Tang Michael,

Nothing personal here. As I have invested in Kfima, I would be very happy to hear from you why Kfima should drop by about 15% to RM2.00. Then I can quickly sell before it drops to that level.

Don't you think you need to provide substantiations instead of just making a statement like that?

Can you substantiate your statement "The sluggish sales/orders are for the period jan.13 onwards,"? Why do you think so? You have a crystal ball?

As far as the 3 quarters ended 31/12/14, the revenue is still growing. I don't have a crystal ball. so I can only see the past.

Posted by Tang Michael > Mar 11, 2014 04:31 PM | Report Abuse

Sorry, I am not an analyst......please dont read too much into those crooked and paid to bluff analysts.....kfima shares cannot stay high for long....it drops too fast too soon.......go to blog on dksh......

If you are not an analyst, how come you are so sure of your statement, for example Kfima share price will drop to 2.00?

Which "crooked and bluffed" analysts you are talking about? Why do you think the report of Kfima is bluffed? Which part of which report you are talking about?

What Kfima has to do with your dksh?

Posted by Tang Michael > Mar 11, 2014 03:58 PM | Report Abuse

My stockmate is a sales and marketing .......sales is not as good as last year and future sales is sluggish........what do you expect......

This is the record of sales for Kfima for the last 12 years. Do you see the sluggish sales pattern of Kfima?

Year 2013 2012 2011 2010 2009 2008 2007 2006 2005 2004 2003 2002
Sales (m) 487 471 432 411 369 309 294 300 247 223 221 187
For the three quarters ending 31/12/2013, its revenue is 368m compared to 364m of the same period last year. Is the sales sluggish as claimed by you?

Posted by Tang Michael > Mar 11, 2014 04:12 PM | Report Abuse

Kfima, dksh and harrisons are all in consumer marketing......dksh is the one.....if like me you bought at 1.85 and keep long until now.....wow.....next is harrisons.......coming....kfima is ripe for the taking.......

Since when Kfima involves in consumer marketing? How much is its revenue in this, if any?

Why do you have to compare with what price you bought with the present value of Kfima?

What is your comparison above?

Posted by Tang Michael > Mar 11, 2014 03:35 PM | Report Abuse

If you dont sell now, kfima will drop back to 2.00 for sure........pretax profit fell this quarter......dividen also dtop.....


1) How come you know Kfima share price will drop to RM2.00? Is it because it is worth that much only?
2) If so how do you derive its value?
3) How would you know the price will drop to your value?
4) Pretax profit fell this quarter? Are you sure?
5) Dividend drop this year? How you know?

Posted by miketyu > Mar 7, 2014 04:05 PM | Report Abuse

Would the stock of ev/ebit more than 7 worth investing?
Example:Dsonic has about ev/ebit of 25 already at its current price and yet price still going up non stop. I am puzzled at the moment.


In general, I would invest in a company with EV/Ebit of less than 7 which will provide an earnings yield of more than 14% from a business.

However, it depends on the industries; a light asset and fast growing business logically would be valued higher than a capital intensive and slow or no growth company. Try figure out why.

Another thing is the metric EV/Ebit, like any other metric such as P/E is a historical measurement based on past performance. Obviously the future expectation of Datasonic is much different from its recent past and hence the much higher valuation. But whether the price is already too high in respect to future outcome is another story.

One more thing is one has to be careful of using any comparative valuation metric for cyclical business such as commodity in Palm oil etc. One has to use a normalized ebit which involves some judgements.

Posted by stockoperator > Mar 5, 2014 11:52 AM | Report Abuse

If we can ascertain with confidence and high percentage of accuracy of discounted future cash flow of certain durable business for the next 20-30 years we will know with more confidence then it is top priced or lower priced compared with other alternative investment/savings.

Who can "ascertain with confidence and high percentage of accuracy of discounted future cash flow of certain durable business for the next 20-30 years"? Definitely not me. And I don't think anybody can, not even for the next 5 years.

That is why it pays to be conservative. For example Pintaras net profit has been growing at a CAGR of 25% for the last 6 years, I only assume it grows at 5% for the next 10 years, and 3% thereafter. Even that it is just an assumption. It can grow higher or lower, but the important thing is must try to be conservative.

Posted by stockoperator > Mar 5, 2014 11:31 AM | Report Abuse

As you said earning yield 12% DY 5% retained earning/shareholder funds 7% good company/growth in near future/long term depends how business evolve, not bad not excellence either ya.

You are right. Earnings yield (E/P) of 12% and a DY of 5% is nothing to shout about. But you have not considered the excess cash holding of RM1 per share which could be distributed all to shareholders without affecting the business, or invest in some other profitable ventures to earn more income for shareholders.

The business can theoretically borrow 160m and distribute another RM1 per share to shareholders to have a optimum capital structure of 64%:36% equity:debt, and still does not affect its earnings yield much.

That is the power of the cash it has.

Posted by stockoperator > Mar 5, 2014 09:16 AM | Report Abuse

In that sense I would say I like your MFCB much more Only that I am pondering whether it is a low margin Business.

Is a business with operating and net profit margin of 22% and 17% respectively a low margin business? Please read again my post on MFCB below:

http://klse.i3investor.com/blogs/kcchongnz/47535.jsp

The more important metric you should care about is the return of equity. That is how much a business earned with the equity outlay. Even if a business is of low margin, ROE can be high too if it has high asset turnover, and/or high leverage. Harrison and DKSH has low margins in their business, but their ROEs are high and much more than the costs of capitals.

Posted by stockoperator > Mar 4, 2014 11:18 PM | Report Abuse

Well back to Pintaras/construction sector, the income is not recurring.Can the company grow in size in times to come? Business Yes. But can company grow in size? The only way company value will grow is the company becoming bigger and bigger and becoming more valuable.


Pintaras made 35 sen per share for the trailing twelve months, or an earnings yield of 12%. Its operation provided 24 sen per share in free cash flow last year. It distributed 15 sen per share (DY=5%) last year. Pintaras has been paying increasing dividends every year. With its huge amount of cash of RM1.00 per share, there is high likelihood that Pintaras will continue to pay higher dividend for the next few years.

So do I need Pintaras to grow its revenue and profit before I invest in it at the present price? I don't think so.

Not withstanding that, Pintaras is also likely to grow its revenue and net profit for the coming years with the buoyant construction industries. The growth will be a bonus. Best of all, we don't need to pay extra for this expected growth for a satisfactory return.

Hence for me the best thing in investing in a stock is its cheapness now but good, rather than its future outlook (growth expectation), which is unknowable and unpredictable.

In Pintaras's case, there is a net working capital (Receivables+inventories-payables) of 70m. So whatever cash or cash equivalent it has is termed an excess cash, cash not needed for the ordinary operations. This cash can be distributed to shareholders, do other investments etc without affecting the ordinary operations. Hence it should be added back.

The discount free cash flow analysis I normally do is for the firm, not only the equity holders. So this present value of FCF obtained belong to both the common shareholders, the debt holders, minority interest if any. Hence it should be subtracted out the market value of the debt.

Please read the link below regarding my view of handling excess cash.

http://klse.i3investor.com/blogs/kcchongnz/46492.jsp

Posted by calvintaneng > Mar 4, 2014 12:29 PM | Report Abuse

Ms Teh Hooi Ling CFA (Spore) once compiled 3 Groups of Shares Under An Experiment. I think a One Year Time Frame.

1) First Group - 30 Companies With The Lowest P/E in Spore SGX
2) Second Group - 30 Companies With The Highest Dividends
3) Third Group - 30 Companies With The Highest Net Net Assets.

Of the 3 - The Ones With The Highest Net Net Assets Came Out The Winner!

So B. Graham Theory of Buying Undervalue Counters Prove True Even In Well Informed & Efficient Market Like Singapore.

calvin, great information that you have. Could you share us any link regarding this?

You can see that I agree with you net net investing can yield extra-ordinary return from what I have been writing. I don't agree with you that the Singapore SGX is well informed and efficient though.

In the final analysis, value investing means being price conscious rather than outlook conscious. You buy what is cheap and safe. Most everybody else is outlook conscious and price unconscious.
Marty Whitman

Posted by miketyu > Mar 4, 2014 12:19 PM | Report Abuse

Mr Kcchongz,

Would you consider ULICORP undervalued?

Net PM 11%, ROIC 21%
EV/Ebit of 3.2 only.
Net cash company.
Please advise


Somebody asked me this before. I did buy some and made a little money after selling it at a higher price than now. Yes my decision to buy it was based on those metrics you have mentioned.

You did not simply say Ulicorp is undervalued like many people do without giving justification. Instead you provided the most important metric, in my opinion, why is it undervalued, that its enterprise value is only 3.2 times its ebit.

Not only it is cheap. it is also a good company as its ROIC is 21%, much higher than its costs of capital.

A classic Joe Greenblatt's Magic formula investing. Well done.

Posted by digiuser016 > Mar 4, 2014 12:38 PM | Report Abuse

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


This is one of the best questions someone asked me. For sure you will never learn this in your financial accounting, investment, undergraduate or post graduate, or even in your CFA courses. Hence I am not 100% (not even 60%) sure my reply here is correct or not. Nevertheless I wish to simulate the interest of anyone who is interested in this subject to put forward his opinion to share.

I presume you are interested in invested capital (IC) to determine if the return (net income)of a company is good in relation to IC, or the percentage of free cash flow is high relative to IC etc. For me, the return of invested capital, or FCF/IC are some of the most important metrics to determine if a company is good, or has certain moat.

So you have to start from return (or FCF or whatever), what is the return made up of. Does is include profit from its property development. If so the development cost, especially the current development costs, should logically be included in the IC.

What about "land held for property development"? To me there is no immediate development of the land and hence no return yet from it now. It is a non-operating asset (for the moment). Inclusion of this asset in IC will unjustifiably lower the return from IC. Hence it should not be included in the IC.

So the principle is whether there is activity on the asset and return from it. Is it part of the ordinary business now? If the net profit includes incomes from those activities, the assets should be included in the IC.

The other thing is you must find out what this "return" is. You should also eliminate the one-time-off or non-recurring return to get a realistic picture of the true performance.

We approach the discount cash flow analysis in another manner. Let us assume that we intend to invest in Pintaras with a 5 years holding period at the close of its share price on 3/3/14 at RM2.88.

We again use the base Free Cash Flow of RM35.2m as before, being the average FCF of the last two financial years, and the same discount rate of 10% for the reasons as explained in the original post.

FCF has been growing at compounded annual rate of 17% since 2006. The construction industry remains robust with the LRT and MRT and other ETP projects and most analysts are positive about this industry for some years to come. Hence I assume the FCF of Pintaras grows at 10% for the next 5 years which I think is reasonable.

When the 5 years is up, we assume we will sell the share at an expected price of 12 times the FCF.

The analysis shows that the present or intrinsic value of the firm is RM611m from its ordinary operations as shown in the table below. Adding back the cash in bank and in equity investment of RM157m, the total value of the firm is 768m. As Pintaras has no debt, all the future cash flows belong to the equity holder, which works out to be RM4.80 per share with the enlarged 160m shares outstanding. This represents a margin of safety of 40% investing in Pintaras now at RM2.88.

Table 2: DCFA with terminal P/FCF
Year 0 1 2 3 4 5
FCF grow at 5% 35166 38683 42551 46806 51487 56635
PV FCF@10% discount 35166 35166 35166 35166 35166
Total PVFCF 175830

Terminal FCF in 5th year 700000
PV Teminal FCF @P/FCF=12 435000

Total PV FCF 611000
Add cash&cash equivalent 157000
Value of firm 768000
Less debt 0
Value for equity holder 768000
Number of shares 160,000
IV per share 4.80 = 67% higher than $2.88

MOS 40%

Graham net net is the lowest form of valuation you could possibly do because it ignores everything about the business and just focuses on tangible assets.

But it Worked in the 1920's and Still Works Today

From 2000 to 2012, it's earned an annualized return of 18.28% vs 1.57% for the S&P500 and 5.31% for the Russell2000.

Please read the article at the top of this thread about this balance sheet investing.

The research of high positive alpha in investing in the Graham net net stocks were done in the US market though. At home I have through last year analyzed some net net companies in Bursa as shown in the table below. After the bashing of share price today, here are the returns of those net net stock analyzed:

3/03/2014 Ref price Now Dividend Gain/loss return
Daiman 2.63 2.88 0.12 0.37 14%
KSL 2.02 2.11 0 0.09 4%
Plenitude 2.10 2.5 0.06 0.46 22%
Insas 0.630 0.855 0.01 0.235 37%
PMCorp 0.150 0.210 0.000 0.06 40%
Hexza* 0.635 0.690 0.050 0.105 17%
Prkcorp 2.820 3.650 0.000 0.83 29%
Kuchai 1.200 1.210 0.000 0.01 1%

Average 1.52 1.76 0.03 0.27 21%

With less than a year, all the net net stocks made double digits return as shown above, with the exception of Kuchai (+1%), and KSL (+4%). The average return is 21%, easily double the return of the broad market. None of them had a negative return so far.

Are they riskier than the market? I do not think so as they all have quality assets; very little downside but plenty of upside if the price-value gap closes.

Did they have high growth? High revenue and profit growth? None of them.

Did they even have very good earnings? I don’t think so but they generally had positive earnings, albeit small.

So is it better to invest with the mind set of inverting, i.e. take care of the downside (pay low price) and let the upside takes care of itself? Or should we pay any amount for profit growth expectation, just an expectation, in the future?

Posted by kk123 > Mar 2, 2014 02:54 PM | Report Abuse

My advice to u all is don't listen to any financial advisors or any report that is the motif is to benefit the writer who already bought mfcb earlier ..

WHEN I SPENT SO MUCH TIME ANALYZING AND WRITING A POST LIKE THIS ABOUT A COMPANY, DON'T YOU THINK THAT I HAVE THE COMMITMENT IN ITS STOCK AND HAVE INVESTED IN IT? WHAT IS WRONG ABOUT IT IF I OWN THE STOCK AND WRITE ABOUT IT? SO THAT I CAN SELL TO A SUCKER LIKE YOU AT A PRICE 55% (ITS UPSIDE POTENTIAL) HIGHER? SO WHEN CAN I WRITE ABOUT THIS STOCK? BEFORE I BUY IT? WHY?

Here they would paint as if its a super company , and very undervalue, which sorry to say I don't think mfcb is a good company ..

GOOD POINT. BUT PLEASE ILLUSTRATE HOW I "PAINT" IT? AND WHY DO YOU THINK MFCB IS NOT A GOOD COMPANY? SHOW US SOME NUMBERS OR QUALITATIVE JUSTIFICATION. NOT JUST WILD SHOOTING.

It's business in Cambodia and Laos can easily go into trouble and if not careful can bankrupt the company .. As its having a lot of debt

MFCB HAVING A LOT OF DEBTS? CAN GO BANKRUPT? PLEASE JUSTIFY.

Again if u jump in now maybe later may get guillotine once the writer and his buddies start selling

"GET GUILLOTINE" ONCE THE WRITER AND HIS BUDDIES START SELLING? WHAT IS THIS?

Posted by houseofordos > Mar 2, 2014 10:08 PM | Report Abuse

KC, what is the likelihood that Kuchai will trade closer to its net asset value in the future ? For me, looking at these type of Graham net net there must be some catalyst that would unlock its value or else we could be stuck very long time holding them with significant opportunity cost. For example, is there any chance for hostile take over / activist shareholder to come in and make management change its ways ? What is likelihood of privatization/more dividends or is management just satisfied doing nothing ? Lets say the price will remain depressed for years, what can we fall back on, if there is a good dividend payment, at least shareholders will still get some return and feel some of the excess cash... With that said, holding a basket of graham net net reduces risk of under performance since some of these companies do get their values unlocked in the end... so diversification would help when dealing with Graham net net situations...

houseofordos,
You have answered most of your questions in your posting above.

I also won't know when the closing of the gap of the price and value. All I bet on is its huge gap and so "Heads I win, tails I won't lose much", the Dhandho Framework. Investing is not just looking at the upside, the downside is equally important to me. Market is unknowable and unpredictable, and hence the upside view may be wrong. if you pay too much for the upside hope, if the outcome is not as expected, you can also lose big.

The hostile takeover/activist shareholders will never materialized as the shareholdings of three companies are intertwined, unless a fair price closed to its value is offered.

Privatization I think is possible as there is a huge gap between value and price, especially the old guards are gone.

Dividends? Yes, this is what I am looking for while waiting for some corporate moves. Lat year there was dividend and special dividend which together amounts to about what you can get from bank fixed deposit. That will take care of the opportunity cost. Hopefully they continue with it.

Or may be as Kuchai has no significant business, SC may do something to force the management to do something to unlock value?

Posted by Seek > Mar 2, 2014 08:02 PM | Report Abuse

Hi Kc, I am not sure whether Tebrau Teguh is of the same category. Their related co IWH sold and went into joint venture valuing their land at hundreds of millions and yet they are issuing rights issue with free warrants. A bit worried about giving them my money for the rights issue. Bought at 1.59 and now only 1.26. Can please comment? Thanks.

I talked about lemons in this thread. Tebrau Teguh does not belong here. Don't know much about this stock. The last time I knew something about it was a some years ago when it was way below RM1. It had a lot of undervalued land in the precious Iskandar Corridor.

A peep at its financial statements shows it has "real" earnings and reasonable quality assets. Cash flow not too good because of high receivables.

Right issue may not necessary to be bad as they may need money to develop their land, which may earn them good return in the future.

Yes you should try to estimate the value of this company based on its future earnings in order to determine if the price now is good for you to keep. Without an estimation of its value, i don't know how one can determine if to buy or sell at present price.

KNM another high growth stock

KNM’s share price rose from about 43 sen three months ago to a high of 83.5 sen a couple of weeks ago. Many punters would have made some decent profit if they have bought near the lowest price and also sold near the highest price during this period. What is the probability of this occurrence?

Its share price retreated to 63 sen now. Those who have bought near the highest price and sold at about today’s price would have lost a bundle too. For small time retail punters, any idea which group of people they are; the earlier ones or the later ones? Why was the rise of the share price of KNM in the first place, capital reduction and right issues? Is that a good news? I really don’t understand.

Let us forget about the share price movement and see if KNM has done well with its just released financial report ended 31st December 2013.
According to its income statement, which is quite obscure, “contract value” is at about 2 billion. Operating profit is 101m, but after deducting net financing cost of 211.5m and “share of loss of equity accounted investees” of 3.5m, profit before tax is 45.8m as shown. What? How do they do the calculation? I thought it would be a loss of about 114m?

Never mind, let us take it as a printing mistake somewhere and assume the PBT of 45.7 is correct instead of the loss of 114m. After paying tax of 25.4m, the net profit is 20.3m, or a profit margin of just 2%. Is that good? Earning 20.3m with an equity of 2061m, or a ROE of 1%. Is that good?

But wait, did KNM really earned 20.3m or any money at all in 2013? A look at its cash flow statement shows that this “profit” of 20.3m includes “Gain in foreign exchange-unrealized” of 79.1m, and “Gain on disposal of subsidiaries” of 11.8m? What? Are these earnings from ordinary operating activities?

Below was what I wrote about KNM in this thread last Christmas.

[KNM has been losing money almost every year in his operations. Cash ran out and many cash calls were made. Even when it said it made money I have doubt about it because it often did not reflect in its cash flows and balance sheet. Some may say. “don’t worry, it has a lot of assets”, but its assets are of very low quality; Property Plant and Equipment (PPE) of which not sure what is the realizable value, if there is much, doubtful receivables and work in progress if they are real and collectible, inventories, huge goodwill and intangibles because of paying big premiums in acquisitions. Its debts and liabilities are huge. It may end up the only value KNM has is just a corporation option value, minimum of zero (no intrinsic value) and something questionable.]

This was what I wrote about Guan Chong Berhad, a high growth stock, last Christmas in this thread.

Guan Chong Berhad
Guan Chong Berhad is recommended by a famous investor a few months ago (I have great respect for this famous investor, I really do, but everybody can make mistakes). It appears to be making profit year in year out. It paid good dividends too. However, few people looked a little deeper; why is it the total debts have been increasing at such a fast pace, and that there is hardly any cash flows from operations, not to mention about free cash flows. Something is definitely not right. Why can’t GCB show us the cash? Are they speculating (not hedging) on Coco future? Finally the straw broke the camel’s back. Its last quarterly financial results finally showed a loss of 12m. Not much but is it the end of the story? I doubt so. I think there are still a lot of skeletons behind the closet. Its share price dropped by 22% from RM1.80 to RM1.40 since then. Interesting stories to read at the same link below about GCB.
http://whereiszemoola.blogspot.co.nz/search?q=gcb
Yeah, it is good to practise value investing; buy companies at a good price using PE ratio, dividend yield. We must understand what this “E” means for that particular company, where did the company get the money from paying that good dividend.


Guan Chong’s revenue grew from about 500m 5 years ago to 1.44b in 2012. What a fantastic growth stock. its profit also grew in tandem from 1.4 sen per share to 8.2 sen, or a compounded annual rate of 56%. Can you show me another company which grew at such a fantastic rate? Is it a good company to invest in?

What happened then? Since then another quarter of loss of 8.3m for the quarter ended 31st December 2014 was realized. The total net profit for the year is 4.6m, for a revenue of whopping 1.36 billion, or net profit margin of 0.3%. EPS amounts to only 0.73 sen for the whole year.

However, this is just a small woe (小巫). The big woe (大巫) is again the cash flow which few people are able to see or bother about. The cash flow from operations is a negative (again) of a whopping 204m! Negative CFFO (mind you not free cash flow but CFFO) of 204m! Why?

The main culprit is the inventories of another whopping 850m as shown in its balance sheet, up by 325m from last year of 525m. Forced delivery of coco due to its speculation in coco future which gone sour?

It is not hard to understand why its total debts increased again from 922m from an already ultra high debt of 625m of last year, and cash depletion of 25m from 52m to 27m as shown in its balance sheet.

Is it the end of its predicament? I highly doubt so. Really a big head devil (大頭鬼).

This is the problem of not knowing what this “growth” means, whether it is a value enhancing growth or a value destroying growth. This is the problem of only looking at revenue growth and not focusing on operating costs and earnings growth. In actual fact, earnings growth focusing is not good enough. One has to understand what this “earnings” or “profit growth” is?

Furthermore, knowing what the profit growth is still not good enough. One has to relate its share price or enterprise value in relation to earnings and its growth. Without a price-value relationship, how to justify what price is appropriate, even for good things?

This was what I wrote about Kuchai in this thread two months ago:

What is the investment thesis in Kuchai?
You can buy Kuchai from the open market at RM1.20 per share now. Below is what is owned by you as a shareholder of the company.

Assets Amount 000 Per share, RM
Cash 36065 0.30
Equity investment 153052 1.27
Market value of shares in Sg Bagan (26%) 50644 0.42
An investment property in Singapore 22201 0.18
Total assets 261962 2.17

You own hard cash, liquid shares mainly in Great Eastern listed in Singapore, 26% shares in Sg Bagan (Book value 122m) which itself is more than 50% undervalued, and a shop house at Emerald Hill Road, Singapore. The total market value of these assets is worth 262 million Ringgit, or RM2.17, 82% more than what you pay. Kuchai has no debt and negligible liabilities.

The above assets provide Kuchai with the stable incomes from interest income, dividend income and rental return. This amount to about 6 million Ringgit a year. Its annual expenses amounts to about one million a year. There is no other way of burning cash. How much downside is there investing in Kuchai?


Kuchai just released its quarterly result ended 31st December 2013. Sure, its profit dropped when compared to the previous quarter. But it is still making profit, and not burning any cash. Because Kuchai is an investment company with no significant ongoing business. Its net asset backing per share has in fact increases from RM2.66 to RM2.71 now.

Remember the investing thesis for Kuchai is its low price (RM1.20) compared to its quality asset backing of RM2.18 now. It is not about earnings. It is about investing in a Graham net net and negative enterprise value company.

This is the case of “Pay me RM1.20 and I give you RM2.18”.

Posted by yungshen1 > Feb 27, 2014 10:30 AM | Report Abuse

thank you kcchongnz.now i realize knm need to cut loss. i will listen to u


yungshen1, market is unknowable and unpredictable. I wrote about the shitty financial performance and its terrible financial position many times when you seek my view. That time KNM is about 50 sen. it has risen to even above 80 sen recently. However, I am very aware of the unpredictability of share price and I have never asked you to cut loss, I think. I only gave my view on the fundamentals of the company, not its share price.

One thing I feel very strongly about KNM is that somebody is trying very hard to jack up its share price. Notice the amount of publicity on KNM now in the media, the Edge magazine etc. That was the exact modus operandi used all this while by them previously. They may have succeeded in doing so and I think it may be their distribution time now. So many small timers will "kena". That is just my opinion. I could very well be wrong.

KNM's shitty performance and its financial position has no chance to improve, in my opinion. As far as its share price is concerned, i have no idea at all.

Posted by wayneteo > Feb 17, 2014 01:13 PM | Report Abuse

Besides Padini corp, one of the company that under Padini which is Brands outlet and P&CO that under Yee Fong Hung SB also contribute quite a lot of revenue into the company, which is currently second largest revenue under their 5 trading subsidary companies. I hope that the new stores that have opened since the beginning of the 2014 financial year + those in the pipeline will boost the earning ahead. Hope Padini will up to its fair value as calculated by Kcchongnz.


Posted by kcchongnz > Feb 4, 2014 09:48 AM | Report Abuse X

Secondly with the proven management capability of Padini, and reading through the Chairman's statement, I don't think they will sit still and do nothing to improve their business.

Hence I still think Padini is a good investment in view of its high efficiencies and reasonable price, and a proven capable management.


wayneteo, thanks for your valuable input.

Padini just announced its quarterly results ended 31st December 2013. Its revenue and net profit increased by 13% and 48% respectively compared to the corresponding quarter for fy 2013.

Yes, there are competitions from uniqlo, H&M, Zara, G2000 etc. there have been competitions all this while. However it has been proven that the management of Padini would face the challenge and bring Padini to the next phase of growth. It does appear so for the results of the last two quarter, doesn't it?

Posted by digiuser016 > Feb 26, 2014 08:15 PM | Report Abuse

Hi, Kcchong, I have one question.

http://i57.tinypic.com/123qpzk.png
http://i61.tinypic.com/zmo31h.png

Professor Damodaran used his model to explain that the terminal growth rate will not affect the firm value.

The thing I dont understand is why the cash flows in fifth year(the year in high growth rate) will be affected in accordance with the change in terminal growth rate?

As you can see, the free cash flow in year 5 is 80.53 with terminal growth rate of 5%,96.63 with terminal growth rate of 4%, and 161.05 with terminal growth rate of 0%.

Can you explain why? I am not familiar with this model.


The model involves the "expected reinvestment rate" at year before the stable growth.

Expected growth rate= ROC* reinvestment rate

The higher the expected terminal growth rate, the higher the expected reinvestment rate, and hence the less the cash flow at year before stable or terminal growth, and vice versa.

Posted by choe > Feb 25, 2014 10:41 AM | Report Abuse

hi kcchongz, could you pls give your comment on GOB bhd's recent multiple proposal.
http://www.thestar.com.my/Business/Business-News/2014/02/25/Global-Oriental-hopes-to-raise-RM1137mil-via-rights-issue/

this co has accumulated profit of 25mil and just announced that they would like to reduce it's par value and issue right. i m kind of confuse by all these corporate exercise. thank you

I don't know much about this corporate exercise either. The way i see it is the company needs your money if you are a shareholder. You have to subscribe the right issues. You have to give them money because if you don't, you lose out on the dilution, and free (???) warrants. You could sell off your shares without going through the corporate exercise though. I personally would not like to put into such a position when I invest.

There are scores of property companies having plenty of cash, undervalued properties, paying good dividends, potential bonus issues etc. Why would I want to waste time and bother about a company doing the opposite; having heaps of debts, par reduction (less shares later), asking money from me to pay down the company's debts etc? This is just me.

Of course the market loves corporate exercises, any kind of corporate exercise. So there may be (I said may be) plays of its stocks. Don't miss it because of my comments here.

CIMB report on 24th February 2014
Prestariang (AD, TP:RM4.45) - Looking to score with oil & gas
Newsflow could be exciting for Prestariang next month if it can wrap up the deal to build a new major oil & gas training school with a state government. Other takeaways from the FY13 results briefing are the targeted breakeven for UniMY this year and potential upside surprise for Autodesk revenue. In view of the company’s bullish growth prospects, we raise our target FY15 P/E from 14x to its regional peers’ 16x, which results in a higher target price. Positive newsflow on Petronas’s Rapid project and strong UniMY student enrolment could catalyse the stock. Prestariang remains our top small-cap pick.

Wah, CIMB suddenly came out with a target price of 4.45 basing on a PE ratio of 14x, much higher than my previous estimate of 3.64, and the price is closing on to my estimate now. But why a PE ratio of 14x, not 5x, 10x, 20x or even 30x? Strange!

Prestariang fundamentals seem to have changed with the advent of Petronas Rapid project. More so may be due to the expected turning around of its education arm in UniMY. Are we in for another multi-bagger?

Posted by mikekong55 > Feb 23, 2014 11:20 PM | Report Abuse

kcchongnz. how are you. long time didn't see your posting. wait for announcement this year for further assets disposal; then got chance loh.


Mike, I am fine. Long time no see my posting? Do you really have any interest of my kind of postings? If so how come you "long time no see my postings"?

The financial performance of PM Corp is disappointing each quarter, to say the least despite all the empty talks. There is no credibility of the management. The promise of the special dividends, though by the director who has left, is not fulfilled. What kind of credibility is that? Who would trust them anymore?

Pm Corp is better dead than alive. I would vote for its death if given the choice as a shareholder. It is still a Graham net-net stock at least worth 30 sen, if sentenced to death and assets liquidated and money distributed.

Good thing is it is not bleeding cash. Hope there is a hostile takeover.

Thanks dlhoh for pointing out the mistakes. yes the year should be 2013 instead of 2011.

Aswath Damodaran's book is excellent to learn about valuation. Don't know about the other one mentioned by you.

It is the analyst rice bowl in security analysis. The way they do in US is very detail. They have specialist analysts for each and sub-set of each industry. Not sure if the local analysts are as professional. This is definitely beyond what a retail investor like you and me can and able to do.

There is this law of diminishing returns. I kind of prefer to be approximately right than precise correct in anything finance because you can’t make an art into an exact science. The following are some of the sayings of some great proven investors, I mean real super-investors.

Peter Lynch
1. “Nobody can predict interest rates, the future direction of the economy, or the stock market. Dismiss all such forecasts and concentrate on what’s actually happening to the companies in which you’ve invested.”
2. . “The way you lose money in the stock market is to start off with an economic picture. I also spend fifteen minutes a year on where the stock market is going.” and “If you spend more than 13 minutes analyzing economic and market forecasts, you’ve wasted 10 minutes.”
3. “The GNP six months out is just malarkey. How is the sneaker industry doing? That’s real economics.”

Howard Marks
1. “We don’t know what lies ahead in terms of the macro future. Few people if any know more than the consensus about what’s going to happen to the economy, interest rates and market aggregates. Thus, the investor’s time is better spent trying to gain a knowledge advantage regarding ‘the knowable’: industries, companies and securities. The more micro your focus, the great the likelihood you can learn things others don’t.”
2. “We can make excellent investment decisions on the basis of present observations, with no need to make guesses about the future.”
3. “You can’t predict. You can prepare.”
4. “In both economic forecasting and investment management, it’s worth noting that there’s usually someone who gets it exactly right… but it’s rarely the same person twice. The most successful investors get things ‘about right’ most of the time, and that’s much better than the rest.”

Want to hear more about Howard marks view on macro? Read here:

http://klse.i3investor.com/blogs/kianweiaritcles/43793.jsp

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

houseofordos,
You know I am not one who will get all worked out when there is a drop of profit just for a quarter, especially due to higher tax allowable, write-off of non-cash items etc.

The top-line is still growing. PE is single digit, and good cash flow and healthy balance sheet.

Minority interest

http://www.ibankingfaq.com/interviewing-technical-questions/enterprise-value-and-equity-value/what-is-minority-interest-and-why-is-it-in-the-enterprise-value-formula/

Posted by miketyu > Feb 19, 2014 12:00 AM | Report Abuse

Dear Mr Kcchongz,

How would you evaluate companies like Kossan, Hupseng Topgloves etc as their present EV/Ebit value is more than 7. Which method or (EV/Ebit value of 15 or 20) would you use to determine their fair value at the moment?

If you want to value a company in absolute EV/EBIT term, you should think about flipping the metric over to EBIT/EV, which we call the earnings yield (EY). So what do you think you personally require? 10%, 12% 15% or 20% of EY? Please note that EBIT/EV is before tax, unlike P/E which is after tax.

The above article mentioned that,

"Buffett has said that he will generally pay 7x EV/EBIT, or an earnings yield of about 14%, for a good business that is growing 8-10% per year."

EV/EBIT is more useful to compare companies within the same industry; for example glove companies of Topglove, Kossan, Supermax, Harta etc, better than using PE ratio. However, it is not infallible as it still have not taken into consideration of the growth prospect, efficiencies etc of different companies.

Posted by freecooper > Feb 18, 2014 09:47 PM | Report Abuse
hi kcchongnz, i have been reading your explanation to Tan KW on working capital. It is stated that working capital is obtained from LAST YEAR... Do this mean financial year end 2012 or year 2013 as your calculation is based on financial year end 2013. Hope you can clarify on this. TQVM

Working capital is computed from the balance sheet. So there is no difficulty to use the latest quarterly report.

When I talk about "Last year", I probably use the latest annual balance sheet ended 31st March 2013.

Posted by freecooper > Feb 16, 2014 10:39 PM | Report Abuse

hi kcchongnz, thank you very much for your explanation on how you derived your FCF for the computation of intrinsic value by DCF valuation.

On the other hand, for absolute PE for PADINI based on your assumptions, shouldn't the fair value P/E
= 16.2*[1+(1-100%)]*[1+(1-95%)]*[1+(1-110%)] = 15.31??

freecooper, yeah the fair value P/E is 15.3, and that was what I got from the excel sheet, except that I did not change the numbers in the formula which was in original word document when I copied and pasted it.

Thanks for pointing out the errors.

Katsenelson’s absolute PE of Padini

For those who are interested in this valuation method, you can refer to the following link:

http://klse.i3investor.com/blogs/kianweiaritcles/36512.jsp

This model derives the intrinsic value of the stock based on the following five conditions.
1. Earnings growth rate
2. Dividend yield
3. Business risk
4. Financial risk
5. and earnings visibility

The model first starts with a no growth P/E ratio of 8 (original), or an earnings yield of about 12%, and then adjusted according to its growth rate and dividend yield to derive a basic P/E. The adjustment can be extracted from Table 3 below:


Padini’s revenue and net profit has been growing at 16% and 17% respectively for the last 6 years. But this growth has slowed down somewhat. It is prudent to assume that the expected growth in the future to be 5%. Basic PE for Padini with an expected growth rate of 5% and a dividend yield of 5.0% is,

Basic PE = 8 + 0.65*5.0 + 5.0 = 16.2

Business risk: PADINI’s business has high efficiencies with high return of assets of 17% and high return of capital of 45%. It has quite stable and reasonable operating profit margins of more than 15%. Its cash flow from operations is also stable, about the same as its net income. It has stable and high free cash flow every year, averaging about 10% of revenue. Cash return (FCF/IC) is also great. However there is some keen competition for its products recently. So neither premium nor discount is applied here to be prudent.

Financial risk: PADINI has a healthy balance sheet. Hence a discount of 5%is applied to the financial risk.

Earnings visibility: Again, as competition is creeping in, we assume the earnings for the future is uncertain. Hence a premium of 10% is applied to earnings visibility as a conservative assumption.

Hence the absolute PE for PADINI is:

Fair Value P/E = Basic PE x [1 + (1 - Business Risk)] x [1 + (1 - Financial Risk)] x [1 + (1 - Earnings Visibility)]
Fair value P/E = 16.2* [1+(1-100%)] *[1+(1-100%)] * [1+(1-120%)] = 15.3
Earnings per share 2013= 13 sen
Fair value of Padini= 15.3*0.13 = RM1.99

Appended below is the FCF for Padini for the last 5 years. Whether you extract from audited accounts or annual reports, they should be the same.

Year 2013 2012 2011 2010 2008
CFO 161629 76728 30792 111276 80585
Capex -16117 -26836 -24030 -27677 -22465
FCF 145512 49892 6762 83599 58120

As you can see CFO and FCF are lumpy, very lumpy actually. I would be too optimistic if I take last year's FCF of 145.5m, or extreme pessimistic if taking 2011's FCF of 6.8m only. Don't you agree?

So I compute the recent 5 years FCF and used that as the base. The average 5-year FCF of 68.8m appears to be reasonable when compared to the rest of the numbers.

So it is a matter of judgement of the future FCF which is very subjective. Hence if I want to confirm my thesis of investing in this share, i try to have conservative assumptions. Also I would have to use other methods of valuations in tandem.

Posted by Icon8888 > Feb 16, 2014 08:09 AM | Report Abuse

I am hoping to repeat the same experience by investing in ivory-wa.

I think kkchongnz will frown on this, as he mentioned in ine if his article that he disliked ivory.


When most property companies are making huge amount of money the last few years, some of them still in doldrums. Some even resort to financial shenanigans to show they are making "profit". But it is not hard to see that this "profit" is clearly not there with negative cash flows from operations every year since listing, and more and more borrowings each year. Ivory fits in perfectly here. Thanks to its "great" management.

Well as I have said many times before, a poor company can also be a good investment, provided it is selling cheap.

Ivory warrant at 23.5 sen while the underlying share traded at 60.5 sen, is trading at an implied volatility of 59%. Is it cheap?

It may be cheap if there is s spike of volatility of Ivory share in the future. As the market is a voting machine in the short term, it is not impossible for Ivory share to go up with high volatility. But that would be because of speculation rather than fundamental, in my opinion.

Otherwise in normal circumstances, I won't even want to touch Ivory share with a pole, and also definitely not for the warrant at this price.

This is my opinion as I have seen from its past. I do not know its future though. The future may not resemble the past, but it may rhyme.

sephiroth,

Did you read what I wrote in my post about this?

"We made a big mistake in selling PJDev warrant A too soon at 40 sen, happily making a profit of 17% in a month then. It is trading at 65 sen now. We have lost the opportunity of making another 80%, just because of my itchy finger. I was hoping to buy back later when it dropped back below 40 sen which it never happen."

Does the above explain?

tonylim my buddy, want to fulfill your promise? I love to man.

Wow, sense maker, it is really a small world after all. I did my form six double maths in 1974, 75(?). You?

sense maker, yeah how i wish i could meet you too. But never mind, there is always the next time.

Tan KW, waiming, thanks for the kind words. Similarly gratitude to others which i have to apologize for not reciprocated by me due to certain reasons.

IFC88 is an investment fund set up by a group of old boys in SABS, Kuantan recently. Sorry, it is not an open fun club but a real fund club with a little fun for that group of old classmates.

Posted by GenghisHoe > Feb 14, 2014 07:30 AM | Report Abuse

Also, can you share any books about the author, Charles Munger?

Somebody got the ebook by Seth Klarman, "Margin of Safety" from the net before. it is a good book. Try finding it.

I don't know of any book by Charles Munger. There are some philosophies of his in the net.

I have invested in Hexza too because of its Graham net net stock as its cash alone less liabilities per share is more than its share price. It is in fact a negative enterprise value company if you consider some value in its PPE which is appropriate as a major portion of it is land and building.

Very rarely we see a Graham net net company is also a cash generator (instead of cash burner) like Hexza. This good cash generation also provides the ability for Hexza to give good dividends, twice the amount you can get from fixed deposit. Hence the risk of investing in Hexza is very low. It is an excellent defensive investing strategy which could be a more appropriate strategy in the present environment.

I fully agree with you that as Hezxa has huge amount of cash and cash equivalent, enterprise value is a more appropriate metric than market capitalization.

I opine that Hexza' business will still last for some time, but definitely not a growing business, unless something changes. If I were to value Hezxa using earnings based valuation, I would use the conservative EPV method at best.

Posted by wattapi > Feb 13, 2014 12:05 AM | Report Abuse

oredi loss money...dunno uniqlo,h&m..mean dun know risk


"oredi loss money?" What is oredi? What is "loss money"?

Which year or quarter you refer to that Padini "oredi loss money"?

"dunno" uniqlo, h&m means "dun" know risk? Hah!!!!

Posted by bigFAT > Feb 13, 2014 12:02 AM | Report Abuse

what the heck

beta?
sigma?

what science is this?
don't have a single clue

this is not what i asked

what about risk in indonesian operation?


Obviously you don't have a clue what risk is and what I try to explain to you.

Posted by wattapi > Feb 13, 2014 12:07 AM | Report Abuse

dun understand how to answer...talk number only


Don't understand what am I talking about? Am I obliged to educate you? Tell you what, I don't think you have the mentality to grasp simple investing concept.