I like the numbers but I m not too excited about the Vietnam associate's prospects which has been on the decline since 2017. Q42019 especially showed a big drop in associate earnings with no explanation (maybe Honda is eating more of their market share?). The Vietnamese gov is putting measures to reduce the number of motorcycles on the roads. Q1 and Q2 2019 numbers already showed a slowdown in the motorcycle market there with a decline in sales after 4 consecutive years of growth.

https://vietnaminsider.vn/vietnams-motorcycle-sales-decreased-in-q2-2019/

Motorcycle sales in Malaysia should see steady growth but nowhere near double digits. FY19 was probably spectacular due to a short period in Q1 and Q2 after GE that saw GST zeroised for 3 months spurring a spike in buying. I think it may normalize moving forward.

Just my 2 cents but I m putting it on my watchlist for now.

I agree that sequence of return risk is very relevant for someone who is in "decumulation" (ie retirement) compared to someone who in accumulation mode (working). While John is retired, he may still have decades of investing ahead of him and stocks provide a good way for him to keep up with inflation. If John can comfortable live off 6% of his EPF assets then yes this is the easiest and safest route to go.

However, if he thinks it is not enough and perhaps he may need more due to potential medical inflation or desire to leave a legacy, there could be other options. One would be to put aside about 3 years of living expenses away in a safe instrument say bond fund/EPF and invest the rest in good undervalued stocks. This 3 year buffer can be drawn upon when the market is not so good so that he doesn't end up selling his stocks at the low point of a bear market. If the market continues to go up, then he should replenish this 3 year "bucket" with proceeds from dividends/capital gains.

KC, I believe your returns did not take into account dividends received. For example Axis Reit, the adjusted price on 26/8/2013 after including dividends is RM 1.2 and not RM 1.71.

https://finance.yahoo.com/quote/5106.KL/history?period1=1377446400&period2=1535212800&interval=1d&filter=history&frequency=1d

I think John in this example can be considered "lucky" that he didnt make money in the stock market using the wrong approach in the early stage. Imagine if he had doubled or tripled his money using the wrong process and was convinced of his god given skills. The damage from this overconfidence would a be a lot bigger further down his investment career.

Really inspiring. Thanks !

@Ricky Yeo

Your answer for item 1
https://www.divestopedia.com/definition/881/quality-of-earnings

Fully agree with Ricky's explanation here. The caveat here is if those land are non-operating assets that do not generate any cashflow from operations. Then in that scenario, those value can be added on top of the DCF derived value.


Posted by Ricky Yeo > Oct 2, 2017 06:17 AM | Report Abuse

@ probability - You call it invisible cash flow for a reason, land does not generate cash flows that can be TAKEN OUT by the owner no matter how many times the land value appreciates.

This is a 'Either Or' Logic.
The owner of the business either liquidate the whole business NOW to unlock the land value and lump sum cash flow. Doing this will terminate all future cash flow.

Or the owner continue the business as a going concern into the future and the invisible cash flow from land appreciation will never be taken out.

Read more: https://www.wallstreetoasis.com/forums/how-dcf-accounts-for-assets-value

Keep this thread open until we come to a clear understanding. This needs to be a win-win situation where we all learn.

"Shareholders must realise that this corporate exercise to get more cash is cheaper than borrowing money from banks."

True but from the perspective of the management. Not shareholders haha.

@ValVe How do you view the increasing raw material cost impact to PPHB's prospects ? Pulp prices are on the rise if you look at Muda holdings recent quarterly commentary.

I have taken profit already. Most of the gains were revaluation gains. The property segment in fact recorded losses this round.

"I dont have anything else to buy if I sell"

haha I always use this excuse too

Lets see RM 30k with RM 4k per month translates to 48k per year. That is 160percent per year. If you compound you will be a millionaire in less than 4 yeara time. Sounds too good to be true ? Because it probably is !

TanKW, I m not participating this year as I dont have much time to hunt for stocks on Bursa this year. Will be looking at the participants for ideas. Thanks

II I think u added the wrong warrants for gadang. Anyway dont be too discouraged. Fundamentally some of those stocks are still good, just need to wait a little longer. Good luck next year !

Great job OTB. For a diversified portfolio this is a very good return.

The exercise of the warrant could be another way to raise cash for the company to undertake its expansion. Just my guess.

Dividends/bonusupdated. Reinvested dividend proceeds into Notion

Nice article Jay. I just want to point out that the timeline for regularisation of a PN16 company can take more than 1 year (not fixed like a SPAC). You can take a look at Premier Nalfin (a similar PN16 type arrangement), they have been in PN16 since 2012 if I m not mistaken.. keep requesting for extension and multiple failed RTOs during this period. Its hard to say the same wont happen here.

Icon, do you know what is the investment property in their books about ? Is that a new expansion or some factory they re planning to sell ?

stockmanmy I m disagreeing with your statement that applying KC's principles of investing will result in us retailers getting the same returns as the mutual funds. As retailers we fish in different and smaller ponds than the mutual funds, we dont have to compete with them. That was my point.

Posted by stockmanmy > Dec 18, 2016 01:59 PM | Report Abuse

every fund manager goes through the same training as KC does. But look at the mutual fund performances. You satisfied with those? What makes you think you are better than them in their game?

You want to out perform them, you got to play by a different set of rules....and the set of rules is the same set of rules used by all successful entrepreneurs....whether accountants or engineers or char gui teow man.


I disagree with above statement. As retail investors we have many advantages over the mutual fund managers.
1. Mutual fund managers has to worry about short term performance. Investors of their funds chase short term performance, if they underperform for just 1 year, they will experience capital flight. As individual investor, I set the rules myself and can afford to take a long term view on my investments. This means I can truly practice buying low and selling high.
2. Because of their large funds, mutual fund's universe of stocks is much smaller than a retailer hence all of them are crowding around the same large cap stocks. As a retailer, I can invest in small undiscovered companies which are undervalued even if they are illiquid.
3. Mutual fund managers are appraised based on their fund performance against a certain benchmark. If KLCI drops 10%, they drop 9%, they are considered to outperform. Hence they will rather be closet indexers (meaning buying mostly the index stocks to protect their rice bowl. As individual investors, I am free from such constraint, my portfolio could be totally different from the index hence have a higher chance to outperform.

Again, some people are just pure unlucky. Tens of stocks selceted based on FA principles, some multi baggers as shared by KC s public portfolio but author prefers to harp on the few stocks that did not work out to make his case that FA does not work.

My decision tree would be slightly different in the sense that even if the idea does not beat the best idea I have I may still buy it if there is sufficient margin of safety. If it is the best idea I have, I may weight it higher. I prefer to diversify.

Very keen observation. I also noticed from managements comments in the annual report they seem more open to m&a options for growth moving forward. This is a shift from their tone in previous years.

casperl invest low PE for regional index is good.
but if invest in stock counter may look into individual counter PE rather than regional PE?
16/08/2016 07:34

If even the blue chips which make up the index are at such low PE, most of the time, the smaller caps are even more undervalued.

You are right that earnings matter. Actually most net nets that eventually go up in price due to some catalyst such as they manage to record some improvement in their earnings or maybe declaration of special dividend or privatization. However, the difference vs chasing growth stocks is that you buy them during the most pessimistic time when they are the cheapest and sell them once people get excited about them again.

There are many successful net net investors around. You can check out this blog on some examples on what to look out for when investing in net nets.

https://www.netnethunter.com/net-net-blog/

http://www.oldschoolvalue.com/blog/valuation-methods/calculating-maintenance-capital-expenditure/

Its obvious that leverage magnifies the losses. I dont know how people can argue that margin call is a good thing.

Simple terms, if you leverage up to 2x, it takes a loss of 10% on the actual share price to make you lose 20%. If you use cash, you only lose 20% when the share price drops 20%.

Also what makes you think cutting loss is a good strategy ? It is only a good strategy if share price continues to drop after your margin call triggered. What if after margin call triggered, the share price goes up instead of down, you would have lost the opportunity to enjoy the gains vs a cash investor who had the holding power.

JT Yeo I never say you can't make money with low ROE stocks, especially if you use 'reversion to mean' method, but Fast is referring to 'Stocks to hold for 5 years' so my opinion is it is appropriate to hold stocks with moats if that is the criteria.

Depends on what the intrinsic value is. If the margin of safety is still large even with low growth assumptions, you could afford to wait 5 years even for a mediocre business with low ROE. Lets say you find a low ROE net net with a 50% margin of safety today, as long as the intrinsic value is not eroded when you review it periodically (ie not burning cash by foolish acquisitions), even if you hold it for 5 years, it eventually translates to a decent CAGR assuming gap to intrinsic value is narrowed during that time. With that said, I would tend to diversify more when buying statistically cheap stocks.

wchong JT Yeo, may i know how you get the table of the financial and key ratio?
15/03/2016 13:15

I believe its from Morningstar.

Which means profit could be even higher since Icon's estimate is 100% hedge at USD 52

===================================================================
Posted by Mun Hong > Mar 9, 2016 12:47 PM | Report Abuse

also 52% of their fuel hedged at USD59 per barrel. u got ur numbers mixed up there. definitely need to correct ur analysis.

Warren Buffett on leverage

"When leverage works, it magnifies your gains. Your spouse thinks you're clever, and your neighbors get envious," explained Buffett in his 2010 shareholder letter. "But leverage is addictive. Once having profited from its wonders, very few people retreat to more conservative practices. And as we all learned in third grade — and some relearned in 2008 — any series of positive numbers, however impressive the numbers may be, evaporates when multiplied by a single zero. History tells us that leverage all too often produces zeroes, even when it is employed by very smart people."

Good read
https://en.wikipedia.org/wiki/Long-Term_Capital_Management

The problem with margin finance is not the interest payment or beating the interest payment rates but the risk of margin calls. There are other type of funding sources one can tap instead of margin finance to optimize investment returns:-

1. If lack of capital consider investing into good fundamental companies with warrants first for the leverage effect. This way you get the amplified returns with limited downside. Avoid call warrants though. These are highly manipulated by the investment banks.

2. If you have a property that has been appreciating in price, consider refinancing the property at a higher loan and take the excess to invest. There is no margin call as long as you can service the monthly repayments and confident of your returns beating the interest rate. Consider the refinance costs as part of the cost before contemplating.

3. If you own your own home, you can withdraw EPF Account 2 in a whole lump sum and use the proceeds to invest. Or you can also opt for monthly withdrawals which go straight to your cash account which can be used for investment. This is different from the EPF Account 1 withdrawals where you can only invest in unit trusts.

4. Some credit card companies offers personal loan with effective interest rate of about 6%. The interest rate is higher than margin account but you dont get margin calls. This can be considered also if you have the repayment capability and can beat the interest rate.

Got it. You can remove it now if you want

JT Yeo, I am finding super bargains on SGX and HKEX now which are in deep bear territory. Perhaps we can exchange ideas through a private forum. There are other like minded international investors too. Please leave me your email address if you re interested.

There were a few reasons I think for drop in profits
1. The manufacturing division operating margins fell from 11.5% to 7.4% y-o-y. Management already indicated in Q2-2015 last year that the good margins were one off as they were able to secure raw material at favorable rates then. The current margin of 7% is consistent with the previous 2 quarters
2. Losses of RM 1.36 mil from impairment and forex negated the income that came from the leaseback agreement.

My estimates for 2016 roughly as follows
EBIT (manufacturing) = RM 10.6 mil
EBIT (Leaseback) = RM 6.56 mil
Total EBIT = RM 17.2 mil

The above number is roughly the same as what the group achieved in 2015. Upward revisions may come from favorable raw material prices further improving margins (due to low crude oil) and/or special dividends once the disposal of Norsechem Resins is completed.

Icon as sharp as ever !

Just to put things into perspective, China and HK have one of the highest forex reserves in the world. China has over USD 3 trillion in reserves while HK has about 300 billion. Good luck to anyone trying to fight the central banks there.

http://www.tradingeconomics.com/china/foreign-exchange-reserves
http://www.tradingeconomics.com/hong-kong/foreign-exchange-reserves

http://www.investopedia.com/terms/c/comprehensiveincome.asp

Yes. We know that USD strengthening will impact ECS bottom line/revenue. Question is if its already priced in.

Damn.. Icon you are too fast....

Your method of calculating EV is clearly flawed... I rest my case. You can continue calculating the way you want

Since when do we minus debts and ignore cash when calculating EV. I think you better get the formula right first before making anymore posts.

Posted by Desa20201956 > Jan 18, 2016 01:41 PM | Report Abuse

Tenaga...
MC 73366 less debts 24698 =48668 EV
EBIT (8/2015) 7796

48668 / 7796 = 6.2 I am spot on.

cash, ignore because it is difficult to say what is excess cash.

Sure or not. Can show your calculations ?

Posted by Desa20201956 > Jan 18, 2016 11:16 AM | Report Abuse

simply pick one....Maybank is at TTM PE of 11 times....TNB 12 X,

if PE is 12 times....we can expect EV / EBIT once you go through the calculations to be around 5 or 6.

JT Yeo, Thanks. Mercury looks interesting ! If I use normalize EPS from existing business for past 3 years and add the contribution of new subsidiary, the forward PE at current price is only 5.7x

However, these are some of my doubts

1. I felt the acquisition done through a related party wasnt cheap. If I purely base on profit guarantee of RM 6.6mil, 70% stake will entitle to RM4.62 mil. Based on acquisition cost of RM 42mil, that works out the a PE of 9x which I deem expensive for a construction outfit with dwindling order book and volatile earnings. Rather than pay the 42 mil outright, I felt that payment should have been done in stages as the profits were secured.

2. The other thing is that the group has never really achieved 6.6 mil PAT only till 2014, do you think they can achieve that in the next 3 years with the current order book lasting till 2017 and fully concentrated in 1 project mainly ?

3. Do you know the background of this Datuk Tiong and the prospects of the subsidiary ? I know he was the one who turned Mercury around previously but had since sold down his stake significantly.

Thanks for your input

JT Yeo, I put in the EV calculation for HEXZA based on 2015 numbers

Price = RM 0.925
Shares outstanding = 200.38 mil

in (RM '000)
Market Cap = 185,35
Cash and non-core liquid assets = 62,150 (cash) + 46,825 (other investments) + 20,014 (Investment in Tembusu)= 128,989
Total debt = 0
Minority interests = 6,797

EV= RM63.16 mil

CFFO = 14,745
Capex = -363
FCF = 14,350

EV/FCF = 4.4x

My bad, the EV/FCF is above 3x but still attractive from your metric, I guess I was basing it on my previous entry price. You re right that HEXZA is under investing in capex. It's core business is not really growing, this is more of a dividend cum net net stock. The growth in profits will mainly come from margin improvement from its disposal of loss making business and new investment venture into Myanmar IPP.

JT Yeo, there are quite a number. HEXZA is a cash rich company with EV/FCF below 3x for the past 4 years. ECS also has EV/FCF < 7x. The recipe here is to look for companies with high net cash relative to market cap (=low EV) and with good track record of generating free cashflows.

SuperMan 99, I was just being conservative in the assumption... do you have any idea why the 11 mil was not paid for 2014 ?

Based on The Edge Financial Daily report today, MBM sold a total of 10,845 units in 2015. Using the data from this website, http://paultan.org/topics/special/maa-vehicle-sales-data/ I computed the number of units sales in Q4-2015 to be 2706

2015
Q4 - 2706
Q3 -3106
Q2- 3112
Q1- 1921

Using past 3 quarters revenue and profit margin as a guide, Q4 projected revenue and profits

Q4-forecast (in 'RM000)
Revenue - RM 393,150
PBT - RM 15,726 (4% operating margin)
NP - RM 11,795 (3% net margin)

FY15
EPS full year = RM 0.42 (excluding RM 11 mil dividend in Q2)
PE = 9x
PE (ex-cash) = 7.3x

The reason why I exclude the 11 mil dividend is because the payment is not consistent and seems to be paid once every 2 years based on historical records.

In contrast according to TEFD, its peers Tan Chong and BJAuto is trading at 21x and 11x earnings respectively, so I believe there is still significant upside for CCB.