The share price of the mother will be lower after warrant issuance, not higher.

I suppose the fair thing to do is for the CEO to pay down or off its debt using its big cash pile to save interest expense.

Then, the next wise thing to do is to compare earning yields (Profit after tax/market capitalisation) against required rate of return on equity of say 10%. If the former is higher than the latter, no shareholder will complain too much for not receiving good dividend or share buyback because the company is generating a higher return than the shareholders expect. In that case, shareholders should buy more of the shares till earnings yield equal the average required rate of return on equity, thereby pushing up the share price to its fair value.

Discrimination on any ground is wrong. Period.

What is the reason you got banned in investlah?

You have been the best contributor there, by far.

Laughing gor banned you too?

As countries like Thailand, Indonesia, etc climb the wealth ladder, the appeal of gold-coated jewellery will diminish in the coming years.

The economic moat of Zhulian may be at issue as it is unclear how it may innovate its other product lines to spur revenue and profit growth.

From Rm5, the fall is hard. But the current market price reflects some recovery in profits and sales, failing which Zhulian may go down further in prices.

I thought FACB has sold off its loss-making steel biz and some land long ago and has been sitting on a big pile of cash, while hanging on to the sluggish dunloppillow biz, without a clear direction in which it wants its biz to go.

Does anyone have the latest list of top 10 dividend yield counters on KLSE? Of my counters, the one offering the highest dividend is Liihen at 8.4% dividend yield at current price.

I thought you have CenBond?

Any reason why it holds its AGM in Kota Bahru? Aiya.

London Biscuit has no associated company as per its BS.

Its PPE is RM527m and still requires upgrading. Its facilities must be very big and elaborate. One must go for a factory visit to believe it. All shareholers' money has gone to PPE but the good thing is profits are looking up recently.

RM50m annual operating cashflow bodes well for debt elimination in 5 years, assuming modest capex amount. With inflation low and raw material prices contained, the profit improvement is expected. Going forward, it is unclear if the current profit can be maintained.

I rate Lonbisc 70 points at current value. RM130m market cap is achievable for now, given the obvious liquidity or solvency risks. The risks of course is if profits swing down, it will go for another cash call quite soon to pay its current debts. This is a turnaround story for those who believe it.

Land (including land held for development under non-current assets) to developers like A&M is stock in trade one day when a particular piece within gets developed at which time it will be treated as current asset. In Malayisa, beginning 1.1.2004, revaluation of land held for development was no longer allowed. Revaluation surplus is not subject to any income tax. Land tax is levied on assessed value by local authorities, independent of carrying value in the accounts.

A&M's piece of land in Carey Island is worth about RM5 a share (due to it being a large piece, hence priced at a discount), but it will take 15 to 20 years at least to develop all of them.

Despite expected rising cost of construction, its margin will be fat as the land was bought at extremely low prices. Property slow down will slow down the launch of new phases. And that is the main concern, along with people's appetite to live so far away from KL/ PJ in Hulu Langat.

A&M's results in third quarter 2014 will likely be good and the price may jump towards RM1.50 (which is my target price) due to recognition of sales of property. But the risk is what will happen thereafter when new launches slow. The value trap may reassert itself after a hot phase of good profit.

Its plantation is also an area potentially promising but the management of A&M has been characterised by prudence and slow-motion pursuit for profit and return of profit to shareholders. In this respect, GUH management is more aggressive and exciting.

From RM1.1 to RM1.5, it is worth taking a look provided there is no unexcepted construction cost when Q2 and Q3 results come in.

The market always discounts potential value trap at required rate of return on equity. You may invest in value play based on Balance Sheet but ultimately it is FCF that counts when determining fair value. Value-play has high value but low FCF. The key is to attend AGM and ask the management on their next 10-year corporate plan including major asset disposal and distribution policy. Their answers will determine how FCF will unfold in your DCF excel template.

If you look at the past 5 years, except towards the end of 2010 when it was rumored to be having corporate proposal soon, the share price of Kuchia has been moving up and down in tandem with world economic cycle from RM0.53 to RM1.45. Rightly so, in the absence of corporate development.

At 10% CAGR, an investment would take 11.5 years to triple. If a deep value takes 11.5 years to realise into cash for minority shareholders (note: many deep values have been trapped for far longer than 11.5 years), if RM3 takes 11.5 years to unlock, it is worth only RM1 in present value or fair value term.

Of course, some of the investment may also grow at 10% in the next 11.5 years, therefore possibly warranting a lower discount rate. But think of the possible yearly cash burned in some value traps and the fact that we are now not at the nadir of world economic cycle, and in the interest of margin of safety, a discount rate far below 10% may not be prudent.

Kuchai, Sg Bagan and Kluang have cross-holding precisely to deter hostile take-over. So, 2 and 3 are remote. Dividend has improved a bit in the past year, but that is it. Their assets and investments are mainly tied with world economic cycle, which means when recession returns, their investment value will also decline in tandem.

Value trap needs corporate moves to unlock. When did you last hear of any corporate schemes in say MUI Group's companies? The wait can be forever. In a bear market, these deep-value asset-play companies will also plunge with normal companies by the same %. So, buyers beware.

CAP is a red chip. So, the normal rules do not apply to it. :D

53% held by the controling shareholder is too far form the 90% needed for compulsory accetpance by MI. If the controlling shareholders holds 75% to 80%, they normally would take time to close the gap by buying up in the open market, thereby pusing up the price a bit and narrowing the buy-sell gap. This is the case typically if they have the intention to raise the offer price later. The 5.7% is the probability of the SCR not going through as assessed by the market. It is not totally riskless, and therefore not arbitrage by definition, strictly speaking.

LTI is now a shell company. Its net assets are solely cash of about RM26.3m (i.e with the cash balance already in LTI's company level before the deal plus the $2.3m from LH in the deal). LTI has noting to do with LT anymore, and there may be cash dividend given to minority shareholders of LTI before the deal (note: they are all the shareholders of LTI after the deal). LTI may or may not keep its listing status and may get injection of new biz into it. The only thing MI in LTI can hope is for reverse take over by some other companies of LTI.

I did not look at the structure previously. MI should be nil post deal. As LTI made very good profits from 1.1.2013 to 31.12.13, MI in LTI suffered a big blow from LT by not getting to share those 2013 profits, they are getting just Rm26.3m out of a net book value of RM54.8m as at 31.12.13.

MI of 22.38% in LTI is complaining but LT pushed the deal through. It is a super-good deal for the LT shareholders, unfair to the MI of LTI.

1) Consolidated Cash balance of LT had gone down by RM26.3m (117.7*22.38%), post privatisation of LTI. LT had paid this RM26.3m to MI of LTI. The SCR was done to move all subsidiaries from LTI to LT directly, to disburse the money to MI of LTI and to subsequently close LTI thereafter. The S$2.3m cash settlement was just to take care of the upward revision in offer price of LTI's privatisation.

2) Net asset of S$63.5m as at 31.12.13 in LTI's subsidiaries had been sold for S$48.7m on 23.1.14, resulting in negative goodwill on consolidation (it is like a discount LT got in buying over MI) in LT of around S$14.8, post privatisation of LTI, subject to it being deducted for the profit made by LTI from 1.1.14 to 22.1.14.

3) MI in LTI was 2.41*63.5m*22.38%= RM34.3m as at 31.12.13. MI will therefore go down from RM54.5m to RM20.2m post privatisation of LTI.

Latitude is one of my favourites. I did not see the details though.

I think they just bought some or all MI over by taking the SGD unit private. So, cash will go down as it has been used to pay for that corporate exercise, while MI will go down or disappear. These two variables need to be used in your FCF calculation.

LT seems to be far ahead in moving towards OBM from OEM, in the process lifting its margin convincingly.

Market prices furniture companies lowly perhaps their earnings can be volatile. But LT seems to have broken from the past and entered into a new phase.

The risks I see about LT is to understand more about the timing of the costing practiced by the management. Some companies put a lot of provision for different costs like managmeent and staff bonus, etc only in the last quarter while others in certain 2 quarters. It is unclear if LT spread all cost accrual evenly throughout the year.

The second risk is Vietnam's country risk. Its currency can be volatile and its communist government may act erratically sometimes politically.

I expect LT's EPS to go down in next 2 quarters from the previous one. Still, it should fetch a fair value of RM3.50 a share.

Dividend yield for Liihen is 8.5% at the current price. I hope it will go down so I can buy more, together with some LT, but the high dividend yield now provides a strong suppport for Liihen's market price currently.

I love dividend and even if Liihen cut dividend by half due to economic crisis, I will still get 4.25% yield out of it at the current price.

OTB's formula is premium calculation, and it cannot be equated with being in or out of money. This is a basic formula.

Hevea needs 2 more years to pay off its debt, now at RM84m. The best time to buy Hevea is 1 year from now, I estimate.

1.28>1.00: the market price of mother> exercise price. That means the warrant is in the money, not out of money.

Gearing of Hevea-WB is 1.87, low. Premium 31.6%, moderate given its long tenor till 2020. This warrant is not cheap to me although I did not go to calculate the mother share's volatility and the theoretical price of the warrant.

Hevea mother share is a better bet than its warrant as the latter has low gearing.

Nice write-up.

A few points to note:
1) Warrants will never be converted till maturity date in 2020 unless they are traded at discount at any point during its tenure, which is highly unlikely. On maturity date, conversion of the warrant will take place only if the mother share is traded above RM1, the exercise price.
2) Subsidiary accounts are consolidated, not equity-accounted for by the parent company.

If the momentum of Hevea continues and proves sustainable, I will consider buying some.

Sorry, I overlooked the small dividend they pay. I always like high dividend with few exceptions, of course.

Mudajaya has not been a rewarding counter in the past 10 years or so. It is intersting to see if its Indian story starts to bear fruit at last.

Mr Koon has been in overdrive lately on forumming with others- thanks in part to JT's good gains in the past few days.

I would like to add that while it is important to invest in only companies that will see (vastly) increasing profits in coming years, the pertinent point is to assess how much of these future profits have been reflected in the share price. That inevitably leads us back to the basic way of calculating fair value of a company, i.e. discounted free cash flow to the equity shareholders. There is no short-cut in investing successfully.

Congrat everyone on JT's gains all the same!

The missing part in Mudajaya's story is dividend. Without dividend, it is unlikely to move up in a sustainable way.

Since years ago, most of the cash and bank balances have been moved in for quarterly closing and out thereafter. It would be interesting to see what would the price of the private placement be. The RM500m is just for show to hoodwink minority shareholders but the private placement is likely real if it goes for around 70sen a share. XQ cannot stand any test of due dilligence which explains why it is not taken private by either the boss or any other corporate raider.

The reason for the lowish PE (about 6 for RM3.50) is because of the lowish dividend and country risk of Vietnam. Once dividend improves, TP would improve too.

A greater set of results than the previous one. EPS for the next 2 quarters should soften a bit. Shareholders should aim for 55 to 60sen EPS a year in the next 3 years. I have previously given it a target price of RM2.40 to RM3 which has been reached. I have raised it to RM3.50. Congrat, everyone.

A good set of results from Hevea.

However, I am wary of its high debts, just like the case of Pohhuat.

The profits of these 2 companies will first go towards debt settlement before any good dividend in the next year or two.

The share prices of these 2 counters are lower because of the concerns over their relatively high debts.

Homeritz and Liihen have comfortable net cash and can pay good dividend, while Latitude sits right behind these top 2. Liihen is paying good dividend while Homeritz is holding on too much cash and meaner on dividend payout.

Earnings-wise, Latitude is by far the best of all furniture companies, based on latest blockbuster earnings momentum. This however is already reflected in their share price.

Among furniture counters, I am comfortable putting money in Liihen and Latitude only.

Anyway, if the earnings momentum of furniture companies can be sustained, all companies will be set to shine brighter in coming months.

The Q4 2013 results came in exactly as expected (written in my previous posts), making EPS for 2013 RM0.30.

Liihen has upped the dividend payout ratio from less than 40% in 2012 to 50% to 2013. At the current price, dividend yield of Liihen is 8% (RM0.15/RM1.89). With the run-up in prices of KLSE-listed companies, 8% dividend yield is extremely hard to find. I cannot find another company with this high dividend yield. Please let me know if you can as I do place great importance on dividend. Thanks.

I continue to like Liihen because:
1) The sales and profit trajectory is looking up for the furniture industry.
2) There is an impending (upward) valuation of its land and buildings in June 2014.
3) Dividend payout ratio of 50% means there is another 50% upside in dividend payment.
4) Liihen has RM28m net cash.
5) It has started upstream work on flattening land for cultivation of rubber trees which will continue at measured pace in the new few years.
This augurs well for its mid- and long-term cost competitiveness.

My previous target price range of RM2.10 to RM3 still holds. A dividend yield of 6% is more reasonable (which is still double the return on FD) given the above feel-good factors and if Liihen can maintain its RM0.15 dividend a year, its price should be trading around RM2.50 a share.

Again, congratulation to all Liihen shareholders and thanks to the directors of Liihen for the special dividend.

Mr Koon, I just read this article which is the best of all you have written before. It is insightful, scuccinct and most importantly too true. I cannot agree more with this article as it must have come from half a century of successful investing wisdom, business acumen and relentless pursuit of greater financial success.

On the other hand, I have to say that Christine Goh's grumpy reply or rebuttal reveals that she is almost certainly a mediocre investor, not really able to discern the real spirit and meaning implicit in each of the traits.

The only concern with JT is its short-term borrowings. I thinnk JT likely gets a loan rescheduling from its lenders soon, hopefully, without having to pay too much additional margin to the banks. This is better than making a cash call to its shareholders.

I do not own any JT but may consider buying in future.

Thanks again for sharing with us.

Latitude has risen back to my TP range of RM2.40 to RM3. Cheers.

Most common tricks used by China-based companies (not just those listed overseas) to trick banks or shareholders:

The major shareholder may set up around 10 companies to buy from the company before selling off to external customers, and another 10 companies to sell to the company after buying from external suppliers. This way, reported sales, selling price, profit, production and purchase cost, cash and banks, accounts receivable and accounts payable of the company can be controlled at ease.

The flight risk is high. Overnight, the controlling shareholder may decamp and disappear into thin air, likely in overseas and no one can track him down, much less from Malaysia. The company may be left in the lurch with just factories, equipment, loads of bank borrowing and a long line of workers waiting for their salaries.

Chinese are too poor for too long. So, they would do almost anything for money. Overtime, their ethics should improve. With religions pretty much banned in China, the process may take longer than other countries. It is important therefore for China-based companies to pay decent, consistent dividend to show they want to be shareholders-oriented. Only then would they be worth considering for equity investment. There is no other way, as I see it.

No one mentioned Zara and G2000 which also give Padini a good run for its money, in addition to H&M, Uniqlo and myriads of other lesser-known garment names.

A few points I would like to highlight to Mr Koon:

1) Its interest income does not reconcile with its cash pile, suggesting its cash likely being moved in and out before and after quarterly accounts closing.

2) Call warrants, free or otherwise, would be dilutive to mother shares. Mother share price would move down to the extent of the dilution, resulting in no gain no loss to the shareholders.

3) A company with RM462m cash is not small even in China. There is no excuse to sacrifice dividend. Opening own store is the way forward, yes, as entrance fee in big malls is expensive. But, it makes sense to do it incrementally and conservative to not burn too much cash on start-up costs too fast. Branding is important but if quality of its products is there, it will succeed. The fear of shareholders is they may drain away the cash on expansion capex and marketing expenses, without corresponding profit increase. If the biz is and will be under severe or cut-throat competition, it is better to close the biz and distribute all its assets back to its shareholders now.

4) Much smaller companies in China with good biz model could get bank loans in China. XQ has track record (unless its books are cooked) and big cash pile as security to get any bank loan it wants. They should use not more than half of the cash to get bank loans and the rest put in fixed deposits and give out dividend.

I am merely giving my perspective and I have spent 6 years working in commercial sector in China. I hope it helps.

Haha, I did form 6 there, moving in from St. Thomas. I was in Chung Ching for primary school. You are much more senior as I am in my early 40s now.

kcchongnz, what a small world! I am from SABS too.

Ouch, I am away. Otherwise, KCCHONGNZ, we can arrange a meet-up over meal or yum cha in PJ.

Good cash balance is shock absorber, a safety net to me, and a guarantee of sort of persistent dividend payment into foreseeable future.

I do not consider EV because I do not have control over it as I am not acquiring the controling interest.

Take out the Accounts Receivable and most of Property Plant and Equipment, and the net asset backing will shrink dramatically.

Market cap over FCF is 11 times. It is not cheap. Accounts Receivable are 75 days old on average- evidence of its weak pricing power and potential credit risk. Personally speaking, Hexza is not a buy at the current market price.

Concerns at a glance:
1) 3% terminal growth rate assumed is too optimistic given its flat earnings performance in the past 3 years.
2) 6% dividend yield is not bad but that is all. It gives all earnings as dividends. That means little upside on dividend payout.
3) High depreciation charge results or comes from high capex outlay, which alarmingly has only generated lower sales each year since 2009 crisis.

A clean balance sheet is a plus and is its high cash per share. But they may stay that way without capital distribution longer than you can wait. Provided you have faith in the resilience of its biz, you may treat Hexza like a quasi- or leveraged deposit.

Its Accounts Receivable is equivalent to RM1 per share or 72 days old on average and it has a relatively low dividend yield, both are a drag on its share price.

Digiuser016:

My personal evaluation:

I think I first considered kfima 2 years ago when kcchongnz first wrote about it. I do not particularly like the government-handed part of the biz of kfima.

Cenbond's results had been meodiocre till last year or so, and 70% of its biz is derived in Malaysia (which should be tough in coming years)- as opposed to overseas market.

Both companies sit on good cash pile, but its dividend is small. The current valuatioin is fair for both companies, not cheap. Hence, little upside.

Deferred tax assets and liabilities would crystalise in future and need to be considered if the enterprise is valued as a going-concern for the foreseeable future using income approach.

The only reason why deferred tax assets may not be realisable is when the enterprise is unable to generate future profits.

Whereas, Deferred tax liabilities will decline when the enterprise reaches post-expansion and towards stability period in the future. When it makes good profits in the future, it will pay income taxes at an effective rate higher than what it is currently paying. Deferred tax liabilities arise due to common tax incentive (via faster tax depreciation in tax computation)given to encourage capital investment by enterprises to allow them to pay less tax while investing in more fixed assets.

Personally speaking, I browsed through KFIMA and CENBOND briefly and decided not to buy them.

The value trap has tightened once again especially around those who bought it at above 30sen. The pain is excruciating given that some other shares have gone up instead of down in the past few months.

MUI group has many assets that can fetch value way above its book value, or so as many hope here and as Calvin promotes incessantly. But that assertion has not passed the profitability test. If real prevailing market value of net assets is said to be RM1 per share, then if the after-tax yield of these assets is 5% a year, we will have a net earnings per share of RM0.05. At current market price of RM0.22, it will be very attractive a stockd due to <5 PE.

However, that has not been the case for so long. Why the so-called quality valuable assets cannot even churn out a decent profit and the net profit of MUI or PMCORP's net profit has been persistently miniscule, if any?

The crux of the matter therefore is either integrity issue of major shareholder and top management or the assets are indeed incapable of generating any decent returns or most likely BOTH. This has been the case for the past 20 years.

Do not be a sucker till of course profitability starts to rise promisingly in the future. In shares, it is dangerous to hope against hope. It is good to think that you pay 22sen to get RM1 worth of assets. In reality, the value as minority shareholders get is chiefly dervied upon realisation like dividend or capital repayment. The first step is for MUI to start selling off its assets to pay down or off its RM1b debt. Without that, the value trap will continue to tighten further.

MUI has RM0.34 per share debt and it pays RM0.018 (almost 10% of its market capitalisation) a year to lenders as interests.

Profitability may be on the mend but it has to turn its assets into cash and pay down its Rm1billion debt. Then, and only then will investors take a second look at MUI, advisedly so.

There is no point touting how great assets it has if it cannot be used to pay down debts that are 150% of what MUI is worth now.