1.2)^9 ].

Is the CAGR at 10% for the next 9 years sustainable? Is growth assumption is conservative?
If BIMB grow at CAGR of 1% extra to 11%, the BIMB-WA would worth RM 1.26.

In your opinion, what is BIMB "growth rate" in future 9 year?

CAGR PV of WA
5% 0.41
10% 1.09
15% 2.08
20% 3.48

What is the value of BIMB-WA?

http://klse.i3investor.com/blogs/kcchongnz/49210.jsp

please refer the above warrant pricing by using Scholes & Black model (Nobel price winner). It was written by kcchongnz about 5 months ago.

"Theoretically", warrant price can be determined by 1) underlying mother price 2)exercise price 3)time to expiry 4)interest rate (FD rate) 5) dividend & 6) implied volatility. Pls refer the link for detailed explanation.

Let study the hot stock KNM & its warrant KNM-WA.
Based on today closing price RM 1.04, the warrant is trading at RM 0.385. With below input, we can compute the implied volatility of KNM-WA. In this case, the implied volatility is 44%.

KNM-WA at RM 0.385
1) Underlying Price = RM 1.04
2) Exercise Price = RM 1.0
3) Days till Expiry = 1197 (Today till 15-Nov-2017)
4) Interest Rate = 4.0% (FD rate)
5) Dividend Yield = 0%
6) Implied Volatility = 44%

So what is the implied volatility of BIMB-WA at RM 0.775?
1) Underlying Price = RM 4.39
2) Exercise Price = RM 4.72
3) Days till Expiry = 3407 (Today till 4-Dec-2023)
4) Interest Rate = 4.0% (FD rate)
5) Dividend Yield = 1.4%
6) Implied Volatility = 9.3%

BIMB-WA is currently trading at 9.3% only compare Its historical volatility of 29.5% (see above kcchongnz blog). And, it is still far lower than KNM-WA volatility of 44%.

So what is "YOUR" implied volatility?
Implied volatility Theoretical Price (RM)
9.30% 0.775
15% 0.99
20% 1.19
25% 1.39
30% 1.58
35% 1.77
40% 1.95


You can run calculation yourself in following link:
http://www.option-price.com/

Health is lifetime investment...

How would u know by investing the above stocks (kfima, ptaras, etc) are the opportunity cost at the time of buying (before it rise 20% return) ? What if the stocks do not move for a year, do it still considered as opportunity cost? in my opinion, opportunity cost can only be optimised by reasonable portfolio diversification & avoid loser (fundamentally).

Hi KC, may I know what method you use to calculate the historical volatility of 29.5%? If standard deviation is used in your case, what is the time frame?

I did some calculations, but the value is slightly differ from your calculated value.

period σ
1yr 41.1%
6months 27.2%
3months 24.8%
1month 8.1%

I was told that the book is out of print (stop publishing) by Kinokuniya SG. I guess Amazon is the only option.

sense maker,

For steel biz, its Financial Result ended 30-Sept-2013 quoted "The stainless steel fitting recorded marginal profit as business operations stabilized since commencement of operation in the previous quarter." You can also refer to its subsidy web as below:
http://www.ktfittings.com/Company-Profile/

I believe you are referring to FACB bedding brand named Dreamland instead of dunloppillow which is its competitors.

Financial Year - 2014 Q2 - 2014 Q1 - 2013 - 2012
Bedding
PAT (RM' 000) - 1,360 - 406 - 3,377 - 3,150
EPS (cent) - 1.62 - 0.48 - 4.03 - 3.76
Associate
PAT (RM' 000) - 1,376 - 801
EPS (cent) - 1.64 - 0.95
Interest income
PAT (RM' 000) - 1,128 - 1,426
EPS (cent) - 1.34 - 1.70
Steel
PAT (RM' 000) - -738 - 5
EPS (cent) - -0.88 - 0.01

Total 2Q EPS (cent) - 6.87
Annualized EPS (cent) - 13.74
Trailing PE - 9.17

At reasonable trailing P/E of 9.2, either better performance from steel segment with little growth from bedding segment, possible special dividend or better use of the cash will unlock the value of the stock. In my opinion, it is a defensive stock which is safe to invest at the current market.

Limited downside with potential upside (potential catalysts from steel business recovery, special dividend or acquire new business) making this stock attractive to me.

Very appreciate for your valuable explanation & guidance. I learned all the financial statements & valuations from your articles & recommended books. It leads me to the right way (at least for me) of stock investing. Thanks again.

Hi KC,
I did some simple calculation on FACBIND below. It appears to be negative enterprise value stock now (closing price of RM1.26 dated 28-March). Do you considered it as an arbitrage opportunity? And do you see any pitfall or risk in investing in FACBIND despite its cash rich position, disposal of losing money division & low margin bedding business? TQ

Financial Result Ended 31 December 2013:
Enterprise Value
Closing Price at 18/3/2014 1.26
No. of Share 83,882,800
Market Capital (RM' 000) 105,692
Minority Interest (RM' 000) 16,606
Total Debt (RM' 000) 0
Associates (China) (RM' 000) 22,285
Excess Cash 147,908
TEV (RM' 000) -47,895

Deposits, cash and bank balances (RM' 000) 147,908
Current Asset (RM' 000) 181,126
Current Liabilities (RM' 000) 12,972
Excess Cash (RM' 000) 147,908
Excess Cash = Total Cash - MAX(0,Current Liabilities-Current Assets)

Graham Net Net
Deposits, cash and bank balances (RM' 000) 147,908 100% 147,908
Investments (RM' 000) 27,175 100% 27,175
Associates (China) (RM' 000) 22,285 100% 22,285
Receivables (RM' 000) 17,238 75% 12,929
Inventories (RM' 000) 15,980 50% 7,990
PPE (RM' 000) 6,046 30% 1,814
Deferred tax assets (RM' 000) 1,000 0% 0
Total assets (RM' 000) 237,632 ------- 220,100
Total liabilities (RM' 000) 13,164 100% 13,164
Net assets (RM' 000) 224,468 ------ 206,936

No. of Share 83,882,800 83,882,800
NAB (RM) 2.68 2.47

Earning Power Value (EPV) which elaborated by KC in below link, I believe its belongs to "Net Present Value" category.

http://klse.i3investor.com/blogs/stock_pick_challenge_2013_2h/34201.jsp

Thanks KC for summarizing the valuation methods and giving valuable calculation example.
Highly appreciate that.

Joonism, you can refer to the links posted by Tan KW before. It explains your doubt above.

http://klse.i3investor.com/blogs/kianweiaritcles/44139.jsp
http://klse.i3investor.com/blogs/edu_morg_star/31605.jsp
http://klse.i3investor.com/blogs/edu_morg_star/31670.jsp

Below is excel template readily in Internet. Please do some modification for the said debt & minority interest adjustment.
http://www.focusinvestor.com/DiscountedCashFlows.xls

Happy CNY..

Hi kcchongnz, as higher growth firm is always deserved for higher PE.. But question is how we get to know the fair PE of a firm with particular growth rate?

From below link ,
http://klse.i3investor.com/blogs/kianweiaritcles/36515.jsp
B. Graham suggest that typical PE ratio for firm with 0% growth is around 8 to 8.5.

Different industry would have different PE ratio, eg >20 for oil & gas. However, how can we justified the PE ratio based on growth rate? by DCF method?

I have done some rough calculation by using DCF method with your above example by assuming
a. 10 sen earning a year is equal to FCF generated
b. 9% discount rate (for well-known and stable outlook firm)
c. terminal growth rate after 5th year: 3%

Earnings Growth 5% 10% 15% 20% 25% 30%
IV based on DCF 1.60 1.97 2.41 2.93 3.53 4.24
PER 16.0 19.7 24.1 29.3 35.3 42.4

please advise. tq

i think its good time to "realize" the loss and ride the young energetic horse (ie ptaras, kfiama, presbhd etc) now..