Posted by bsngpg > Nov 10, 2013 12:04 PM | Report Abuse
Hi KC Chong大佬: I knew your answer well that when approaching intrinsic value, sell. We mass ordinary investors do not know intrinsic value of our counters, what should we do?
Example is that I really in dilemma if I should sell Zhulian and GTronic which have high PE now (I do not know their intrinsic values).
I read and liked your justification in selling JobSt months ago. Will you do the same on other counters? Be it your counters or not.

Intrinsic value of a stock is a subjective thingy. Each of us will have different IV of a stock. So you have to base on your own calculated and perceived IV. For me, if you have read my posts, I have different ways of finding the intrinsic value of different stock; the main methods I used are the discount cash flow methods, EPV, asset based such as Graham net net,and comparable private valuation such as EV/Ebit, EV/Ebitda etc.

You may use simpler methods such as PE ratio, P/B etc. I don't rely too much on these because these methods do not differentiate companies with different capital structure, other investments, etc. For example two companies doing similar business have the same market price and earnings per share and hence same PE, but one could have huge debt, and the other with huge amount of excess cash. How can they be accorded with the same value?

If you like my justification of using EV rather than market capitalization (price), you may follow my way if you wish. It is really not difficult to pick up the method if you make an effort. However, I won't say my method is better than yours.

Have I sold some of my counters? My new portfolio set up just three months plus ago has risen by 30% now compared to the rise of KLSE of just 1.8%. Yes, those stock prices have gone up too fast in too short a time. Fibon has gone up by 100% and Datasonic 92%. I have sold both of them but after I have sold, they continue to go up. Others, though have gone by substantially in price recently, are still way below my perceived IV. I also have sold PM Corp just recently after going up more than 100% above my purchase price, at 34 sen to be exact. And if you have read my net net valuation of PM Corp, it is way above my perceived IV now but somehow I didn't sell it earlier when my perceived IV was reached. Ass luck. But there is no sign for any price weakness for PM Corp as yet.

tsurukame
Nov 9, 2013 05:56 PM | Report Abuse
kcchongnz,
I have identified one stock that is a potential turnaround stock and that stock is called "TONGHER RESOURCES". My take is going forward the EBIT and Dividend payout can double. What is your take on this stock?? Appreciate your valued input on this matter.

I have had a look at Tong Herr just now. It was doing extremely well before the US sublime crisis. I guessed that was why Tang Teng Boo bought it as one of the stocks in icap's portfolio. After that its business deteriorated all the way until last year.

Operating margins have contracted from >20% to just 6%. The return of ROE and ROIC at 5% and 8% is not good.FCF is also so so.

At RM1.79, it is also not cheap with PE of 15.6 and EV/Ebit of 8 times.

I have a look at its last two quarter results and I didn't see any significant improvement of its performance.

Why do you think it is turning around?

It intrigues me to see a supposedly experience investor trying to judge the true performance of Jayatiasa in days!

For me, one shouldn't judge its true performance even in a year. It has to be a few years down the road. You can't see the palm trees maturing and bear fruits in days, it has to be in years.

Oh i forgot, you must be talking about its share price.

“The stock market is filled with individuals who know the price of everything, but the value of nothing.”
- Philip Fisher

A mistake corrected and prices updated as shown:

9/11/2013 Ref price Now return
Daiman 2.63 3.05 16%
KSL 2.02 2.06 2%
Plenitude 2.10 2.54 21%
Insas 0.630 0.84 33%
PMCorp 0.150 0.340 127%
Hexza* 0.635 0.775 22%

Average xxxx xxxx 37%

* Price when I was first bought

slts, you may have looked from the wrong angle on Insas.

The value of Insas lies on its quality net asset per share which is much higher than its share price. Besides it is making profit from its business every year and generally with positive cash flow and free cash flow, meaning the cash is not likely to burn away.

tsurukame, yeah those stocks are special situations; spinoffs, risk arbitrage and merger securities, bankruptcy restructuring, recapitalization, turnaround etc.

All these can make big money. but one needs to do a lot of work, rightly and correctly. Turnaround is even harder. One needs to catch the turnaround at early stage in order to make more money. but the trick is how good you are to see it is really turnaround, or just a mirage.

I thought of doing them after reading Joel Greenblatt book on "You can be a stock market genius" more than a year ago, but still haven't started this journey yet.

Yeah you can make a lot of money out of this strategy if you do it right.

Posted by scjm3 > Nov 9, 2013 05:02 PM | Report Abuse

so i infer that there is not much to make from this counter (Hexza), albeit a fundamentally solid one. in this case would prefer to invest in other counter that would give a higher returns instead.

scjm3, thanks for the comments. Yes everybody, including me, "would prefer to invest in other counter that would give a higher returns instead". Who wouldn't?

However how is one so sure that a stock he picks would just do that? If a stock has such potential, do you think that its price would still stay low for you to buy and at the end make extra-ordinary profits? The pertinent question is "how sure are you in your analysis"?

Whereas Graham net net is, by virtue of buying a stock whose company's quality asset is much higher than its share price, and hence supposedly a safer strategy. Read this:

http://www.oldschoolvalue.com/blog/investing-strategy/investment-strategy-footsteps-graham/

Note the article has cited various academic research showing the strategy has in fact yield much higher return. Also note that those net net stocks in the portfolio in the research are mostly considered as "garbage". What if you can sieve through the net net stock that are not "garbage" and hold a portfolio of quality net-net stocks? For this you are invited to read this thread started by me about Graham net net investing; how some net net stocks can even stand out themselves as a high dividend strategy, value investing strategy etc.

http://klse.i3investor.com/servlets/forum/600036493.jsp

Note that I have six net net stocks there so far and all of them has shown positive returns from the time I set up just a couple of months ago. The average return is 44% now as shown below:

9/11/2013 Ref price Now return
Daiman 2.63 3.04 16%
KSL 2.02 2.06 2%
Plenitude 2.10 3.59 71%
Insas 0.630 0.795 26%
PMCorp 0.150 0.340 127%
Hexza* 0.635 0.775 22%

Average xxxx xxxx 44%
* Price when I was first bought

Yeah those stocks were featured just for a short duration so far and it may be too early to tell their long-term performance.

But the strategy is intuitive; buying company way below its assets. This takes care of the downside, and we let the upside takes care of itself.

Tsurukame, you are an experienced investor yourself. As I have mentioned before, success in investment does not require one to be high competence in finance and investment. Many forumers here are successful investors just based on some sound simple investing principles.

The thing is finance and investment is an art more than a science. Everybody has his own different approach in investing. One of them as mentioned by you is trying to find companies which can make extra-ordinary profit in the future, though I am not sure about your statement “that means one has to look at companies that do not show much financial performance in the past”.

But I am more interested in your later statement “the hardest and most challenging part is to identify companies that can really make it”. Frankly speaking, how many of us retail investors have the time and the ability to do it? This is the rice bowl of full time analysts. They will have to study the economy, the industry, talk to the management, their clients, competitors, suppliers etc, visit their factories, plantations etc, and still have to come back and make analysis and come up with forecast of growth revenue and earnings, and then translate to earnings per share, cash flow etc and come up with a valuation. But would you trust that they will do a good job in this?

This is the statistics. In the research by SG Global Strategy Research on the accuracy of forecast in the US by analysts from 2001-2006, the average 24-month forecast error is 93%, 12-month, 47%. In four of the nine years, analysts have not even managed to get the direction of the change in prices correct! The absolute scale of the average forecast error is 25%.
Source “Value Investing” James Montier.

Why was the forecast so poor? There are simply too many variables; the economy, the path of interest rates, the sectors, the particular stocks, sales, costs, taxes etc. So what better way we can do to ensure that we are going to get a better return from our investment?

You already notice that I rely on the past performance. Actually I also try to gauge the moat of a business. To me a business has good moat if it has been earning high margins, making high ROE and ROIC, and consistently making good cash flow, free cash flow in particular from its business. There is a higher probability of similar future performance. A company is safe to invest if it has manageable debts and better still with a lot of cash. Remember what Warren Buffet said,

Rule number one, don’t lose money, and
Rule number two, don’t forget Rule number 1.

After I have determined that it is a good company and have a feel of its intrinsic value, and if I can get the stock at a reasonable or even cheap price, how much risk will I incur investing in its stock compared to the potential upside?

When to sell? For me, it is easy; when the stock price has moved up close to its intrinsic value, though often it is easier said then done.

Well as I have said, everybody has his own strategy. That is my strategy and I won’t say it is the only right one. It has served me very well so far. I simply has no time and ability to make good forecast.

yungshen1, I have commented about KNM numerous times in the KNM thread which some of them as requested by you and most of them you have read. My view on KNM has not changed a bit.

You must understand what is this E is the PE ratio. It is not what you earn in the real sense. E is an accounting number. It could mean all sorts of things, definitely not what you "earn".

Go check again on my comments what is this "E" for KNM in that thread.

I always have the greatest respect for Mr KYY, not because I think he is a super investor, but of his social, political and philanthropic contributions to our society. I do acknowledge that he has made his fortune and wealth from one of the right approaches from investing and that is why he is so rich. I may recite sayings from many investing gurus like Warren Buffet, Peter Lynch, Charles Munger, Joel Greenblatt etc, but I am not a hero worshipper when come to investing.

I more or less view his investing approach the correct way, as when we are investing, we should look at the future, not the past. Many investors also have made a lot of fortune following KKY’s approach which I may categorise it as the growth investing approach. However, I do look at the rear mirror often, because if the company and its management has not been doing the right thing in the past, I have doubt if they can do well in the future.

There is too much uncertainties in the future, in our country, the region and the world at large of which I know few can correctly predict the future. What makes one able to predict the future correctly and better than so many other as acknowledgeable if not more knowledgeable and have more information than you? There were more followers of this growth approach have lost their fortune when they got it wrong as it is a double whammy, you pay too much for growth expectation, and when the expectation turned into disappointment, you got hit the second time.

For example, if you buy JT now at the present price, you are paying way ridiculously too much for its present performance. You pay high price because you expect its profit grow at a certain rate, a very high rate indeed. What if your expectation falls short? How sure is the prediction of the yield, the price of palm oil, the labour cost, the competitions from other alternative products, etc etc etc in the future? As far as I know, academic research has shown that there has not been a way to predict the palm oil price correctly with statistical significance. What if there is a black swan economic event as JT has a net debt of 660m and with negative free cash flow for the last two years? Without FCF, you have to continue borrow money even to pay dividends, and forget about using the money to invest in equity market which they did.

I have not much knowledge in the palm oil industry (in fact not much in any industry), and hence I have to rely on some numbers. I have to rely on the discount cash flow (DCF) model as a guide to see if the price paid for JT is reasonable with some assumptions. In this case, I try to make as little assumption as possible, but just a major one, that is a discount rate of 10%-12%. I would use a Reversed –Engineering DCF model to see what is the expectations the market has for JT with its present stock price of RM2.40.

http://www.investopedia.com/articles/fundamental-analysis/09/reverse-discount-cash-flow.asp?utm_source=basics&utm_medium=Email&utm_campaign=Basics-11/08/2013

Bear I mind that mathematical model is precise, but the assumptions aren’t. You can say JT is going to make so much money but you have to show how and it has to convert to what is its EPS, or free cash flow per share or whatever number to justify the price.

With the model, and some other minor assumptions which I think are already very liberal, JT’s growth in earnings has to be in the region of 40%-50% for the next 10 years, and then 3% forever, to be able to justify the present share price. Very few companies can go at that rate and especially if you are already a reasonable big company.

I am not a too optimistic person in investing. I may be wrong, and most probably am, but I still won’t want to take this risk.

Posted by scjm3 > Nov 8, 2013 07:02 PM | Report Abuse

hi kcchong, you are very detailed in your analyses, as usual. here i could think that one very good indicator is to check on the company's cash flow. if it is negative, it showed that its management has failed miserably to manage its working capital properly with receivables being way too high than liabilites. and to aggravate the matter, borrowings had to be topped up continuously to cover the widening deficit as a result of the 'growing' business.
guess one has to be vigilant at all time and look for signs of weakness as numbers could be easily cooked up or covered up to present a purportedly nice scenario.

scjm3, happy to see your comments. Poor free cash flow for the initial stage of fast growing small companies is all right to me. They need capital to grow and expand their business. However, negative cash flow from operations due to heavy build up of inventories, receivables is not acceptable for me. Even for free cash flow, companies must eventual make positive FCF, otherwise it makes no sense investing in that company because either you have to put in more money, or keep on borrowing money from banks for the business. Persistent negative FCF due to heavy and continuous capital expenses is not a good business to invest in. It is risky. Most companies failed not because of poor earnings, but problems with cash flows.

The capital expenses you made for the business must yield return which is higher than the cost of capital. London Biscuits marginal ROIC of just 4% is really pathetic, and it is not even half the cost of capital. It is a very poor allocation of capital on the management's part.

Yes, I do notice a lot of cooking of numbers, not only cooking in the income statement and balance sheet. It happened also in cash flow statement, especially for companies with auditors of small accounting firm. It is a jungle out there.

http://try.oldschoolvalue.com/best-investment-books/

I have written many articles in i3 on how I pick stocks based on the value investing strategies on good companies. This is one of the very few articles I have written on how not get yourself into a murder hole. To me this type of knowledge is at least equally important, if not more important than those I wrote about picking the good stocks for newbies who wish to have a reasonable return from investing in the stock market with less risks.

I first bought London Biscuits three and half years ago on 7th April 2010 at RM1.16. I read about it in a finance blog where people were bragging and chanting about their prowess in making money from day trading in the stock market. At that time, I already have high qualification in finance and investment (just to show a high qualification even in finance means nothing in the real world investing). However I lacked the real experience in the real world. I bought London Biscuits based on a single metric which most people used, if ever, that is the PE ratio.

At RM1.16, the PE ratio of London biscuits was about 7, P/B of 0.5 and the dividend was 4.5 sen, or a dividend yield of 3.9%. Was that a good investment? Four and a half years have passed and London biscuits share price closed at 71.5 sen now for a loss of 40 sen, or about 35%.
KLSE has risen from 1334 to 1804, also 35%, but the other way round. The net loss is a whopping 70% compared to KLSE!

Exactly on the same day on 7th April 2010, I bought Kumpulan Fima at RM1.08. With all the dividends through the years, Kumpulan Fima has easily more than double in return on investment.

What has gone wrong with London Biscuits?

For the performance of London Biscuits in 2010, its return of equity (ROE) and return on invested capital (ROIC) was at 7% and 6% respectively, way below the costs of its capitals; warning number 1.

The low ROE was achieved with high financial leverage of 2 with a high debt-to-equity ratio of 0.6 and solvency ratio way below the minimum of 1; warning number 2. The net borrowings have been increasing all the years then; warning number 3. It has negative free cash flow, just like the years before it (and also after that); warning number 4.

At RM1.16 then, the PE ratio of 7 appeared to be low. However, I failed to look at the more important number, its enterprise value as London Biscuits has huge borrowings. The enterprise value was 12 times its earnings before interest and tax, exactly the same as it is now, warning number 5.

At that time the management, instead of focussing on its business, has already been playing with the property, plant and equipment, and fiddling with all the numbers without me having a clue about it; warning number 6.

Furthermore as I have mentioned, so many people were bragging and chanting about London Biscuits then; warning number 7.
As I have mentioned, a simple check with Altman Z-Score of just 1.2 (<<minimum 3) would have shown the risk inherent in investing in this stock then; warning number 8.

Despite with the high qualification in Finance I have then, I still didn’t see all these warnings. So what does it tell you? What valuable lessons has one learned?

Hexza and Graham net-net and high dividend yield investing strategy

Hexza announced a dividend of 10% on 24th October 2013. At the close of 77.5 sen this morning, the dividend yield amounts to 6.5%. This is twice the interest rate one can get from putting the money in fixed deposit in bank. Isn’t that good?

Hexza Corporation Berhad operates in three business segments: investment holding, which is engaged in investment holding activities; manufacturing, which is engaged in the manufacture and sales of formaldehyde based adhesives and resins for timber related industries, ethyl alcohol, natural vinegar, cooler, liquefied carbon dioxide and kaoliang wine.

Hexza has been in the business for a long time. Although there is not a single year of losses, there has been no growth in earnings for the last 12 years. However, the management has been generous to its shareholders with increasing dividend payment from 0.6 sen to the most recent 5 sen per share. Is this high dividend yield of 6.5% sustainable?

Referring to Hexza’s latest financial statements as at 30 June 2013, there is plenty of hard cash available. Free Cash Flow amounts to 20m, or 9.5 sen per share. It has an excess cash of 130m, or 65 sen per share in its balance sheet. Hence there is no problem at all for Hexza to continue paying good dividend in the future.

The liquidation value of Hexza is computed using the Graham net net is shown in Table 1 below:

Table 1: Graham net-net valuation of Hexza
Cash and cash equivalents 73,404 100% 73,404 0.37
Other investments 55,886 100% 55,886 0.28
Trade & other receivables 23,885 75% 17,914 0.09
Inventories 17,367 50% 8,684 0.04
Property, plant and equipment 66,959 50% 33,480 0.17
Other assets 3,295 0% xxxx xxxx
Total assets 240,796 xxxx 189,367 0.95
Non-Controlling Interests (6,876) 100% (6,876) (0.03)
TOTAL EQUITY AND LIABILITIES (20,421) 100% (20,421) (0.10)
Net assets 213,499 xxxx 162,070 xxxx
Number of shares 200,380 xxxx 200,380 xxxx
NAB 1.07 xxxx 0.809 0.809

The table above shows that the net asset backing (NAB) of Hexza is RM1.07. At this morning’s closing price of 77.5 sen, it is traded at a huge discount of 27% to its NAB. The net-net valuation of Hexza is shown to be 81 sen, which is still higher than its price.

Isn’t Hexza an undervalued stock as shown above? Wait until we perform some basic checks.

3 Basic Checks to Perform for a Net Net
For a net net to be investable, it should have
• a solid balance sheet, preferably more cash than inventories and receivables.
• is not bleeding cash. At least breaking even or positive in net profit.
• positive EBITDA

The first check shows that Hexza has most of its net-net assets in high quality assets in cash and cash equivalent amount to 65 sen per share. Hence we can safely confirm that the quality of the assets is excellent. Next to check is “Is it bleeding cash” and if it has positive Ebitda?

The latest annual financial results ended 30 June 2013 shows Hexza’s made a net profit of 8m and 4m, or EPS of 4.2sen and 3 sen respectively in 2013 and 2012. Cash flow from operations amounts to 20m with free cash flow of 18.7m last financial year. This FCF is a high of 15% (>10%) of revenue. Hence Hexza passes these checks with flying colours.

Conclusions
Hexza qualifies as Graham net net investment strategy with a wide margin of safety. It can also stand on its own as a value investment stock as a going concern with the high dividend yield investing strategy.

A five-digit dividend a month in Singapore is pretty good.

This gentleman Mr Ang is lucky, not in his stock pick, but must have got some good inheritance from his father.

"My dad died when I was 25 and he left me the family house,"

Owning a house in Singapore must be very well to do and hence should have quite some money left as a legacy to his children.

However, Mr Ang has built up a good discipline of saving and investing that is important.

"I started investing in stocks with money from my savings shortly after I turned 21," he recalls.

“On average, my investments get me a 10 per cent return per year.”


"Stocks which are undervalued appeal to me, especially for companies whose market capitalisation is less than the value of the assets, or have a price-to-earnings ratio of 10 and below."

Although he specialises in sussing out smaller firms here, Mr Ang doesn't go for speculative counters.

Yes, investing needs not to be complicated but one must have the right philosophy. A real return after inflation of about 8% with low risk is pretty good.

One of my “favourite” companies , London Biscuits, announced its audited annual report for period ending June 30 2013 just a week ago. Revenue and earnings before tax improved by 14% and 32% to 290m and 18.8m respectively. What can I say except Wow!

With its closing price at 68 sen yesterday on 7th November 2013, and its earnings per share (EPS) of 9.15, PE ratio is just 7.4 and the price is just one third of its book value. Furthermore there is a dividend of one sen, not much, but there is still a dividend yield of 1.5%, better than nothing, right? Cash flow from operations is 18.5m, 122% of its net income, signifying a good quality earnings. Its net asset backing per share also increased from 2.05 to RM2.10 last year. So LonBiscuit must be a fantastic stock to invest in, isn’t it?

Wait a minute! If LonBiscuit is doing so well in its financial performance all this year (It has never made a loss for at least 9 years already), why is its net borrowing keeps on increasing every year constantly from 172m three years ago to 236m now? And this is despite that cash calls have been made and the number of shares outstanding have also increased steadily from 96m to 142m now. Didn’t I mention that the cash flow from operations is good? But where has the cash gone to?

Yes, some people must have guessed it correctly, all money from operations have gone to capital expenses, buying property, plant and equipment (PPE) as required for the operations. Buying PPE for the operations, are you sure?

Capital expenses is good for sustaining and growing the earnings power of a company and hence should be viewed as a good capital allocation. But LonBiscuit spent an average of 47m a year for the last 9 years to buy PPE, and yield an average net profit of just 14m. It is not hard to see why the total debts of the company has grown to such a magnitude at 63% of its equity now. Why would a business like that require such a relatively huge amount of capital expenses? What kind of shareholder value has this capital expenses created?

A company can raise cash from shareholders, borrow from banks etc and increases its earnings. However this money must provide a return higher than its cost, otherwise it destroys shareholder value. The return of equity last year was only at 4.2%. Are you willing to invest in a company like this with so much risks but just yield a return of capital of just 4.2%? By coincidence the return of invested capital of LonBiscuit was at the same magnitude last year. This brings out the question that why would investors want to put in money for such a low return but with so much risks.

However, a bad company can still be a good investment if its price is right. At a PE ratio of 7.4 and if you flip it over you get an earnings yield of 14% which appears to be good, but is it?

LonBiscuit has a lot of debts. A proper measure should be its enterprise value, which includes all debts and minority interest. At this price of 68 sen and its debt level, LonBiscuit is selling at an enterprise value of 12 times its earnings before interest and tax. This is way above my requirement of 5 for a company with those metrics mentioned like LonBiscuits.

Actually the worst part of LonBiscuits is its extreme poor free cash flow which is negative every year without fail. Ever wonder where the dividends to the shareholders come from now?

Worse still, it is believed that instead of concentrating in doing business well, the management could be speculating from buying and selling of PPE. It is also probable that there is element of financial shenanigans in the manipulation of its financial statements.

If one does a risk checking with an Altman Z-Score or Pitroski Screen test, I am very sure that he would run far away from investing in London Biscuits.

Ever wonder why the knowledge of financial statement interpretation is so important before one goes around punting stocks like London Biscuit, KNM,Amedai, etc?

Hey I saw my name being mentioned here! Is it an honour or an insult?

Posted by bigFAT > Nov 6, 2013 03:34 PM | Report Abuse

pmcorp only made 9k latest quarter..and what bad thing does he tell u then? nothing...just buat2 tak nampak...same goes with kcchong...now u see sang jero the 'pengaruh' of otb and gang? they mostly play in the same counter..when they're not in...they'll make not so good comments...otb is evil and manipulative


You only know about PMCorp made only 9k and you don't seem to understand balance sheet investing. This investing strategy is propagated by Benjamin Graham scores of years ago and it has been proven again and again, even with my own experience that it is a great investing strategy.

This strategy has nothing to do with earnings. It will be your own good if you can learn this strategy from many value investors, including Benjamin Graham, Seth Klarman, Michael Price (I just learned a little bit from him) etc, rather than making personal attack here on others like saying who and who "is evil and manipulative".

I had just realized fantastic profit from investing in this stock using the net net strategy, more than 130% in just 2-3 months. What "just buat2 tak nampak" you are talking about?

What "bad" thing that I must tell you? Yes, I am not impressed with its earnings and I have expressed it a few times. But I am impressed by what calvin has been telling others here about how good is PMCorp's chocolate is, and many people there also seem to agree with him after trying out the products. It is the future of PMCorp's business which may matter, I don't know.

And also I, unlike you, like to talk bad things of other people, or other stocks which I am not even sure of myself, including PMCorp which price has risen to this level.

"they mostly play in the same counter"? For your information, unlike you, I don't "play" the counter. And for your information, OTB and I have mostly totally different opinions on many stocks, including this Pantech. I have said many times, Pantech is already fully valued, whereas he is still bullish about it. We have totally investing philosophies. But unlike you, I and OTB respect each other, agree to disagree.

Compliments or insult of your statement below? Evil gang? What gang? What evil things they have done? Wow, strong and influential? Who told you I am a remisier? You are welcomed to follow me, if you want. This is a free world man.

Posted by bigFAT > Nov 6, 2013 03:40 PM | Report Abuse
sang jero what do say about this 'evil gang'? i would say they're quite strong and have some influence...we should just follow them shouldn't we..bloody remisiers gang

First time heard about Michael Price (MP). Yeah there are so many things one doesn't know. Thanks the other KC for highlighting it.

Just goggle and found this about MP.

Investment Philosophy

Steak and sizzle approach
Steak is what you are buying: earnings stream, asset values, cash, real estate, etc.
Sizzle are new things where there is nothing there today, e.g. VOIP, new movies, etc.
Figure out the steak and ignore the sizzle.
Look for inflexion points where there are problems, earnings disappointment, litigation, bankruptcies, etc.
Compute the intrinsic value of a company/asset and buy it when people are selling it at a big discount, 30-50%.
You are in this environment now, bull market, cheap money, lots of M&A activity, where it is very hard to find cheap stocks. So what do you do? You wait.


Seems like similar philosophy as those great value investors; focus on the performance and value of the company concerned rather than things one can't predict and has no control of. Just that his value may be different from others:

"He doesn’t believe in computing intrinsic value by discount a stream of future earnings, or measures like price/book or multiples of EBITDA. You have to go when there are transactions."

I am not sure what he means by this in stock investing:

"You have to go when there are transactions"

KC Loh, can elaborate? Thanks first.

The Perversion of the Investment Catalyst

Most stock articles you read always include some sort of upcoming catalyst that is going to propel the stock higher. But to only invest in stocks with clear catalysts defeats the purpose of value investing.

Catalysts are not important, nor is it required for an investment.

Take it from the man who defined value investing, Ben Graham. He just wanted one thing and spent his days searching for it.
Cheap stocks.

Warren Buffett also wants to buy one thing.
Awesome companies.

Neither mentioned anything in any of their writings about seeking a catalyst to make a successful investment. In fact, they told you the opposite.
Sit and wait they said.

The problem is that sitting and waiting is torture today. There has to be action. There has to be fast moves up and if something doesn’t play out within a few months, it’s a dud and not worth keeping any longer. “Next!”

Investors today lack assiduity. That’s Charlie Munger’s technical term for sitting on your ass and doing nothing.

If you must seek a catalyst, remember that being cheap itself is a catalyst. That’s the number one catalyst which always gets ignored because it’s so simple and boring.

Let Mr Market do his thing and waltz around with Miss Price in his arms. You don’t have to join his dance or gaze longingly at Miss Stock Price. They are a pure vanity couple. Great looking and fun to be with but horrible to live with.

Having a catalyst is good, but is it necessary?

No.

You make money by waiting.
Monish Pabrai

This post was first published at old school value.

Homeritz 2013 financial results

Homeritz released its annual result ended 31st August 2013 on 28th October 2013. Its revenue and operating profit increased by 9% and 18% respectively to 113m and 20.7 m respectively. Net profit per share is 7.56 sen. NTA increases from 36 sen to 40 sen, or 12%. Cash flow is good with plenty of FCF of 17.7m, or 16% of revenue. ROE and ROIC are still very good at 21% and 30% respectively.

Based on earnings power valuation with the conservative assumption of no growth for the rest of its economic life, Homeritz is worth 68 sen per share, or a 20% margin of safety above its present price of 54.5 sen.

Yeah wet dream comes true. AncomLB!!!

Short sell at 18 sen and all the way to 2.5 sen. Good reasons as below:

1) Earnings based valuation

First quarter 2014 earnings 0.12 sen per share, annualized 4*0.12 = 0.5 sen. Take PE ratio as 5, Fair price =5*0.5, only worth 2.5 sen per share.

2) Asset based valuation

Net asset per share = 12 sen. But most of the assets are rubbish in PPE, receivables and inventories. If bankrupt may be can recover only 10%, or 1.2 sen per share.

So want wet dream comes true, short sell AncomLB, NOW!!!

Posted by JCool > Nov 6, 2013 03:47 PM | Report Abuse

RETURN 16% IN 3 MONTHS.. YA.. SO??!!

OH YES OH YES.. I SAY.. I SAY.. HOW CAN I NOT C IT... U R CLAIMING CREDIT FOR TIS 16% UP FOR UR HALF PAST SIX VALUATION WHC MISSED BY A MILE...

I M STIL HOLDING MY MFCB... WANT TO SAY TQ.. BUT HONESTLY I THINK WITH OR WITHOUT UR HALF PAST SIX.. IT WLD HV GONE UP LA... LIQUIDITY BULL RUN MAH.. EVERY COUNTER WLD HV ITS 15 MINUTES OF FAME

Yeah 16% in 3 months. Not good? How is your AncomLB which you have been mumbling all this while and with nobody giving a damn? Do you have any stocks which has gone up by 6% in 3 months, not to say 16%? Show show show!


HELLO NET NET IS HARDLY VALUE INVESTING LA

OR THERE IS SOME OTHER REASON?? TIS IS NOT BEING HONEST N TRANSPARENT LO.. GOT HIDDEN REASONS SOME MORE...

Net net not value investing? shouting "luv luv luv" everywhere like a bloody fool is value investing?

By the way I have use Graham (do you know who is Benjamin Graham?)as shown in the thread below:

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

See the Table on the return of those net net stock I was talking about within a month or two as shown below:

Daiman 2.63 3.04 16%
KSL 2.02 2.06 2%
Plenitude 2.10 3.59 71%
Insas 0.630 0.795 26%
PMCorp 0.150 0.340 127%

Average 48%

Yeah, average gain of 48% in just a month or two for a portfolio of 5 stocks. No, I am not claiming credit for their rise. I am showing how good am I just comparing with you, and you only!


OTB IS DOING SOMETHING RIGHT IN PMCORP NOW... TAKE TIS GUY AS UR EXAMPLE MAN..

What is wrong with me buying PMCorp at 15 sen 6 weeks ago and selling PMcorp at 34 sen this morning that I must take OTB as my example?

Mahsing Wb (061113)

Mahsing Warrant B is trading at 55 sen while the underlying share is at RM2.20 now on 6th November 2013. It has an exercise price of RM 1.98 and the expiry date is on 18th March 2018, or in about 4.5 years time. The warrant is hence in-the-money with an intrinsic value of 22cents (2.20-1.98). However if you buy Wb at the price now of 55 sen now, you pay a premium of 33.0 sen, or a premium of 15%. This premium appears to be a little high but there is a gearing of 4 times for Wb. Moreover, the expiry date is quite a long time to come. Hence if you are bullish about Mahsing, Wb may offer a good alternative with a lower cost.

The theoretical value of warrant depends on the price of the underlying share, the exercise price, time to expiry, its volatility, the risk-free rate; in that order of importance. The Black-Scholes option pricing model, using a historical volatility of 31.5%, risk free rate of 3.5%, dividend yield of 2.3% and Mahsing’s price now at 2.20 shows that the warrant has a theoretical value of 64 sen, or 15% above its present price of 55 sen.

My personal opinion is Wb offers a better investing opportunity because of its reasonable premium with a good gearing . It also has quite a long time before expiry. Furthermore there is good upside potential for the underlying share as Mahsing has been aggressive in its development projects.

Posted by JCool > Nov 6, 2013 08:15 AM | Report Abuse

Kcchongnz... I hv encountered u in two threads n d results r as follows

MFCB... ur valuation is wrong as u so glaringly missed out n omitted to account for d fact tat its two major IPP concessions wil cease in abt 5 years.

SO WHAT IS YOUR VALUATION THEN? SO LONG ALREADY YOU STILL HAVEN'T PROVIDE US YOUR VALUATION? MFCB IS 1.94 NOW, PLUS THE 3 SEN DIVIDEND, SO THE RETURN IS 27 SEN, OR 16% IN THREE MONTHS. WHAT DO YOU THINK, OK OR NOT?

Bsngpg was in tat thread... he blindly supported u then... glad to c he has wised up.

PMCORP... cannot believe d uncle who claimed to be a Value Investor actually bought nto tis counter wit pathetic profit n dim future as its plant n machines r all very very old... n hv bin having impairment losses on loans to its subsidies again n again...

I JUST SOLD PMCORP AT 34 SEN FOR A GAIN OF 19 SEN, OR 127%, FOR ME, MY CHILDREN AND MY RELATIVES. WHAT DO YOU THINK? ACTUALLY YOU HAVE NO CLUE OF WHY I BOUGHT PMCORP AT THE FIRST PLACE ALTHOUGH I HAVE POSTED THE REASONS WHY I DID.

Worst still u actually tried to claim credit for d rise in its price.... but I suppose tat is jz u...

CAN SHOW ME WHERE AND HOW I "CLAIM CREDIT FOR D RISE IN ITS PRICE"? GIVE YOU 5 SEN IF YOU CAN PROVE THAT.

Hello.. time to wake up... From wat I hv seen thr in Pmcorp.. thr r at least 4 or 5 of thm gang who could do a better.. much much better.. valuation than u...... know d in n out of stocks mkt much much better than u.... can anytime out quote u on Warren Buffet Peter Lynch... know d beta n gama much better than u.. n etc etc

SURE SURE SURE. i AM JUST A RETAIL INVESTOR ONLY MAH.

N u actually really think tat they needed ur simplicitic FA blah blah blah... wake up man... in their eyes u r nothing but jz a boy scout..

SURE SURE SURE, YOU ARE THE BEST.

Bsngpg was there too n having big trouble reconciling Pmcorp wit Value Investing...

bsngpg,
You really are a wise man. Forgot about this Chinese saying about "when you are in it, you can't see clearly. but when you see from outside, things appear to be clearer."

Appreciate what you said and will try to change.

林俊松, That is the right attitude to learn about investing.

For me before buying the stock of a company, i will try to find out if it is a good company. Then if it is, is the price right. Does it make sense to you? If it does, I will invite you to read this thread set up by me below. Try to reason out yourself if it make sense.

http://klse.i3investor.com/servlets/forum/900285510.jsp

Sometimes an ordinary company, or even a not-so-good company can be a good investing, if the offer price is very low. For example a rundown house in a good suburb where the average price of a house is 1m, and the rundown house is offered for sale at half a million, and you estimate that it needs 200,000 to fix up the house. does it make sense to you that this house is a good bargain? But of course you must know the value of the house before you can decide, isn't it? So you may also refer to the follow link to see if there is good value for a stock.

http://klse.i3investor.com/servlets/forum/900214344.jsp

The above thread in i3 was also started by me. You don't have to agree with me but you should read it and think for yourself if it makes sense.

Of course you have many other resources you can refer to which are better than the above threads. Go search for them.

As regards to your question about why i pick Insas and not TA, all I can say is I am just a small time retail investor. I am not an analyst, nor a professional in the industry. I don't know all. I have not looked at TA. I happened to look at Insas and made an analysis on its assets and found it attractive at that price.

Posted by jiehan > Nov 5, 2013 10:43 AM | Report Abuse
hi mr chong, could you also include Eurospan in comparison to those furniture companies. Eurospan's performance is improving and has very lean balance sheet.

Eurospan is a very smallish company compared with the rest. Its market capitalization is only 24.7m. It has relatively higher gross margin. However due to its very small turnover of just 61m, and hence higher percentage in operating cost, its net margin at only 5.1%, is very much lower than the rest.

As a result, its ROE and ROIC is also relatively low at 7.3% and 9.7% respectively. This operating numbers do not meet my personal requirements.

Its market valuation with PE ratio of 7.6 and EV/Ebit of 4.7 is also inferior to others.

However, Eurospan's first quarter result appears to be very good at 3.5 sen per share. As for the rest of the year, it may be too early to say. So for me, I prefer the rest than Eurospan.

Posted by 林俊松 > Nov 5, 2013 01:46 PM | Report Abuse

kcchongnz, I got some problems need to consult u.
1) What is the suitable price for me to exit PM Corp? Or this counter still got huge potential to grow in future?
2) What do u feel about insas? Can I enter now? How far can it grow until reach it "not undervalue" stage?
Just need ur opinion & analysis.
Thank u so so much!!!

林俊松, by coincident I read a few of your posts. I refrained from commenting as I find that often it is not worth to comment when it doesn't concern me and instead attracting personal attacks at the end. It is 吃力不討好, 好努力去做d野係諗出於好心幫助的，但係得黎既只係反效果～例如俾人討厭！

But since you specifically asked me, I will give you my opinion. Bear in mind that in order to convey my message rightly, I have to be blunt.

The good thing about you is you are young. You have a good education and a career. You don't have much opportunity to waste your hard earned money as you are working in a place where there is not much opportunity to spend money. So you would do well financially. That is provided you don't waste away your money.

Work hard for your job, safe and invest wisely and you would have a great financial future. Indulge in gambling especially with insiders and manipulators in the stock market can end up the other way.

The bad thing is you don't know about investing. Simply buying and selling stocks based on what people say and rumours and hope to make a fortune to me is simply a gambling endeavour.

“If you've been playing poker for half an hour and you still don't know who the patsy is, you're the patsy.”― Warren Buffet

So first learn about investing. Understand that in every stock, there is a company behind it. The future price of a stock must be dependent on the future prospect of its business. Learn and read a lot about investment, financial statement interpretation and analysis, time value of money, valuations etc everything about finance and investment. Believe me, this stuff is much easier than high level maths statistics. Stand behind those investment giants; Warren buffet, Peter Lynch, Charles Munger, Philip Fisher, Ben Graham etc. Read and learn about their investing philosophies. Practice, practice and practice and you would get better in what you have learned and do.

Regarding the stocks you asked, you can read about what others say, including mine. More important you must have the knowledge and ability to evaluate yourself, correctly. Do they talk sense? Do they back up with good reasoning? Have you checked yourself? Nobody can help you except yourself.

“Value portfolio managers buy and sell judiciously, choosing today’s ugly duckling that shows the promise of becoming tomorrow’s beautiful swan.”

Avocado, I have/had all the small-mid cap stocks you mentioned above except YOCB. So allow me to give my opinion about your concern.
I have looked into the business and studied the financial performance, balance sheet and cash flow of all the companies above before investing on them. You can read my opinion and analysis of them in i3. The analyses are for sharing purposes and not for enticing anybody to buy or sell their stocks.

I invested in Fibon, Homeritz and Willow based on their earnings, cash flow and healthy balance sheets. Insas and PM Corp on their strength of balance sheet, or more specifically Graham net-net situations. So I have my own perception of their intrinsic values. Yes, they were mostly neglected counters at the time I first looked at them but to me they all worth investing (not punting) with their own values and other merits as explained.

When would I want the ugly ducklings to become beautiful swans? When would I hope that their “true” intrinsic value to be discovered and stock price moves towards that “intrinsic” value? To me now or the soonest the better. Why not? If the stock prices have moved towards the intrinsic value, I could sell them earlier and realize the gain earlier. I can put my money now to invest in other ugly ducklings (which hopefully would turn into beautiful swans later) and make more profit; or I can just put the money and earn fixed income return. Can’t we? Why would I want to “hope” for the value to realize in say 5 or 6 more years time? Do you appreciate time value of money?

If you feel uncomfortable about the fast gain in such a short period or worry about the directors selling down or frying their stocks, why can’t you sell your stocks now and realize those extra-ordinary profit now? I would. Why would you prefer to realize the same profit in 5 or 6 years time?

My opinion is that one shouldn’t be sentimental about a stock. If you think its price has run up too fast and beyond its intrinsic value, sell it and move on. A great company doesn't mean it is a great investment, if the price is not right. Agree?

Bsngpg, this is just simply dollar and cents question. What “further substantiations and explanations” do I need to give?

This was a e-mail to me from a good fundamental investor some time ago for your information. I concur with his views about Hevea.

KC,

What is your view between HOMERITZ vs HEVEABOARD which I recommended to you a few months back. HEVEABOARD is in the same business except that it also produces particle boards besides furniture. You used fcfe valuation for heveaboard and came up with intrinsic value of RM1.41 which presents a larger margin of safety than HOMERITZ.

However comparing a few things between these 2 companies, I feel that HOMERITZ is a better value because :-
1. Balance sheet is stronger, no debts vs a high D/E for Heveaboard
2. Higher margins than HEVEA
3. Better ROIC, FCF/sales, lower EV/EBIT
4. Better dividend yield
5. Particleboard manufacturing involves higher capex, is more like a commodity hence poorer margins.

Plus side for HEVEABOARD
Less competitors compared to furniture makers due to higher entry cost and high capex. The demand for particleboard would be more widespread as it is used as a raw material for house renovations, construction industry whereas furniture.

Posted by JCool > Nov 5, 2013 09:59 AM | Report Abuse
So... Once again it is proven beyond reasonable doubt... big fish / syndicate / gang.. rules BursaMalaysia......

Wat FA's NTA ROE PE NAPS blah blah blah...

Wat TA's 5 waves RSI SMA blah blah blah...

Dont waste ur time on all these FA TA nonsense... Just remember; FOLLOW D TIPS... true for Harvest Luster Sersol Pmcorp n of cos many many more to come....

Remember to always remember d THREE important things in stocks mkt....... FOLLOW D TIPS... FOLLOW D TIPS... FOLLOW D TIPS...... n of cos if it is coupled wit excess liquidity it wld b a total wet dream no doubt...


Posted by yennie Thank you..... pmcorp. Thank you Mr OOi for confirming the chart is bullish, Kcchongnz for FA......"Lots of chocolate for us to eat.."04/11/2013 21:37

WAT A SLAP ON D FACES..... HAHA


Hi the Cool guy, try to mock me a gain? FA and TA nonsense again? Must "FOLLOW D TIPS... FOLLOW D TIPS... FOLLOW D TIPS" of Jcool?

I bought PM Corp at 15 sen for myself, my relatives and remembered how you mocked me about reckless or whatnot? It is 34.5 sen now, or a rise of 130% now in just a couple of months. So still think FA and TA is nonsense?

Follow your tips in AncomLB? What happen? To borrow your words, "WAT A SLAP ON D FACES..... HAHA "

Bsngpg,
I am not as a courteous a person as you are. My style is direct as you rightly say so. My point is we are discussion about investing here and I have my strong opinion. I don’t like to beat around the bush and not bring forward the right message. It is just me.

Regarding your statement that “your ways are a bit forcing. If you can use more substantiations and explanations instead of forcing questions to strengthen your points, I believe it will encourage further discussion in a more relaxing mode”, I am not sure what you mean.

Let’s look at this comment here which I initially appreciated and thought that a good discussion would follow suit, and my response.

Posted by haikeyila > Nov 4, 2013 11:21 AM | Report Abuse
is it fair to run this analysis based on 3 months of returns during a bull market run?

And my response in upper case letters here:
Posted by kcchongnz > Nov 4, 2013 03:21 PM | Report Abuse X
Posted by haikeyila > Nov 4, 2013 02:41 PM | Report Abuse
surely you dont need the market to be up 100% before calling it bull?..but the conclusion drawn up in the article may be premature.

YEAH FULLY AGREE WITH YOU THAT ONE NEEDS NOT LOOK AT 100% RETURN TO CONSIDER IT AS A BULL MARKET. BUT DID YOU CONCLUDE THAT THE RISE OF KLSE BY JUST 2.1% AS A BULL MARKET? IS THAT CONSIDERED AS A BULL MARKET AS CLAIMED BY YOU?
THE CONCLUSION OF THE ARTICLE WRITTEN BY ME AS APPENDED AS BELOW. SO WHAT IS PREMATURE AS CLAIMED BY YOU? AND WHAT IS YOUR CONCLUSION IF ANY?

[It does appear to confirm that small market capitalization and good value (not necessary book-to-market ratio but other value metrics) may explain the excess return. However, it beats me to think that small market capitalization and good value carry additional risks and hence the explanation of excess return.
So is the market in Malaysia efficient? Does the excess return due to the additional risks carried? For me I highly doubt so.]

He is making a statement that it is a bull market and I asked is it considered a “bull market” when the rise of the market is only 2.1% in three months? Is that too “forcing” a question?

I put up my reasoning that Fama’s three factor model, i.e. CAPM, size and value may or may not explain the excess return of the portfolio and he said my conclusions is premature. He did not give any substantiations though. So I asked him what is his conclusion and reasoning then.

So is this question “forcing”? Can you tell me what “more substantiations and explanations” are required as stated by you? Or can you tell me how to ask questions and engage in a useful discussion without “appearing” that it is “forcing”?

And read his subsequent response here:
Posted by haikeyila > Nov 4, 2013 04:03 PM | Report Abuse
gee, i sure hope you're not shouting to direct attention to your posting.

What else do you expect me to response then?

Since my name is specifically mentioned in the post here, I will give my side of the story, can I? I use upper case words here just to differentiate those comments by the gentleman here.

Posted by Fortunebull > Nov 4, 2013 11:19 PM | Report Abuse
Christopher! I have yet to buy SKPress as I have made several switching from one counter to another within 3 months period!

GOOD ON YOU FOR HAVE NOT BOUGHT SKPRES AS YOU MADE NO MONEY IF YOU HAVE DONE SO (ALSO YOU WOULDN'T HAVE LOST ANY MONEY IF YOU HAVE DONE SO). GREAT ON YOU SWITCHING FROM ONE COUNTER TO ANOTHER WITHIN THREE MONTH PERIOD. CONGRATS FOR YOUR MAKING HEAPS OF MONEY USING YOUR STRATEGY HERE.

If I have park my 35 thousand on SKPress for that 3 months period, I would have lost the chance to make so much!

SURE SURE SURE.

I am quite angry with KCChongnz for not wanting to listen to others as he's word is undisputed! There's no point explaining to him at all!

WHY GET ANGRY WITH KCCHONGNZ? YOU HAVE YOUR STRONG OPINIONS OF SWITCHING COUNTER TO COUNTER CHASING HOT STOCKS (AND MAKE TONS OF MONEY), HE HAS HIS STRONG OPINION THAT ONE SHOULD FOLLOW FUNDAMENTALS IN INVESTING AND THAT ONE SHOULD INVEST AND NOT SPECULATE. IT IS JUST DIFFERENCE IN OPINIONS. WE ARE TALKING ABOUT "THINGS", NOT "PERSONALITY".

NO POINT EXPLAINING TO ME? WHAT EXPLANATIONS HAVE YOU PROVIDED SO FAR?

For instead KFima has been discussed that its on downtrend, and if you park 19 thousand in KFima, you would have lost the opportunity to make so returns from other uptrending counters!

SURE SURE SURE, IF ONE HAS PARKED ALL HIS MONEY IN KFIMA, HE WON'T MAKE HIGH RETURNS FROM OTHER STOCKS (PROVIDED YOU HAVE GAMBLED ON THE RIGHT "UPTRENDING" STOCKS). NO ARGUMENT ABOUT IT. BUT IF ONE HAS BEEN INVESTING IN KFIMA YEARS AGO, HE WOULD HAVE VERY GOOD RETURN AS SHOWN IN MY TABLE ABOVE, WOULDN'T THEY? AGAIN DIFFERENCE IN OPINION HERE; YOU ARE TALKING ABOUT TRADING AND I AM TALKING ABOUT INVESTING.

And I am very sure that KCChongnz would only take the chance to showoff his FA ability and completely rubbish TA! I am not here to be smart! I am here to make money!

TAKE CHANCE TO SHOW OFF? REALLY? THINK ABOUT IT THERE WERE INDEED A FEW PEOPLE THINK SO AND CRITICIZED ME, EVEN PERSONAL ATTACK. BUT THERE SEEM TO BE MORE PEOPLE WHO LIKE THE SHARING AND DISCUSSION OF KNOWLEDGE AND INFORMATION.

AND ALSO IT IS A SOCIAL RESPONSIBILITY FOR ME TO PROVIDE AN ALTERNATIVE VIEW OF WHAT INVESTING SHOULD BE; IN MY CASE SHOULD BE BASED ON FUNDAMENTALS RATHER THAN RUMOURS AND TREATING IT AS A GAMBLING ENDEAVOR, AND INSTEAD OF MAKING MONEY, LOSING A FORTUNE. THAT IS THE MAIN REASON WHY DESPITE BEING WHACKED A NUMBER OF TIMES, I REMAIN IN THE FORUMS HERE. THERE ARE MORE BENEFITS IN SHARING HERE.

RUBBISH TA? HAVE I USED ANY TA? WHAT RUBBISH?

Posted by Fortunebull > Nov 4, 2013 07:04 PM | Report Abuse
What happen to Kfima! You number 1 biggest investment! Ha!

Posted by kcchongnz > Nov 4, 2013 07:08 PM | Report Abuse X

The return of Kfima, my biggest investment? See the following table and tell me please!

Kfima 1.98
Period 1 year 2-year 3 year 4 year 5 year
Price 2.13 1.70 1.13 0.73 0.46
Return -7.0% 16.5% 75.2% 173.1% 335.2%
CAR -7.0% 7.9% 20.6% 28.6% 34.2%


So how?

You started to ridicule first:


Posted by Fortunebull > Nov 4, 2013 06:49 PM | Report Abuse
Most disappointing counter of the year! Prove that strong fundamental or undervalue play no use if no major funds or shark moving it!

And I only hoping to tap your wisdom of your investment strategy and learn from you.

Don't keep on saying fed up fed up lah. Teach us!

Where have you shown any "true ability" of yours?

Oh forgot, I haven't include the 8 sen dividend just received.

The return of Kfima, my biggest investment? See the following table and tell me please!

Kfima 1.98
Period 1 year 2-year 3 year 4 year 5 year
Price 2.13 1.70 1.13 0.73 0.46
Return -7.0% 16.5% 75.2% 173.1% 335.2%
CAR -7.0% 7.9% 20.6% 28.6% 34.2%

Or based on rumours, rumours that a drilling rig going to move to certain place like Oman will move the stock price sky high.

Wow, what a solid conclusion! Which academic research paper are you referring to? Or is it just a wild statement?

I wrote in upper case just to show differentiate that those were my response to his comments which are in lower case. I thought it will lead to a good discussion about finance and investing in particular efficient market hypothesis as it is related to an academic paper by Professor Fama who recently got his Nobel price in economics.

My original article was a response to a comment below in the thread of my stock pick. Tan KW put it up separately in the market blog.

Posted by stanley_k > Nov 2, 2013 12:48 AM | Report Abuse
hi kcchongnz,
Congrates on your impressive return. Will Fama 3-factor model be a more appropriate way of explaining the stock return in this case? Since small cap and value firms tend to outperform the market. Thanks.

And this guy talked cynically like this as if I was shouting for attention to this blog put up by Tan KW. What for?

Posted by haikeyila > Nov 4, 2013 04:03 PM | Report Abuse
gee, i sure hope you're not shouting to direct attention to your posting

sense maker, you sure know more about Lii Hen than anybody here, including all the accounting stuff. Thanks for all the information you have posted here.

Posted by haikeyila > Nov 4, 2013 04:03 PM | Report Abuse
gee, i sure hope you're not shouting to direct attention to your posting.

No, I am not "shouting to direct attention to your posting" here again. You raised the issue and I am glad about it and would like to engage in a useful discussion with you as below. Hope you can respond.

Posted by kcchongnz > Nov 4, 2013 03:21 PM | Report Abuse X
Posted by haikeyila > Nov 4, 2013 02:41 PM | Report Abuse
surely you dont need the market to be up 100% before calling it bull?..but the conclusion drawn up in the article may be premature.

YEAH FULLY AGREE WITH YOU THAT ONE NEEDS NOT LOOK AT 100% RETURN TO CONSIDER IT AS A BULL MARKET. BUT DID YOU CONCLUDE THAT THE RISE OF KLSE BY JUST 2.1% AS A BULL MARKET? IS THAT CONSIDERED AS A BULL MARKET AS CLAIMED BY YOU?

THE CONCLUSION OF THE ARTICLE WRITTEN BY ME AS APPENDED AS BELOW. SO WHAT IS PREMATURE AS CLAIMED BY YOU? AND WHAT IS YOUR CONCLUSION IF ANY?


[It does appear to confirm that small market capitalization and good value (not necessary book-to-market ratio but other value metrics) may explain the excess return. However, it beats me to think that small market capitalization and good value carry additional risks and hence the explanation of excess return.

So is the market in Malaysia efficient? Does the excess return due to the additional risks carried? For me I highly doubt so.]

Hey I am engaging a discussion with you. What do I gain shouting to direct attention to my posting? Got gold to earn ah?

Are you ready to discuss with me or are you just shouting for nothing?

Posted by haikeyila > Nov 4, 2013 02:41 PM | Report Abuse
surely you dont need the market to be up 100% before calling it bull?..but the conclusion drawn up in the article may be premature.

YEAH FULLY AGREE WITH YOU THAT ONE NEEDS NOT LOOK AT 100% RETURN TO CONSIDER IT AS A BULL MARKET. BUT DID YOU CONCLUDE THAT THE RISE OF KLSE BY JUST 2.1% AS A BULL MARKET? IS THAT CONSIDERED AS A BULL MARKET AS CLAIMED BY YOU?

THE CONCLUSION OF THE ARTICLE WRITTEN BY ME AS APPENDED AS BELOW. SO WHAT IS PREMATURE AS CLAIMED BY YOU? AND WHAT IS YOUR CONCLUSION IF ANY?


[It does appear to confirm that small market capitalization and good value (not necessary book-to-market ratio but other value metrics) may explain the excess return. However, it beats me to think that small market capitalization and good value carry additional risks and hence the explanation of excess return.

So is the market in Malaysia efficient? Does the excess return due to the additional risks carried? For me I highly doubt so.]

haikeyila, you may be right. It may be too early too judge the true performance of an investment portfolio just for a three month period. A lot of it could be due to luck too.

But how do you define a bull market? A market return of just 2.1% from 1773 to 1810 in three months a bull market?

And how to explain the excess return of of the portfolio of more than 20% over the broad market as all luck?

And how do you explain that there are so many hot stocks like KNM, Rsawit, MKLand, Smartag, Amedia etc which have been stuck at near historical low all this while?

sense maker,
What I did was just based on the latest audited annual report of each company as below. You must understand that I can't spend too much time looking and analysing the average of earnings, CFFO and FCF etc over a number of years, which should be the right thing to do.

Last financial year Lii Hen spend quite a lot of money in Purchase of PPE of 12.2m. Two years ago, it even spend more at 15.3m. That explains the low FCF and hence high EV/FCF.

Market statistics Homeriz Lii Hen Latitude
Price 0.535 1.50 1.32
No of shares 200000 60000 97208
Market capitalization 107000 90000 128315
Minority interest 5855 119 44297
Total debts 2672 27283 98533
Excess cash -34710 -37434 -68447
Enterprise value, EV 80817 79968 202698

xxxxxxxxxxx Homeriz Lii Hen Latitude
CFFO 18647 19063 52879
Capex -982 -12164 -5285
FCF 17665 6899 47594
FCF/Revenue 15.6% 2.0% 10%
CFFO/NI 104% 89% 165%

Earnings per share 0.076 0.357 0.251
Company Homeriz Lii Hen Latitude
PE 7.0 4.2 5.3
EV/Ebit 3.9 2.9 5.1
EV/FCF 4.6 11.6 4.3
EV/Sales 0.7 0.2 0.4

Furniture design and making companies

The secret to successful investing is to figure out the value of something and then-pay a lot less.
Joel Greenblatt

[2000 years ago, there were not at many choices for professions as there are today. Sure there were farmers, politicians, merchants, artists, and guards. But you can bet back then, carpentry was a key profession. And when you look around your home or office today, what do you see? The results of carpentry: tables and cabinets everywhere.]

Think about it, furniture making business should be a viable business. Every household needs furniture, doesn’t it? Hence the business of furniture design, and making companies like Homeritz, Lii Hen and Latitude should be able to last a long time. Don’t you think so? The earnings of these furniture export companies have been doing very well recently with their stock prices moving northwards in tandem. But which of these three companies offers the most attractive investment for investors?

We will first look at the operational efficiencies of the three companies and see which is the best company.

Profitability and operation efficiencies
In terms of net profit margin (NPM), Homeritz excels by a wide margin of 15.9%, followed by Latitude and Lii Hen at approximately the same margin of 6.5% and 6.2% respectively.

The high profit margin of Homeritz in turn boasts up the return of equity (ROE) and return on invested capital (ROIC) of 20.6% and 29.9% respectively which are the highest among the companies as shown in Figure 1 and Table 1 below. Homeritz’s high ROE is also achieved with little financial leverage of just 1.2. These returns are way above its costs of capitals. Its cash return (Free Cash Flow/Invested Capital) is also remarkable at 29% (>>10%). FCF is also high at 16% of revenue (>>5%). Homeritz obviously beats the other two hands down. It must have been enhancing its shareholders value greatly with these operating numbers.

Figure 1: Profit Margin, Return of equity and invested capital


Table 1: Operating efficiencies Homeriz Lii Hen Latitude
Net profit margin 15.9% 6.2% 6.5%
Asset turnover 1.1 1.8 1.1
ROA 17.3% 10.8% 7.1%
Leverage 1.2 1.5 1.6
ROE 20.6% 15.9% 11.6%
ROIC 29.9% 18.0% 13.3%

Lii Hen follows with respectable ROE and ROIC at 15.9% and 18% respectively (Table 1). Latitude comes in last with ROE and ROIC of 11.6% and 13.3% respectively, which are still good as they are above the costs of capital.

Latitude’s cash flow is however, much better than that of Lii Hen with FCF 10% and 18% compared to Lii Hen’s 2% and 6% of its revenue and invested capital respectively.

Ranking in operation efficiencies
With the past year profitability, efficiencies and cash flow of the companies, I who is one emphasize cash flow very much would rank the companies from the best to the worst as follows:

1. Homeritz
2. Latitude
3. Lii Hen

I would expect the market to give the highest valuation for Homeritz, followed by Latitude and the last Lii Hen. But does the market do so? Let’s look at Table 2 below.

Market Valuation
Homeritz is indeed given the highest valuation with a PE ratio of 7.0, followed by Latitude and Lii Hen at 5.3 and 4.2 respectively. This appears to be as expected from their performance.

Table 2: Market Valuation
xxxxxxx Homeriz Lii Hen Latitude
PE 7.0 4.2 5.3
EV/Ebit 3.9 2.9 5.1
EV/FCF 4.6 11.6 4.3

However a better market valuation should be based on enterprise value of the whole firm, rather than just the equity. This is because some firms have relatively lower debt, or larger amount of excess cash such as Homeritz with 40% of its net asset in hard cash.

Referring back to Table 2 above, It appears that Lii Hen has the lowest enterprise value in relation to its Ebit of just 2.9 times. However due to Lii Hen’s poorer cash flow, its EV in relation to FCF is the highest at 11.6 times. Hence in my opinion, Homeritz has the most attractive valuation as its enterprise values are low at 3.9 and 4.6 times respectively of its Ebit and FCF.

Taken all into considerations, my personal ranking of the market valuations is as follow:
1. Homeritz
2. Latitude
3. Lii Hen

So which furniture company do you favour as an investment?

KC Chong (3/11/13)

A Graham net net play for Insas.

Sometimes the old Graham investing strategy still works well.