The difference between BREM and MUI is what BREM has that MUI does not: decent and consistent profitability, undemanding valuation based on income method of PE < 10, consistent yearly dividend payout policy, management transparency, track record and capability, promising expansion plan, etc.

In Malaysia, cashflow statement was required for its usefulness >20 years ago to replace Fundflow statement in financial statements.

Cashflow statement may be prepared using direct method or indirect method. Indirect method that starts from Profit before tax is more widely used by KLSE-listed companies.

Cashflow statement of any companies gives clear enough a picture of how the cash flows under operating, investing and financing activities.

What I did was just to reconcile the figures from operating profit to operation cash flow as requested by OTB. I did that mainly because the 2 mistakes made in Ulicorp financial statements may be confusing and misleading to laypersons such that they cannot reconcile the two properly.

Well, the key question is what was the exact time period you recommended this stock? What was your target price, given the fundemantals of the mother shares and this warrant characteristics?

Chartists justify purchase and sell decisions on patterns which I find reprehensible, honestly, as well as naive.

Warrant is by definition a leveraged play and fundamentals of its mother is doubly important. TA cannot be applied in isolation without grasping the fundamentals, particularly in the case of warrant.

We should take CALCULATED risks by buying shares that are priced with margin of safety. This is to allow for the fact that future is unknowable and certain key profit drivers may undershoot our financial projection for the company. This takes care of the downside risks.

As for upside potential, we assess using risk-reward analysis which includes consideration of one's risk appetite. Most people say they have low risk appetite out of conservatism. But the true answer often is that they are too ignorant of risk identification, assessment and management.

Nothing in this world is riskless with monetary debasement. Risk in fact is the very PRODUCT investment banks like Goldman Sachs sell, and they make huge profits by slicing risks into bits and sell them to a vast range of customers with different risk appetites. Mortgage loan securitisation, forward contracts, interest rates and forex swap contracts, options, warrants and the like are just some examples of their products.

So, it pays to embrace risk but you must be armed with knowledge.

OTB:

I looked at unaudited version with slightly different figures
The answer is all there in the cashflow statement.

Operating profit: 23.5m
+Depreciation: 4.8m
+Fund that tied in Working capital changes: -15.4m
+Income tax paid: -5.5m
+Interest income wrongly classified within operating profit in PL: -0.7m
+Non-cash items:-0.2m
=CF from operation: 6.5m

Another mistake made by Ulicorp is in cashflow statement. It is operating cashflow before working capital changes, not operating profit before working capital cahnges.

In short, with sales stagnant, working capital management has worsened in 2012. Stock holding period lengthened, account receivable became bigger and the free financing squeezed from suppliers became smaller in amount. 15.4m fund was tied in this manner from 1.1.12 to 31.12.12.

From "the bargain of the century" to "longer term it should do well", from getting banned for overzealouly pestering others in numerous threads to buy PMCorp with a price tag of RM10 to asking people to stay safe, from touting unmistakable cash distribution to blaming the CFO, Calvin's about-face is jarring, unethical even.

Getting close to my range of tp of 2.4 to 3. Enjoy t ride n congrat.

The situation of Nta or net cash or net current assets being higher than market capitalisation is only part of our consideration in determining t fair value of the company unless profit distribution is imminent. It represents the safety net of a company, not its fair value. The more important consideration is projected earnings in next 5 years.

The market discounts FACB for the same reasons as many other companies with a lot of cash and assets but no decent profitable biz that keeps generating value for its shareholders each year.

Rm2.60 seems a lot in today's term and will definitely be a windfall if all are distributed to shareholders NOW.

However, absent any profit distribution, if it continues to make negligible profit year in year out, RM2.60 is very little in net present value's term say 5 to 7 years down the road; it is even lower than the current price of RM1.28.

What happens to PMCorp, MUI, etc in the past 10 years is the price shareholders have to pay for such type of companies sitting just on big assets without decent profit from ongoing biz.

I think the ideal types of wood a manufacturer chooses depend on supply availability and cost, and modification to manufacturing process may not be too radical to process different types of wood.

Latitude and others have moved more towards ODM from OEM manufacturing but the overriding criterion should really be cost-effectiveness and finding own niche to sustain sales and profitability.

High selling price and upmarket products need not mean high profits. Doing ODM and taking on big names has its risks, especially during transition. Latitude seems to have gradually moved beyond that transition period.

Perhaps Liihen will move towards ODM one day when the timing is right and the right expertise is in place, as would be in the case of acquisition.

China and Vietnam are operating at lower-cost bases than Malaysia and they have much bigger volume than Malaysia in furniture export. But their costs also are rising, just like Malaysia's. I think the high end producers are mostly all from Europe.

Lets see how liihen's biz unfolds in coming years.

*Rm2.86(=2.39+ 0.06 2013 Q4 eps+ 0.30 2014 eps -0.14 est divd for 5 qtrs +0.25 r.s.)

USD remains strong in Q4 but typically the management would make provision for bonus to incentivise the staff, and well, themselves too. It should be noted that in Q2 2013 when only 4.3sen EPS was recorded, the provision for bonus has already been made then supposedly for first 2 quarters. So, for the remaining bonus provision to be made in Q4, it may amount to 1.5sen to 2sen per share depending on the overall performance for 2013. For the coming quarter, my estimated EPS for Liihen is 6sen, making it RM0.30 EPS for the whole year of 2013.

Liihen's sales to Asia and Malaysia are taking up some slack in demand from US which has not recovered much in the latest quarter. It seems Europe remains in doldrums or an otherwise impenetrable market.

12 June 2014 is the date for next valuation of land and buildings of Liihen which stand at around RM50m at net book value now. Over the last 5 years, assuming land and building prices have increased by just 30% in Muar, we should see a Rm15m revaluation surplus reflected in the accounts. By end of 2014, we should see net assets per share of Rm2.86(=2.39+0.30 2014 eps -0.14 est divd for 5 qtrs +0.25 r.s.) for liihen.

The possibilities of privatisation, take-over offers from upstream logging companies or foreign companies including their big customers and other famous furniture brands, consolidation among furniture companies to pool marketing power, etc, cannot be discounted for all furniture companies, given the under-valuation.

High dividend yield of Liihen of 7 to 8% is a safeguard against protracted under-valuation as your average purchase cost keeps coming down 7 to 8% a year at current price. As quarterly earnings fluctuate a lot, investors should take last 4 quarters as guide on yearly EPS instead of extrapolating the latest quarterly results into the estimated EPS for coming year to avoid over-optimism. All told, a PE multiple of 7 to 10 is a fair range for Liihen- meaning Rm2.10 to Rm3 a share.

If you look at how CIMB gives a target price for Signature Kitchen of around RM2.50 when its latest quarterly EPS is below RM0.02, you will realise how under-valued the furniture companies of Liihen (Est. Yearly EPS RM0.30), Latitude (Est. Yearly EPS RM0.38) and Homeritz (Est. Yearly EPS RM0.12) are- even after considering the potential USD weakening (which is not a worry to me given Ringgit weakness due to fiscal hole of Msia) and volatile earnings pattern from quarter to quarter.

It is ridiculous or even scandalous (because of their self-interest) of CIMB to cover just SIGN but not other much cheaper furniture companies such as the 3 above. While others ignore the value, it gives opportunities for those interested to collect more.

I place emphasis on high dividend and therefore Liihen is my favourite although I also own Latitude.

If many companies are traded below their Net Asset value, so should icap be unless its fund manager, TTB, can demontrate investing prowess expected of him and start paying dividend to convince investors to value icap at book value or a premium. In the long run, market is a weighing machine and this principle applies equally to icap.

Margin of safety is akin to the pillow that let you sleep soundly. When it gets too thin because market prices approaches intrinsic value, it does not make for good sleep. When you wake up at night, you know it is time to sell.

Spotting a share to buy is more difficult than deciding on when to sell, personally speaking.

EVM is widely used by businessmen looking to acquire a controlling stake in a company because net cash or debt affects their financing or cash flow planfor the acquired company post-acquisition.

But there is a pitfall small investors should be aware of when using it. There are some companies that sit on big cash for decades without making dividend distribution. Companies with very high net cash per share, some higher than market price per share, would have negative or < 1 EVM, although their profitability gauges are super low (like ROE, ROA).

Thanks for inviting, TAN KW.

As a practice, I recommend only companies with 20 to 50% upside (ie rated 80 to 85 points by me) or with more than 50% upside (i.e. 90 points or above).

I am currently awaiting some catalysts for certain shares under my radar and will recommend only after they have come and I have bought in.

I am comfortable still holding some of those shares I mentioned above for now.

Companies that I have bought in in the past 3 years till now as I wrote earlier: ILB, Prolexus, Wellcall, Liihen, Latitude, etc. I have sold some since then and held on to some.

ILB is an asset play when I bought it back in 2011 as I like their Chinese assets value, but not Dubai operation.

I normally assign a score for all companies and will buy with conviction if it exceeds 90 points. 80 to 85 points are borderline buy which means I will buy but in smaller amounts. I sell when the points drop below 80 points.

Our money is hard earned. So, as minority shareholder, the safest is to value the investee company from all angles and all methods (i.e. dividend yield, GP, ROE, ROA, PE, net cash position, net tangible asset backing, DCF, capacity expansion potential).

Insider information is quite impossible to obtain in a timely fashion. Management integrity on the other hand may be assessed based on past records.

We invest only if all areas prove good which in combination represents good value proposition.

We try to spot catalyst and buy 3 to 6 months ahead and before others. Determining fair value is important as it guides you on what price and when to sell.

Discount in market price from net asset or net current asset values as per book is such mostly because investors discount the possibility of value trap. This is often found in companies that do not have a formal dividend policy normally due to poor ongoing operating business. It is also found in companies sitting on loads of cash, but unable to deploy it for new biz or biz expansion in a timely manner.

So, the existence of a discount does not call for a buy decision unless distribution to shareholders is immiment or foreseeable.

Tsurukame wrote:

Capital expenditure once realized becomes capital expenses and these capital expenses has certain lifespan and will be depreciated over its lifespan on an annual depreciated value basis.

For instance plant machinery to improve future income once purchased in this year with a determined lifespan of say 5 years must be depreciated starting this year at 1/5 of its purchased cost. Buildings has say 20 years lifespan and will be depreciated accordingly. Software, office equipment is also depreciated over say 5 years period.
So the Net Profit figure for any particular year will have already taken off the annual depreciation value of these capital expenditures.

So how does one compute Free cash Flow??

Answer:

Your question is a good one and your rationale as a layperson is correct too in that depreciation actually spawns from capex.

The only superiority of DCF over simple PE multiple method on this point is just that DCF captures the timing of capex cash outflow more correctly and therefore theoretically gives a more accurate fair value.

In terms of timing, capex cash outflow inevitably precedes depreciation. As DCF is expressed in net present value, getting the right timing for each amount of capex cash outflow in all future years is important.

There are different levels of FCF which can be used within DCF format, depending on the purpose of you using it.

1) FCF to the firm is as per kcchongnz. This is useful normally for determining the value of the company to all stakeholders, and for fixed assets valuation. The firm here denotes all stakeholders including bankers.

2) For biz valuation, FCF to the shareholders is more appropriate and it is FCF to the firm minus payments to banks (principal plus interest) and tax payments. Biz that has big borrowings has less FCF as they have to service the loans. Company enjoying tax holiday similarly will have higher FCF as they pay less tax.

3) For bankers assessing debt service coverage ratio, FCF used by them of course is your FCF after everything else (inlcuding tax payments, capex) but before what you have to pay them (principal plus interest)

PMCorp is about value play or if you lose, value trap. Hence, the only question is whether KKP will distribute any cash to minority shareholders or he will continue transferring money out to his other companies. The key is that the choice is his, not yours. Based on his philosophy and past records, he is unlikely to make meaningful captial repayment.

Lets say the chocolate biz and investment makes some money and NTA grows to RM1 in 10 years time and has a change of heart and decides to give minority shareholders RM0.50 as dividend or capital distribution 10 years from now. With rather benign investment environment now, we may assume required rate of return on equity at a low 10%, 50sen 10 years from now is worth 19.3sen in today's money.

In that sense, PMCorp is rather fairly or over-priced.

Why institutional investors are reluctant to invest in furniture companies in Malaysia that have survived many crises after weaker ones like CHG, LCL, etc went bust long ago?

Perhaps, the earnings is too volatile to their liking. To address this question, TAN KW, you should use the past 5 years' average EPS in determining a more appropriate PE ratio at current price.

Most furniture companies have been recovering very well after a dip in earnings from 2010 to 2011. The question is always that whether this strong earnings is sustainable into next 5 years especially in the case of Latitude's latest blockbuster quartelry results.

I put great emphasis on dividend as it lowers by cost of purchase each time I receive it. It has to be above FD as a minimum.

Net cash position is important in weathering through any crisis so that they do not have to make a cash call.

Net asset backing is also important as it provides the ultimate safety net of a company.

I personally believe furniture companies should be valued at 8 to 10 times of past 5 years' EPS. Any thing less than that is unwarranted neglect on the part of investors- especially institutional ones.

Latitude is in net cash position already. One fewer minus.

But the stability of Vietnam's political and operating environment and relative strength of Dong, as opposed to RM, versus USD needs to be weighed.

My target price is unchanged for both Latitude and Liihen.

Congratulation to all.

As I wrote much earlier, furniture companies, to varying degree, produce good results in Q3 2013 calender year. Lattitude's ESP of 15sen a quarter is best of all. Stunning is a better word for it. Still, the steep appreciation of USD against RM in the latest quarter needs to be discounted when estimating future EPS.

Pluses:
1) Like Pohuat, it has operation in Vietnam as a geographical diversification.
2) Like most furniture companies, they are successful in passing on and managing upward pressure on cost.

Minuses:
1) Lattitude is still in net debt position but should soon turn into net cash position, like Liihen.
2) Dividend payout is relatively low, compared to Liihen.

I estimate 40sen EPS for FYE 2014 and a fair value of RM2.40 to RM3 for Lattitude, which is higher than my fair value for Liihen of Rm2.10 to Rm3 (based on liihen's estimated EPS of 30sen for next 5 years on average).

I agree with fortunebull there.

Investing in shares is a marathon and is a double-edged sword. Many are well-read but very few are able to really internatlise and appreciate the wisdom in share-investing and execute their strategies clinically through boom-bust cycles.

I think TA is susceptible to manipulation in market price especially on small-trading-volume counters by syndicates who may out-manouevre TA-guided investors into making selling and buying decisions that suit the interests of the syndicates.

FA is indispensible, and TA may be an added tool to be used judiciously. It may be easier to make buying and selling decisions based on relative value proposition. In other words, I buy and sell based on what value I acquire and let go vis-a-vis the prevailing market price.

Intrinsic values fluctuate with macro-economic factors and company-specific developments but by and large, in a DCF model that determines intrinsic values, all factors including cyclicality have already been taken into account.

There is no doubting that selling ahead of a big bear saves a lot of money and is best. But to err is human. The second best strategy if you still hold on to shares in a financial crisis is to buy (much) more 3 to 6 months before others call the market a bottom.

Economic activities move in cycles as markets give signal on pricing for goods, capitals and money markets. Markets are the best way to allocate economic resources and in the process go through boom and bust. This we cannot change.

Knowing first what others know eventually is key. Prescience is much more valuable than persuasiveness in investment.

If one starts with rm100k, he has to be 10 times as hard-working and smart as another with rm1million to catch up.

I believe in the following:

Good and bad lucks cancel each other out in the long run.

Consider buying only companies with big margin of safety. Put money only into top value propositions. Do not compromise on this as we deploy our hard-earned money in the best possible way.

Start buying 6 to 12 months ahead of catalysts and selling when it reaches fair value. If you stocks do not move after 18 months, re-examine your selection criteria.

Do not buy into a company if you do not dare to buy more when it drops.

We have been in a L shape recovery since early 2010 and it should continue at least till 2016 or much longer as central banks worldwide ensure nominal economic growth by keeping credit loose and political expendience dictates fiscal accomodation. But thereafter, we must be careful and if necessary, clear all positions.

I started my first job with negative asset as I had to pay off my study loan. I come from a poor family and have learnt it the hard way- having lost a combined sum of millions during the crashes in 1990s, 2008. But those earlier lessons learnt go a long way in my recovery into a rather fruitful investor nowadays, much more than making back those losses.

kcchongnz is right that everyone has to choose his own style of investing. Losing money is part the game but do it early in your life. By the time you have reached 30s or 40s, you should have built up an arsenal of safeguards against almost all pitfalls in investing.

bsngpg, perhaps you may learn from forummers more directly by organising a gathering for 2 hours over a meal in KL. Maybe some likeminded investors would like to join. I much prefer face-to-face interaction which is more personal.

China's FD interest rate is actually extremely low but lending interest rate is high. The big spread for the banks is to cover for non-commercial, often government-directed bad loans. Many frontier countries share this problem.

For most red-chip companies, even at very low FD's interest rate, its interest income still has been too low and unreconciled to fixed deposit and bank balances. They tend to keep disproportionate amount of seemingly spare cash at end of each quarter in current bank accounts, instead of fixed deposits. The biggest red flag of course is the presence of material bank borrowings although these companies sit on a very big cash pile on the books at the same time.

These anomalies have been around all these years and suggest that the management moves money into the company for quarterly closing and out thereafter.

On another point, the flight risks among China directors are also high for credit transactions with banks, suppliers, etc. And the shareholders based in Malaysia are the most vulnerable lot.

In a nutshell, transparency, accountability and dividend payments rank low in management of China's compananies. Accounting fraud is indeed very common in China.

Little wonder that the very cheap PE valuation notwithstanding, its shareholders continue to sell their shares and I think the trend can only be reversed if the company starts paying decent dividend.

I think Mr Koon and Fong Si Ling made the mistake of buying into Xinquan because they were too trusting, giving too much benefit of doubt to red-chips major shareholders, without sufficiently combing through the financials for anomalies and inconsistencies.

All said, the RM30m loss on Xinquan actually pales in comparison with the amount of wealth Mr Koon has accumulated in his life. As with many things in this world, we look at the results of our investment to identify what methods likeliest bring the best returns in the long run. There is no reward on who argues the best.

Some punters or investors-wanna-be got burnt big time and never dare to return to equity investment for the rest of their life, while many achieve mediocre returns throughout their life. Only top 10% of all investors make good gains, and they all take learning very seriously.

So, in the bigger scheme of things, Mr Koon is indeed a hugely successful investor especially by Malaysian standards. What he is giving back to the society makes him so admirable indeed.

Have a great gathering!

Although the acquisition of Indonesian O&G is backstopped by a profit guarantee, the sharheolders of Protasco really must pray for there being nothing untoward in the Indonesian operation in these first few years. I give this company 80 points out of 100 at the current market price.

This company was called Chocolate Product in 1990s, I think.

I would love to meet Mr Koon tomorrow but I will be back to Malaysia only a week from now. I suppose I can only try to seize the next opportunity then.

I have never invested in plantation company before and in fact the half an hour I spent on Jtiasa was my first time on a plantation company, all because the recommendation came from a respected figure.

It is not difficult to dig more information to arrive at a more detailed prospective profits of Jtiasa by poring over Jtiasa's published financials, if one is interested.

Jtiasa to me is not a buy before I find out more about it. I would love to learn from Mr Koon more on other companies which he may have in mind for investment.

It all boils down to whether you like RCE capital, the company. This Preference share is 96% held by Tan Sri, and you can expect big spread and thin volume till 2019.

RCE is really a big contrast to MBSB, unable to capitalise on loan growth in Malaysia.

RCE should have no problem in paying you back in cash in 2019's redemption. If it needs cash, it will ask from bankers and ordinary shareholders from now till 2019.

20sen a year preference share dividend is not much but you will get 3% higher than return on fixed deposit, but the bigger consideration is whether RCE is likely to improve in coming years so that you can convert your preference shares to ordinary shares to enjoy the capital gain. If you believe RCE will improve, this preference share is a good option as it has the insurance of cash payback at issue price of 38sen a preference share.

Imenwe, Jtiasa also has log and wood processing biz which are quite profitable. I am not sure the prospect of these 2 sectors. As I said, in the half an hour, I just used a generalisation or extrapolation based on latest quarterly results.

Imenwe clearly did not read properly. I wrote that profit margin may recover 50% in 2015 from now, not CPO price recovers 50%. If he was discerning, he also knows I referred profit margin here to profit before tax level. I hope he can differentiate the difference between profit margin and CPO price before jumping to his foregone conclusion.

Imenwe, as I said, I spent just half-an-hour on it last night. As you can see, I use very broad generalisation based on pubished financial information. I did not even look at the yield.

I said the current price is quite fair based on 2015 projected profit. I did not say it is attractive. It has concerns on short-term borrowing and lack of dividend, not least.

I think my review is fair, unbiased.

I spent half an hour on Jtiasa last night. Here is my view:

The current concern: Jtiasa is in net current liability position of RM180m, mainly because of its RM408m short-term borrowing. So, the company has to refinance or reschedule repayment of this short-term borrowing to a long-term borrowing, or makes a cash call at its shareholders or do another private placement, rather soon.

For FYE ending 2012 when CPO was good, its oil palm biz recorded 30% Profit before tax. However, when CPO plunged in the past 12 months, its oil palm biz went into loss before tax.

In 2015, the produciton volume of oil palm will increase by 200% from 2013. Given the expected production cost increase in coming years, profit margin may recover 50% in 2015 i.e at a level between now and 2012, the company should register RM450m PBT. At effective tax rate of 25%, we will have RM337m PAT in 2015. At a market capitalisation of RM2.24b, it is a PE of 6.6.

So, Jtiasa is really a CPO play. 6.6 times of PE is quite fair. Beyond 2015, there would be some replanting capex coming in, I guess roughly cancelling the effect of further expansion of prime mature area.

Mr Koon has my respect and a good model for everyone to emulate. Thanks for dropping in.

Insas, like many other counters with good asset backing but slow profit growth and little dividend, offers value. It is by no means expensive but the risk of value trap is real in the medium term.

Adventa is different as it is in a high-growth industry. It paid out more, left behind less, and yet able to grow so strongly in a related field.

ILB remains in logistic industry and Dubai's operation remains unconvincing. ILB's best value in the form of properties in China has just been realised. To me, ILB has become a sell. I went into ILB in 2011 at 82sen, and sale of assets as hoped for just materialised as expected. No complaint.

Eurospan stopped giving dividends after the bumper 40sen payments in 2010. Shareholders have not been getting any dividend for the last 3 years. It is a very small company but the margins have been well maintained in the past few years. With 44m shares, RM1m to RM2m net profit after tax is impressive enough but equally it is nearer to loss should there be any cost overrun. All in all, I like Eurospan. All furniture companies are now moving.

No problem. I have a personal friend who worked in Avago before it was sold by the US owner to the Taiwanese. He said Inari-CEO is ex-employee of Avago, and all the points I wrote above. As Inari has gone up by a lot, I reckon the risk is high especially when it has borrowings. Time will tell if Inari will continue to do well. Good luck, all the same.

Hi guys, as I said, do not be angry. I just heard it from some insiders and tried to save some retailers punters from heavy losses if what I heard turns out to be true. Please ignore my message if you do not like it. Cheers.

Inari is a strong sell because:
1) Insas spun it off by listing it. If it were so good, it would not have done it.
2)Inari acquired Ametron and Ceedtec with borrowings.
3)90% of Inari's biz depends on Avago who is slowly moving out of Inari.

Sell now and realise your profit. You can thank me if and when the share price collapses in the future. Just sharing, and please do not be angry, the supporters.

In 2012, Liihen paid Rm4.8m for right of use of a piece of land under a shared development plan for upstream project which is now stuck- pending regulatory approval.

Maybe, the capex used should be around RM8m to RM10m a year in calculation of FCF.

Just sharing. Thanks for your sharing too.

Thanks for the clarification, KCChong. 2 quarters can make a lot of difference, haha. Liihen's EV should be RM67.6m based on financials @ 30.6.13.

KCChong, Liihen has no issue with receivables and its profit approximates free cash flow, with capex approximating depreciation and movement in working capital constant over time.

PE and EV/FCF cannot be so far apart.

:D

The company discontinued its dividend policy at end of Aug 2013, a negative development, to make way for capex and marketing expenses.