Happy new year.

I'd like to participate in the self-managed portfolio contest.

http://klse.i3investor.com/servlets/pfs/54131.jsp

Thanks.

Based on HIL latest quarter, injection moulding contributed 73% of its revenue.

Property is a supplement and helps sustain HIL's financial wellbeing.

One can relate the same kind of business diversification strategy to Scientex, and it is proven effective even in tough economy.

Good Sat gentlemen.

The potential of better margin is hypothesized on the basis of cheaper raw material and RMB depreciation.

For Hil's core manufacturing business, they sell largely to China and are affected by RMB depreciation.

Although the contribution of manufacturing segment is lower, for now, the group's earnings are compensated by good sale of property in Shah Alam.

This demonstrates a good diversified business model.

Most importantly, Hil's free cash flow remains strong and deeply undervalued.

So, this is final:

EV = Market Capitalization + Debt + Minority Interest - Cash – Other Non-Operating assets

I can't tell that how much I enjoyed the discussion and argument, which both turned out to be fruitful and useful.

Long value investing.

Well done and thanks JT, Noby, and Kc! It could not be clearer now.

One last question: why subtract other non-operating assets in EV calculation?

Thanks for sharing KC.

We want to subtract excess cash from the Enterprise Value because the portion of total cash needed to cover current liabilities is an investment in the company.

Excess Cash = Total Cash – MAX(0,Current Liabilities - (Current Assets - Total Cash))

Excess Cash = Total Cash - MAX (0, Current Liabilities - Current Assets + Total Cash)

So, fundamentally, what is the difference between your EV and my proposed EV?

We want excess cash to be a positive number. Therefore, we guard against this by putting a maximum of 0 on the value to subtract from cash.

I am keen to learn and use the right one.

Hi JTYeo,

Allow me to reiterate the refined EV formula:

EV = Market Capitalization +Interest Bearing Debts +Preferred Share Capital + Minority Interest - Excess Cash (or you call it Net working capital)

The component of Excess Cash was not made explicit in Greenblatt's book.

To get it clear, for example, please read Carlisle's "Deep Value" - pg 56.

When we would like to acquire a company, we value its entirety. We (1) pay for its equity (Market Capitalization), (2) assume its debts (Interest Bearing Debts), and own its net working capital (hence Excess Cash, not just Cash).

Let's assume that we are acquiring Company A. On its Balance Sheet, it has RM100 mil Current Assets (with RM20 mil Cash); RM90 mil Current Liabilities. Does it make sense to subtract Cash or Net Working Capital in EV calculation? If we subtract Cash, then the company that we are going to acquire is short of liquid capital to serve its Current Liabilities.

From the above, Excess Cash (or Net Working Capital as you like) is often made up by some cash. If dividend is not paid using cash, then what?

Finally, let me clarify, there is nothing wrong with using Cash in your EV calculation if you have a solid business or accounting base to support its role. Please do not hesitate to reason.