In the past 3 years, I only bought a few stocks. I entered ILB in early 2011, Wellcall in May 2012, Prolexus in Jan 2013 and Liihen in Jan 2013. I have been moving some of my money slowly from some of these counters as they have moved towards full valuation into undervalued Liihen. I will be very very happy to move more into Liihen especially when Liihen crashes to 70 sen to RM1 level. Thankfully, all these counters have been doing really well, only Liihen less so impressive after the plunge from RM1.90.

On a long-term basis, I personally bought Liihen for a 5-year payback period. Having said that, quarterly earnings fluctuation does provide opportunity to buy because when EPS plunged from 10sen to 4sen, in theory the share price may fall 50% to RM0.95 if the value of liihen is calculated using just quarterly earnings basis. But investors are smart as they look at what is likely in store in the medium term of 1 to 3 years and also the RM2.30 per share asset backing of Liihen.

Furniture industry has been consigned to low PE all the years due to the views that it is being run like a sunset industry in Malaysia with little emphasis on design compared to European makers and have a higher cost compared to China and Vietnam. But Liihen has been almost the top furniture company in Malaysia earnings-wise in past 3 years and it has always been able to find its niche mainly doing ODM for US customers.

Demands from EURO, US, etc are recovering, which explains improvement in latest quarterly results of Pohhuat, Homeritz, etc, Liihen stands a chance of recovery as soon as Q4 2013. My estimated EPS for Q3 2013 is still 4 to 6 sen only.

I think the current price is a good buy as Liihen's existing clients' de-stocking process will one day ends and orders will come in again, along with expansion of client base especially in other continents. You do not find a net-cash company trading at a low single-digit historical PE now on KLSE like Liihen.

My advise is buy now but leave some money to buy more just in case it drops to RM1 or below either because of lower EPS in coming quarters or because of law suit against CLS and TBE to give the benefit of doubt to the tirade group. But when EPS recovers back to 8 sen to 10 sen in perhaps Q3 or Q4 of 2014, you may want to sell it. The market price is always 6 to 18 months ahead of reality, so you will likely get the price back to good level of at least RM1.90 much earlier than that.

When Chocolate becomes a religion, everything is possible. Congrat to all. The run-up has been impressive. For me, it is time to pocket the gain.

I think the above tirade group's post gives the clearest picture as yet, compared to numerous insinuations and allegations, vague and wild mostly, earlier on.

My views:

Investigation into 2004 share speculation loss and AGM debacle are something that has noting to do with the fundamentals of the biz.

As long as the factories, land and bank balances did not disappear as earlier hinted or alleged by the tirade group (but not subsequently substantiated by any documents), it is logical to conclude that there is no apparent misappropriation of funds.

As investors, we are more concerned about the outlook of global furniture industry and will make our decision to buy or sell more based on potential biz upside or downside, than considerations over the recent negative spotlight on Liihen.

Just because the share price holds steady now, it does not mean there is no downside. On the contrary, just because it may fall to 70sen, it does not necessarily mean a bad news for those who want to buy much more Liihen shares. This is a small forum anyway having little impact on the share price movement.

There are numerous syndicates all over KLSE and some have already been pushing the price up and down of many companies including Liihen to suit their game plans and profit from retail punters who buy and sell on panic mode.

We should not overstate our importance in influencing share price, whether you are a supporter or a detractor. The market out there is big.

The ones who make most money are not the ones who write the most, and market is typically quite efficient. On both, I concur with OTB.

We need to thank the tirade group if they can show evidence of fund misappropriation of Liihen because governance is as important as value. We buy shares for its biz model, dividend policy, asset backing. If any of these elements falls seriously short, we sell, but only based on persuasive and reasonable evidence.

Is the tirade group acting like a blood hound out of a sense of social responsibility? If so, it is a noble cause. But then, why did they resort to using numerous fake IDs to give a charade of wide support? Therein lies the inconsistency.

They have expended certain resources in creating a blogspot,etc, but who bears the cost and who is the sponsor behind it? What is the end-game of the sponsor? To get personal revenge against CLS and TBE because of serious share speculation losses in 2004 or because the sponsor has interest to take over Liihen cheap when prices crash to 70sen which they will do their utmost in making it happen.

It is not that we take side or partial. We do value contrary views but we need substantiation of claims, not just scare-mongering.

At the end, we investors also discern the issues this way:

1) 2004 share speculation loss: those who bought Liihen at RM6.50 deserve to learn a lesson so they invest based on fundamentals in future.

2) We also rely on audited financial statements. To claim that factories, land and bank balances are fake is very serious an allegation. Till evidence is presented, we give the external auditors the benefits of doubt.

3) On red flags such as bank facility withdrawal due to governance issue, this to me is also an important issue, if it happens. It is important because it is not normal for a bank to want to discontinue working with a company that has more cash and bank than debt. We therefore requested for evidence so that everyone here benefits from the tirade group.

Do you have documents showing the bank facility withdrawal?

I think to be persuasive, your analysis needs to be supported by documents (legal titles, bank statements, etc) showing Liihen's factories and bank balances are much less than meet the eyes. If you can show me those documents showing the external auditors were asleep, I will thank you and sell liihen shares.

Aiyo, tjhldg is more generous than I am. Oouch. Anyway, I am serious in wanting to buy more liihen shares at as low a price as possible.

So, the market has been wrong in all the past years for valuing Liihen way above 70sen and only the tirade group is correct?

70sen target price set by the tirade group is more delicious than the RM1.00 floor price I set. Paying 70sen for RM2.30 worth of net assets, I love it.

There is no point posting, deleting, producing fake comments using numerous IDs, copying selected comments (mostly fake ones) on to Liihen blogspot website, etc to give the appearance of support for the agenda behind the whole mud-slinging campaign.

If the price falls to RM1 as some claim, I will be very very happy to buy in a big chunk of Liihen shares. The current MD of Liihen is not the target of this personal vendetta and the biz will not be affected no matter what happens to CLS and TBE, even if the worst happens.

So, after writing so long a story that goes nowhere, please do something substantive by either coming into the open and sue the 2 directors if you think you can win in court or stop writing something so meaningless and so unbefitting what a typical minority shareholder activist group would do.

Betul betul cakap, ramai sini cakap yang bukan bukan. Pukul 3pm, ada seorang di sini cakap kebelakangan ini dia amat sibuk memberi maklumat kepada Polis untuk tangkap 2 directors di Liihen. Tetapi, selepas itu, dia memadam komennya pulak.

Main hide-and-seek, aiyoh.

The fundamentals of this company can support a price range of RM2.10 to RM3.00 a share as I wrote a few times earlier. This kind of undervalued counter is best for syndicate to accumulate when it is below that range and then goreng up.

Improved sales and profit reported by other furniture companies Poh Huat and Homeritz have and will spur interest in Liihen.

Again, if you (still) believe that there would be force-selling of millions of shares on this counter as has been told by detractors of Liihen, which did not happen in the past 2 months, then you should not buy.

Gain on share investment is not guaranteed and loss is equally likely. If gain was taxable, loss would also be deductible. In a deep recession, the loss deduction would then severely cut down government's tax collection, which aggravate the country's fiscal situation. The gain on share investmet is not taxable under income tax because it is capital in nature. So, on this particular point, the author was wrong in his argument.

Anyone can verify the current land price psf in Carey Island? I saw a leasehold land plot seller asking for less than RM10 psf in 2013 in Carey Island, which makes RM50 psf as claimed in Btimes' interview seriously inflated.

Janet是美女一名。真的觉得非常好奇谁是她幕后老板,视liihen为杀父仇人,叫她死咬着不放。哈哈

Kcchongnz must be in his 50s, a retiree?

Miketyu, please check the status via KLSE announcement yourself next time. Investors should do their own homework. The company has applied to strike off the case which was brought upon by a small shareholder to have its AGM re-convened.

One may discern their motive as follows: they hope the 2 directors will be caught and the share price will plunge, according to Janet, to 70sen, so that their backer(s) can mop up the shares cheap.

But does 70sen make commercial sense? Liihen has RM0.67 cash and bank balance per share. So, 70sen is almost impossible because at that level, anyone can buy the whole Liihen company at RM0.03 sen NET (=70sen-67sen) or RM1.8m (60m*0.03).

So, the 70sen does not make sense unless the cash and bank balance has gone missing. It is irresponsible of some of them to allege that the cash and bank balances are gone or at risk of embezzlement because the diretors are thieves.

If the directors were thieves, they need not have raised just Rm9.3m from IPO and then given out RM35m as dividend since then. Share market is full of rumours and speculation and the price moves because of them by nature. If you cannot take the wild swing in share price, stay clear of share market till you have learnt the necessary skills to safeguard your money and take responsibility for your investment decision.

Personally, if the 2 directors go to jail for their part in insider trading in 2004, as this group is alleging so unreasonably hard for, I would be happy to offer to buy the whole Liihen for RM1.00 a share (ie. effective price being RM0.33 net of cash and bank balance of Liihen. A net price of RM19.8m (0.33*60m) would be a steal to me to take over the whole 100% of Liihen. But that is next to impossible, as there would be other bidders offering much higher price than RM1.

The RM13m short-term borrowing of Liihen is all bankers acceptance which costs just less than 2% p.a. interest cost. So, I have no problem rolling them over which has been the case. The Rm9m term loan can be easily managed by FCF from operation.

If the group really wants to help minority shareholders meaningfully, they should focus more on the biz, i.e. the outlook of furniture industry and ways to expand export sales for Liihen. Did they also ask questions in AGM pertaining to how the management plans to sustain or grow sales and profitability of Liihen in the mid-term?

All minority shareholders of Liihen should welcome critics, so long as they are constructive, adding value and based on facts.

Personally speaking, the arguments made in the blogspot are naive and porous to me and the evidence flimsy, both far from compelling. I do not have time or patience to point out each leaky accusation. It is not worth my effort.

Anyway, those who believe the accusations should not buy Liihen as you should buy based on what you believe in.

Some facts about Liihen:

1) It issued only 5.8m (including 1.8m for bumiputera quota) shares to the public during IPO at RM1.60 based on enlarged 40m shares in 2010. The company was valued at RM64m during IPO. It only collected RM9.3m from the public from 2010 till now. In the same period, it gave 20m bonus shares and there has not been any cash call on its shareholders.

2) In the past 9.5 years since 31.12.2004, it made a total profit after tax of RM85m, out of which RM35m was distributed to its shareholders as dividends. Before 2008, the company was mainly just breaking even without much profit.

3) It now has net asset of RM139m, RM40m of which cash and bank balances as at 30.6.13. It has no problem with accounts receivable, it has rather high ROA and acceptable ROE. Most assets are in the form of land and buildings which can be liquidated separately into cash.

Liihen is currently valued at Rm83m. In 2004, there was an offer to buy controlling interest in Liihen at RM2.45 per share which values the company at RM147m.

I think before accusing the controlling shareholders of Liihen as thieves, the accusers should take note that Liihen has enriched its minority shareholders by Rm85m after-tax profit from 2008 till now by managing its biz rather well.

If the last 5 years can be repeated by Liihen (which include crisis years), then the current fair value of Liihen lies in the range of RM120m to RM180m which is RM2 to RM3 per share.

Chinese companies listed on KLSE show fantastic level of cash and bank balances but most cash and bank balances, if not all, cannot be reconciled to interest income, suggesting most cash and bank was moved in before quarterly closing and out thereafter by the management.

They need only to pay good dividend obviously to overcome any stigma but most have been paying none, which speaks volume about the philosophy of the controlling shareholders treating the companies as all theirs, disregarding the need of minority interest.

Lastly and most importantly, whatever shown on FS may disappear one day with the controlling shareholder and it is quite impossible to track them down as China is like a world by itself. Minority shareholders can do nothing at all while the controlling shareholders enjoy their wealth in unknown corner of the world, if and when that happens.

The issues with Liihen:

1) RM4.8m paid for rights of use of a reserved land. There has been delay in granting of approval to take vacant possession of the said land. It is unascertainable if and when Liihen will get that approval. This delays Liihen's effort in moving into upstream activities to better manage rubber wood cost. With rubber wood cost low now, it may not make much of a difference but in longer run, planting for own rubber wood is a move in the right direction to better manage rubber wood price volatility. In the short run, there is a risk of a full or partial impairment charge of this RM4.8m for financial year end 2013 or 2014. But impairment charge is a non-cash item which will affect just profit before and after tax, typically in Q4 P&L.

2) Stock level as at 30 June 13 suggests a turnover of RM70m to RM75m for Q3 2014, based on normal stock turnover cycles. That is the basis of me predicting 4sen to 6 sen of EPS for Q3 2014 to be announced in the third or forth week of Nov 13. Unless of course, a pleasnat or nasty surprise springs up later, which is possible.

3) Looking to another player in the same industry, Poh Huat (furniture co based in Vietnam and Msia) has been registering better sales and profits with improved sales orders especially in the latest quarter. Poh Huat management sees outlook for furniture sales order as brighter ahead with EURO turning around slowly. Poh Huat recorded EPS of 6sen+ before the RM6m provision mainly because of its Vietnam's plants in the latest quarter. Poh Huat, unlike Liihen with a net cash of Rm20m, however is in a small net debt position and has less ability to pay good dividend. If Poh Huat sales order recovery is any indication, Liihen should be able to improve its sales back to RM80 to RM90m a quarter in Q4 2013 when it secures new customers and its existing customers have finished running down their stocks.

Share price in the long run always moves with fundamentals and is forward- looking by 6 months at least. I maintain my estimate of EPS of Liihen at RM0.30 a year for the next 5 years. Buying now means you get a payback period of 4.7 years if my estimate holds. If the actual EPS falls short of my estimate by 50% to RM0.2 a year, you are investing for a payback period of 7 years or a PE of 7, which is by no means expensive. So, the margin of safety is big. I think the current price is attractive for a 40% gain in 12 months time or shorter. Liihen has RM0.67 cash per share, which is also an important buffer for any economic shock.

Haha, we promote shares SOLELY because of its potential upside, not out of associations of one kind or another. Some information may be privileged that cannot be disseminated unless first through the annoncement on the exchange.

Hi kcchongnz, sorry if i did not reply all quesitons as I did not really thoroughly check replies to my postings all the time. My patience is no where near yours. So, I typically just wrote to the point, sometimes curtly to some.

Yes, I am a finance director of a listed company. So, in terms of digesting the figures, I can do it quite fast. But my weakness is that I did not go to visit the companies I have invested in. I should really be doing that soon to grasp the true dynamics of the businesses I have invested in.

I did not comment much except for those I have invested in. If you read my previous postings here and in investlah since 1.5 to 2 years back, I wrote and recommended Wellcal in early 2012, Prolexus in Jan 2013 and ILB in Feb 2012. I was lucky that all performed really well.

The only other counters I have which took a beating lately is Liihen. I think it will recover to RM2 in 1 or 2 quarters. On Liihen, I hope it can make RM0.3 EPS a year on average for the next 5 years. If that happens, it is a matter of time before the price moves up.

:D

The food biz recorded RM1m PBT only and negligible free cash flow for the latest 6 months, with sales flat year on year. So, kcchongnz, GP which you quoted is not rally relevant here.

Lets say the chocolate biz improves by 300% at PBT level in coming years, it would be RM5.6m a year (Rm8m minus 30% effective income tax) at PAT level. This translate into 0.8sen EPS a year.

At 21sen, PE is 26 for its chocolate biz even if it improves by 300% in coming years.

So, PMCorp is still very far from having a good ongoing biz, which is in chocolate currently.

PMCorp will not go bankrupt but every investor in it should pray for it to close shop, sell all assets and distribute all remaining cash to shareholders as soon as possible because it has been such a painful value trap for long-time investors for decades.

The current bet is just on a substantial capital repayment or dividend of not less than 8 to 10sen a share in Q4 13. Anything less than that would not support a share price of 21sen, rationally speaking.

It is hyperbolic or wrong to compare MPCorp's chocolate biz potential with the likes of Nestle and Dutchlady. Calvin has been promoting PMCorp a bit too religiously. We should know biz and religion do not mix.

However, if PMCorp's PL one day indeed starts to reflect MPCrop's chocolate biz profitability as Calvin preached, I would be the first one to call it a strong buy.

Good luck, till then.

PM Corp is different from all other 5 companies. It has asset backing and you can sleep easy if you have bought it at around 13sen.

Guan Chong's borrowing has been alarming since before the super-fun rise in its share price. Its share price retreat has only been expected.

GCB reminds me of Olam.

Fauzan, congrat. Enjoy the rally, everyone.

I share the same belief as kcchongnz.

PMCorp is just an asset play.

KKP has many ways to take money out of PMCorp, not necessarily via captial repayment, based on KKP's previous handling of MUI's group of companies.

KKP controls all companies in MUI and can easily recapitalise any of the ailing companies within MUI using PMCorp's money as additional share capital pumped in.

Whatever money that goes in now is assuming risk of getting trapped. The value is there yes, but it is pure speculation on how it will come out and when.

Haha, then, they have to settle at somewhere in between. A lot depends on who is more desperate to do the deal in real life's negotiation, as with all things in life.

In any major acquisition of a controlling stake, a due dilligence is typically carried out with DCF as a base for the financial part. Invariably, it started using inputs from the financial projection prepared by the company in question and then moderated and finalised between the buyer and seller, with their respective financial consultants in attendance.

EBITDA multiples, PE multiples, and other earnings method can be calculated easily if based on historical data. Historical information however serve just as a base as future may be very different depending on the company's biz in quesiton. So they will be more useful if based on future data.

You see, if you just use historical earnings multiple to negotiate, the negotiation would be too superficial and cannot really cover all angles to protect yourself as the acquirer. Seller may want 8 times EBITDA but buyer offer 6 times. It is hard to bargin meaningfully without zooming in on details in practice.

Price to book is more suited for banks and companies with assets that can be easily deconsolidated or disposed of separately, especially now that FV accounting has been used.

:D

Haha, of course, I will buy the one with lower entreprise value or enterprice price as the article already explained clearly.

Forecasting future cash flow is an inevitable part of acquiring a company as we buy a biz precisely for its future cash flow.

PE, EV/EBIT leave out important considerations that DCF captures. PE is easy but it does not adjust for the difference between future capex and future depreciation, as well as changes in working capital fund requirement.

Anyway, in practice, a small investor tends to use simplistic short-cuts because of the limited information we can access to about a company's future biz plan.

E.g Liihen.

It made RM1.20 EPS and paid RM0.40 DPS in the past 5 years from 2008 till 2012. If Liihen's next 5 years will be the same as the last 5 years, then PE is 6 times at RM1.42.

2008 and 2009 were crisis-hit years. If one should think that the furniture industry in Malaysia is run like a sunset industry (just like Homeritz, Poh Huat, etc) with little competitive advantage for Malaysian furniture makers on international scene and deserve a low PE of 6, then RM1.42 is fairly valued. However, if one believes the next 5 years will be (much) better profit-wise due to global recovery in demand for furniture, etc, the fair value will climb rather fast.

Ultimately, it boils down to how much you understand a biz, especially its competitive advantage, pricing power, its position in the industry, its prospect for sales expansion. This is what drives share price in the long run, and rightly so.

If you are buying a biz with a view to control it, the net impact post-acquisition on your cash flow and financing needs is best approximated by EV, of course.

If you are buying shares on KLSE as a minority shareholder, FCF to the equity shareholders (i.e. DCF) is best method.

EV and PE multiples methods are both short-cuts for quick references. We simply have to take into account interest and effective tax rates which vary from country to country, not least.

EV/ EBIT does not take into account interest expense in % which varies from company to company. This formula is good for valuation of biz as an enterprise and EBIT is useful as part of FCF in doing valuation of assets (which also excludes interest expense), but not for biz valuation for equity shareholders. I referred to the whole formula of EV/ EBIT, not just EV. :D

EV/ EBIT disregards financing and arguably is less complete. Some companies with good credit recrod pay much lower interest than others. The savings go to shareholders and should be included.

Each method serves some purposes and has its own limitations.

Net profit from subsidiaries will not show in a consolidated set of accounts. Share of profits from JV, associated companies will appear in consolidated accounts and I think they should be included in EV for the same reason MI is added to EV.

:D

Some listed companies have negative EV when it is traded below its net cash. This is typical for companies that hoard cash for ages and are stuck in unprofitable biz or drifting on without proper plan for biz expansion or investment. Can would-be acquirer buy those companies for free? Of course, not. So, while EV is a good measure of what an acquirer of the whole biz would pay in essence, it is not a general guide of right valuation by itself. :D

Hi Janet, why are you holding it till now, more than one month after your tirade against Liihen started? Very curious, contradictory and interesting at the same time.

Shares move with world economies which have cycles of ups and downs. In the past 3.5 years, the environment for equity has been condusive for good gains, while the 2008 to 2009 period was hell. One should maximise gains during good times (30 to 60% a year) and minimise losses during bad (-10% to -20%). In the long run, achieving 10% to 15% CAGR is a great feat a truly great investor should aim for. This requires courage to buy when others fear, take risk, stay invested and of course, the greatest skill of all is to concur greed and cut all exposure to equity before the cycle turns.

Reduction in share par value is not necessarily done together with share consolidation although it is quite normal as part of a wider scheme of capital reorganisation or reduction, so that accumulated losses can be wiped off, share capital reduced, and new fund injected via issuance of new shares.

Capital reduction can be done via capital repayment by company with excess capital. Excess cash in PM Corp is mainly derived from gains on disposal, not from continuing business. As such, distribution of excess cash is best done via capital repayment, not dividend.

The pertinent question is how much is the coming capital repayment, if at all it comes. If small, say 3 to 4 sen, it will not make much of an impact to the share price, in my opinion, because minority shareholders will then ask when will be the next distribution. Not another 10 years please. That is why the share price has been rather low.

The value of PM Corp hinges entirely on KKP. :D

I think calvin may have put in also the sales proceeds from disposal of an asset being completed currently, and he said cash, not net cash. :D

Prlexus is a turnaround story which began 2 years ago. I bought at 93sen in early March 13 and sold all at 1.93 in early June 13. I was lucky to get almost perfect timing.

The only issue with Prlexus is that its dividend is very low. That is why I sold it off. It is still very dependent on Nike and lets see how they evolve.

GUH's PCB biz has gone downhill for a number of years but its ability to venture into power, property and water business profitably is admirable. GUH is one of those companies (like Insas, A&M, PMCorp, etc) with a lot of land or cash that makes you feel rich after you have bought in, but receive little dividend. But GUH is a bit different as it has a growth story to tell and its share price has performed wonderfully in the past 3 years. I believe RM2 is achievable but the consolidation should take a while.

Thanks Calvin. It may not be so soon but when the time comes I shall contact you.

If I decide to enter PMCORP, I really need to first meet Calvin in person first to have a chat over this counter. before moving my cash in. I hope Calvin can spare 1 hour or so with me.

Kcchongnz, I meant 30% to 40% profit on total investment principal amount each year for the past 3 years should be the yard stick to measure against for a good investor.

Alwong, long-term lease, which you speculated, is called finance lease or capital lease requiring capitalisation on the balance sheet. That means on asset side, you see land and buildings, and on the liability side, you would see finance lease payable.

The difference between net book value of land and buildings and finance lease payable balance on balance sheet is just the difference between depreciation rate and the implicit rate of return on finance lease principal. As the NBV of L&B is around RM50m, did you see a corresponding finance lease payable of roughly the same amount?

Please read Liihen's annual report to see if you can find any finance lease payables there. There is none.

If you want to simply tembak, please do so with responsibility and intelligence because you are losing your credibility with each accusation.

Alwong, clearly, you were twisting and backtracking selectively when you were caught with contradictions in your argument. The on-going tirade against Liihen is ridiculous, to say the least.