Hahaha......both parties are making contradictory statements. 1 MOU With two interpretations! WOW!

Khalid was also quoted as saying that “as far as we are concerned, there’s no need to go for international arbitration”.

Ongkili expressed hope for an amicable outcome between all parties and reassured that “fairplay and justice still applies” when it comes to compensating the water concessionaires. The concessionaires, he added, could opt for international arbitration to ensure their assets were properly valued, even with the Wasia invoked.

Invoking the Wasia has been seen as draconian, with some quarters even going as far as saying that it was unconstitutional and contravened Section 13 of the Federal Constitution, which states that “no law shall provide for the compulsory acquisition or use of property without adequate compensation”.

The contradictory remarks from the state and federal governments have also caused a lot of confusion among market investors, who rely on clarity of news to make informed investment decisions. Both governments seem to have a different understanding of the Feb 26 MoU that they have entered into. This has also not been made public as promised by Khalid.



http://www.thestar.com.my/Business/Business-News/2014/03/15/Mixed-signals-on-water-asset-takeover.aspx/

Basically there are two ways to calculate terminal value. The first approach is going concern using dcf/ revlative valuation,and the second approach is liquidation value( Book value of asset ,reproduction cost and etc).

In the previous offer, the government is using liquidation value and going concern ( asset+ equity), However, the Selangor Government offers lower liquidation due to receivables, tarrif and also political issue. The Selangor Government also assuems ROE 12% for the going concern which is fair.

Under Wasia, the going concern value is not taken into account. Therefore the Federal may take take over the assets at a lower value( the issue of receivables is unclear now) and not compensate the equity holders for the future gains.

From the business point of view, which businessman is going to accept this offer( lower book value of asset yet not compensate for the futue gains on the business). So Rozali please go to court if the Selangor Government does not compensate for the euqity value!

Anyway I have no idea on Wasia. Can the government execute "hostile takeover/forced takeover" without taking into consideration the benefits of businessmen under the name of National Interest? HAHAHA, communist country?

let's see whether Puncak will go to <RM2.8 or >RM3.5. I am still holding it and It is time to exclude market noise and believe in my own analysis.

This is why margin of safety is important in value investing. Some investors expect 30%/50% of margin of safety to factor in the uncertainty. What about Puncak? Do we know the intrinsic value of Puncak? No one knows. Then what is the margin of safety for this stock?

when it comes to investing, the investors who use value investing always calculate intrinsic value and margin of safety. The problem is that we can't calculate intrinsic value of Puncak due to lack of information revealed by the minister. No one even knows the offer price, then how to calculate the value of this stock?

However, I personally believe this stock will rise due to Rozali is a CRONY.hahaha

well said icon8888. This is speculating/ gambling instead of investing. hahaha.....

The problem is the federal government hasnt specified the exact amount, so the market will remain panic.

khalid is always confident.......last year he always said : i am confient to seal the deal by DECEMBER! hahaha. anyway mou is irrevocable

anyone has accessed to MOU? Khalid said we can make an application but MOU cant be reproduced in any form

most of the time, I dont know how those analysts derive the target price.

Based on the cimb's Sum of the parts valuation, the intrinsic value is 5.22. Somehow the analyst discounts 40% to the valuation and becomes 3.31. Amresearch analyst also does the same thing.

If the federal government implements Wsia, the decision maker of compensation/buyer will be the federal government instead of the State Government. I dont understand why Khalid has a say in the offer price?


http://www.malaysiakini.com/news/256951

hahaha. relax upsidedown. We should be confident with our own analysis. Time will prove whether we are right or wrong.

Analyzing a company's financial statement is far easier than understanding what those politicians are saying.

Once Mou has been made public, I will only decide whether to hold or sell....
It is very hard to understand the real meaning of their words!

In December, Khalid said: we will seal the deal by december.
In February, Maximus Ongkili said: there will be no wsia.
Now, Khalid said: we will reduce the offer price.

Politicians......

federal government implements wsia so there will be a deal. wonder how the market reacts tomorrow? Is there a top up from federal government?

http://drdzul.com/2014/03/11/federal-govt-to-force-takeover-of-water-firms/

no wasia, no takeover, no water supply. wonder how people can survive after May 31? Be patient. Mou will be made public soon.

http://www.theedgemalaysia.com/highlights/279113-highlight-sodomy-ii-anwars-acquittal-overturned-gets-5-years-jail-released-on-bail.html

Hi Kcchong,

When you evaluate a construction company, do you include property development cost and land held for porperty development as your invested capital?

Refers to the below link, If I take the figure of PPE and exclude property development cost and land held for property development, my ROIC >100%
http://postimg.org/image/k52uwbulp/

Thank you.

Result is ok. Using no growth model its share price is worth between RM3.2 and RM3.6(subject to assumptions).

EPS is dropping due to the increase in minority interest and dilution effect. Overall its fundamnetals remain intact.

1: Most of the investors invest this stock for corporate exercise instead of its earnings.
2; The drop in earnings is attributed to Petronas has deferred several works. Anyway I am not worried about the drop in earnings. Two quarters from now its oil and gas segment will register a net profit due to T&I project will commence in June( If I am not mistaken) and many projects awarded by Petronas have been deferred to 2014.

The offer amount remains the same and Puncak will revert back by 10 March.

actually i deleted the post before you replied. Thanks anyway

Basically it is expected growth rate, so in year 5 we have to use the growth rate in year 6 to get the reinvestment rate in year 5 and hence free cash flow.

haha. thank you for your reply. Yeah. I also figured out the answer after doing the maths a few times

Hi upsidedown, mind to tell me how you derive the value of RM8? Please state all the assumptions and also the model you use( dcf or relative valuation or both). Thanks.

Yeah. I know what you mean. Basically the investors you mention adopt the approach of bottom up instead of top down. Currently I also follow their path. Anyway no harm to know other strategies when it comes to investing in the stock market.

It just comes to my surprise when the book mentions that some investment bankers put more emphasis on relative valuation instead of dcf.......

Hi Kcchong,

For example you intend to invest in a high growth plantation stock which has planted a lot of trees. You know the age profile of the trees, and you can estimate the production quite closely. From there you have to estimate your normalized gross profit, and then deduct operating expenses to arrive at your normalized operating profit for a number of years. From there you have to deduct what is due to the debt holders, the minority interest etc, to arrive at what is due to the common shareholders.

I read the little book of valuation written by Aswath Damodaran and can link his approach to yours. For me investing in a growth stock or a pioneer stock is more challenging than a mature stock because I need to make more assumptions about operating margin, growth rate, roc, and hence reinvestment rate.

Recently I read a book called Security analysis and business valuation on Wall Street written by Hooke, Jeffrey and realize the investment bankers have taken many variables into account when calculating the stock value. E.g. Top down approach, economic>capital market> industry> specific company. Lets says the biodiecel policy increase demands of crude palm oil and every 10 percent increase of price of palm oil will translate to +5% eps, Then they also look at supply curve and make different assumptions on scenario(optimistic, neutral,pessimitic) and etc......Like playing chess, they take into account every possibility.

Anyway I prefer your framework. Simple yet effective.

http://www.thestar.com.my/News/Nation/2014/02/22/Cabinet-to-discuss-water-crisis-Ministry-to-brief-PM-and-members-on-ways-to-overcome-issue-next-week/

Hi, where can we check the upcoming ipo?

The new project' value is relatively small compared to the projects awarded by Petronas.

Upsidedown

1: if you want to use relative valuation, your data shall include a few similar companies and get the average PE, EV/EBIT or other valuation methods. Then you multiply your company eps by the average PE,EV/EBIT. Yes, it is your company's valuation. Just because Barakah is RM1.8 per share, it does not mean that Puncak has to be RM1.8

2: Yes, in fact I also dont know the capital expenditure for oil and gas. Purchase of property, plant and equipment is 11,695 in the latest quarterly report(the investors use it as capital expenditure), but I dont know how many percent goes to water busines and oil and gas business. Therefore, I assume high operating expense(even though it is not capital expenditure, but operating expense is also used for maintenance of machinery,fixed assets and bla bla bla) is due to high capital expenditure.

And refers to page 21 quarterly report, During thisf inancial period,the oil and gas segment incurred higher overheads to prepare for it sexpansion programme into other disciplines within the sector.
This is the reason why I ask you Have you thought of one question: In 2012 annual report, puncak's oil and gas is a ble to earn more than 10% margin. In the latest quarterly repoort, why it has made losses?

The reason the oil and gas business made losses due to
1: high overhead for expansion programme
2: Petronas defered the proejctsPetronas also deffered several projects to other companies)

Is Puncak oil and gas business going to make losses in the future? Most likely not(unless it has very high capex or other unforseable reasons, I don have crystal ball). As I mentioned before, Puncak's oil and gas business has high quality with >10% margin.

upsidedown

In fact you are right, the proper word is incurred insted of allocated

Have you thought of one question: In 2012 annual report, puncak's oil and gas is a ble to earn more than 10% margin. In the latest quarterly repoort, why it has made losses?

upsidedown,Mind to tell me

1:the valuation of Puncak oil and gas business?(you can use various assumptions)
2:The capital expenditure allocated for oil and gas segment?

1: From what I read on Theedge, the debts will be borned by the state government
2: From my computations, the oil business is wroth about 3.6-4. My assumptions: Current revenu of oil and gas business is recurring revenue plus new contract awarded by Petronas. Pe: 15. Net profit margin: 10%.

Even though the water deal outcome is not favourable, Puncak has oil and gas.

Do you guys read the latest quarterly report? Puncak has allocate more than 100 percent of its oil and gas revenu for operating expenses? 372,838000>368,147000.If Puncak does not want to become a big player in oil and gas, why does it have huge capital expenditure for oil and gas?

Hi Kcchong, I have one question.

From what I read on Five rules for successful investing, the author advices the investors to think twice for the company with shareholding consistently increase by more than2 percent per year without acquisitions. What do you think?

Generally I think giving a low number of share options can motivate management.From my rough calculations, in 2012 and 2013, the Kfima management exercised more than 2 percent of share options out of the total share outsanding. What do you think?

I think Kfima is has solid fundamentals( high ROC, high earning yields, diversified business, constant growth rate, high valuation).

I have a postgraduate degree in Master of Finance with distinctions from NZ. Sorry not boasting here. I thought I knew a lot about fiance and investment. Actually it was not true. What we learn in university are all academic. I talked a lot of nonsense about efficient market, CAPM, Sharpe ratio, efficient frontier, Black-Scholes OPM etc. Actually they are not much use in investing in the stock market. The only subject which I think was useful is applied finance, where I learn some excel skill, valuations and some useful practical corporate finance.

If a person can fully understand Black Scholes model and derive it( he needs to understand stochastic calculus, ito lemma, brownian motion and etc), for sure he can understand the method taught by you.

What I found most useful is to stand behind the shoulders of investing giants; Warren Buffet, Peter Lynch, Philip Fishers, Charlie Munger, Seth Klarman, Joel Greenblatt, Howard Marks etc. Read their books and learn their philosophies. Apply them using what you learn either from University, or through quantitative finance books or internet resources say from Professor Aswath Damodaran, Jae Jun of Old School Value etc on valuations. Then I believe one would improve his chance of better return from investing in the market. Just my opinion.

Among all the authors, I think Joel Greenblatt's you can be a stock market genius and the little book thatstill beat the market are my favourites. Peter Lynch's books suit for beginners. The best book about philisophy is The Most Important Thing: Uncommon Sense for the Thoughtful Investor.

Whether Anwar wins or loses, PKR controls 44 seats out of 56 seats in Selangor

Hi Kcchong,

In the sixth year, the eps will grow to 53 sen. Why you discount only 5 years instead of 6 years?

5.3/(1+10%)^5.

And Kcchong,

How do you evaluate growth stocks? If I am not mistaken, Kfima is a threebagger/fourbagger for you since you started investing this stock a few years ago. Mind to tell me your experience on evaluating a growth stock?

hahaha....I laugh all the way when reading kcchong's comment.

My method too difficult? As I have said, it is much much easier than statistics and calculus. Where did you graduate for your maths degree, and what year was that

I think what he said is true. Actuarial science, mathematics and statistic are much more difficult and complex compared to accounting. If a person can understand complex models in actuarial science and finance, for sure he can understand the methods recommended by Kcchong!

Kcchong, the books recommended by you are good(the most important thing uncommon sense for the thoughtful investor> more on philosophy, five rules for succesful investing> more on technical sides, teach you how to evaluate a stock in different industry). Can you recommend more books? Thanks.

chelseazola,link pls

i just don understand why the market is panic???

if the concessionaires are not properly compensated, they can bring this case to the court.

9.5 billion is the lowest. Gamuda offers >10b, splash offers 13b, depending on the valuation method(book value or dcf) The federal government is in charge of takeover deal at the moment.

It is very good analysis, you analyze the stock using growth,quality and valuation as mentioned by Vitaliy Katsenelson in the Active Value investing. Learn something from here.

Thank you for your opinion.

Hi Kcchong, I added some opinions in my latest comment and deleted previous comments.

If I include the value for Thailand's business and excess cash, then my intrinsic value is 3.87+1.53+0.3=5.7

At first I thought you were using dcf model to get 1.09b,it seems that I am wrong.I presume that my fcf is your ebit=90.2m and I m using the same assumtions as yours and my total present value of cash flow is $1,778,228,571 . So the intrinsic value excluding the operation of subsidary in thailand is 3.87($1,778,228,571/ 459915611.8). I got the number of shares from your computation(1.09b/2.37)

Did you deduct ebit from tax?