Posted by OngLiao99 > Jan 23, 2014 05:39 PM | Report Abuse

I won't be suprised that the next announcement made is a big debt restructuring. Last financials 1) $1.4b capatilized in their balance sheet as Goodwill and intangible assets. This is up by RM90M frm 1 year before.
2) $700M in short term debt
3) WIP/unbilled orders of $390M
4) Receivables up by RM80M, cash down.
5) New EU220M loan, note the financing cost would hit the books from Q1. MYR weakening meaning more Fx loss.

If this was my company, I won't privatise. Best to issue rights with bonus shares and free warrants as sweetener. They have enough in the reserves for it. ;)

Debt restructuring (read getting money from shareholders again and again and again) is inevitable looking at its balance sheet and cash flow.

Privatize the company? General Lee acquires the company with poor quality, little or none at all assets, and using his own money to pay off its humongous debts, and then hold the hot potato himself? General Lee is really really really good to the minority shareholders then.

Oh yeah! freebies again in free warrants and bonus issues!

Is the drop of share price of Zhulian by more than RM1.00 (Talking about making RM1) just because of a quarter's bad result overdone?

Should investors avoid selling-and preferably should buy-when fear becomes excessive when a stock of a good company crashes like this?

But before that make sure they have a strong sense of intrinsic value as I don’t know of any other thing besides this to be used as a guide. That is what I call knowing the “price and value relationship in stock investing”.

They should also have a thorough understanding of the insidious effect of psychology on the investing process at market extremes. Yes, the behavioral finance.

So is "free" warrants really free?

Still remember Amedia, on top of "free" warrants, bonus issues also. So is free warrants and bonus issues giving you free lunch?

不在此地不知其樂也

Net net and negative enterprise value investing is not suited for everybody. It is Ben Graham kind of investing, not the contemporary Philip Fisher, Warren Buffet, Charles Munger kind of investing in good and growth companies.

Moreover, the return stated is for a portfolio of net net stocks, not a single stock.

Something have to happen, such as privatization, hostile takeover, business restructuring, special dividends type of things to unlock value. And it can really test the patience of investors.

It is a very safe style of investing though which I think may be suitable for the present investing environment.

Prestariang's share price has risen from about 1.20 a year ago to 3.17 now, OMG. Is there any divergence of price and value of Prestariang?

Yes, there was, a year ago, when Pretariang's share price is really too low compared to its value.

But at 3.17 now, has the price well exceeded its value? The PE ratio is 16 and enterprise value 17 times its ebit now. I don't think so.

Prestariang's business is an asset light type of business. I love this type of business, like that of Jobstreet, Myeg etc. ROA and ROE is 36% and 47% respectively, huge. Note that its University has not even started to contribute yet.

Yeah, it is true that i don't know about this uniqlo and H&M competition. Thanks for pointing out from everyone here. i was just basing on what I could get from its financial report. The drop in net profit last year was due to the opening of some new stores. And its latest quarterly report does show that growth in revenue and net profit have resumed for Padini.

So I based on the above and made my conclusions. I still stick to my conclusion, yeah, just based on what I can see from the published reports. The management of Padini has shown that they are a bunch of very resilient people.

If you (keanpoh) want the number based on your assumptions of 8% and 3% growth for the next 5 year and thereafter respectively,my figure is RM2.02 for its intrinsic value.

Let us make an estimation of the value of Zhulian using sum of parts basing on its fy ended 31 October 2012 results.

Ebit = 90.2m
Expected growth for the next 5 years=10%
Terminal growth=3%.
Cost of equity=10%

EV=1.09b, or RM2.37 per share

Net profit from subsidiary in Thailand=47m, using a PE ratio of 15, Price=705m, or RM1.53 per share. Excess cash=138m, or RM0.30 per share.

Hence total value of Zhulian is 2.37+1.53+0.30=RM4.20.

At the price of RM3.76 now, the margin of safety is 11%. Not really a lot of MOS to cater for errors in estimation and assumptions.

Zhulian is a company with deep value. Revenue and net profit grew unabated at double digit rate. Huge amount of cash flow, and a squeaky clean balance sheet. It share price double from about 2.50 to above 5.00 in less than a year. At real time, its share price dropped by 20% or 92 sen from 4.61 to 3.69 now. What happen?

It can't be just because of a drop in profit for just a quarter and the fundamentals has changed so much.

In my opinion, it is because of the price and value relationship. There has been a divergence of price vs value after its steep climb to about 5.00. At 4.61, it is already fully or even overvalued.

Ultimately, price has to be close to its value. A not-so-good quarterly report has triggered that closing.

In working life, we should have positive attitude, the everything can-do attitude. Yes, working life is full of challenges, but none is insurmountable.

However, in investing, I am afraid it is the other way around. It pays to be skeptical. Acknowledge and bow to the following:

1) Market is somehow efficient to a certain extend.
2) You are not "the one" who can be better than the professionals and insiders and all others
3) The future is unknowable. Know what you don't know.
4) Investing is full of uncertainties and randomness
5) It is a jungle out there.

Thinking of picking the biggest winners in 2014? Think first.

1) What is the chance that you are the top 4% of the luckiest lot?
2) Do you have superior first-hand information compared with others, especially the insiders?
3) Are you also willing to own some potential biggest losers?
4) Do you have superior skill in predicting the future and powerful computer and exceptional chart reading skill compared to the fund managers and institutional investors?
5) does the present environment present you with that opportunity?
6) Do you think you can depend on your luck to do that?

First level thinking: I am going to buy a couple of potential big winners to earn superior return. Borrow money also to leverage and amplify my return to a few hundred percent, or even thousands percent in the year.

Second level thinking: I am going to avoid big losers from my diversified portfolio and with that hopefully I can get above average return from my portfolio.

Making super-abnormal return is the hope of every investor. Unfortunately it would most probably remain as, hope. Hopefully it won't result in, hopeless.

Risk and return are inseparable.

Johore Tin good?
Posted by Fabien Wong > Jan 18, 2014 09:26 PM | Report Abuse
Hi kcchongnz,
What are your views/thoughts on these stocks:
4) Johotin
Do you see any value in them? And what will be your required margin of safety if one to invests in?

Yes of course. I see plenty of value in Johore Tin after its acquisition of Abel Dairy. ROE and ROIC expanded a lot from 10% to 18%, much higher than their cost of capitals, very good.

More important is if the price is good or not.

At the price now of RM1.68, JT is trading at a PE of 6.8 and enterprise value of 4.8 times of Ebit, or an earnings yield (Ebit/EV) of 21%, not expensive at all. If you consider its efficiencies, I would say JT is cheap at this price.

Although the 9 months results ended 30 September shows a slight drop in profit, I do not see any change in its fundamentals.

Miketyu,
You got me. I do not have charts to show how much discount or premium given to those risk factors. It is a personal judgement, very arbitrary. By the way, valuation is highly an art than a science.

If business risk is high, such as very low margin business with low ROE and ROIC, a premium is applied. The lower the return of capitals, the higher the business risk and the higher the premium to business risk. If the business often loses money, or return of capitals very much lower than the costs of capital, an arbitrary premium of 30% may be applied. Whereas if the business always has high return of capitals, a 20% discount to business risk may be applied.

Similarly if the balance sheet is very poor, with very high debt but little cash flow or earnings to cover interest charges, an arbitrary 30% premium to financial risk may be applied. if the balance sheet is ok with reasonable debt, I may not applied any premium or discount.

If earnings visibility is very good, I may arbitrary apply a discount of 10%. If bad, a premium of 20% etc. It is all arbitrary.

Valuation involves a lot of assumptions. I would like to emphasize it again and again that it is more of an art than science. Using discount cash flow method subjects to more unknowns as you are already realized. Hence a Lot of value investors don't like to use it, although some of them like Seth Klarman insists that it is the "right" method for earnings based estimation. Intuitively it should be as the value of a company should depend on the future cash flows it receives.

I can pose a lot of doubts in your assumptions (similarly many will pose the same skepticism in my estimates). For example, how sure are you that the company can grow its future cash flows by 15%, not withstanding historical it has shown that it had more. 15% growth assumption for the next 10 years is not conservative. It is in fact a very liberal number in my opinion. This is because business goes in cycles, and a company when it gets bigger, it can't grow at that rate anymore.

Next why is your discount rate 20%? With that kind of assumption, and if you have realistic assumptions of its future growth rate, I beg it is extremely difficult for you to find a good buy of any stock.

Discount cash flows, in particular free cash flow method is not good for young companies having volatile earnings and cash flows. It is very good for those stable companies like Nestle, BAT, Guinness Anchor, Amway etc with consistent and steady cash flows. You must have very good experience and judgements. It is not science.

Using cash flow before change in working capital is not very correct in my opinion, especially that figure has not even taken care on tax and capital expenses, which is definitely a cash outflow. Free cash flow should be more appropriate, that is CFFO less capital expenses. for companies without FCF doesn't mean it is definitely not an investment candidate. But you have to use alternate method to value it.

Also bear in mind that not all the future cash flows belong to the equity holders. The debt holders, warrant and ICPS (that reminds me of Rimbulan Sawit a couple of years ago)holders etc also have a claim on them

Forecasting growth rate is the most difficult. You know what? Even experts get it wrong all the time. So in my opinion, if you are looking at investing in a stock and use DCFM to try to work out the intrinsic value, a conservative approach is advisable. And try using other methods such as private market comparable such as PE, EV/Ebit, P/B, a hybrid DCF etc.

Chrollo, just show me how you do it and I will comment if I can.

Do I see any value in Padini?

Posted by Fabien Wong > Jan 18, 2014 09:26 PM | Report Abuse
Hi kcchongnz,
What are your views/thoughts on these stocks:
1) Padini
2) Weida
3) AeonCr
4) Johotin
5) TongHerr
Do you see any value in them?

Of course, all of all have values. But it is the price which matters.

The value in Padini is its high return of capital. Don't you think a company which has 23% of ROE, and 45% of ROIC a company with some form of good moat? The high return of capitals have been consistent throughout the years. Very good in cash flows too and a healthy balance sheet.

It actually has very good growth too. The revenue has been growing at a CAGR of 16% for the last 7 years, with the growth in net income of the same magnitude. The growth slowed down a little last year but first quarter of the financial year ended 30/9/14 shows that growth appears to resume.

Padini has been rewarding its shareholders well with increased dividends each year too.

With the good performance, one would expect Padini to be selling at high multiples of earnings. But at RM1.75, PE is undemanding at 13.4. Its enterprise value at just 8 times ebit is attractive.

Yes, Padini meets Greenblatt's Magic Formula investing.

Posted by wwwcomment > Jan 19, 2014 11:30 PM | Report Abuse
Mr kcchong, sometimes I wonder whether I shud just channel all my money from klse to unit trust. Some of my unit trust can give me more than 20per cent annual return, of corse not always, but I hv never achieve that kind or high return invest in klse on my own. Sometimes I feel I am just wasting my time and shud just close my eyes and let unit rust fund managers handle my hard earn money.
Any advice? Thx.

I have posted my analysis of some of the unit trust funds in Malaysia before as below. The outcomes have not changed much as it is now. Please refer to their latest performance as the link below:

http://klse.i3investor.com/blogs/invest_made_easy/45026.jsp

So my answer is yes. For those who have no time and not enough knowledge about the market, it may be better to invest in one of the funds which has been consistent in their return. i was quite surprised to find a few of the funds, such as Philip Capital Master growth fund, Kenanga growth fund and MAAKL-HDBS Flexi fund etc. they are quite consistent in their performance too.


Posted by kcchongnz > Aug 6, 2013 10:31 AM | Report Abuse X

This is my personal assessment of Malaysian unit trust funds. To my surprise, they did pretty good as a whole.

Is it a good idea to invest through unit trusts? Which local equity fund is the best?

Once I asked a forumer who has been posting unit trust funds in i3investor what is the average and median CAR of the unit trust funds in Malaysia. He came back and asked me what CAR is. So I have no choice but to go to the Fundsupermart website myself and compiled and tabulate the compounded annual return (CAR) of the equity funds invested in KLSE for the 1, 3 and 5 years.

From the website, there are a total of 68 local equity funds investing in the KLSE. The average 1-year average and median return is both about 15%, 3 years 12.2% and the 5 years 11.6% as shown below:

Table 1: Fund performance in %
Years 1 3 5
Average 15.2 12.1 11.7
Median 14.9 12.3 11.6
Stdev 5.2 3.8 3.5
No.>KLSE 55 51 49
81% 75% 72%
Max 28.5 22.0 20.8
Min 3.6 3.6 4.0
KLSE 10.80 9.90 9.30

How is the past performance of the funds as a whole? My opinion is they did pretty well. The average returns of the unit trusts outperformed KLSE for all holding periods of 1-year, 3-year and 5-year by 4.4%, 2.2% and 2.4% respectively. 81% of the unit trusts outperformed KLSE for 1-year, and 72% for the 5-year. Even if one invested in the worst performer, he still earns more than the fixed deposit, assumed to be about 3.5%. Wonderful! I think I should make some observations as below:

1. The stock market, especially Bursa Malaysia, is far from efficient.
2. The fund managers in Malaysia are better than those from the US as research has shown that US fund managers under-perform the broad market as a whole. But it could also be due to the inefficiency of KLSE that enable them to out-perform.
3. The performance of the good fund manager are pretty consistent too. For example, Philip Capital Master Growth Fund is the No. 1 for the 1-year return of 28.5%. It also did pretty well for the 3-year and 5-year return of 18.4% and 20% respectively. Similar consistency is shown by the top fund for the 3-year, Kenanga Growth Fund at 22%, and MAAKL-HDBS Flexi fund for the 5-year as shown in Table 2 below.

Table 2: Top fund managers, % CAR
Year 1 3 5
1-year PC Master growth fund 28.5 18.4 20.0
3-year Kenanga Growth Fund 22.3 22.0 20.0
5-year MAAKL-HDBS Flexi Fund 20.9 20.5 20.8

My conclusion is that it may be a good idea for ordinary people who have not much knowledge and wish to invest in the equity market to invest in the local unit trust funds.

For individual investor, how is your return compared with the market? How is it compared to unit trusts funds?

Please note this article is just for sharing purpose. I am not a unit trust agent, neither am I a financial advisor.

kcchongnz

Wow, bsngpg, you have 發達秘笈. Why never share with me?

Why reasonable expectations (19/1/14)

I summarize the return from the markets as posted by me earlier on.
1. The long term total compounded annual return (CAR) from the US equity market of 130 years from 1871 to 2001 is about 13%.
2. After that there was a “lost decade” of zero return.
3. US stock held over a one-year period, the maximum return was 67%. On the other hand, there was also a year with a maximum loss of 39%!
4. Stocks held over a 30-year period would have a maximum CAR of 10.6% and a minimum of 2.0%.
5. From 1974 to 2006, KLCI had an average annual return of 12%.
6. From January 1994 to December 2013, the average annual return and CAR of Bursa is only about 4.7% and 2.5% respectively.

So how good is an average investor that he can beat the market, say having a consistent annual return of above 12%? Not unless some combination of the following:

1. An extreme depressed market in which to buy (hopefully to be followed by a good environment in which to sell).
2. Extraordinary investment skill
3. Extensive risk bearing
4. Heavy leverage, or
5. Good luck

Does an extreme depressed market like that of early 2009 comes along often? In that environment, does he still have the guts to buy big?

Extraordinary investment skill by definition is something very rare. Do you have that over those working for the investment banks and fund houses?

Taking excessive risk in order to earn higher return can also work against you when things don’t turn out well and can get you into deep trouble.

Borrow money to invest or using margins, or leveraging does not improve your return; it merely amplify gains as well as losses. Leverage cuts both ways. Companies borrow money for doing business is well and good and that should be the way; but for individual investors to do for investment in the stock market is definitely not a good practice.

Good luck in investing? I don’t count on that, do you?

Return expectations must be reasonable and that will lead you to a prudent investing practice; not taking big risk in investing in “hot” stocks with no fundamentals, unwilling to pay too much for growth expectations, avoid borrow to invest or with margin financing, etc.

Always remember, if something is too good to be true, it probably is.

Posted by houseofordos > Jan 18, 2014 08:18 PM | Report Abuse

How do day traders survive if the reasonable expectations of returns are only 10 to 20 pct.. surely these guys have to make a lot more than that to actually make a living from the market..

Are you telling me that most or the majority of the day traders can make a living from the stock market?

Posted by miketyu > Jan 15, 2014 06:34 PM | Report Abuse
Dear Mr Kcchongz,
Lets assume you have bought stock A with intrinsic value of RM6 at price of rm2.5. In an event of similar situation of Lehman Brothers or anything event similar to 911, the share dropped to RM2 and maybe RM1.5 in few months time. The economy might take few months, maybe years to recover.
Based on your experience, would you still choose to hold or average down, or wait patiently until the price breakeven?

There are three times to buy an asset that has been declining: on the way down, at the bottom, or on the way up. We don’t know when the bottom has been reached, and even if we did, there might not for sale there.

If we wait until the bottom has been passed and the price has started to rise, the rising price often causes others to buy, just as it emboldens holders and discourages them from selling. Supply dries up and it becomes hard to buy in size. That would be buyer finds it too late.

That leaves buying on the way down, which we should be glad to do. The good news is that if we buy while the price is collapsing, that fact alone often causes others to hide behind the excuse that “it’s not our job to catch falling knives.” After all, it’s when knives are falling that the greatest bargains are available.

That is why if we think something is cheap, we buy. If it gets cheaper, we buy more.

Howard Marks: The most important thing illuminated

This post is transported from the "ValueGrowth Investing"

Posted by Chrollo > Jan 17, 2014 06:13 PM | Report Abuse
kcc, which website do you suggest is good that they contains key financial data?? or must we get those data only from annual report??

I don't use from any screener. Hope others can help here.

I use all raw data from financial statements of the company because I emphasize on other metrics than those given by screeners. for example I use ROIC instead of ROE, Enterprise value and Ebit rather than PE ratio. I also require all other primary data for my other analysis.

keanpoh, yes, one can learn a lot about finance in Aswath Damodaran's website. His teaching is also more practical than most the normal finance and investment courses.

I have also adopted some of the valuation spreadsheets from his website for my valuation exercises, very useful indeed. One has to do some modifications though.

Regarding risk premiums, I think it is quite academic as discussed by Aswath, though it is intuitive. Important thing is what do you think is the acceptable return over the bank deposit rate. For me I am happy to have a return of 10% as the long-term bank deposit rate is about 4%, which implies that my risk premium acceptable is 6% over the risk free rate.

Right to the point.

Posted by houseofordos > Jan 17, 2014 03:07 PM | Report Abuse

kcchongnz, my opinion is that just as bigger companies find it harder to achieve bigger growth, the same issue here may have happened to BH, obviously during the earlier years when the fund size was smaller, it was easier to maneuver and achieve higher returns. Once the fund becomes too big, it becomes harder to keep growing at the same CAR...

Berkshire Hathaway though is a big elephant now, it is still able to grow its assets by 25% a year for the last two years.

Yes, when a company, or a fund gets bigger, it is harder to continuously grow at the high rate. To me at the present environment, if a company can grow its earnings by a CAR of 15% a year for the next 10 years, it is already a fantastic feat.

Some people have the idea that a particular company's business is growing so fast that the share price is worth so much so much but they never put down the numbers and see if their expectation is reasonable, like what you did in your reverse discount cash flow analysis.

miketyu, ok let me go straight to the point, taking Maybank share and its adjusted share price as an example.

On 6th October 2008 when Maybank share was traded at RM5.55 and say my estimate of the intrinsic value of Maybank is RM8.00. So the margin of safety is 31%, more than my minimum requirement. So I checked my bank account and found that I have money which I did not need for a few more years and I bought Maybank share at 5.50.

Maybank's share price continued to drop to RM3.98 on 6th April 2009, or a whopping 28%. Would i as a value investor sell to cut loss? Why should I sell at 28% loss when my original thesis showed its IV is RM8.00? Has the fundamentals changed? Did Maybank having any toxic CDO, CDS, CDS^2 and the answers were none. So nothing changed. It was cheap at RM5.50 when I first bought it, so it was even cheaper then at RM3.98. So I would buy some more when I saw I still had a lot of money in the bank.

What happened after that? 5 years have passed and Maybank share price closed at RM9.80 on 18th January 2014. Now I can sell it for 77% gain but I would still check what is its intrinsic value now as IV changes as time goes on. The CAR would be 12% which is a reasonable outcome. Those shares which I bought later when it dropped to RM3.98 would yield a total return of 146%, or a CAR of 20%, a very good return indeed.

So remember, share price always deviates from its true value, but in the long run, price tends to converge to its value. That is the mind set and actions of a true value investor.

Nowadays it is not easy to bluff, for sure.

Posted by keanpoh > Jan 18, 2014 12:49 AM | Report Abuse
"Moreover the historical risk premium of the equity market has been around 4%".
kcchongnz, how do you know that the market risk premium is only 4% when the risk free rate is assumed to be 4% also?

Good question. You got me. I was taking a short cut using the US statistic, specifically from Professor Aswath Damodaran. The long term risk premium from 1928-2011 has been 4.10%. The forward looking risk premium in early 2012 was 4.08%. I view this thingy as very approximately and hence I rounded it off at 4% and just adopt it into the Bursa here. There was also this market implied risk premium at 6.01% two years ago. Have fun and read about this at the appended link below:

http://aswathdamodaran.blogspot.co.nz/search?q=equity+risk+premium

Note that these risk premiums happened in a very low risk-free rate environment.

Also note that risk free rate varies across time periods; in the early 1980, it was very high (>10%) and now very low (1%?) in US.

So if I take the risk premium as 4%, and the long-term risk free rate at 4%, the required return of the market is 4%+4%=8%. Hence if I can get a realized return of 10%, or an alpha of 2%, assuming I invest in some selected blue chip companies, I am quite happy about it.

Posted by cstan > Jan 17, 2014 11:47 PM | Report Abuse

Between 1974 and 2006 is 32 years, and my investing life is 12 years. Also, in my late 50s, the KLCI's average rise over 32 years is not apt for me. Is an expected average return of 10% every year reasonable, other than in a 1-in-9 or 10-year bust?

The market goes in cycle, and that is quite sure. We just don't know exactly which position is the swing of the pendulum now. Within that 32 years, there were already a few cycles.

The historical 10% CAR is a very long term return and that includes the boom and bust. However, the past is a guide and the future outcome may not resemble the past.

So my take is that if your investment horizon is 12 years which is reasonably long, you may use the past as a guide of a reasonable return expectation of about 10%.

keanpoh,

Excellent comments.

Many research has shown the anomalies in stock returns as opposed to the proposition of efficient market hypothesis and capital asset pricing model. Intuitively, I can't imagine the riskiness of a stock is governed by its volatility of its against the market return. But anyway, beta may be used just as a guide. Beta clearly has not explained well in the return of my portfolio above.

I am convinced that other factors such as price-to-book value, Price-to-cash flow, price-to-earnings, size effects and others would have more profound in the long-term return of stocks.

keanpoh,
The returns are total returns including dividends, and adjusted for share split and bonus issues.

Posted by Chrollo > Jan 17, 2014 04:56 PM | Report Abuse
Hi kcc, I'm impress at the speed you found those data and also jot it down..could u maybe share some info on how u can find certain data so fast and compute them?? Just a new learner on value investing ^_^

Chrollo,
You can go to the Yahoo site below to get all the prices; either from the interactive chart, or download the stock prices for any available period. Just type in the stock number for example 5058.kl or whatever stock.

http://sg.finance.yahoo.com/echarts?s=^KLSE#symbol=^klse;range=5y;compare=;indicator=volume;charttype=area;crosshair=on;ohlcvalues=0;logscale=off;source=undefined;

From the stock prices, you can have a spreadsheet and compute the total return and CAR for different periods.

I like to download the stock prices as I can play around with the numbers, like getting the return, standard deviation of return, beta etc for my other analysis.

周星驰在戏中说：“咁神奇？咁哂利？地球唔适合你。你快点返回火星吧啦！”

Hahaha, classic!

Posted by Chrollo > Jan 17, 2014 04:54 PM | Report Abuse

Well I wanna say that 1000% return in 10 years would means a compounded annual compounded return of 25.89% and not 100% per annum as mentioned by wt222.. and let us not bombard vinext altho the way he delivers his idea may be swayed.. He may be using leveraging which increases his profit tremendously.. but all of this is just assumption..

My purpose is not to bombard anybody or what, but to bring out the concept of reasonable expectations in investing. Newbies hearing so many other people making 700%, 1000% in a year or two would be so fascinated and would expect the same return. They would be disappointed. Worst still they may treat the stock market as a gambling den, and excessive use of leverage (like you said).

Instilling false hopes is not a good thing, is it? Well may be I am just too "kepoh".

Posted by bsngpg > Jan 17, 2014 02:27 PM | Report Abuse
My 爽is more on the high return on those stocks which I studied a lot and invested for long time. Just like those young time, we spent lot of time in practice and finally won the champion in tournament.

My 爽 is when I write something, many people give good comments; by good comments I don't mean only comments which are agreeable to mine but also from different view points.

My 爽 is also when people wanting to learn fundamental investing from me, though I am not that good either.

wt222, thanks for the correction. I got the prices from Yahoo finance which normally would have adjusted for all the dividend, rights, bonus and share split. Checking the graph again, it appears that you are right as there was a steep drop of share price in early 2001. That was probably Yahoo Finance has not adjusted the price.

So now I multiply by 4 the prices prior to the share split and bonus, and the result is shown as appended.

Still if you have held Kulim 10 years ago until now, you make only 762%, still way below 1000%. Unless of course if you were so perfect in timing that you sold at the peak at about 4.50 2 year ago after buying Kulim 10 years ago and held it for exactly 8 years.

Kulim 3.320
Period 1 year 2-year 3 year 4 year 5 year 10 years
Price 3.800 4.430 1.660 0.928 0.608 0.385
Return -12.6% -25.1% 100.0% 258.0% 446.5% 762.3%
CAR -12.6% -13.4% 26.0% 37.5% 40.4% 24.0%

The only out performer is TSH. Even IJMPlant severely under-performed the last 5 years against the broad market. Kulim? Losing money like shit.

Posted by vinext > Jan 17, 2014 12:03 PM | Report Abuse
my Kulim is up 1500%, TSH 1000%, ijmplant <1000%, i owned them.

The highest return for the above three stocks in the last 10 years was TSH of 486%. That is provided if you have kept it for 10 years.

The next is IJMPlant of 200%, and Kulim 116%, also if you have kept them for 10 years.

For Kulim, if you have bought it 3 years ago, you will be still at a loss of 50% if you still keep it until now.

How do you calculate your return?


TSH 2.86
Period 1 year 2-year 3 year 4 year 5 year 10 years
Price 2.17 1.99 1.37 1.08 0.71 0.49
Return 31.8% 43.7% 108.8% 166.0% 302.8% 485.7%
CAR 31.8% 19.9% 27.8% 27.7% 32.1% 19.3%


Kulim 3.320
Period 1 year 2-year 3 year 4 year 5 year 10 years
Price 3.800 4.430 6.640 3.710 2.430 1.540
Return -12.6% -25.1% -50.0% -10.5% 36.6% 115.6%
CAR -12.6% -13.4% -20.6% -2.7% 6.4% 8.0%

IJMPlant 3.330 17/01/2014
Period 1 year 2-year 3 year 4 year 5 year 10 years
Price 3.030 3.180 3.000 2.570 2.030 1.110
Return 9.9% 4.7% 11.0% 29.6% 64.0% 200.0%
CAR 9.9% 2.3% 3.5% 6.7% 10.4% 11.6%

Who is the super-investor in the world? Most people will think it is Warren Buffet. I also think so.

10 years ago, the compounded annual growth rate of Berkshire Hathaway (BH) was 23% for the longest period. I doubt anybody has beaten his record yet considering the duration of the investment.

Even Buffet admitted that he was lucky, being at the right place (America) and the right time (after the second world war). BH's return for the last 10 years is only at CAR of 7%. Even for the last 5 years when the market recovered from the US sublime crisis until S&P reaching at new high, BH's CAR is only 15.4%.

So do you think my expectations from the equity market reasonable?

Bershire Hathaway 176336 31/12/2013
Period 2-week 6-month 1 year 2-year 3 year 4 year 5 year 10 years
Price 174649 176341 140803 114500 119681 100300 86250 89490
Return of stock 1.0% 0.0% 25.2% 54.0% 47.3% 75.8% 104.4% 97.0%
CAR 28% 0.0% 25.2% 24.1% 13.8% 15.1% 15.4% 7.0%

YiStock,

在股市，“先知先觉赚大钱，后之后觉赚小钱，不知不觉赚不到钱。”

If we want to make extra-ordinary return from the market, we have to have carve out our own original idea. Even that is not easy to make money. As a copycat, the chance is slimmer. How many times have you experienced that when an investment bank wrote about the bullishness of a stock, the stock price went up and everybody chased it. But eventually the price dropped back and many people lost money? You should realize that as you are a successful businessman and an experienced investor in your own right.

You know a lot more about Brem than I do. That is excellent and you should utilize your insight to make a better decision on your own.

As your appended article mentions 不少二线地产股股价却严重低估, which I agree, we have to find the best one to invest in and I have to make a choice. I really do not know much about Brem. In fact I am not proficient in valuing property companies at all as first I do not have all the information available. Secondly I do not have the time to spend on them, and thirdly if I have the time and information, I am not sure if I am capable of doing a good job.

And as I have said, I do not place too much emphasize on what the speculation of its land value is but what is stated in his book. Other property companies also have the same dilemma that the true value of their properties are way above their book values. So we have to compare with equal basis.

Value-wise I found there are many better buys than Brem since its steep rise in price recently. This you can compare the net asset backing and the Graham net net valuation. In earning power, Brem with a ROIC of just 5% and earnings yield (Ebit/EV) of less than 10% is also far below those property companies which I have analysed.
So for me, my choice is clear. However I may be wrong, and I was wrong quite often too.

YiStock,
Yeah invest like you are doing your business, I believe you won't go wrong. There are many undervalued property stocks, much more undervalued than brem, I think. Try read my post on graham net net valuation for some property stocks in i3, and you will know what I mean.

May be I don't know enough of brem. So I am not sure of it.

Posted by YiStock > Jan 16, 2014 04:49 PM | Report Abuse
Mr Kcchongnz, would you be able to advice also on BREM...thank you very much.

First YiStock you must know that I am just a retail investor living with no insider information and also don't know too much about the company except the published financial statements showing their performance. Even that it is beyond my capability to study the company in detail.

Somebody asked me about this stock before and I thought I have given a comment about this company, but I didn't seem to find my post. But I have a spreadsheet on Brem dated 10 December 2012, barely a month ago.

The financial performance of Brem was not that good for the last two years. There is little turnover and hence ROE was poor at less than 5%. It was not too expensive at that time when PE was at 11 and enterprise value 8 times ebit. this was because it has a lot of assets, with NTA of RM2.50. It even qualified as a Graham net net stock then with net net value of RM1.52.

But wait we are talking about about a month ago on 10 December 2013 when the price was at RM1.40, according to the figure in my spreadsheet. It is now RM2.24 already! It rose by 60% in just a month. Gosh!

The steep rise must be some kind of speculation that its land now cost a lot more. How much more, i don't know.

But for me it is way too expensive now at this price, just basing on its financial status and performance. Not for me. I don't pay for speculation.

heavyth, seen too many of your similar posts like this. Do you want to hear an advice?

Ah what the hack, just give it to you nevertheless.

You should sell off all your stock holding and put your money in the bank and earn a fixed income. That is important because you must be able to sleep well every night, and not have to worry this and that. It is not good for your health.

The stock market is not a place for the faint hearts, people who do not understand the market is like the swing of a pendulum, and it is never static.

In order to survive in the market, you have to have a strategy, be it TA or FA. I can't talk much about TA, but in FA you must know at least a bit about what is price versus value of a stock. You must know some psychology of the market as there are many people and hence the market is hugely affected by human emotion; fear and greed.

Posted by miketyu > Jan 15, 2014 06:34 PM | Report Abuse
Dear Mr Kcchongz,
Lets assume you have bought stock A with intrinsic value of RM6 at price of rm2.5. In an event of similar situation of Lehman Brothers or anything event similar to 911, the share dropped to RM2 and maybe RM1.5 in few months time. The economy might take few months, maybe years to recover.
Based on your experience, would you still choose to hold or average down, or wait patiently until the price breakeven?

miketyu, obviously you are clear of what I have said in the post just above yours. Ok let me try here again.

You bought a stock at 2.50 with an intrinsic value of 6.00. It drops to 2.00. May be drop to 1.50. Wait, how would you know it would drop to 1.50?

The economy may take a few months to recover. Is it an issue when you do investment? Is your horizon just a few months?

May be years. Ah long time eh. Again do how you know in advance?

miketyu, you see many value investors, including myself belong to a group who feel they don’t know what the future holds who would act defensively; buying stock at a steep discount to its intrinsic value. Yes, the basis of buy or sell is the intrinsic value of the stock.

But they know that stock market is like the swing of a pendulum, it can go to the extremes, and seldom stays at the center. They would act to take advantage of the swing of the pendulum.

I hope I have answered your question.

One of the best posts from a new forumer. Right from the horse mouth.

Posted by HorseField > Jan 16, 2014 12:31 AM | Report Abuse
Personal experience, I was an proposal engineer working in (withheld name) company since I graduate 4 years ago (2009 yr). The global economy wasn't good but i was very happy as i still can manage to join the so called "OIL & GAS" industry for my first job.

I was doing proposal/quotation/bid for the project from globe market. The quoted gross margin was shocking me which is only 5%. sometime it can be 0% as that time don't have any project. we facing a lot competition from overseas especially Korea & China. The gross margin is still remains low even during good time in 2010 & 2011.

Someday in 2010, GM come to my dept and announce that company awarded a giant UK project. Since then, every1 (of coz including myself) was gone crazy to buy the share and share was shoot up for awhile. However, since then price drop to current 40+ cent.. I still holding the share till now.

There is few things I learn from this stock: 1) never listen to "news" 2) never invest low earning margin stock, business moat is very important 3) cut loss. I will never ever touch similar stock again. I rather miss the earning opportunity than loss all money for those stock.

Gross margin at 5%! What would be the operating margin after the company allocate the administration and other expenses to that project? Negative? What if there is a mistake in the costing? What about cost overrun due to increase in cost of material and/or labour? What if mistakes made in the contract, rework, unusual wastage, delay, liquidated damages for delay? etc? Won't happen? I can tell you, these cost overruns happen all the time. So don't think that when a company can a big project, the company sure make tons of money. the reverse is also true very often.

There is another thing the public may not know. Why does management takes up this type of low margin and risky jobs. Don't they know? Of course they know. But they don't give a damn if the company lose money or not, as long as they make money. You know what I mean?

In contracting works, it is a dog-eat-dog world out there. You have to have a niche, an advantage over others, and a super good and credible management team. These stuff definitely not within the company Horsefield worked before. But there are some in the market, but very rare. One company is, you sure know which one I refer to. Yes, Pintaras Jaya.

Cut loss?

There is a significant difference for those investors using fundamental analysis and those using technical analysis. Technical analysts base their trading strategy looking at price volume movement of stock prices. They generally follow the momentum theory; buy when price breakout and sell or cut loss when price “breakdown”.

Fundamental value investor carry out their investment basing on fundamental analysis of the business of the company and determining if the business is a good one. If it is, they make their buying decision emphasizing on cheapness; looking for earnings, cash flow, dividend, hard assets and enterprise value. Primary goal is to quantify the company’s current value and buy when cheap.

However, the future is uncertain and the outcome is often not the same as the probability, especially in the short run. Fundamental investors would not just simply sell a stock because it has dropped in price, by 10%, or 20%. They would make some checks as follow:

1. Have we made some significant mistakes in the analysis of the stock?
2. Have the fundamentals changed drastically?
3. Were we wrong about the management or the deterioration of management decisions?
4. “If we didn’t own it, would we be buying it today?”

If after checking, and the answers are negative for items 1 to 3 and affirmative for 4, why would they sell? Hack, why did they buy in the first place? So instead of selling and cut loss, fundamental investors would buy more. Fundamental investors trust the theory of mean reversion more than the psychological momentum theory.

My experience is that this strategy work for me most of the time.

A vintage rule:

Avoid gossip; in a woman it is detestable, but in a man it is utterly despicable.

SymLife good?

posted by speakup > Jan 14, 2014 10:46 PM | Report Abuse
SYMLIFE PE only 3.6! ROE 17! Price now RM1.03 vs NTA 1.99!

Have been looking at some property stocks and most of them are undervalued, and with plenty of cash and very little debts. Read some of then here:

http://klse.i3investor.com/blogs/stock_pick_challenge_2013_2h/36493.jsp

But suddenly somebody mentioned about SymLife and I took a look. Gosh, what a big difference.

EPS of 8 sen as compared to its share price of RM1.03, nothing great. Please do not treat the sale of PPE as if it is part of the ordinary earnings as reported. It is deceiving. Looking at the cash flow from operations, negative for last two years, how? Some more need money for a lot of capital expenses, 40m last year, how?

That is why its balance sheet is getting worse each year with total debt increasing to 322m already last financial year, almost double of the previous year.

At 1.03, price is 13 times normalized earnings, same as total enterprise value against Ebit. Not cheap at all.

Why would I want to buy a property company with those kind of financials and price when there are so many much better ones and much cheaper?

Sorry, no good words from me on SymLife.

Frank is getting heated up again on his once wonderful investment. But he is smart fella. He knows about psychology and cognitive bias behaviour and hence understood sunk cost means well, sunk, and got back what was remainder (and knew what was lost was lost and forgot about it) and moved on. He made great profit then in MyEg, Pantech etc.

If any newbie hopes to learn any thing about investment, Frank is one of the most qualified to talk about it with his experience.

bsngpg is another one experienced guy whom many newbies can benefit from his experience. We all have gone through various boom and bust, been there, done that. Well I know I know, not many people would hear and agree with us. That is ok. We just talk cock and have some fun here.

Yes, the cash return of Hevea is much better than the accounting earnings. This is because the net income is affected by the high depreciation cost of 25m a year. This depreciation is non cash. Hence Hevea was able to progressively paring down its debts with the abundant free cash flows last few years. This is a good thing about Hevea. It is better to use the available FCF to pare down debt than paying out as dividends. Debt-to-equity ratio has been lowered from a high of 1.8 times in 2006 to just 0.66 times last year. Lowering down of debt will make the stock less risky and a protection against any future credit crisis which Hevea suffered very badly during the last US sublime crisis.

If you look at enterprise value against its earnings before interest, tax and depreciation, at 1.10, the ratio is only 4.4 times, not expensive at all.

But be wary about high capital cost business. A high non-cash depreciation may also mean that its plant and equipment cost is high and any time in the future when the plant and equipment needs to be replaced, it will involve high capital expenses too and affect its cash flow.

Hence for me I place more emphasis on EV/Ebit rather than EV/Ebitda, as Ebitda is also known as the earnings before all the bad stuff. Bad stuff also cause money, don’t they?

The sunk cost trap or the Concord fallacy

An investor have spent say RM100,000 buying 10,000 shares of a certain stock at RM10 a piece 7 years ago. Now the stock is trading at say 48 sen and the 10,000 shares is worth only RM4800. So since the share price has dropped by 95%, there won’t be any more downside to this stock, and there is only one direction to go, up. Is that so?

Welcome to the fallacy of sunk cost in investing, “holding on a loser until it breaks even”. I am sure just four and a half years ago when the adjusted price of this stock was at RM4.00, the same person would have said the same thing that there wasn’t any more downside as that stock has dropped by 60% at that time.

Worse yet, some investors try to turn a losing investment around by “throwing good money after bad,” which can have devastating consequences when they increase their position in a poorly performing stock that continues to fall. This is sometimes referred to as trying to “catch a falling knife.” Admitting failure isn’t easy, but sometimes it’s the least costly way out of a poor investment.

How would one decide if this is a sunk cost case? Go learn about the company’s business now and its future; study its financials thoroughly; watch the actions of the management; and finally determine if the value of the company worth its present price, and forget about the sunk cost.

Not more room for downside? Let me ask you if the stock dropped another 30 sen and becomes 18 sen, what is the percentage of loss? It is 63% drop. To go back to the 48 sen level, the stock needs to go up by 167%.

sephiroth, I have done an analysis of Eurospan and compared with other furniture companies as shown below for your information:

Posted by kcchongnz > Dec 9, 2013 11:24 AM | Report Abuse X

A month has passed since I wrote a comparison of three furniture companies in Bursa, they are Homeritz, Latitude and Lii Hen. I have stated my preference on Homeritz due to its high margins, efficiencies and reasonably priced as compared to others.

Since then Latitude has released its latest quarterly report on 30/9/2013. Its revenue and net profit for the first quarter 2014 jumped by 27% and 63% to 531m and 30m respectively. The market also reacted positively with its share price rises by a whopping 38% from RM1.31 to RM1.81 at the close on 8/12/13. What a windfall for shareholders of Latitude. Another furniture company, Poh Huat also rode on the wave and its share price increased by 25% from 73 sen to 91 sen. Not sure why was that so as Poh Huat’s financial results are not impressive at all. On the other hand, the share price of Homeritz and Lii Hen remain unchanged from the same period.

Let us review the comparison on investing in those furniture companies again with the updated results. Also included are another four more furniture companies; Hevea, Eurospan, Poh Huat and Tafi.

Market valuation
First we examine which has the cheapest market valuation of all the furniture companies here with their latest prices and their twelve months trailing financial results as at 8th December 2013 as shown in Table 1 below:

Table 1: Market valuations of furniture companies
Company Homeriz Lii Hen Latitude Eurospan Hevea Poh Huat Tafi
Price 0.575 1.650 1.810 0.510 0.950 0.910 0.270
PE Ratio 7.7 5.9 4.3 6.8 4.2 5.9 NA
EV/Ebit 4.3 3.4 3.7 3.3 7.1 4.2 NA
EV/Ebitda 3.9 2.8 2.7 3.0 3.6 3.1 5.4

All except Tafi were making good profit for the past one year. We will rule out Tafi as an investment option because of its losses. They are selling cheaply too as all PE ratios are single digit with the lowest at 4.2 for Hevea and Latitude. Homeritz appears to be the most expensive at 7.7. In term of enterprise value, Hevea appears to be the most expensive at EV 7.1 times it Ebit. This is mainly due to its heavier debt burden. For the rest, EV is not much different from each other and they are all in a very low and tight range of 3.3 to 4.3 Ebit and 2.8 to 3.9 times Ebitda. However, Lii Hen and Latitude appeared to be the preferred choice as far as market price is concerned. Let us look at their operation performance for the past one year to see which company is indeed a better investments.
Margins and efficiencies

Table 2 below shows the margins of the business of each furniture company.

Table 2: Margins of furniture companies
Margins Homeriz Lii Hen Latitude Eurospan Hevea Poh Huat Tafi
Gross Margin 45.0% 15.1% 15.3% 21.1% 13.4% 16.7% 14.5%
Operating Margin 18.3% 6.7% 9.1% 5.7% 7.0% 5.7% -1.6%
Net Profit Margin 15.9% 5.3% 7.4% 5.6% 5.5% 3.8% -0.3%

All furniture companies have low to moderate gross margin in the teens and operating and net profit margin in the higher single digits. The exception is Homeritz with each of its margin from double to triple of the rest. For example its gross margin is 45%, three times that of Laitude and Lii Hen. Net profit margin shows the same difference. Thanks to its niche which differs from others in its design and manufacture of upholstered home furniture. It also has its own brand Eritz. Homeritz high margin business has return on invested capital in ROE and ROIC of 21% and 30% respectively, outperformed the rest of the furniture companies by a wide gap as shown in Table 3 below.

Table 3: ROE and ROIC of furniture companies
xxxxx Homeriz Lii Hen Latitude Eurospan Hevea Poh Huat Tafi
Net profit margin 15.9% 5.3% 7.4% 5.6% 5.5% 3.8% -0.3%
Asset turnover 1.1 1.6 1.1 1.2 0.9 1.5 0.5
ROA 17.3% 8.6% 8.5% 6.5% 5.2% 5.7% -0.1%
Leverage 1.2 1.3 1.5 1.2 1.8 1.6 1.1
ROE 20.6% 11.4% 13.1% 7.8% 9.3% 9.3% -0.2%
ROIC 29.9% 14.5% 16.7% 11.5% 8.5% 9.8% 4.8%

Two other companies, Latitude and Lii Hen also garnered ROE and ROIC comfortably above the cost of capitals above 10%, while the rest are marginally acceptable with the exception of Tafi. Wondering why some people chose Tafi. They must have something we don’t know.

Conclusions
Taken all into considerations, I still favour Homeritz as the top pick in furniture company to invest in. Although it has a slight higher enterprise value over its ebit, its margins and operational efficiencies are way above the rest. My personal top three ranking of the market valuations is as follow based on their respective market price now:

1. Homeritz
2. Latitude
3. Lii Hen

So which furniture company do you favour as an investment?

KC Chong in Auckland (8/12/13)