CSCENIC a hidden gem? Maybe, judge yourself from my comments below:

Posted by kcchongnz > Jun 19, 2013 12:58 PM | Report Abuse X
Is Classic Scenic a good company? Is it a good investment?

Posted by fookchng > Jun 18, 2013 06:04 PM | Report Abuse
Dear KC, have you studied on PESTECH and CLASSIC SCENIC BHD before? I am interested to know your valuation on them. Thanks.

No, I have not studied those stocks before you mentioned here. But since you ask, I will try to look into one of them. And since you ask in this thread which discusses about searching for a good company, i will give my opinion if this is a good company worthy of investing also, before I attempt my valuation here.

Classic Scenic is engaged in the manufacturing of wooden picture frame moldings, and wooden pallets. Operations are carried out in Malaysia, North America, Australia, Europe and other Asian countries.

The business appears to be boring, isn't it? But often a boring traditional business is a good business. It's business has a high net profit margin of about 20% and provides a return of 16% (>12%) of invested capital. The quality of its earnings is good. Free cash flow is abundant at 20% of revenue (>>5%) and 16% (>>5%) of invested capital. That is why it can distribute a high dividend of 9 sen, (DY=8.1% at RM1.11). The only shortcoming is its business is quite stagnant with not much growth at a CAGR of only 4% fro the last 7 years. It is not that bad though as it is still growing in tandem with the broad economy. Last year's growth in revenue of 19% was great. So I can certainly say CScenic is a good company.

At RM1.11, its PE ratio is 10 (<20), EV/Ebit=6.7 (<8) and price-to-book of 1.4 (<2). So it is not expensive and hence may offer investors a good investment.

CScenic's valuation is quite straight forward as its revenue and earnings are quite stable. Assuming CScenic continues to grow in tandem with the economy at 3%, CScenic at RM1.11 is already fully valued as shown below, unless its business can continue to grow at last year's rate for a few more years.

Revenue 62329
Ebit 14753 24%
less income tax -3388 23%
EBIT after tax 11366
Add average D&A 2738
Less average capex -5983
Normalized Ebit 8121
Cost of capital, R 10%
Growth rate 3%
Capitalized earnings=Ad Ebit/R 116007
Add cash 21724
EPV 137731
Number of shares 120500
EPV/share 1.14

Tipster, my problem with Yee Lee is its low margin business, and not impressive asset turnover. This results in low return of invested capital. It has not much growth too. I would prefer to invest in a company with at least 10% ROIC. Here was my previous comments:

Posted by kcchongnz > May 26, 2013 01:16 PM | Report Abuse X
Is Yee Lee a great company? Is it a good investment?

Yee Lee has a durable business. It is trading at very attractive valuation too as shown below. My main problem is its very low margin and ROIC. So for me I will pass.

Good company?
Good governance Yes
Durable business Yes
Growth No
ROIC No 7% >WACC
Balance sheet Yes

Screens for investing
ROIC No
P/B Yes 0.7 <2.0
PE ratio Yes 8.8 <20

Call warrant is about gambling. Gambling must be interesting. An interesting gamble comes with high risk, and the accompanied potential high return. TM CU at 1 sen, with the high leverage of 134 times at the underlying share price of 5.39, is exciting to punt indeed.

TM needs to go up by 11.3% to 6.00 in order for CU to be in the money; quite a tall order for such a short time of less than 3 months. But once it goes up closed to that value, CU's price would go up extremely fast. For example, if TM goes up by another 8 sen to 6.08, CU holders make 100%. If TM goes up to 6.20, holders make 400%; and TM at 6.50, CU holders make 1150%!

Yeah, a tall order. But in the share market, never say never.

But don't be greedy if you like to punt. Just bet a few thousand dollars.

Disclaimer: This is not an advice to punt.

Posted by plumberii > Jun 29, 2013 04:41 PM | Report Abuse
KC,
Hope that you won't mind sharing on these 2:
a. SOP Govt link (the Sarawak White Hair guy)does not worry you? Or you see it as an advantage? My fear is they can pull out or change things for their own benefits.

b. Jobstreet - mind sharing why you sell this as it is on my to-buy list?

Thanks.


plumberii
when I first talked about Jobstreet was less than half a year ago when its share price was just RM2.40 a piece. See link below.

http://klse.i3investor.com/servlets/pfs/13147.jsp

At today's closing, it is RM4.18. It has risen by a whopping 74%, in less than half a year! At this price, it is trading at a PE of 22.5 (20), and enterprise value 16 (>>8) times earnings before interest and tax. These are very high value.

One reason the market gives such a high valuation for Jobstreest is its high growth expectation. But even if i assume it can grow by 17% for another 5 years, like what it had achieved each year for the last 7 years, it is already fully valued at the price of 4.18. Meaning there is no more margin of safety investing in this share. furthermore, I doubt it can grow at such a high rate.

The other reason is the herd mentality. Investors were chasing the price of Jobstreet probably because of its bonus issues. Insiders would have known about this exercise long time ago. But to me bonus issues does not create value for the company and hence should not affect the share price. But that is how the market behaves.

Each year Fitters receives cash from its fire fighting services etc from debtors. It has to pay out cash to creditors too, besides setting aside money for building up inventories etc. The net cash equals to cash inflows less cash outflows. Fitters net inflow of cash or CFFO is only 7.6m, although it claimed to make 28m profit. So where is the money?

More than 20m is hidden in increase in receivables to 119m now, money Fitters claimed others owe them but not paid yet.

Fitters needs to spend money each year to buy plant and equipment and other capital expenses. Last year 7.6m was spent for this purpose. So how much of the CFFO was left behind? Nothing, absolutely nothing. There is no free cash flow at all. So where to get money to pay dividend.

Interestingly Fitters spent about 14.5m to buy back its own shares. OMG, no money some more buy back share. Where did the money come from?

The money came from conversion of warrants, about 48m. 11m of it was used to pay down its long term debt.

Do I like Fitters? Not really.

Posted by Steve Jub > Jul 4, 2013 09:20 AM | Report Abuse
kcchong, what do u think of fitters? i check its fundamental is pretty good, profit keep earning but zero dividend. will u consider this type of stock?

Fitters past year's performance appeared to be good with net profit improved by 17% to 27.5m. However that is not well with its revenue which actually declined by 8% to 410m. Return of invested capital and return of equity appears ok lah at 14% and 12.3% respectively.

However the Achilles’ heel is its very poor quality of earnings. CFFO is only 28% of net profit and no free cash flow last year.

At 72 sen, it appears to be cheap with PE ratio of 5.8, and price-to-book of less than 1.

So Fitters is not my kind of stock because of its poor cash flow. However, please don't follow me. Fitters could very well be a darling of the market in momentum play.

13 Proven Ways to Identify Who are Value Investors

Who are Value Investors? Value Investors Typically:

1. Focus on intrinsic value, what a company is really worth: buying when convinced there is a substantial margin of safety between the company’s share price and its intrinsic value, and selling when the margin of safety is gone. This means not trying to guess where the herd will send the stock price next.

2. Have a clearly defined sense of where they’ll prospect for ideas, based on their competence and the perceived opportunity set rather than artificial style-box limitations.

3. Pride themselves on conducting in-depth, proprietary and fundamental research and analysis rather than relying on tips or paying attention to superficial, minute-to-minute, cable-news-style analysis.

4. Spend far more time analyzing and understanding micro factors, such as a company’s competitive advantages and its growth prospects, instead of trying to make macro calls on things like interest rates, oil prices and the economy.

5. Understand and profit from the concept that business cycles and company performance often revert to the mean, rather than assuming that the immediate past best informs the indefinite future.

6. Act only when able to draw conclusions at variance to conventional wisdom, resulting in buying stocks that are out-of-favor rather than popular.

7. Conduct their analysis and invest with a multi-year time horizon rather than focusing on the month or quarter ahead.

8. Consider truly great investment ideas to be rare, often resulting in portfolios with fewer, but larger, positions than is the norm.

9. Understand that beating the market requires assembling a portfolio that looks quite different from the market, not one that hides behind the safety of closet indexing.

10. Focus on avoiding permanent losses rather than minimizing the risk of stock-price volatility.

11. Focus on absolute returns, not on relative performance versus a benchmark.

12. Consider stock investing to be a marathon, with winners and losers among its practitioners best identified over periods of several years, not months.

13. Admit their mistakes and actively seek to learn from them, rather than taking credit only for successes and attributing failures to bad luck.

—John Heins and Whitney Tilson
The Art of Value Investing

Faber a good company to invest? I think so.

Posted by Jaack1 > Jul 3, 2013 11:25 AM | Report Abuse
Dear Mr KC Chong,
What is your view on FABER?
Tks/Rgds

Faber does appear to be having a good business. Good cash flows and healthy balance sheet with negligible debt now after 150m debts were paid off last year. ROE was good averaging 18.4% for the last two years.

At RM1.82 at the close of today’s market, PE ratio and price-to-book are at undemanding 6.1 and 1.3 respectively. Yes, Faber may be a good company to invest in.

Is MYEG a good company? Is it too expensive at 1.63?

Posted by ipomember > Jul 3, 2013 10:01 AM | Report Abuse
Kcchong, i think myeg is a good company. But the P/E is high now. What P/E you willing to pay for this kind of company?

Myeg is definitely a good company in my book. There is good growth in its business.The twelve month trailing (ttm) results shows earnings and profit grew by 9% and 18% respectively. Margin is high at 44%. ROE is great at 24%. The quality of its earnings is good with CFFO 132% of net income; and plenty of free cash flows (28m). But is it a good investment? I mean is it worthwhile to buy at present price?

I agree with you. Myeg is too expensive. Its price at 1.63 is 31 (>25) times its ttm earnings and 7.2 (>2.5) times its book value.

Posted by member41 > Jul 3, 2013 11:43 AM | Report Abuse
80.5 sell or wait till last day? 3.1sen more

If you wait for the conclusion of the takeover, you gain another 3.1 sen, or 3.9%. This return is almost like risk-free now. It is better than if you keep in bank for one year.

But I think it may take another 6 months to complete everything. so your annualized return would be 7.8%, more than double you can get from bank deposit.

What if it can be completed in 3 months? Your annualized return would be 15.6%, not bad indeed for a risk-free investment.

So it is really up to you. I am just offering an alternative opinion for you to consider. For example if you have no more money to invest and you want to buy KPS, or Punchak or whatever as advised by some others, you may have to sell in order to get the fund for investing.

But if you have additional money to invest, do you really have to sell?

Posted by fatinvest > Jul 3, 2013 11:14 AM | Report Abuse
It is rather strange why TTB changed his strategy.
It's not common for fund manager to try to time the market also!

My take is fund managers are under tremendous pressure to out-perform the market. This is particularly true for ttb who out-performed the market by a wide margin for the first couple of years. Because of that he claimed that he is better than Warren Buffet. So how to keep up to that? But the fact is it is extremely hard to over-perform the market consistently. Funds managers are part if not the major part of the market themselves. So how to out-perform themselves consistently?

In order to endeavor to keep up to what he had proudly said, he tried to time the market; trying to avoid the downside of stock prices and hence kept huge amount of cash. He encountered his Waterloo.

So the lesson is, it is really hard to time the market. too many factors in play.

Posted by hng33 > Jul 3, 2013 10:07 AM | Report Abuse
Hidden gem, KPS and Puncak

It does appear that hng33 have uncovered those gems above.

Kfima's cash and cash equivalent built up to big amount from the free cash flow from the business. Guess somebody doesn't know what is free cash flow. No formula, just a term in investment. If you don't know, don't argue with me what investing in a company is.

icap is a closed end fund. Kfima is a business concern; ie do business and make money. Can't differentiate?

The failure of ttb in icap for the last few years is not because he "relies 100% on papers, got lost in figures created by human". What do you mean by that and on what basis do you make such statement?

Tan Teng Boo way outperformed the market or any fund in Bursa for the first couple of years when icap was launched. He invested for icap based on sound fundamental analysis. There is no doubt about that. His problems came when he deviated from the very principle he believes, or claims to use; ie fundamental approach in investing, finding good companies (with economic moats, growth prospect and operating efficiencies such as high ROE, ROIC etc), and buy them at reasonable prices or at a significant margin of safety. All high performance fund managers invest based on numbers, analysis, not gut feeling.

An investor invests based on fundamentals should not try to time the market. timing of market is not a way of investing for a fundamental investor.

I am saying this with some basis; ie from looking at how ttb kept so much cash instead of fully invested for icap.

alx, there is no standard for acceptable price-to-book value. It depends on the type of company, their operation efficiencies etc. Some light asset companies have low book value but high price because their earnings capacity is from their business model, industries and their intangible human asset etc. Some companies have huge asset but earns little. The "book" value is also often an accounting value which is historical, or far from its realizable values, or its replacement value etc. So many analysts do not rely on P/B to make decision.

Price-to-book is more meaningful for banks where assets and liabilities are marked to market. Acceptable P/B for banks also depends on the return of equity of the banking business. For example, if the ROE is 15% and my required return is 10%, an acceptable P/B value may be 1.5. Just an example.

Whereas for a company like Jobstreet which earnings are not dependable on its real assets, P/B of 5.8 may not be expensive as it has a ROE of 27%.

Business with value? What business icap has? It is a closed-end fund man. What a fund should do? To me the management must continuously scout for good company stocks to buy at reasonable price, or better cheap price. But what icap has been doing? Keeping a third to half of the fund as cash as market timing. No good stocks to buy? Just refer to the thread posted by me a few months ago requesting the return forumers made last year.Many of them have made 20%, 30% or even 70% a year. So what happen these few years for icap? Way under-performed the market and many individual investors, including me, not to say compared many other open-end funds which have been doing well.

L & G, any comments? Thanks.
Posted by oldman > Jul 2, 2013 04:35 PM | Report Abuse

I made some comments on L&G when asked half a year ago as below:

Posted by kcchongnz > Dec 9, 2012 05:53 PM | Report Abuse X
Is L&G really such a steal? Of course it is if the story told by Mr Ooi about the 75m profit for the next 8 years for the foresta condo project is correct? That cash flows alone is already worth 400 m or 67sen per share, using a discount rate of 10%. Is that projection correct? How the hell I know?

Let us just forget about the projection, as profit projection 8 years away is a very hazardous things to do, in my opinion. Looking at its financial statements for the last few years, and the last couple of recent quarterly reports, my opinion is that I would have no worries investing in this stock. There have been no loss in the last few years, quite ok in cash flows and balance sheet is healthy. Just worry a bit about its Australian operations, but not too big an issue. Buy the share at 40 sen, much better than many many hot stocks pitched about nowadays. No worry lah. If the story doesn't materialized, it is still ok with that price. If the story comes through, there will be big payoff.



However I change my mine recently due to the unfair RPT of buying the asset from its major shareholder which was not done at arm length. I won't touch this type of company with dubious credibility.

Icap just reported its 2013 financial results ended 31/5/2013. It made 57m, or 40.6 sen for the year. Isn’t that great? Bullshit!

To look at the results of a closed-end fund, profit for the year is irrelevant. The “profit” was mainly derived from the sale of some shares which could have been bought long ago. Yes, icap, already holding one third of cash a year ago, sold more shares last year but never buy any, presumably trying hard to time the market, and it is holding 208m in cash now, or an incredible half of its assets in cash! WTF, a fund holding a third to half the asset in cash, while the total management expenses amount to 7m, or more than 3% of invested capital!

A better comparison for the performance of the fund is its NAV for the two years. NAV for 2013 rose by only 4.5% to 2.99 per share compared to last year of 2.86. The broad market as measured by KLCI index rose by 12.4% from 1574 to 1769. That means the fund manager under-performed the market by a whopping 7.9%. OMG, that is the performance of the Oracle of Bursa?

Any value investor would not try to time the market, more so for a self proclaimed better investor than Warren Buffet which he made a few years ago. Fundamental investors invest based on the business of companies, their performance and then invest when the price is reasonable. They don’t time the market. But why TTB still try to do that for so many years already? I really cannot understand.

More so I don’t understand why the majority of the shareholders in icap treat him like God, as shown in the last saga when Laxxey Partners tried to put in a couple of their people in the board.

Can someone enlighten me ah? hooi, where are you?

Landmark good investment?

Again I am not sure but let me show you what an analyst wrote about in 2 years ago when Landmark was trading at RM1.40+.

From: Phillip Capital Management Sdn Bhd <pcm_investment@poems.com.my>
Date: Mon, Jun 27, 2011 at 7:09 PM
Subject: Landmarks Bhd ("Landmarks") - Rich in Assets, Poor in Earnings
To:
Dear Investor
We like Landmarks for its huge asset base and its potential development of Treasure Bay Bintan. Additionally, we have strong conviction with Genting Bhd's financial backing. In terms of valuation, the P/B is only 0.4x and it is trading at 75% discount to its RNAV of RM5.80 which is far below the industry average. If we use the P/B of 0.7x from the close comparable, Gallant Venture, Landmarks should trade at RM2.47 per share or 69% upside potential. Furthermore, technically its share price is near its support Therefore we initiate a "Long Term Buy" for this asset-rich but earnings-poor stock.
Thank you.
For Phillip Capital Management Sdn Bhd
27 June 2011

Sounds great right? But if one has followed the recommendation and bought Landmark then, he would have found his investment depreciated by more than 20%. He would definitely feel heartache when comparing with most other stocks which have appreciated by leaps and bounds. Since then Philip Capital has taken this stock off from recommendation list.

The thing with this stock is it is highly dependent on its estimated RNAV, a dicey figure. The catalyst for landmark is that Treasury Bay. Don't know when that thingy going to be done and completed. RNAV has no meaning if that thingy not going to be done. If it is carried out, could be a multi-bagger for landmark in the long term. Of course the project must be successful, attracting huge number of holiday makers and gamblers from the region. But it is only a projection,a projection which could also be grossly wrong on the other side.

I am one who won't rely on rosy projections. Hence I seldom strike multi-baggers in my investment and can't get rich. So for Landmark, I will give it a pass over too.

iska, sorry again I really don't know much about valuation of property companies. You did much better in looking towards the future,basing on many analyst reports, amount of land the property companies hold in Iskandar or KL, impending project launches, dividend history, comments by others about management, etc., and as a result made handsome return. Congrats.

My view is a rear mirror view. Just like what I have commented on Crecendo before in i3. May not be that useful.

E&O a hidden gem? Really?

Posted by htyeap125 > Jul 1, 2013 02:16 PM | Report Abuse
Mr kcchongnz, wat do u think of E & O, with its over 700 acres of land to be reclaimed n healthy balance sheet? Need your advice, thanx

1) When and how long to claim the land?
2) What is the cost and benefits? Any numbers and projections?
3) How healthy is its balance sheet? Have you analysed it yourself or just a sweeping statement?

Let me just present my view as an armchair investor with the principles used by Cold Eye. Revenue increased by 23% to 606m while net profit increased by 6% to 130m last year ended 31/3/13. The table below shows the 5 yardsticks used and their computations based on the latest financial results:

5 yardstick of investing by Cold Eye
E&O RM1.99 1/7/13

1 ROE 9.4%
Net profit 130071
Equity 1389963
2 Cash flows
CFFO/NI 32%
FCF -40835
3 PE ratio 17.0
Price 1.99
EPS 0.1172
4 Dividend yield 2.3%
Dividend , sen 4.5
5 Price/NTA 1.6
NTA 1.26


The Table above shows E&O doesn’t fit the value investing of Cold Eye. ROE of just 9.4% is way below my required return of at least 12% in view of its relatively high debt of 0.6 times of equity.

Earnings quality is poor with cash flow from operation of just 42m, or 32% (<<100%) of net income. There is a negative FCF of 41m last year. Cash flows have been poor for the last two years. That is why you can see its total debts are increasing each year; 772m last year compared with 605m the previous year.

E&O paid a dividend of 4.5 sen last year, increased from 4.25 sen the previous year, or a dividend yield of 2.3% basing on its share of 1.99 now. But understandably the money from this dividend is obtained from more borrowed money, and not from its free cash flow which there is none.

Is the price cheap at 1.99? With the above mediocre performance, a PE ratio of 17 and price-to-book of 1.6 is very high for me.

So do you still maintain that E&O is a hidden gem? Not for me.

KSL a hidden gem?

Posted by oldman > Jul 1, 2013 02:23 PM | Report Abuse
Any comment to share on KSL? Recent article in NYSP highlighted this counter

Well, the author of that article definitely knows more about KSL than I do. In actual fact I don't know much of KSL at all. what did the author say?

I know this person Ooi Teik Bee also likes KSL very very much. He seems to know a lot too about this Iskandar play thing.

But that shouldn't stop me from giving my don't-know-much opinion too, right?

KSL's Iskandar land bank is definitely very valuable. This is evidenced from its consistently high gross margin (60%) and ebit margin (>50%). Its ROE and ROIC are also ok lah, meeting minimum requirement of 12%. What about its price?

At the close of RM1.99 today, PE ratio is about 6 (<10), and earnings yield (ebit/EV) is about 20% (>12%). Both these metrics show the price of KSL is quite cheap and hence worthy of investing.

A better way of valuing KSL may be is to use its land bank and value them based on market value. But that is beyond what I can do. Maybe some other can help here.

Aren't we in a democratic country where the minority has a say, but eventually the majority rules?

If the GO price is really that much below the offer price, won't it be better for all shareholders if the GO doesn't go ahead?

What is the chance of this event occurring?

I do know the recent GO for MISC eventually NO GO, but not sure what the reasons are.

Maybe others can give some opinions on the unlikelihood of the KHSB GO.

MKLand a hidden gem?

Posted by rcdahmad > Jul 1, 2013 01:49 PM | Report Abuse
Mr kcchongnz.....
i think mkland also undervalued properties counter..... EPS and div. keep increase, except that mr kasi always dump and press the share price down....
any comment mr kcchongnz.....

I posted my comment on MKLand some time ago when MKLand share price was 33 sen. Now there is not much different when many property share price has gone up by leap and bound. MKLand has not been distributing dividend since 2008 until very recently when 1 sen was declared after they got some cash selling land. Correct me if I am wrong.Earnings keep rising? Sure or not? The biggest problem to me about MKLand is the credibility of the management. I read that bosses bought properties developed by MKLand and sold to public at much higher prices. That is fatal for the minority shareholder. So MKLand a hidden gem? Definitely not in my book.


Posted by kcchongnz > Mar 26, 2013 12:37 PM | Report Abuse X
anbz, how are you? Wah MK Land ah, quite a lot of asset oh. I share with you what I think about MK Land ok or not?

[Posted by kcchongnz > Dec 25, 2012 05:54 PM | Report Abuse X
Again the revenue and earnings of MK Land for this few years is relatively little. It could be an asset play as its NAB per share is 89 sen, is 2.7 times its share price of 33 sen. Even with the Graham net-net valuation of MK Land at 40 sen, ignoring its asset of 160m in plant and equipment and assuming value of its receivables and property development cost at 50% of their stated value, is still higher than its share price of 33 sen. It has quite high debt of a total of closed to 200 m though and hence quite high annual interest payment of 20m. The good thing is it has stopped hemorrhaging since its worst performing year in 2008 when it lost 65 m, and the subsequent 26 m loss. That is the peril of a highly leverage company. Again there are so many other property companies which are also highly undervalued, many of them even cash rich. So is there a better story for MK Land?]

Want to know about its DY history? MK Land never gives dividend for at least 5 years already loh! Yeah I know I know, Public Bank gave a minimum price target of 80 sen. In the share market, anything is possible.

Is Hua Yang a hidden gem?

Posted by alx > Jul 1, 2013 01:31 PM | Report Abuse
KCchong. very good discussion here. This is the main purpose of forum.
What do you think of Hua Yang? Does not have DIBS scheme. Cash flow almost double up from 2011 to 2012. NTA is around 1.7 (price about 2.8 now). Consistent growing of EPS. Focus on affordable housing.

Below is what I posted for Hua Yang about 5 months ago. I said Hua Yang should at least worth 2.80. And at that time it was trading at 1.69. But now it is 2.82 already. So what do you think?

Posted by kcchongnz > Feb 8, 2013 10:51 PM | Report Abuse X
necro, my opinion on your Hua Yang
Hua Yang is one of the fastest growth property companies in the last three years. Its main project is the One South Sri Kembangan development which has a GDV of RM920m, with other minor projects spread over in Johore, NS and Selangor. Revenue rose by a compounded annual rate of 82% and 62% respectively in the last two years to 306m for year ended 31/3/2012 and profit ballooned by almost 5 times to 53m. Net profit margin has expanded every year to a respectable 17.3% last year and ROE to 20%. A dissection of its ROE below shows that the high ROE is achieved with the high net profit margin, NI (17.3%) and skillful use manageable debts and good financial leverage of 1.7.
ROE=NI*AT*FL=17.3%*0.7*1.7=20%
With more projects expected to come on-stream, it is expected that asset turnover will increase and so is the ROE. Earnings per share increases every year, despite the issuance of bonus share each year to its shareholders. In the year ending 31 March 2012, EPS is 37 sen. For the three quarters ending 31 December 2012, net profit increased further to RM53.5m, or 28 sen per share with a another increase shares outstanding to 198m due to the 1 for 4 bonus issues. EPS is estimated to be about 40 sen for the full year. Its balance sheet is healthy with a debt-to-equity ratio of just 0.36 (<1), and low solvency risks with current ratio high at 3.0. However, there is no free cash flow yet as Hua Yang uses all its CFFO to buy up more land for development and other capital expenses. FCF will come soon. Hua Yang gave a dividend of 15 sen for the last few years, despite the increase in outstanding shares. If this dividend persists, this will translate to a dividend yield of 9.3%, with today’s closing price of RM1.61. Meanwhile the PE ratio is incredibly low at just 4.4. Using the simple valuation with ROE of 20%, a 12% required return,and a net tangible asset per share of RM1.69, Hua Yang should worth RM2.80 (20%/12%*1.69). Don’t you think it is a good investment?

johndow, it is individual. I am happy to get an annualized return of 10% as it is much better than bank interest rate. Are you?

aiseh, cannot buy at 76 sen. Can't even buy at 78sen. Just bought more at 79.5 sen. But why did I buy when people asked to sell at 76 sen?

The return I can get from this takeover exercise is 5.16%. But I am still talking about annualized return of a risk-free arbitrage now. Anybody disagree that this is risk-free or almost risk-free now?

The annualized return,if the deal is fully completed in 6 months time will be 10.32%. As this has been some time now. Another 6 months should be a conservative time frame. But if this can be completed in a shorter time of 3 months, annualized return is 20.64%. After that can use the profit to scout for other similar potential deal. Where can get this kind of return with this little risk? My aim of annual return in the stock market is 12-15%. But equity market has a higher risk than this any time. If comparing with bank interest, this return also beats it by a wide margin even though their respectively risk is about the same.

Make sense?

Steve, Reit by regulation is required to pay out most of its income as dividend. 90%, I think. Hence generally the dividend yields for reits are higher. As I have argued before (not really argue but from academic research), high dividend yields do not necessary mean high total return. And many reits also regularly ask money from shareholders through right issues. May be good for people who require regular income, but then if there is right issue, have to fork out money, not too good.

So investing in reits have to do homework too; such as are their properties at good location? always fully rent out? Management have been making right decisions in acquisition etc etc. I personally am not that interested in reits and have not much knowledge about them.

Drachen, your approach is a smarter one. However, I was trying to introduce the concept of risk-free arbitrage, or very close to that. This is a very important concept in finance.

Well just to clarify here. I don't discourage buying KPS. Actually i don't know much about it. I was also trying to introduce a concept of mutually inclusiveness. You can buy KPS, go ahead. But why do you want to throw away KHSB which is almost certain to earn a risk-free annualized return of 20%? Where can you find such return with that little risk, if any?

The Greenblatt magic formula is simple technique, buy good company at low price. Don't you think it is plausible? Don't you think it should work everywhere? Should it be limited to US market?

Drachen,

It is 76000, not 760,000, typing error.

That is borrowed money and earning risk-free return. I hope you understand what is meant by risk-free

Posted by Khek Yang > Jun 29, 2013 11:10 AM | Report Abuse
Hi kc,
I personally like the numbers on KFIMA as well, but I haven't bought into them for the time being. I am of the view that the economic horizon doesn't present a clear sky in the near - medium term future. Hence, I'm considering to wait a decent amount of time before dipping.
I'm wondering what was your price of entering KFIMA.
Thanks!

Khek Yang, invest in the market only if you are comfortable about it. But to me there will always be uncertainties in the economy, here and all over the world. The thing is that even renounce economists can't even among themselves what the future direction of the economy will be. Half of them have completely different views. It is also proven again and again this stuff is hard to predict and there is no statistical evidence that anybody can predict this stuff consistently correctly. So how? Wait until when? Meanwhile it has been shown that the equity market returns about 10% a year.

What is the price I bought for Kfima? I started investing in this stock since about 4 years ago when it was 70-80 sen. I even bought some when it went up to 2.20+. But what price I bought should not be your benchmark.

The way I decide what price to buy is first to study if the business is durable that it is likely to last many years to come. Then I analyze if there is economic moat; that it has high return of capital, good earnings and good quality of its earnings. Is there alignment of interest among the management and shareholders? How management allocate capital and may be if there is growth in the business. If all the above is affirmative, what price am I willing to pay? That means I must have a feel of the intrinsic value of the business.

So I think maybe it is good if you can think and analyze along that line, rather than the historical prices of Kfima. Company business changes, revenue and earnings may grow, margins may have expanded/shrinked as time goes on, and hence its intrinsic value changes from time to time.

Hope I have answered your question.

Posted by hng33 > Jun 29, 2013 12:19 PM | Report Abuse
Its better sell KHSB and swap it to buy KPS. The takeover need a lot time to materialize, 3 to 6 month at least and upside cap to maximum1 10% or 83.6sen only. Whereas, KPS offer much better cash dividend as after disposal of its 56% stake in KHSB, KPS will used part of the proceed to reward shareholder by payout special dividend to shareholder, SPECIAL DIVIDEND : 26.67sen

I have a good proposition for i3investors here, a risk-free arbitrage return of RM6300 in about 3 months time. No need capital.

Borrow RM760000 from your bank at 6.5% interest rate. Use the money to
Buy 100,000 shares of KHSB tomorrow from hng33 and his gang at 76 sen
Wait for 3-6 months for the takeover offer to be completed
Get RM83,600 from the settlement of takeover
Pay back loan plus interest to bank of RM(1235+76000)
Pocket the rest of RM6365 (83600-76000-1235)

"kon lou", meaning earn profit without having to have any capital. After that give kcchongnz a treat of abalone.

Thanks gark for the comments on SOP and TDM.

Sop related to White hair? Didn't know about it. I don't like this type of cronies kind of relationship.

TDM fully valued? Probably, haven't look at it for some time already.

See if more people contribute, we are more informed.

When one talks about return, it normally means annualized return, or compounded annual return. That is the basic concept of finance.

Yes, it doesn't mean you can get 40% return in a year, unless you keep on invest in another KHSB. Agreed.

But can't i use the money which I receive in say three months time and invest in say ASN and get another say 6% return, for a total return of about 16% a year which is of little risk? Where else can you get that kind of return with that little risk?

All I am saying is the risk return reward for not selling KHSB at the present price of 76 sen is attractive. Whereas the expected "total return" for KPS has more uncertainty. Yes, you receive the special dividend of 26.6 sen and share price would be adjusted downwards after special dividends. And how sure are you KPS's share price won't drop below say 1.25 if say the world markets drop, amy be due to higher interest rate, higher inflation, another sublime crisis, China gone into trouble etc etc?

Didn't I say holding KHSB share and buying KPS is not mutually exclusive?

Posted by houseofordos > Jun 29, 2013 12:39 AM | Report Abuse
What about EKSONS ? It looks undervalued and its mainly in the timber business (plywood) which could be see some recovery with the US housing market starting to recover.

Eksons doesn't impress me. Its earnings and cash flows are not stable. If using the magic formula, and based on its latest financial results ending 31/3/2013, it fail its first criterion on ROIC at about 7% only (<<12%).

I am not talking about "sure thing", nothing is 100% sure in investment, but it is "quite sure" as it is now and just a matter of time. Don't you agree? Same for your special dividend of 26.6 sen for KPS shareholders. But after receiving the special dividend, there is uncertainty if KPS's share price can maintain at the present price less the special dividend. It is subject to the volatility of the share market.

Would you prefer to receive the 10% return in three months time, or at the end of 12 months time? Basic concept of time value of money.

SOP is not government link as far as I know. go read their annual report on the major shareholders. If it is related to White hair, i won't touch it myself.

sold Jobstreet? Itchy fingers again. Jobstreet share price has gone up by leaps and bounds recently. At 3.90 now, the earnings yield (Ebit/EV) is not attractive anymore at 7%, basing on last year's financial performance. It is continuing to grow but in my opinion, the market may be paying too much for this expected growth.

hng33, i read what you wrote about KPS and I agree with you just basing on your analysis. Good one.

But holding KHSB to conclusion of the takeover and earn an annualized return of 20-40% with almost no risk now and you throw that away, compared to KPS which is still subjected to the volatility of the market, local and abroad? Getting the high special dividend doesn't mean that you can get a high total return eventually. I mean from what you wrote and i kind of agreed there is high probability, but it is not a sure thing as KHSB's case.

Anyway, continue holding KHSB shares and buying KPS shares is not mutually exclusive thingy. Why have to sell KHSB?

house, good question. Very often i sold because of itchy fingers when I found that i have already made considerable profit. That is the problem of the ease of internet trading. And it may end up I bought back again because I find that the price is still way below the intrinsic value.

So I normally base on the price in relation to intrinsic value, and 30% margin of safety is my norm. But intrinsic value is also a moving thing, when its revenue and earnings grow each year, its intrinsic value grows too. A fast growing company may still have high margin of safety even though earnings yield is low say less than 10%. So the magic formula, like what plumberii mentioned, is more of a guide.

Mudajaya past performance was fantastic but share price disappoints. They have credibility problem a couple of years ago. I guess they must have problems in Indian power plant too. Few foreign companies make money in India. I have the call warrant of Mudajaya, small outlay hoping for big payoff, beauty of leverage.

Scientex performed very well, in its business as well as share price. I think the business will continue to do well for the near future. Well done for you.

NTPM, stable and durable business which would last for long time. but at 55 sen I think a bit expensive as earnings yield (ebit/ev) is only 10%, less than my required 12%. But then again because of the durability of its business, it may not be expensive according to Charlie Munger; like when they bought Coca cola at quite high price.

WCT, don't know much though I have the company warrants bought because it was cheap in relation to the underlying share. If I have Pintaras, a niche foundation company share which the business I know well and they have been doing well, and continue to do well, why need another construction company?

SOP and TDM are my two favorite plantation companies; SOP for its growth, and TDM for its value (growth seems to come soon too). No more holding them for a few months already.

You missed out my other stocks like Plenitude, Jobstreet,Pantech, Kimlun, Prestariang which I have recently disposed off.

Others good companies and at low valuation which I discovered through others in i3investors are magni, mbl, willow, cbip, Johore Tin, Haio, Cenbond, Apollo, and Lii Hen etc. This shows I didn't waste my time in i3.

Posted by Fat Cat Tim Buddy > Jun 29, 2013 03:03 PM | Report Abuse
hey kcchong.. can you reveal whats the other stocks you holding other than skpres,kfima,ecs? :)

Fei Mau, why you want my stocks? Want to compare? I tell you yours would probably have done much better. Mine, ok lah, no multi-bagger but considerably better than KLSE.

It is not about yours or mine again. It is about sharing of knowledge, experience and thoughts here, and hopefully together we find some good stocks to invest. Hope you can contribute yours here. I am sure you have found some good stocks to invest with the spreadsheet. I know, you may have your own instinct or principles in your investment, not necessary to be the same as mine.

Really want my other stocks. Just go to kcchongnz portfolio (revised) posted in i3investor here. I didn't post it but Tan KW did it. For other stocks not there, if you have read my postings, you would have found some there.

Just wondering if the company able to last until end of the year.

Yeah the magic formula is not the final yardstick to select individual stocks.

Greenblatt used it to rank stocks to invest in a portfolio. His portfolio outperformed the S&P500 by a wide margin for the 22 years from 1988 to 2009. The Magic formula outperformed S&P 17 out of the 22 years and achieved a CAGR of 23.8% as compared to the 9.6% of S&P.

I am sure in your case when you used the magic formula to rank stocks and invest in the say top 10 of your list, you would have made extra-ordinary return compared to KLSE.

Actually Uchi-tech and many stocks in certain industries like Berjaya Toto, BAT, DIGI, Zhulian, Haio, Dutch Lady, Jobstreet, etc have very high ROIC and hence they meet the first criterion of the magic formula by a wide margin. However, not many have as good metrics as the second criterion of earnings yield. In Uchitech's case, using its latest price of 1.28, its enterprise value worked out to be 370m; and earnings yield based on last year's ebit of 40.5m, is about 11%. This just misses my criterion of 12% and hence it won't be a stock in my magic formula.

As for other criteria which I may look further into is growth for discussion purpose, a minimum expected growth rate of say 4% in accordance to the growth of economy, or inflation rate may be required. Uchitech missed that for the last two years. Uchitech paid all its cash flows out as dividends every year which many people like very much. But that left nothing for capital expenses for growth and stifled its growth prospect.

Anyway, thanks for your input, especially your list based on the magic formula. Good to see feedback from people like you. Very rare indeed.

If the whole exercise is completed in 3 months time, 10% return, when annualized equals to 40%, and in 6 months, 20%. This estimated return is basically risk-free now except for the consideration of time value of money. Where can one gets such good return with this kind of risk?

I offer to buy from anyone who wants to sell to me at 78 sen. Anyone?

plumberii,
Excellent list of companies you have screened using Joel Greenblatt's Magic Formula. I personally have analyzed some of the companies and commented before in other threads such as "In search of excellence", "Value growth companies", "5 yardsticks of Cold Eye", etc. I will look into some of those in the list which I have not looked into before.

I believe the two "different formulas" you mentioned are basically the same, especially for the computation of enterprise value, and if there is any difference, especially in invested capital, it is minor. for example, I sometimes use the formula for excess cash as
cash and cash equivalent - Max (0, CL-CA (excluding cash)).
Some people may include deferred tax and tax payable etc in the calculation of working capital.

Yes, may be we should look at its ROIC for a few years instead of just last year for consistency. But Joel I believe just use the last year ROIC and he re-balance his portfolio every year basing on his magic Formula.

Joel used these two parameters for simplicity. Actually he used the magic formula to screen all the stocks in the US market and invests in say the top 10% of those stocks in his annual re-balanced portfolio. Here we try to use his magic formula to choose good ROIC company and yet trading at high earnings yield.

So what other important parameters you think should be incorporated? May be we can discuss here the pros and cons of them here.

houseofordos,

You are the only one so far appear to use the excel spreadsheet. Your computation for the Magic formula for MBL and Willowglen, I will give a grade of "excellent".

Just a small comment for Willow. Your net working capital for Willow should also include "amount due from contracts" and also "Amount due to contract customers" as these are also receivables and payable respectively. I am not sure if you have done that because your ROIC differs slightly from mine.

Enterprise value should exclude or less off "investment properties" and "investment securities" in the "non-current assets" as they are not consolidated in the financial statements; or not the "ordinary business" of Willow.

So MBL and Willow meet Greenblatt's magic formula easily. If you can have a portfolio of these stocks meeting the magic formula consistently, i am very sure (seldom I express such confidence in stock investment)you can earn extra-ordinary return from the market.

Please email me if you find new stocks like that so that may be we can discuss and hopefully profit together in the long-term together.

Yeah lah, my friend Ah Fet always says this:

"Use Price as a Tool, Not an Indicator"

Use it as a tool to see if it is worthwhile to invest, not as an indicator how the company is performing in its business.

Posted by kcchongnz > Apr 4, 2013 05:12 PM | Report Abuse X
"The stock market is a wonderfully efficient mechanism for transferring wealth from the impatient to the patient"
Warren Buffett

[Reference is made to KHSB’s earlier announcements made on 14 February 2013, 28 February 2013, 29 March 2013 and 29 April 2013 in relation to the offer made by KDEB to KPSB to acquire the KHSB Shares, representing 56.57% of the issued and paid-up share capital of KHSB, held by KPSB (“Offer”).
The Board of Directors (“Board”) of KHSB wishes to announce that the Company has been informed by KDEB that the Board of KDEB had on even date accepted the terms of a notification letter received from the Board of KPSB for the consideration of the KHSB Shares to be revised from RM193,467,557.76 or RM0.76 per KHSB Share to RM212,814,313.54 or RM0.836 per KHSB Share, in accordance with the terms of the conditional share purchase agreement dated 29 April 2013 entered into between KDEB and KPSB in relation to the Offer.]

Once again OTB, thanks for the tips.

KC Loh, seriously since you are so bullish about AA, you must punt its call warrants. CY trading at 14 sen while AA at 3.19 is only with 0.5% premium while still have a long 4 months to expire. AA only need to rise by 0.5%, or just 2 sen within this 4 months for you to make money if you buy CY at 14 sen now. Good punt with a gearing of 6 times, meaning if AA rises by 10%, your CY will go up by 60% (or the reverse is true). How exciting!