KNM also reported its first quarter 2014 results recently. We already talked about how bad KNM has been doing as described in the main article here. But more important is its future, isn’t it? And how much we have been hearing that it is turning around.

The latest quarterly report ended 31 March 2014 still shows a fantastic sales of 493m! That would put many public listed companies to great shame. The net profit also improved by 700% to 13.6m! Yeah, turning around already! Really?

But that is a net profit margin of just 2.8%. And we haven’t take into consideration that it has 7.3m in foreign exchange losses and 2.4m losses in new investment in subsidiaries etc which the final net profit is just 3.3m, or 0.7%. Not even a basis point?

Why would I consider this investment and foreign exchange loss as they appear to be non-operational? Because this “non-operating” losses are yearly affair now and so much so they are no more extra-ordinary.

Actually the worst thing is its cash flow from operations (CFFO), not FCF. It is a whopping negative 104m, in just a quarter. Doing 493m business in three months, make 3.3m, but got to find 101m to fill the cash shortage. Where to find money to fund capital expenses? Where to find money to buy some more investments like they always do overseas? Where to find money to pay the extremely high interest payment for a total of 1b loan?

Wow, you really call that a turning around? When is the right issue again and again?

London Biscuits, another lemon mentioned in this thread, just announced it 3rd quarter 2014 results. With a turnover of 96m, the net profit is 2.3m, or a net profit margin of just 2.4%. This is not even half of the last year net profit margin of 5.2%. ROE based on last year's data is already very miserable at 4.15%, way below the required return of any rational investor. So look like the expected ROE this year is 2.5% (?). How?

Where is the widely talked-about turnaround?

Already stopped heavy investing in PPE like the last 10 years? I can see its PPE increased some more from 517m to 528m now. How?

Yeah, I forgot that it is going to turnaround.

Long time didn't visit here already. Let look at the latest financial result of one of the lemons here.

Ivory Property just announced its latest quarterly report. Its revenue increased by 12% to 59.4m. But the more notable one is its net profit which increased by a whopping 75% to 3.5m. Net profit margin increases as a result to 5.9% from last year’s 3.8%.

A closer look at its financial statement appears to be alright, unlike in the previous year when there were some doggy massaging of the figures, where “fair value gain of property” was booked as “profit” at the top lines, yes as a gain in the ordinary operations. So far the results appears to be, shall we say wonderful? So the turnaround is coming?

The Achilles heel of Ivory is its cash flow from operations, as usual, is still a negative number, at minus 17.5 m for just three months. So how to pay just interest of more than 10m a year because of its relatively high borrowings? So when is the next right issue?

A look at the comparison of some metrics of Ivory with the industry average also makes me worry:

Metric Ivory Industry
Profit margin 5.9% 32%
ROE % 3.9% 15.9%
ROIC % 2.3% 11.8%

How long more for Ivory to catch up with the industry? Or will it ever catch up?

Wait, we have to look at its share price. May be it is still a good investment, even though it is not performing well in its business.

At the close of 62 sen on 30 May, 2014, its trailing PE ratio is 19. Is it cheap? Can you get other companies, better companies with even lower, or much lower PE ratio? I sure can.

Oh, I forgot its next quarterly result would be much better. It is turning around. It is coming.

OMG, no eye see.

That shows another example of the outcome is always opposite of the expectation in turnaround cases.

London Biscuits just announced it 3rd quarter 2014 results. With a turnover of 96m, the net profit is 2.3m, or a net profit margin of just 2.4%. This is not even half of the last year net profit margin of 5.2%. Your analysis of ROE based on last year's data is already very miserable at 4.15%, way below the required return of any sensible investor. So look like the expected ROE this year is 2.5% (?). How?

Where is the widely talked-about turnaround?

Already stopped investing in PPE? I can see its PPE increased some more from 517m to 528m now. How?

Intelligent Investor, good work.
But I just wonder people care about all these numbers or red flags. Just for curiosity sake, let us try to fathom what those numbers mean.

You got your Return of assets (ROA) of 2.2% in this thread and return of equity of 4.15% here:

http://intelligentinvestor8.blogspot.co.nz/2014/05/dupont-analysis-apollo-vs-lonbisc_6394.html

Imagine you put in 1m and borrow another 1m to buy equipments and some working capital for a food business. So total asset is 2m. Your business makes a net profit of 44k (ROA=2.2%). Are you happy about it?

And from your equity of 1m, you make a net profit belong to you of 41,500 a year (ROE=4.15%). Are you happy with it? Hack, for me I rather go work as a clerk and I can easily earn that amount of money without any capital nor stress.

Or I just put that 1m in bank deposit I will earn that amount of money without any stress nor any risk. And the interest I earn is cash interest.

And what kind of return is that investing in LonBisc, a "return" in terms of more PPE, receivables and inventories!

Oh we haven't come to cash flow yet. How do you like when the business tells you that yeah, we earn some profit but the profit is not enough to pay for some more equipment, as the old ones need replacement. Give me more money.

The business is turning around? How much more it makes? Double, triple? Even with that, is that enough for the risks you are taking? Need to put in more money into the business again or not?

I would like to discuss about this post here. My response is in capital letters to differentiate that of the commentator.

Posted by Bateman > May 29, 2014 10:40 AM | Report Abuse

I think it is a mistake to invest on Kfima based on its supposedly attractive valuation. If you do study the long term financial performance of the company, you will notice that Kfima is a poorly managed one. First, the financial performance of Kfima is solely dependent on the performance of its plantation division. If you look further into the numbers behind, you will find that the company has constantly producing returns that are below the industrial average from its plantation division time to time. So, what does this tell me? It tells me that Kfima is a below average and inefficient plantation player among its industry peers.

ARE YOU SURE THE FINANCIAL PERFORMANCE OF KFIMA IS "SOLELY" DEPENDENT ON PLANTATION?

1) HOW MUCH IS THE REVENUE AND PROFIT OF PLANTATION MADE UP OF?
2) CAN YOU SUBSTANTIATE "THAT THE COMPANY HAS CONSTANTLY PRODUCING RETURNS THAT ARE BELOW THE INDUSTRY AVERAGE"?
3) WHAT IS YOUR COMPUTATION OF THE RETURN OF EQUITY OR RETURN OF INVESTED CAPITAL TO WARRANT YOUR STATEMENT THAT KFIMA IS A POORLY MANAGED COMPANY?
4)WHAT IS YOUR BENCHMARK OF A POORLY MANAGED COMPANY? WHY DO YOU CONSIDER A COMPANY, AT AN ADJUSTED PRICE OF 66 SEN 5 YEARS AGO, HAS PRODUCED A TOTAL GROWTH IN SHAREHOLDER VALUE OF RM1.38, 36 SEN IN DIVIDEND, AND RM1.02 IN GROWTH IN BOOK VALUE, A POORLY MANAGED COMPANY?

No doubt Kfima is producing good cash flow year by year, especially from its stable printing division. I feel the management has not done enough to reward its shareholders with its cash hoard. Hence, you see the low valuation in its market value. The share price of Kfima will track the long term performance of CPO prices. As long as we see increased liquidity into the plantation sector from the broader market, Kfima share price will go up. In my opinion, Kfima will most likely realized its intrinsic value through privatization

NOTE THE "CASH HOARD" YOU ARE TALKING ABOUT IS NOT WITH KFIMA BUT WITH FIMA CORP. IT IS ONLY FIMA CORP'S FINANCIAL STATEMENT CONSOLIDATED IN KFIMA.

BUT A CONSISTENT 8 SEN DIVIDEND VERY POOR FOR THE LAST THREE YEARS?

CONSISTENTLY GROWING IN BOOK VALUE IS SUCH A MANNER NOT DOING ANYTHING FOR THE SHAREHOLDERS? THEN WHAT IS?

IF YOU THINK OF RIDING ON KFIMA ON CPO PRICE, I THINK YOU ARE NOT RIDING ON THE RIGHT HORSE. PLANTATION ONLY MADE UP ABOUT 30% OF REVENUE AND PROFIT OF KFIMA.

I DON'T KNOW WHAT IS YOUR HORIZON OF INVESTMENT? ONE WEEK? ONE MONTH? ONE YEAR? IF YOU HAVE BOUGHT KFIMA 5 YEARS AGO LE A LONG-TERM INVESTOR AT AN ADJUSTED PRICE OF 66 SEN THEN, AT RM2.17 AT THIS MORNING CLOSE, YOUR TOTAL RETURN IS 230%, OR A COMPOUNDED ANNUAL GROWTH RATE OF 27% FOR 5 YEARS. WHAT IS THE KLSE RETURN? 15%? SO WHAT IS THE FUSS?

II,

Yes to both questions.

If ROE is higher by certain margin, I prefer company with high ROE with higher leverage. The key is the clever use of leverage by management to enhance shareholder value.

Yes, rule out those red chips like CAP and Maxwell.

Then it will be a good list to explore further.

One thing it is natural to borrow money and make money in the corporate level, not the personal level.

Don't shun debts as you can see leverage (in corporate) can amplify return. Just make sure the debt is not excessive to the extend that there is high bankruptcy risk, say debt not more than equity.

Debts can actually go higher if the business has steady and predictable cash flow, eg cash flow from operations at least 5 times interest payment. And consistent free cash flows.

見仁見智

Excellent article.

I fully agree, without any fundamental knowledge and hope to make it in the stock market, " Talk easy but in actual fact, very though". I would say very very though. I have walked through the path before.

But one thing I disagree with the article here. If you have some useful fundamental knowledge and most important a proper investing mind set, you don't need the other to earn reasonable return. But definitely not vice versa.

Posted by Tan KW > May 28, 2014 02:29 PM | Report Abuse
@kcchongnz, i believe this rule shall not apply to you. but how about major retailer that not able to understand a company and do proper valuation?

Tan KW, to me it is hard to fathom that a retail investor like me can beat the market in this zero sum game with little half-baked knowledge and skill which has little logic and with a relatively powerless computer compared to what the big boys have. It is like me playing badminton with Lee Chong Wei.

Whereas investing is different. Like what Buffet said,

“You don’t need to be a rocket scientist. Investing is not a game where the guy with the 160 IQ beats the guy with 130 IQ.”

You just need a little knowledge in investing and the right mind set though.

但是这个情况设止损点，
对长期投资者来说是有利的。
因为当公司遇到短期不利，
跌势不止10%（很可能去到30-40%），
设止损点可以帮助你之后以更低的价格买入股票。

可能 is perhaps. How sure is your this perhaps? What if after you cut loss at 10%, the share price bounces back, and continues to go up? What is your loss of opportunity cost?

Won't happen? Can show some statistics?

第三 你觉得好的公司真的是好公司吗？
长期投资者如果投资到好的公司，
在长期来看是稳赚，
但是好的公司通常都很主观。
万一投资的是不好的公司，
跌破止损点过后还继续持有，
损失就非常惨重。

主观? Of course value is very personal. One can be wrong. But then why not make damn sure that your probability of right is high. Of course if eventually one is proven wrong, then have to cut loss, even at that time, the loss could be very high. What to do? It is part of the game.

所以设止损点对长期投资者来说，
好处其实还蛮多的。
为了避免因为技术性回调而卖出，
其实是有方法的，（那就是去学习技术分析啊^^）
就是根据公司的规模设不同的止损点。
蓝筹股设10%，（因为蓝筹技术回调很少跌破10%）
二三线股设15%，
小型股设20%，
这样就可以避免误卖好的股票。

This bring back the first point above, what if after cutting loss, it moves up? And why 10%, 15%, or 20%?

Actually with these types of rules learned by the retail investors, it appears to me it is easy for big sharks to make money, of course out of small retail investors.

当然止损点还有一个好处，
就是可以很快地逃离熊市。
在熊市里，
一家好的公司亦可能跌至原本股的20-30%，
那时可能就要等多7-8年才可能回本。

The same problem. And why 7-8 years? Any statistics?

stockoperator,
Sorry, not sure of your question.
The intrinsic value is derived from discounting all future expected FCF to the present. Add back non-operating cash, other investments, less minority interest, less debt, and what is left is for common shareholders. Then divide by the number of shares outstanding, and you get intrinsic value per share.

“Here a confession is in order: In my early days I, too, rejoiced when the market rose. Then I read Chapter Eight of Ben Graham’s The Intelligent Investor, the chapter dealing with how investors should view fluctuations in stock prices. Immediately the scales fell from my eyes, and low prices became my friend. Picking up that book was one of the luckiest moments in my life.” Warren Buffet

You have posted 51 posts on this thread originated by me here. Every post of yours, without exception, is about how bad Tien Wah is, and how good is your New Toyo, while New Toya as you have said owns 50% of Tien Wah. So how could this be? It is not that I give a damn.

I wrote the original post on Tien Wah here and I never asked anybody to buy it nor even talked about it after the posting. Yes, its business seems to be not doing well compared to before. Since then (10 months), its share price dropped 7 sen, or 3%. So what?

When people got tired of responding to your bashing posts, you come with these types of sarcastic remarks like below:

Posted by Robert Love > May 26, 2014 09:16 PM | Report Abuse
Where are all the strong supporters of Tien Wah?
Cowards hiding and still tied to your mother's apron strings ?


Do you have a life?

Posted by Tang Michael > May 27, 2014 02:53 PM | Report Abuse
Mr kcchong......two months ago I wrote that kum. Fima sales is sluggish.... you gsve me 10 years profit of past years......what for......we see the future and the price coming back to around two.......it is coming....no need for crsytal ball.....

Just copy and paste it here for record purpose.

"we see the future and the price coming back to around two"

Btw, I have never argued with you about its price movement in the future. I have no your kind of ability to see future share prices.

I welcome you to discuss about fundamentals, whether past or future of Kfima, not guessing about future share price of Kfima, or any other stock.

Posted by Robert Love > May 26, 2014 09:16 PM | Report Abuse
Where are all the strong supporters of Tien Wah?
Cowards hiding and still tied to your mother's apron strings ?

Feeling lonely? Not many give a damn of what you write? That is because your reasoning is very unsound.

You kept on parading what the hack New Toyo and kept on bashing Tien Wah. But as you said New Toyo owns 50% of Tien Wah, why the hack you keep on promoting New Toyo and bashing Tien Wah? You have no idea if there are other companies except New Toyo and Tien Wahin the world?

You got a lot to learn from forumer tobaco here.

A good place to start to look for good companies to invest. Just beware of some of the pitfalls on investing purely based on ROE here:

http://klse.i3investor.com/blogs/kcchongnz/52949.jsp

A loss of species at the top of the food chain could have far-reaching effects on the environment, according to a study in the Journal Science.

Some of the world’s top predators - including lions, wolves and sharks - are in sharp decline. Human activities like pollution, habitat destruction, overfishing and hunting are largely to blame.

EAH, yeah a hot stock?

I still remember vividly how a famous Malaysian financial blogger posted a number of articles on the rosy prospect of EAH, with its acquisition of a RFID company, DDSB about two years ago. He said EAH was so clever in acquisition of DDSB, such a fantastic company at such a cheap price. And that EAH’s business was going to rocket to the sky. At that time I was thinking myself, if DDSB is such a great company, why did they sell to EAH at such a cheap price? What is this EAH so special?

So what happen after that acquisition? Yes, EAH’s revenue has increased from 21m to 92m from 2010 to 2013, or close to 500%. This is a huge increase, but the absolute revenue is still a small number. More important is what happened to its bottom line? Yes, profit also more than doubled from 4.1m to 9.3m for the same period, but it is still a very small number. Before the shareholders jump in joy, they must be reminded that the number of shares have increased from 155m to 426m now, about three times the number more. This increase in the number of shares was a result of a right, bonus and share split carried out two years ago. And don’t forget, there are warrant A and B also.

After 2013, there are more bonus and right issues. I am just lazy to follow all these corporate exercise. Let us just focus on its business.
The return on equity for EAH last year is 13% and return on invested capital 11%, nothing to shout about. In fact I would rate them as bad as these type of business normally have much higher ROE and ROIC. They were actually halved post acquisition of apa itu DDSB.

The quality of earnings for EAH is very poor. Cash flow from operation last year is a meagre 2.7m, or 53% (<<100%) of net profit. There is little free cash flows left after capital expenses of 2.7m. Balance sheet wise, much of its net asset is made up of “Goodwill”, an over payment on the acquisition of DDSB above its book value.

So even if EAH is seemingly “cheap”, which at 13.5 sen, is trading at a PE ratio of 6.4 and price-to-book of 1.0, I wouldn’t want to include it in my portfolio.

And again don’t forget about its huge amount of warrants which will have a claim of what the company earns.

Yeah, I have not included its apa itu future which is so bright as projected by some people.

A good article telling investor to look at the business of the company, rather than looking at its share price movement, when buying a stock by Intelligent Investor here.

In Buffet's Letter to shareholders 1987, he advised investor to avoid unforced error in investing.

One way to reduce errors is to focus on studying high quality businesses with high returns on capital. In the letter to shareholders 1987, Buffett mentions that Berkshire’s seven largest non-financial subsidiary companies made $180 million of operating earnings and $100 million after tax earnings. But, he says “by itself, this figure says nothing about economic performance. To evaluate that, we must know how much total capital – debt and equity – was needed to produce these earnings.”

He then references an interesting study by Fortune that backs up his empirical observation. In this study, Fortune looked at 1000 of the largest stocks in the US. Here are some interesting facts:
• Only 6 of the 1000 companies averaged over 30% ROE over the previous decade (1977-1986)
• Only 25 of the 1000 companies averaged over 20% ROE and had no single year lower than 15% ROE
• These 25 “business superstars were also stock market superstars” as 24 out of 25 outperformed the S&P 500 during the 1977-1986 period.

The last one is really remarkable by any standard. So focus on the quality of the business, ie how much is the return of its capital.

Posted by cy1988 > May 25, 2014 06:05 PM | Report Abuse
kcchongnz
How u define cost of capital?which thing should I add up to cost of capital in the balance sheet?

If you as an investor, intend to invest in a company's stock, what would be your required return? Take into consideration your opportunity cost, and the risks involved in that particular company and the stock market as a whole.

If a company borrows money for its operations, what would be its cost of this borrowings?

Say the earlier one is x%, and the later one is y%, and its capital structure is 60% equity and 40% debt, so theoretically its weighted average cost of capital (WACC) is x*60%+y*40%.

Yeah, that is theoretical.

Posted by cy1988 > May 25, 2014 03:14 PM | Report Abuse
kcchongnz
Talk about the return of capital ,there are some diff version,
What version did you use. is it NOPAT/(Total borrowing +Total Equity -cash)=answer?
And usuallyhow many percent of return of capital did you think is good,above 10 %?
Appreciate your reply

Yes, there are different versions of return of capital. The difference is what do you consider as invested capital.

Obviously the ROC must be higher than the cost of capital, and cost of capital for different companies are not the same.

Posted by NOBY > May 22, 2014 09:19 AM | Report Abuse
superb... the sell off for PTARAS has started... i m preparing my bullets..

That is the difference between a true investor who understand the business of a company he invests in, the concept of "Mr Market", know how to read financial statements and analyze, and have a feel of valuation, and the crowd.

Posted by up_up_up > May 21, 2014 08:41 PM | Report Abuse

Hi KC, what's your opinion on the quarter results? Good, bad or within expectations? From quick glance total revenue up but net profit down, will this invite selling pressure tomorrow? Thanks.

I have answered your question right to the point here:

http://klse.i3investor.com/servlets/forum/600050564.jsp

Posted by ccs999 > May 21, 2014 07:52 PM | Report Abuse

bro kcchongnz, what is the par value for pintaras, it is still rm1 after bonus issue? thanks.

Bonus issue doesn't affect the par value. Share split does.

Sell, sell, sell. Pintaras profit down!

Yes, that is the mentality of most so-called investors. They are “investing” by looking at EPS quarter to quarter, nothing else.

Pintaras just announced that its third quarter results and EPS dropped to 5.8 sen from 8.6 sen, or about 30%. But was that really a drop in its real earnings in the first place?

Pintaras gross profit actually increased by about 13% from 15.9m to 18m for this third quarter. The net profit dropped by 23%, mainly because of the expensing of 4m on the option granted to the management. This 4m expense is just an estimation of the value of this option (using Black-Scholes OPM, I guess) and it is a non-cash item.

There was also a drop in income of some non-operating items.

So in fact, the core operation of Pintaras was doing better for this quarter as compared to the corresponding quarter last year. How can one knows about this? Just look at its cash flow statement, and the increase in cash and cash equivalent of its balance sheet.

Don’t forget that this period has not included any revenue of the two biggest projects so far of more than 70m each just secured a couple of months ago which have not started during that period yet.

伦敦食品（LONBISC，7126，主板消费产品股）虽然是个小型消费股，不过自2002年上市以来，已成功连续12年获得净利。

Me:
1) What kind of profit LonBisc made for all these years?
2) If it has been making money every year, how come the balance sheet is deteriorating unabated from a total debt of increases every year (yes every year, no joke) from less than 100m 10 years ago to 260m now?
3) Where has the so-called "earnings" gone?
4) This is despite that there have been a number of cash calls throughout the years when shareholders forked in more money into the business.
5) Earnings reinvested into the business? What kind of return is this "reinvested capital"? 4%? Good?
6) Profit every year? Show me the cash.
7) Without fail, every year LonBisc has negative free cash flows. It even have to borrow money to pay dividends. I haven't seen a company with that poor free cash flows, hardly.

在三年连续出现净利萎缩后，伦敦食品的净利在2013财年增长11%，至1236万令吉。
更重要的是，走势成功延续至今年首季，录得926万令吉净利，按年扬25%。

Me: Don't bullshit to shareholders about net profit. It is terrible to borrow money at 5% and earned a return of capital of 4%. Talk about return of capital. You can fool most people most of the time, but you can't fool everyone all the time.

该公司早前的净利萎缩，主要是因为2010至2012财年时，曾投入高额资金在提升产能、现代化设备和机械上。

Me: Only high capital expenses in 2010 to 2012? Another bullshit. My record shows capital expenses of average 50m every year.That is more than three times its so-called net profit averaging every year.

资本开销减少
不过，投入庞大资金的时期已来到尾声，因2013财年的资本开销，仅企于2201万令吉，较过去三年平均5627万令吉的资本开销要低61%。

Me: Really? You have been bullshitting all these years. What can induce me to trust you in the future?

整体而言，我们预计2014及2015财年的净利增长，可分别达15%和14%，比我们所追踪的其他饮食消费股项要高，因后者的增长局限在5%至12%。
受惠于过去四年的投资计划，2014财年的净利料扬15%，报1420万令吉。

Talk to me about return of capital and cash flow. don't bullshit about net profit.

管理层曾披露，生产线的增加将让其获得新商机。
我们正面看待此事，因伦敦食品的净利复苏还在初期阶段，因此长期前景料更加明亮，特别是出口市场的新商机。
本益比折价不合理
伦敦食品目前正以9.2倍本益比的水平交易，比同行平均11倍本益比折价16%。

PE low? First you must know what kind of "E" is LonBisc producing. Secondly you got the wrong metric to compare with other companies. LonBisc has loads of debts but most other don't have any borrowings at all.

此外，目前的交易价位也只是2.17令吉账面价值的0.42倍。

P/B low? What kind of book value it has? Cash, or some dated plant and machinery worth 517m or 3.60 per share? How much can this plant fetch in a fire sale?

我们认为，折价是不合理的，因该股的净利正稳健复苏中，获利能力也较其他消费股高。
伦敦食品首季的净负债率，已从2011财年时的0.77倍，显著下降至0.63倍。
现金流改善

Talk about debt-to-equity ratio? Why don't talk about its total debts still increasing unabated from 2011 to now?

虽然其净负债仍比其他饮食消费同行来得高，惟我们正面看待其不断下降的负债率，因这显示净现金流已获改善，且正逐渐将净负债削减至健康水平。
另外，该公司的高资本开销时期已过，伦敦食品理应开始享有较好的现金流。

Improving cash flow? What makes me to believe when for the last 10 years, you don't even have one year of positive free cash flow?

我们估计该股总回酬可达30.6%，投资评级为“短线买进”，目标价格是1.18令吉。

Source: http://www.nanyang.com/node/622156?tid=687


"该公司早前的净利萎缩，主要是因为2010至2012财年时，曾投入高额资金在提升产能、现代化设备和机械

Posted by NOBY > May 19, 2014 09:15 PM | Report Abuse

KC how are you allocating your portfolio between asset plays and magic formula stocks today ? How many pct for each ?

I have no fixed rule, but at the present situation now, I tend to lean more towards balance sheet investing, a lower risk strategy.

Earnings, and hence ROIC can change much quicker than asset value.

What kind of management in London Biscuits?

http://klse.i3investor.com/blogs/kianweiaritcles/40683.jsp

stockoperator,
will you buy my book then?

Good analysis Chin Yong.

PE wise, Lonbisc at 9.9 is lower than 12.1 of Apollo. But PE ratio is too superficial a metric to use to compare value of two companies. It is unreliable as clearly demonstrated by this example. Measured with other better metrics, LonBisc is definitely not undervalued. I would even say, it is highly overvalued.

A stock price cannot have a negative value. This is because as a company, the shareholders are not liable to the debt and liabilities of the company. Hence the minimum value is zero, not negative.

Look at the performance of the company, what is ROE, ROIC? Are they good? Make sure you know what I mean.

Listen to what the CEO says; Is he talking about how he is going to grow big the company with this and that acquisition, how he always says the share is undervalued, that he is going to privatize it, announcing this and that without any substance etc. Whereas the company's fundamentals continue to deteriorate and he is not taking any measure to address it. You know he is talking c***.

LC is showing his analysis with facts and figures and did not say which stock is no good, I think. What is that to shoot?

Hi Plumberii,
Where have you been? I "hope" you share with us your stocks in your Magic Formula.

You probably knows what I meant by hope in this article:

1) Hope that the leopard will change its skin and keeps on deceiving the minority shareholders
2) Hope that a company will get big tender with net profit margin>20%, instead of losses even at the operating level for years
3) Hope that it will collect all its debts amounting to billion ringgit.
4) Hope that it can convert its billion Ringgit intangible assets into real money
5) Hope that its multi hundreds of million debts will "pooh", disappears
6) Hope that its management will seriously sit down and manage the company and projects well
7) Hope that it got cash to pay salaries, working capital needs, suppliers, subcontractors etc
8) etc etc etc

I hope shareholders recover their huge losses, very soon.

Posted by tealeaf > May 11, 2014 09:37 PM | Report Abuse
Hi KC, i'm tried interpret yr table 3 DCF analysis...would u mind to share how did u get the PV of FCFF @ 321,000? Thanks.

This is what I did as written in the article:

[In Magni’s case, I start off with a normalized FCF of 16.6m being the average FCF of the last 5 years, a growth rate of 8% for the next 5 years, 5% for the subsequent 5 years and a perpetual terminal growth rate of 3% after that, in accordance to the rate of growth of GDP and inflation.]

You get the cash flows for each year from the above assumptions. Then discount all the cash flows at a discount rate of 10% to the present value.

Posted by chunghiung > May 11, 2014 10:44 PM | Report Abuse
Hi kcchongnz, please do some research on Malaysia Glove Companies. TQ

I believe this industry is highly researched by investment bankers and analysts. I am sure you can find many reports on this. They have all the information and they are the experts.

Posted by jennylee1382 > May 10, 2014 01:02 PM | Report Abuse

kcchongnz Can I know these counter"ccmbio and Igb" is a good fundamental stock, worth to buy these share

There are a few things I normally look at to answer your questions:

1) Is the kind of business likely to last for some time?
2) Is it a good company? This I have to look at what kind of performance of the past the company achieved in term of earning in return of the capitals.
3) Yes, is it cheap? In this case look at the price Vs its earnings. I prefer taking the whole firm into considerations.

Yes, these are all history but they are the only things I can rely and trust on with confidence.

So I will work on those few things if I were you.

My email address is ckc13invest@gmail.com

Posted by mflk331 > May 8, 2014 02:16 PM | Report Abuse

Very good article, can you share with us how you compute your data ?


I have done this for about two years already in i3investor.

I have started an online fee-based investment course with this theme of value investing which includes this Magic Formula Investing.

If you are interested, you can join us.

How true is this article!

The message is very clear. The person you have to trust most is you! And make sure you have the necessary mind set, knowledge and experience so that you don't disappoint yourself in the world of investing.

Posted by sunztzhe > May 6, 2014 10:06 PM | Report Abuse

kcchongnz,
I am keen to learn from your experience and your art in determining the intrinsic value of a stock.Have you ever thought of organizing a 2 day training course for i3 members in KL on a weekend on the methodologies and the art of determining the Intrinsic Valuation of companies based on case study approach?

sunztzhe,
A very good proposition, case studies in valuation. We can use the past performance of some companies, do analysis and valuation and come up with a value. We could then check a few years late, were the company fundamentals remain the same, had changed, and the performance of its stock prices.

I have done this during my postgraduate in Finance. It is very interesting and educational indeed. Only then people can appreciate the art of investing.

However this is a much more advance learning than what I have been doing now. It is not that difficult also, but participants have to be committed to the course and assignment. So we are talking about case studies, not something I think can yield any positive results for just a two-day course, spending thousands each in a posh place. Good understanding of financial statement analysis is a pre-requisite.

I don't mind of doing it online if there is enough participants. The course must be able to yield positive results. Hence it requires long duration and a lot more guidance for participants of different backgrounds.

Mr Koon,

Somebody just asked me if he were to buy a plantation stock which has good potential in the near future. I just told him for me these are the two, TSH and JTiasa.

However, I am not in the position to estimate, nor I have any motivation to do, how much its palm oil production will be for the next few years? What would be the oil palm prices will be? Etc. So I would not be able to estimate the revenue, operating costs and its profit will be in the next few years. I think this is the job of a specialist plantation analyst in the investment bank, like your Alvin (?) of RHB.

And most of all, as I said I am a cheapo in investing, I must have a feel of the value of the company compared to its market price. One way I can do is to do a reverse engineering on a discount cash flow analysis and gauge what the market is expecting JTiasa's Ebit or free cash flow will grow say for the next 10 years. I have done that before and I found at the present price of RM2.70, the market is expecting a very high growth of its earnings for such a long period of time. I normally don't want to pay so much for high growth expectation; knowing that the outcome may not be the same as expectation.

I also normally don't pay too much value on investment banker's reports; not that the analysts are no good, they are all highly qualified professionals, but more of their huge conflict of interests. If you are interested in this topic, I recommend you to read this book "When buy means sell" by Eric Shkolnik.

No, I am not saying you are wrong. You have been right for so many times and in fact you have made your money in the stock market. You have your own way of investing which has shown good results. It is just that we do it differently.

Mr Koon, I have great respect for you in your social and political contributions. I am a civil engineer like you, but much junior and unknown one compared to you. surely I will be delighted to meet you.
Lat time Tan KW helped to compile my articles in i3investors before I have my own blog.

I am also is a small time retail investor, far far away from your league. My principles in investing is also in somewhere similar to yours, but it is more of differences then similarities. You can see our differences if you care to read my posts in i3investors here:

http://klse.i3investor.com/blogs/kcchongnz/

You are very successful in your investing experiences, in your own way.

So you must be kidding in asking me to manage your some of your fund. Of course it will be a great honour to do that for such a charity fund.

My interest now is to educate others in fundamental investing. Can I use your above statement as a marketing tool?

Posted by Koon Yew Yin > May 5, 2014 11:58 PM | Report Abuse
kcchongnz, your analysis of MFCB is most encouraging. Do you have some? If you do not have it, would you buy some now?

Mr Koon. I find MCFB is a good company by looking at its past performance in ROE and ROIC and cash flow in particular. If you are interested in my view about the business of MFCB, you can read this:

http://klse.i3investor.com/blogs/stock_pick_challenge_2013_2h/34201.jsp

However I will not simply buy anything because it is good. I am a cheapo in investing. I must have at least a feel of its value, and only buy if there is a good margin of safety, meaning buy it cheap. To me this is the only way I have a better chance to earn an extra-ordinary return from investing in a company.

In my opinion, at about RM2.30, it is still not expensive. Yes, I would buy its stock if I don’t have at this price as justified by what I wrote above. However, since I already have it in my portfolio, I won’t buy any more. I believe in diversification, in number of stocks to hold, or spread over different sectors, and financial risk management, because I could be wrong in my analysis. I am a kiasu fellow in investing.

Suntzhe,
you probably know more than me about MFCB as shown in your comments. Your many questions to me are really challenging. I can’t answer you. I am just a small retail investor living thousands of miles from home. I don’t have all the necessary resources to analyze and answer all your questions. I also have no crystal ball in front of me.

All your questions should be directed to a specialist analyst working for a fund, an investment bank ect. He must a specialist in power plant may be. It is a full time job and must with the clout to interview the management of MFCB, its suppliers and customers.

For me, yes I am an investor of MFCB. I invest based on its present and historical performance, my view of its management etc. These are all publicly available information. Yes, these are backward looking numbers, and I know investing should be forward looking. But I have told you I don’t have that ability and capability to see what’s the future of MFCB.

Again even if a specialist analyst tells me how good or how bad its future is, I won’t place much emphasis on it, knowing that very rarely anybody can predict the future. On this, I suggest you read a book “Value Investing” by James Montier on how bad of all the predictions of the future and forecast are. These all are based on rigorous academic research, not just hearsay.

So yes, I base on historical facts. And to me that is the best I have.

sunztzhe
kcchongnz: As you are an investor with MFCB, would you concur with the prevailing perception that despite all the positives, MFCB controlling shareholders and management can certainly deliver much more than what it had delivered over the past 5 years?

Do the controlling shareholders who are drivers of the company do really possess the achievement oriented and value creation mind-set to drive up the EPS value of MFCB over the next 5 years?
05/05/2014 07:58


ME
Below is the EPS, in sen of MFCB in the last eight years
Year 2013 2012 2011 2010 2009 2008 2007 2006
EPS 33.19 25.77 33.03 28.39 28.18 17.00 21.23 19.54

Do you see the trend of its increasing EPS?
Must there always be growth in EPS every year, bearing in mind that power generation agreement can be subject to government profit regulation, and the competition in a capitalist countries?
By the way try find us some companies which has consistent growth in EPS every year? And if there is what kind of price are there selling compared to MFCB?
Actually have you looked at the shareholder value created by MFCB? Look at the table below:

Year 2013 2012 2011 2010 2009 2008
Change in NAB 0.28 0.22 0.18 0.27 0.21 0.17
Dividend 0.08 0.08 0.079 0.064 0.053 0.041
Total 0.36 0.30 0.26 0.33 0.27 0.21

If you have bought MFCB 5 years ago at about RM1.00, you got an average of 30 sen of value each year in the form of dividend plus change in the book value of MFCB. Isn’t there good value creation?
If you have bought MFCB 5 years ago at about RM1.00, at a price now of RM2.30, the compounded annual return is 18%. There is an excess return of 6% over the return of broad market of 12% during the same period.

So?

sjlum, read this:

Posted by kcchongnz > Feb 22, 2014 10:49 PM | Report Abuse X

Refer to Pintaras balance sheet for latest financial statement for date ended 31st December 2013:

1) Available-for-sale financial assets 46637
2) Short-term deposit 107066
3) Cash and bank balances 2951

Total 156654 thousands

Posted by kk123 > May 4, 2014 07:01 PM | Report Abuse

Mfcb I don't think is a good company
U can check back in the past this company nearly went insolvent and have huge debt
It's asset mostly are in 3rd world country which makes it a risk
If this company is good - it would have acquired assets in UK, HK , US, SG , etc
Those who still want to buy mfcb can do so at their own risk


Yeah kah? Whether MFCB is a good company or not is subjective. You are entitled to your own opinion. But, but

1) When was MFCB having huge net debt and nearly went insolvent?
2) When did MFCB ever made a loss in the last 10 years?
3) When did MFCB ever has negative cash flow, or even free cash flow in the last 10 years?
4) Only having asset in US, UK considered good companies, why?