Posted by bsngpg > Oct 2, 2013 12:11 PM | Report Abuse
Hi KC: I knew your intrinsic value on KFima, no question on it. However I would very much appreciate to hear your risk assessment on KFima. Thks.

bsngpg, i am just a retail investor. I ain't a professional analyst nor working with any investment bank. As a matter of fact, I have never worked in the industry before. So I am not "know all" person.

However, if you are more specific on your question, for example what specific risk you are talking about, and if I know anything or have any opinion at all, I am glad to offer.

Posted by anbz > Oct 1, 2013 07:34 PM | Report Abuse
if not for depreciation ...amortization...and such huge benefit (18m) for staffs...this company would have made 6 cents profit per share!!! in 2012...that's why this is the gem (if that 3 problems not included)...time will tell

LAST TWO YEARS AVERAGE REVENUE 41M WITH OPERATING LOSS OF 4.5M AND YOU CALL IT A GEM? OMG! HOW LONG MORE CAN NOVA SUSTAIN WITH THIS TYPE OF LOSSES? NOT VERY LONG IF YOU LOOK AT ITS BALANCE SHEET.

MANAGEMENT OVERPAY THEMSELVES AT THE EXPENSE OF MINORITY SHAREHOLDERS AND YOU CALL IT A GEM? OMG!

SOFTWARE RESEARCH AND DEVELOPMENT REQUIRES EXPENSES AND NOVA CAPITALIZED THEM. IT IS A CONSTANT EXPENSE FOR NOVA FOR ITS TYPE OF BUSINESS. SO THE D&A IS ALSO A REGULAR EXPENSE WHICH NEED TO BE INCLUDED AS A REGULAR EXPENSE.

Posted by anbz > Oct 1, 2013 07:34 PM | Report Abuse
lol the share is now only 7 cents...

SO NOW YOU KNOW WHY IT IS ONLY TRADING AT 7 SEN ONLY, SAME AS TWO YEARS AGO?

SO STILL THINK YOUR NOVA MSC IS BETTER THAN KUMPULAN FIMA?

Posted by sense maker > Oct 1, 2013 07:28 PM | Report Abuse
Forecasting future cash flow is an inevitable part of acquiring a company as we buy a biz precisely for its future cash flow.
PE, EV/EBIT leave out important considerations that DCF captures. PE is easy but it does not adjust for the difference between future capex and future depreciation, as well as changes in working capital fund requirement.
Anyway, in practice, a small investor tends to use simplistic short-cuts because of the limited information we can access to about a company's future biz plan.

In US, the average 24-month forecast error is 93%, 12-month, 47% from 2001-2006 (SG Global Strategy Research). There are too many variables; the economy, the path of interest rates, the sectors, the particular stocks, sales, costs, taxes, capex, change in working capital, D&A etc.

Hence forecasting future cash flows and then discount them back to find the present value of a business, though elegantly done and theoretically correct, is full of uncertainties.

You will be surprise in the real world, most acquisitions and purchases are carried out through enterprise value and price-to-book. Even in academic studies, the predictability of future stock prices is also not so significantly from the discount cash flow analysis, but more from what you consider as simplistic like price-to-book and EV/Ebit. These types of things you can Google or search for academic studies.

bsngpg,

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

Normally in an efficient market, price is close to value. Kfima share price has been around RM2.00 for the past two years. That share price reflects what the market thinks about its value.

But for me, a public-opinion poll is no substitute for thought. As someone said "It is impossible to produce superior performance unless you do something different from the majority.

Yes, most funds have no mandate to buy the stock of a small capitalized company. That is precisely a retail investor still can get it cheap for the moment.

Is a PE ratio of 7 high? Is it the right metric to value Kfima which has 272m, or RM1 of excess cash? I would encourage you to read our discussions in the appended thread below:

http://klse.i3investor.com/servlets/forum/600037729.jsp?fp=4

Worse still, the company has not much revenue and profit (any profit at all?) but the management pay themselves with huge salary and benefits. How can?

Esos is a way to align the interest of the management with that of the shareholders. Most of the management staff of Kfima are not shareholders. So it may be a good thing as management becomes shareholders, they work work hard for the company of which they are substantial shareholder now. This will ultimately benefits all.

In contrast with novamsc management who are major shareholders already and they reward themselves with huge perks and salaries, and hence detrimental to minority shareholders like you.

So which is better or worse?

Valuing a stock using discount cash flow either for the firm or equity shareholders alone, or using comparative methods such as PE ratio or EV/Ebit, both have their advantages or disadvantages. I myself use both methods but I am reluctant to say which method is better.

The former may appear to be the "right" method theoretically, but the major problem is the forecasting of its future cash flow. Nobody has a crystal ball for forecast. The later may be simplistic and subjective but that is most often used in the market place and acquisition by private equities etc.

Ok let me be specific about the question I asked. There are two similar companies, A and B, doing the same business, both of them in Malaysia. Both shares are selling at $1.00 and they have the same number of shares outstanding, say 100m. So they have the same market capitalization of $100m. The difference is A has $50m of debts and $10m of excess cash, whereas B has a debt of $10m but an excess cash of $20m.

Company A B
No. of shares, m 100 100
Share price 1.00 1.00
Market Cap, m 100 100
Total debt, m 50 10
Excess cash, m 10 20
Book value, m 100 100

Further assume that both companies earn a net income of $10m as shown in the income statement below:

Company A B
EBIT, m 15.8 13.8
Interest, m -2.5 -0.5
EBT, m 13.3 13.3
Tax @ 25%, m -3.3 -3.3
Net income, m 10.0 10.0

So the ROE of A and B are the same as same at 10%, ie 10m/100m. The PE ratios are also the same at $1/10 sen, or 10.

Which company will you invest in? Note that they are selling at the same PE ratio.

My friend anbz, didn't you read pharker has made many rounds of profit from trading Kfima? If not, please read carefully again.

Actually pharker is one of the lucky guys making money from Kfima by trading the stock. Whereas if you know me, I am always talking about investing. My opinion on trading is it is a loser's game. Tell me how good a retail investor be in gambling with insiders, fund managers and investment bankers whose rice bowl is making money from the stock market and have all the resources to trade against you?

Investing means buy the stock of a good company at a margin of safety from its intrinsic value. Sell only when the stock price has risen close to its intrinsic value. This requires time, time for the company to keep on growing and letting investors realize its value. This means you have to buy and hold it for some time, three years, five years, or even ten years.

You see from the table I have tabulated. If you have bought Kfima at the adjusted price of 46 sen 5 years ago, you would have a paper gain of 335%, or a compounded annual return of 34%, three times the return of KLCI. If you have bought it three years ago and hold until now, your compounded annual return is also very high at 20.6%, twice the return of KLCI.

The only period you lose money on paper is if you have bought it 1 year ago at a negative of 7.7%. But didn't I say investing is a long time process? So if you bought it a year ago and you hold it for another two years, may be you can also get the high return as before. Why am I confident to say so? Go read all my analysis on the performance of Kfima in i3, instead of speculating like what you do for Nova MSC. The historical return of Nova as tabulated above is really pathetic. Don't you agree so? If they have performed so badly for so long, why are you so sure this time is different?

My friend anbz, why are you so angry with Kfima? Do you own any share of Kfima?

Ok since you are so angry, I will spend some time to show you some figures. As we are both mathematically trained professionals; I am an engineer and you are a maths graduate, we should base our argument on numbers and figures. Don't you think so?

Let us bring ourselves 5 years back to the past and consider whether you should invest in Kfima, or your favorite Nova MSC which you have been promoting so hard. I have tabulated their prices, total return, as well as compounded annual return for the 1,2, 3, 4 and 5 years return for both the stock as appended. Tell me if you were given the chance again 5 years ago, which would you rather invest in, Kfima or your Nova MSC?

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%

NovaMSC 0.070
Period 1 year 2-year 3 year 4 year 5 year
Price 0.065 0.070 0.065 0.060 0.050
Return 7.7% 0.0% 7.7% 16.7% 40.0%
CAR 7.7% 0.0% 2.5% 3.9% 7.0%

Lat us talk about valuation of a business. You want to buy a business. Let say you want to value the business you intending to buy. Which do you think is a better valuation method; PE ratio or EV/Ebit?

EV/Ebit disregards financing? Ev includes market capitalization plus all debts (financing)as explained by the article.

Here is another article why enterprise value is a better comparable metric than market capitalization alone for companies with different capital structure.

http://www.magicdiligence.com/why-to-use-enterprise-value

A company in construction work with a small investment in say a ready-mix concrete plant will not consider the ready-mix concrete as its "ordinary" business. The gain/loss from its small investment will appear after the "operating profit" in the income statement. The portion of this small investment in the balance sheet is hence not part of its "enterprise value".

LC, it is a good article to learn about enterprise value anyway. Ok now I know it is a foreign article (US?), I would like to add a couple of comments.

Enterprise Value = Market Value of Equity (Market Capitalization) + Debt

In Bursa, many companies have consolidated some subsidiary companies account into the main account. Hence we should add "minority interest" into the equation if there is any.

Secondly many companies also have things like "net profit from subsidiaries, jv" which is below the "operating income" in the income statement. This "net income" is not consolidated and hence is not part of its "ordinary business". The corresponding portions in the balance sheet such as "investment in subsidiary or jv" should be less of from the EV.

Posted by iafx > Oct 1, 2013 09:42 AM | Report Abuse
@lwalk, trying for herd effect, too bad is the black sheep taking the lead... :D :D :D

Black sheep? As far as I can read, calvin may be promoting his favorite stock here and there but he presented his case very convincingly with all the facts and figures (Oop, i forgot that you hate facts and figures). He is far far ahead of you in knowledge of finance and investments.

Please try to criticize his logic and reasoning constructively with yours rather than getting personal.

What I am saying is the right metrics in evaluate if the price is cheap or not is through using enterprise value, rather than market capitalization. This means rather than using PE ratio, it is more appropriate to use enterprise value/Ebit. this is because enterprise value takes into account of all the capital utilized to produce the Ebit for the whole firm.

Two similar company, one having net cash and no debt can have the same PE ratio as another having a lot of debt and no cash. However, if you look at from the angle of enterprise value/Ebit, they are totally different. Which one will you prefer to invest in?

By the way, could you tell me which are the companies in Bursa has a negative enterprise value? I know there are some in the US market.

Thank you.

inwest88, I always appreciate your good words though often I don't respond because I don't want others to think that I am showing off or whatever. Thank you.

Glad you make some money in Fibon. But again fundamental investing is about investing in good companies at a reasonable price. It is very seldom that price shoots up in short time. It is a long-term endeavor.

“You can't produce a baby in one month by getting nine women pregnant.”
― Warren Buffett

Tan KW, you are great. I did the computation a little differently and I got approximately the same figure as you do. My is slightly lower at 8.09% compared to you computation of 8.37% as appended below. I used the original prices when the portfolio was first put up and the allocation as suggested later when inwest88 asked me to do so.

8.1% return in 2 months. Not bad yah? This is way beyond my original expectation. No lah, part of it is due to luck also. As you know I only started to talk about the return of my portfolio when a couple of characters kept on attacking me of bullshitting, copy and paste, long story like roti canai, conning people etc. Sometimes I have to their mouths, don't you think so? No intention of bragging or whatever.

But seriously when one invest based on some sound principles, I believe the return would be ok.


Company Industry % holding Return Wt return
Pintaras Construction 15% 17.4% 2.62%
Kfima Trading/Services 20% -2.9% -0.58%
MFCB Trading/Services 5% 7.6% 0.38%
Haio Consumer 10% 0.4% 0.04%
Fibon Industrial 5% 24.2% 1.21%
CBIP Industrial 5% -2.8% -0.14%
Tien Wah Industrial 10% -0.9% -0.09%
Homeritz Consumer 5% 2.3% 0.12%
Willow Technology 5% -4.7% -0.24%
Daiman Property 10% 7.5% 0.75%
Datasonic Technology 10% 40.3% 4.03%
100% 8.09%

am I still interested in Freight?

Posted by tonylim > Sep 30, 2013 11:51 PM | Report Abuse
Kcchongnz at one time you were looking at freight. Any further notes on this one. Diam diam ubi. Ilb cenbond ttnt yinson all sudah jalan kuat.
Looks like a theme play for some time now.

of course. Freight grows very steadily with revenue and net income growing every year at 11% and 18% respectively without fail for at least the past 5 years. Its operating numbers are all resembling a great company with ROE and ROIC at 16.4% and 17.4% respectively. CFFO is always positive and always above its net incomes, signifying its good quality of earnings. Its balance sheet is healthy. There is always free cash flow every year. It doesn't need much assets to provide those kind of performance.

How about its price? Here you don't expect a great company to be selling cheaply. At the close of RM1.55, PE ratio is 12 and enterprise value is 9 times its ebit, not cheap at all. But in view of its performance, I would say it is not expensive neither.

I am still in Freight, but through its warrants. Its warrant's price is really cheap. See the link below:

http://klse.i3investor.com/servlets/forum/900396884.jsp

Punchak Warrant B

PUNCHAK Warrant B closes at RM2.36 while the underlying share closed at RM3.14 on 30 September 2013. It has an exercise price of RM 1.00 and the expiry date is on 20th July 2018, or in 5 years time. The warrant is hence in-the-money with an intrinsic value of RM2.14 (3.14-1.00).

The value of the warrant is made up of two parts, the intrinsic value of RM2.14, and the time value. With the price of Wb at RM2.36, the time value is hence equals to 22 sen (2.36-2.14). Is this time value expensive?

Put in in another way, if you buy Wb at the price now of RM2.36, you pay a premium of 22 sen, or 7% [(2.36+1.00)/3.14-1]. The gearing is1.3 times for Wb. Is this premium high?

The theoretical value of warrant depends on the price of the underlying share, the exercise price, time to expiry, its volatility, the dividend yield and the risk-free rate; roughly in that order of importance. The Black-Scholes option pricing model, using a historical volatility of 30%, risk free rate of 3.5%, Punchak’s price now at RM3.14 and the dividend yield of 1.6% shows that the warrant has a theoretical value of RM2.08, or 12% below its present price of RM2.36.

Put it in another way, with the assumptions mentioned above, the implied volatility of Wb obtained from the option pricing is 78%. This implied volatility appears to be on the high side when compared to the historical volatility of Punchak.

Hence in my personal opinion, Wb though still have a long time to expire, appears to be expensive in view of its high implied volatility. Moreover its gearing of just 1.3 times is not attractive. If I am bullish about Puncahk, I will choose to invest in the underlying share rather than the warrant.

Posted by houseofordos > Sep 30, 2013 10:29 PM | Report Abuse
KC, talking about risk-free investment, would you buy OGAWA at RM1.01 for a risk free return of 3.9% till privatised at RM1.05 ? I was just thinking of putting some spare cash into here... better than FD ma...

I did not follow the proposed takeover of Ogawa, missed it. I am not sure about the status of the takeover now. Is it confirmed with all documents signed? If not, it is not a "risk-free investment". It is still a risky arbitrage.

Whether it is worthwhile to indulge in this risky arbitrage also depends on what is the time frame you are talking about. Is the settlement soon? Is the acquirer starting to buy Ogawa from the open market at that price soon?

If it takes another 6 months or more to get your profit of 3.9%, it may not be lucrative as the annualized return is only 7.8%. I mean there is still risk involved if the offer falls off and Ogawa share price return to the previous price of much less than its present price now.

So the bottom line is what is your personal risk-reward view on this.

Posted by houseofordos > Sep 30, 2013 10:12 PM | Report Abuse
yup... do u thinkk the Rm1.95 offer is fair if its true ? Looking at its past history, earnings hasnt exactly been growing greatly, the offer price of RM1.95 gives CENBOND a P/E of about 12x which I think is fair

Looking at the recent performance of Cenbond and its metrics, I would rate it as a good company with ROE and ROIC roughly at 13% and 17% respectively. It has good cash flows and a healthy balance sheet.

As for the price is concerned, at RM1.95, a PE ratio of 12x, price-to-book of 1.6, my pinion is it is a fair price.

But the acquirer may see synergies in buying it and they should know better the value of Cenbond to them. So if the rumour of takeover is reliable, buying Cenbond at around RM1.70 is a good risk arbitrage bet to me.

Tan KW always posts good articles on fundamentals of companies. Here is another one written by LC Chong.

This article explain what is enterprise value, specifically market enterprise value, and what "excess cash" means and its relevance in valuing a company and its stock.

I agree fully that enterprise value is the right valuation metric rathan than market capitalization alone.

Taking another swipe at me again? You are welcomed.

Posted by iafx > Sep 30, 2013 09:43 PM | Report Abuse
depends on number of units hold, too few unit expensive counters typically juz to cover high holding cheap counters loses. try it out n get a taste u know what is this mean :D

But I don’t know what exactly you are trying to say. What is “expensive counters”? What is “cheap counters”? By their prices? Any reference to values? “get a taste”? What taste? Chocolate, vanilla, ginger, or what taste?

“Depend on number of units hold”? So can you elaborate or not with some examples. For example you may manipulate my portfolio, say put 70% of my money in Willow, the biggest loser at a negative of 4.7% (only 4.7%), 10% each in Kfima, CBIP and Tien Wah. These are the only 4 stocks which are in negative returns in the period. And for the rest of the stocks which has made gain, 0% weight assuming that I never bought any winning stock. That way you sure can bash me with poor stock pick.

Or alternately you can based on my suggested portfolio which I have mentioned when asked as below and find out what is the weighted return of my portfolio. I am sure you know how to do.

Want to take the real challenge here to calculate the weighted return of the portfolio? It is actually very simple. Mathematics standard 1, 2, 3.

I am sure this is more fruitful instead of every time accusing me of copy and paste, tipu pusing, roti canai, cheating, bullshitting, macham macham without getting a single evidence after so many months of research in i3?


Posted by kcchongnz > Sep 2, 2013 03:21 PM | Report Abuse X
inwest88, this is my suggested proportion. Just a suggestion. I am actually heavy on Kfima and Pintaras which I think is not so balanced.

Company Industry % holding
Pintaras Construction 15%
Kfima Trading/Services 20%
MFCB Trading/Services 5%
Haio Consumer 10%
Fibon Industrial 5%
CBIP Industrial 5%
Tien Wah Industrial 10%
Homeritz Consumer 5%
Willow Technology 5%
Daiman Property 10%
Datasonic Technology 10%
100%

Two months have passed since we first started our portfolio. In this two months, KLCI has dropped marginally from 1773 to 1769, or -0.23%. but how have our portfolios performed?

kcchongnz's portfolio has gained an average of 8.04% in the last two months. That means the portfolio has returned an alpha of 8.27% using the KLCI as a benchmark. 7 out of the 11 stocks made positive return with 3 of them in double digit percentage. They are Datasonic (40.3%), Fibon (24.2%), and Pintaras (17.4%). The biggest loser is Willoglen at just -4.7%. Details of the return of the portfolio is appended below.

What about Ooi Teik Bee's portfolio return? Ooi's portfolio returned at a higher rate of 9.3%. Its big gainers are all warrants, some leveraged instruments. They are LBS W (63.3%), Punchak warrant (38.8%)and Hap Seng warrant (36.5%). It has some double digit losers though in Lii Hen (-21.6%), Triple (16.6%) and Pantech warrant (11.3%).

So from the results so far in two months, nobody can ridicule us of tipu pusing, bullshit, can people, bluffing, cheating etc, at least for this short-term. Can he?

Ref date Now
New 1/08/2013 30/09/2013
Pintaras 4.99 5.86 0.000 0.870 17.4%
Kfima 2.060 2.000 0.000 -0.060 -2.9%
MFCB 1.700 1.800 0.030 0.130 7.6%
Haio 2.670 2.680 0.000 0.010 0.4%
Fibon 0.330 0.410 0.000 0.080 24.2%
CBIP 2.830 2.750 0.000 -0.080 -2.8%
Tien Wah 2.510 2.410 0.077 -0.023 -0.9%
Homeritz 0.430 0.430 0.010 0.010 2.3%
Willow 0.530 0.505 0.000 -0.025 -4.7%
Daiman 2.530 2.720 0.000 0.190 7.5%
Datasonic 3.350 4.700 0.000 1.350 40.3%

Average xxxx xxxx xxxx xxxx 8.04%
KLSE 1773 1769 xxxx -4.000 -0.23%
Alpha xxxx xxxx xxxx xxxx 8.3%

That is why I said it is a "risky" arbitrage, and not a "risk-free' arbitrage. Even if there is announcement, it is still a risky arbitrage because things can still fall through.

So it is the potential return which one bases the decision if the risk-reward is good and worth a punt. That 33% is an attractive punt. Even if that thing doesn't come true, Cenbond is still a good company to invest in based on my Magic Formula, ie a good company selling at attractive price.

If there is a takeover offer, warrant holders can convert to the underlying share when there is an intrinsic value. Why don't they convert if there is money to get back?

I want a really good lunch treat from you!

Takeover offer for Cenbond at RM1.95? How reliable is this information? If it is reliable, this offers another risky arbitrage opportunity.

Buy Cenbond at 1.70

Get paid dividend of 3 sen
Offer of RM1.95

So profit =1.98/1.70-1=16.5%

Imagine if everything done in 6 months time from now, annualized return is 33%. A worthwhile risky arbitrage opportunity.

The value of warrant is made up of two parts; the intrinsic value and the time value. For warrants having long time to expiry, the time value is a large part of its value. So if a company is taken private, the warrant loses all its time value. Not good.

Unless the takeover price is very attractive. Then the intrinsic value is high and warrant holders will make money even though the time value is lost.

That is why try buying warrant at low premium, and better still, at a discount.

Such a great opportunity to buy Hap Seng Warrant at 2% discount to the intrinsic value. some more 3 more years to expiry. Some more a gearing of 3.6 times.

What is the catch? I don't know? Inefficient market?

If one doubts the management so much, he/she should not even touch its stocks in the first place. I won't if I have so much doubts. I won't even touch it if I have just a little doubt until I find out the truth.

Yeah, Redtone-Wa at 43 sen is trading at a discount of 2.9% at the present price of its underlying share at 70 sen. However, there is a dividend payment of 1.5 sen ex-dating early next month. This dividend payment would reduce the underlying share price by the same amount when it is ex-dated. So if you take into consideration, the discount is lesser at 0.7%. It is still a discount though. However, the gearing at 1.6 is small and hence may not that "exciting" for punters. Investors on the other hand may prefer the underlying share because of may be anticipation of higher dividend payment in the near future.

If you compare premium and gearing say with Hap Seng, Hap Seng appears to be more interesting. At 2.32 and 64.5 sen respectively for the underlying and warrant, the discount is 1.1%. Moreover, it has a longer expiry date of 3 more years, plus a higher gearing of 3.6 times.

More interesting is Freight Wa which at 49 sen which there is a seller now, it is trading at a discount of 6%, a good gearing of 3.2 and longer expiry date of more than 3 years.

PANTECH Warrant A closes at 55.5 sen while the underlying share closed at RM0.985 on 27 September 2013. It has an exercise price of RM 0.6 and the expiry date is on 21st December 2020, or in 7.2 years time. The warrant is hence in-the-money with an intrinsic value of 38.5 cents (0.985-0.6).

The value of the warrant is made up of two parts, the intrinsic value of 38.5 sen, and the time value. With the price of Wa at 55.5 sen, the time value is hence equals to 17 sen (55.5-38.5). Is this time value expensive?

Put in in another way, if you buy Wa at the price now of 55.5 sen, you pay a premium of 17 sen, or 17% [(0.555+0.6)/0.985-1]. The gearing is1.8 times for Wa. Is this premium high?

The theoretical value of warrant depends on the price of the underlying share, the exercise price, time to expiry, its volatility, the dividend yield and the risk-free rate; roughly in that order of importance. The Black-Scholes option pricing model, using a historical volatility of 50%, risk free rate of 3.5%, and Pantech’s price now at 0.985 and the dividend yield of 4.5% shows that the warrant has a theoretical value of 43 sen, or 23% below its present price of 55.5 sen.

Put it in another way, with the assumptions mentioned above, the implied volatility of Wa obtained from the option pricing is 81%. This implied volatility appears to be on the high side when compared to the historical volatility of Pantech.

Hence in my personal opinion, Wa though still have a long time to expire, appears to be expensive in view of its high implied volatility. Moreover its gearing of just 1.8 times is not attractive.

This type of company is best valued using Graham net-net method, not earnings based valuation.

A corporate raider can just buy a major stake; strip off the cash and investment and pocket 24-29 sen, and yet maintain a ongoing business with positive ebit, net income and positive cash flow.

This can be done provided the shares are not tightly and crossly held, poison pills etc.

One must know about statistics; what is a null hypothesis, test of significance, t-values etc to argue whether if a real good trader does exist.

Posted by inwest88 > Sep 29, 2013 01:12 PM | Report Abuse
kchongnz, thanks for your analysis. As a value investor in the long term, would you consider to include PMCorp into your list of investment.

IF YOU LOOK AT MY OR HOUSEOFORDOS GRAHAM NET-NET EVALUATION, THE HIGH QUALITY ASSETS OF CASH AND CASH EQUIVALENT PLUS THE INVESTMENTS LESS TOTAL LIABILITIES ALONE IS ALREADY WORTH 21 SEN PER SHARE.

THE CLOSE TO 40% GROSS MARGIN OF ITS BUSINESS SHOWS THE CHOCOLATE BUSINESS IS GOOD AND HENCE IT UNLIKELY THAT THE CASH WILL BE BURNT AWAY THROUGH ANNUAL LOSSES. SO AT THE PRESENT PRICE OF JUST 18 SEN, WHAT DO YOU THINK?

ONLY THING IS HOPEFULLY THE MANAGEMENT DON'T SQUANDER AWAY ALL THE CASH. WITH THAT I ALREADY INVESTED LAST WEEK.

Posted by houseofordos > Sep 29, 2013 02:38 PM | Report Abuse
kcchongnz, there is some difference in my projection for PMCORP intrinsic value based on Graham net net.
1. The weighted no ordinary shares should be 708397 after taking share captial subtracting treasury shares.

YES, YOU ARE RIGHT PROVIDED THESE SHARES ARE CANCELLED OFF AND NOT REWARD TO MANAGEMENT.

2. The sale of Singapore leasehold land brought in ~RM38m, I adjusted investment and cash value to reflect that. Below is my computation.

YOU ARE RIGHT HERE TOO. HOWEVER THAT WAS WHAT CALVIN SAID. IS IT SHOWN SOMEWHERE FOR THE PUBLIC? ALSO IF THAT IS TRUE, THERE WILL BE SOME REDUCTION IN THAT "INVESTMENT", WON'T IT? I WAS JUST TRYING TO BE CONSERVATIVE IF CONSIDERING WHETHER WANT TO INVEST OR NOT.

Graham Net-Net Investment Strategy and Pan Malaysia Corporation Berhad

In 1932 at the bottom of the Great Crash, Ben Graham wrote an article on Forbes about the cheapness of the market and how companies are being quoted in the market for much less than their liquidating value, as if they were all destined to be doomed. He called these types of stocks, "net nets", companies that sell for less than its net current asset value, or net net working capital. Graham used the following formula to compute the liquidation value of a company.

Net Net Working Capital = Cash and short-term investments + (0.75 * accounts receivable) + (0.5 * inventory) – total liabilities

It's the lowest form of valuation you could possibly do because it ignores everything about the business and just focuses on tangible assets. The formula states that;

• cash and short term investments are worth 100% of its value
• accounts receivables should be taken at 75% of its stated value because some might not be collectible
• take 50% off inventories, due to discounting if close outs occur

PMCorp’s latest balance sheet as at 30 June 2013 was used to compute the net tangible asset and Graham net net values. Besides cash, the net net values of quoted and unquoted investments owned are also taken as 100% of the book value. This is a fair assessment as it is believed that these assets are likely to worth more than their book value than otherwise. Note that tax assets, property, plant and equipment, Goodwill and “other assets” are taken as worth nothing.

The appended table shows that the Graham net-net value of PMCorp is 24 sen. This is 33% above its closing price of 18 sen on 27 September 2013.

PMCorp BS Amount Weight Net-net
Cash and equivalent 93950 100% 93950
Investments 81977 100% 81977
Receivables 21475 75% 16106
Inventories 18433 50% 9217
PPE 48040 0% 0
Goodwill 63190 0% 0
Other assets 1652 0% 0
Total assets 328717 x 201250
Less total liabilities -15471 100% -15471
Equity 313246 x 185779
x
Number of shares 773356 x 773356
NAB 0.405 x 0.240
NTA 0.323 x 0.240

Posted by Jimmy Young > Sep 28, 2013 07:42 PM | Report Abuse
Dear KCChongnz,
on FA, wanna ask your opinion/thoughts about Digistar

Jimmy, Digistar, like many ACE counters migrated to the main board. They have some new models seemingly good in making money, usually technology related with initially very high growth for a couple of years. But they don't have long enough proven records of consistent revenue and income. They have a small base too.

A few years ago, Digistar has very high growth in revenue of 23% with 200% of growth in income for a couple of years. I actually invested in it when they performed extremely well then.

After that nothing much happened and profit dropped sharply for the last two years. Coupled with a related party transaction of property if I remember correctly, its share price dropped sharply from a high of 60 sen to just 20 sen.

Recently there was some announcement of a long -term concession agreement with the government. I really don't have a crystal ball to tell if this will benefit Digistar in a big way.

Just basing on its last year's earnings of 2.3 sen per share, and likely no profit for the coming financial year ended September 2013, I myself would not invest in it at 29 sen. Bear in mind that it has two warrants in issue and calling for bond issues too.

It is just my personal opinion. I like to invest with companies with proven records, good operating numbers, stable earnings and cash flows and healthy balance sheet.

Posted by bsngpg > Sep 28, 2013 08:24 PM | Report Abuse

To all: pls do not get confused by our discussion. All in all, Mahsing is still a great company in most of the aspects, just imperfect with negative cash flow. I believe there are many companies with negative cash flow in Bursa which can last long and grow successfully. Pls do your own assessment; negative cash flow is not a forbidden factor in biz world but definitely need extra attention.

Most of the members do not understand and always complained about the dull price performance of Mahsing, maybe the negative cash flow is the reason behind.

Good luck.


bsngpg, I agree with you the above. I also agree with your point that all interest payments were made except that in the income statement, they did not show the interest cost for development projects, but capitalized them, which i think is ok.

So my only concern is its fast growth and hence bad cash flow. But again fast growth may be good for many growth investors and good cash flow may eventually come.

Alex, thanks for the correction. It is not I forgot, I didn't know at all as I didn't follow it. May be you can help to work out the total return.

Thanks again

We started this thread about 9 months ago. At that time many investors were wary about the impending general elections and held a lot of cash, including many local funds and the oracle of Bursa TTB.

A lot of stocks were suggested and discussed. Many of the stocks were property companies. I hereby summarize the return of some property stocks discussed in the thread since then.

The KLSE returned 8.8% since then. Those property stocks as listed in the table below returned an average of 35%, beating the broad market by 4 times. This does not include any dividend which were declared. This is an exceptional performance.

4 out of 17 returned more than 50%. They are Tambun, Hua Yang, Crecendo and Daiman in that order of highest return. Only one counter, ie Mahsing has a single digit return of only 4.8%. Two of them have negative return, ie SP Setia and L&G.

SP Setia could be overvalued at that time because of the frenzy of its UK project then. L&G has a negative return of 10%, also may be the frenzy of its Forester project which is true. But I think the main reason of its under-performance could be its high price acquisition of a property from its major shareholders which pissed investors off.

Stock Price then Price now *+/-
Plenitude 1.79 2.26 26.3%
Glomac 0.855 1.15 34.5%
Hua Yang 1.59 2.97 86.8%
KSL 1.55 2.09 34.8%
Tambun Indah 0.74 1.48 100.0%
Daiman 1.80 2.75 52.8%
Ivory 0.49 0.595 21.4%
Tebrau 0.90 1.27 41.1%
UEM 2.20 2.57 16.8%
Sunway 2.40 3.2 33.3%
Mah sing 2.10 2.20 4.8%
E&O 1.53 2.08 35.9%
SP Setia 3.40 3.32 -2.4%
L&G 0.415 0.375 -9.6%
Dijaya 1.29 1.54 19.4%
Crescendo 1.75 3.25 85.7%
MK Land 0.300 0.375 25.0%
Average 35.7%
Median 33.3%
Stdev 31%

Hey how long already you have been in Pattaya Beach? Not wanting to miss the sexy ladies?

This article shoot at the right spot. Almost everybody here talks about how to earn 50%, 100%, 700% return in a year from punting stocks. Is the world such an ideal place?

Tell you what, if one can earn 10% a year consistently for a long period of time, he is an above average investor. If he earns 15%, he is a super investor.

For every investor who earns 50% a year for long term probably due to luck, there are hundreds who lose money in the stock market. There is this statistic and statistical significance thingy in the investment world.

Many businesses went bankrupt, not because they are not making money. Many of them make money. Then they get too ambitious. they expand too fast. Cannot handle the fast growth. Cash flow problems emerges and boom they went bust because of short of cash to roll over.

This often happen when there is a financial crisis. Think of the recent crisis in 1986, 1998 and 2008. How many companies went bankrupt?

Isn't there any risk at all if a company has high borrowing and without adequate cash flow to cover interest payment?

Posted by bsngpg > Sep 28, 2013 03:56 PM | Report Abuse

the potential risks of a biz. This is far more important than any potential profits.

WHEN MAHSING SAYS HE MADE 232M LAST YEAR, MY REACTION IS "SHOW ME THE MONEY". TOTAL NET INCOME FOR THE LAST THREE YEARS WAS 530M. BUT THE ACTUAL CASH IN LESS CASH OUT IS NEGATIVE OF 124M. WHERE DID MAHSING GOT THE MONEY FOR THE EXPENSES IN PROPERTY PLANT AND EQUIPMENT, TO PAY DIVIDEND ETC? YES YOU GOT IT, BORROW MORE. TOTAL DEBT-TO-EQUITY RATIO IS 0.73, QUITE HIGH IN MY STANDARD.

On Mahsing, I seldom or cannot find this kind of info in any analyst reports or newspapers. The big concern is : “Mahsing built, newspapers reported great sale till have to buy by draw lot, BUT there must be some projects with some unsold units, where are they? How many are they? What are the stuck values? Where and how can I know this kind of info?”

DO YOU BELIEVE IT ALL? SOMETIMES I FEEL WE HAVE TO BE SKEPTICAL IN PUTTING OUR HARD EARNED MONEY THERE. DON'T YOU AGREE?

I AM SKEPTICAL AS IT IS A COMMON PRACTICE FOR MANAGEMENT TO PROJECT ROSY PICTURES. IT IS ALSO COMMON THAT THE SALE OFFICE OFTEN SAY NEWLY LAUNCHED PROPERTIES ARE ALL SOLD WHEN THEY ARE NOT. I ALSO BELIEVE MANY ANALYSTS HAVE THEIR PERSONAL AGENDA. I ALSO KNOW ANALYSTS ARE PAID TO WRITE GOOD THINGS IN MANY CASES.

I read your message on”growth in receivables” as the unsold units but I am handicap to find/read this kind of info.

I SIMPLY SHOT ABOUT THIS. THE GROWTH IN RECEIVABLES CAN BE DEDUCED FROM THE DAY SALES OUTSTANDING. ACTUALLY DSO FOR MAHSING OF 82 DAYS NOT TOO BAD. IT IS ACTUALLY DECREASING.

As long as the net margin is still healthy, the increased cost has been off-set.

MARGIN APPEARS TO BE IMPROVING.

Interest payment: I guess Mahsing do serve interest as schedule for the active work only as I guess that interest can be not delayed and rolled over unless it is a default loan.

I SAID I WAS GUESSING ON THIS. YEAH I DIDN'T GO INTO DETAIL IN LOOKING AT THE ANNUAL REPORT AS IT IS TIME CONSUMING.

BUT LOOKING AT ITS FINANCIAL STATEMENT, MAHSING HAS TOTAL DEBTS OF 907M INCLUDING THE BOND. WHY IS THE INTEREST COST ONLY 2.2M? THAT LED ME TO THAT GUESSING WORK. I COULD GO INTO MORE DETAIL IN THE ANNUAL REPORT, AGAIN IF I HAVE TO DO ALL THIS FORENSIC THINGY EVERY TIME BEFORE I INVEST, IT IS VERY TIRESOME UNLESS I AM REALLY INTERESTED.

Cash Flow: I opine that negative cash flow is a common nature of property developer as the free cash (assuming +ve margin and no unsold units) from the completed project was used to finance the subsequent projects.

PERSISTENT POOR CASH FLOW IS NOT COMMON FOR PROPERTY COMPANIES AS YOU SAID. FOR EXAMPLE PLENITUDE AND DAIMAN BOTH HAVE EXCELLENT CASH FLOWS EVERY YEAR. MAHSING'S PROBLEM IS ITS AGGRESSIVE GROWTH STRATEGY.

I AM NOT SAYING IT IS NOT GOOD TO INVEST IN MAHSING. JUST THAT I LIKE MANY OTHER PROPERTY COMPANIES THAN THIS.

THE OTHER THING IS IT IS GOOD TO DIVERSIFY A BIT, NOT TO PUT ALL YOUR EGGS IN THIS BASKET AFTER HEARING MY POINTS OF ITS RISK IN POOR CASH FLOWS.

Posted by bsngpg > Sep 28, 2013 12:05 PM | Report Abuse

Hi KC Chong : My current biggest holding is Mahsing. I have strong faith in it and am very conformable with its current trend and biz, not perplexed as in GTronic and Zhulian. Anyway as I have the largest $ in it, if you would mind, I would like to see your valuation on Mahsing. Pls post it under the thread of Mahsing if you wound mind.

Look at the growth in revenue and net income of Mahsing from the table below:

Year 2012 2011 2010 2009 2008 2007 2006 2005 CAGR
Revenue,000 1775260 1570696 1110108 701562 651639 573365 495625 473491 24%
EBIT,000 307728 231501 176393 146398 138598 122994 97544 73354 21%
Net Income,000 230617 168556 118071 94282 93168 81126 65370 48346 23%

Mahsing is a very aggressive property development company. It has one of the most amazing growth story in Bursa. Revenue and net income has been growing at a compound annual growth rate of 24% and 23% respectively. Last year, its revenue is 1.8b and net income 232m. Few companies has shown such a high and consistent growth for such a long time over an economic cycle.

Its operating efficiencies are also not bad and improving throughout the years. Last year ROE and ROIC was 18.5% and 14.5% respectively, more than the costs of capital by quite a good margin.

Price wise, at a PE of 8.0 and enterprise value of 7 times ebit, it is inexpensive too. But why is it that its share price, now at RM2.20, doesn’t grow at the fast pace as its revenue and earnings?

The management of Mahsing has very high ambition, wanting to have a 3b revenue company in a short time to come. Generally most people view this as positive but not me. I have involved in construction before and know that big (in revenue) is not necessary good. Big in net income and cash flow is good for me. The more projects you have, the more headache you have. In order to grow very big, Mahsing keeps on borrow more money, its borrowing also reaching billion ringgit club soon, issue more shares and warrants. Interest payment were not made but rolled over each year and hence made the net income appears to be good (I guess only by looking at its financial statements). It uses the money to keep on buying land for development. What happen?

The Achilles’ heel of Mahsing is its cash flows. Imagine half the time the cash flow from operations (before capex) is negative because of increasing development cost and growth in receivables. So I don’t have to even talk about free cash flow which I value the most in making my investments decision.

I feel this kind of operation, seeking growth without caring about cash flow a very dangerous management decision. Imagine when we hit a serious recession. Think about another financial crisis. I like to look down rather than look up, caring more on not losing than winning big. I personally will not invest such a company because I always believe what Warren Buffet’s rules:

Rule no. 1: Never lose money
Rule no. 2: Always remember rule no. 1.

Of course this is just my personal opinion. I am often wrong in my opinion.

bsngpg, if you read my posts, you will notice that I have tried to answer most of the questions asked. Why? It is for fun. For you don't worry, buy me a drink next time. First this need no time of me.

Posted by kcchongnz > Jul 25, 2013 12:20 PM | Report Abuse X

Nobody seems to agree with me that Pantech is already fully valued.

[Posted by kcchongnz > May 13, 2013 01:26 PM | Report Abuse X
Pantech share price has an excellent run. It ran up from about 70 sen at the beginning of the year to about RM1 now, for a gain of more than 40%, in just 4 months. I hold Pantech for a long time already and happy with the return from it. I am still holding some. But is Pantech fully valued now?
I opine so. Even if I take an assumption that it will grow at 15% for the next 5 years and 3% subsequently, which in my opinion is a fantastic feat, and a required return of 12%, Pantech at 1.00 is almost fully valued already.]

In discount cash flow analysis to find the intrinsic value of a company is very subjective, in particular, one has to input a growth assumption. A slight difference in this assumption yields a very different intrinsic value. But if you use the DCFA in a reverse way, ie, try various growth rate assumption as input and see what assumption yields an intrinsic value exactly equal to the market value, then you can see what the market is expecting its growth rate. Then you can gauge whether this expectation is realistic or not.

Posted by bsngpg > Sep 27, 2013 07:08 PM | Report Abuse
KC Chong : can we hear your view. Thks

Hehe bsngpg, you can't trick me into giving you an opinion of whether you should buy or sell a stock or not. This is because I simply don't know how the crowd thinks. I am very poor in predicting share price in the future.

I do have an opinion of if a company is a good company or not by looking at its past performance. Yeah I know that is based on history. But again I have no crystal ball to see the future.

I think I have given my opinion before that Globtronics is a great company. It has consistent earnings, quality earnings with good cash flows; CFFO >150% of Net income, and FCF>10% of market cap, FCF>20% of invested capital etc. It has great ROIC of 25% (>>12%). Everything points to the performance of a great company. But I won't buy its stock if it is expensive.

If you look at the PE ratio of Globtronics now at 19.3, it appears a little pricey. But how can you expect to buy a great company's stock cheaply? To me it is still ok as it is below 20. However if you base on earnings yield (Ebit/EV) of 17% (>>10%), my opinion is it is not expensive at all.

Posted by KAHFIEHLAI > Sep 26, 2013 09:40 PM | Report Abuse
Hai kcchongnz...can have a look on profile of KBunai? I interest on long investment, need you financial advise..Thanks in advance

Hi Kah Fieh, long time no hear from you. And now you asked me about this crap KBunai. Why????

Every year loses money. May be you are interested about its NAV of 27 sen per share compared to its price of just 10 sen. so attractive ah?

Tell you what. Its asset is made up of crap. 1b is in PPE. I have no confident on this value if it is true. Absolutely none. I won't touch it with a long stick.

Why I said so? I have been there before.

But I won't know people will goreng or not.