Posted by Jonathan Keung > 2013-09-06 16:12 | Report Abuse

this companies have the cash but the owners ( main shareholders ) seem to be low key & prefer the co's off the spotlight. they will just churn along the market unless they have plans to take it private. KLSE has lot's of this deep valuation co's. we need to hit the jackpot if a particular company is a target of a hostile take over. this is just my personal observation

Posted by kcchongnz > 2013-09-06 17:11 | Report Abuse

Most investors when deciding to invest in a stock, they look up and think of how much they would make if the stock price rise to certain level. What if the expectation does not come true?

However, risk averse investors should instead look down; think of how much the most they can lose if things do not turn out the way they anticipated.

Graham net net is a good way of investing if you are risk averse. The floor value of a company should not be less than the net net value; the cash and the value of its land and properties which are unlikely to depreciate in a long term basis. The table below shows the wide margin of safety of up to 31% to their net net asset value.

Table 1: Graham net-net valuation of Daiman
Company Price NTA Net-net Discount
Daiman 2.63 4.85 3.76 -30%
KSL 2.02 3.13 2.47 -18%
Plenitude 2.10 3.35 3.04 -31%

The values of their assets and hence the derivation of their NTAs and net net are all from the balance sheets, usually based on historical values of the land and properties which generally have appreciated considerably. If there is a private takeover, it is extremely hard to justify to pay shareholders with value less than the book value.

Meanwhile shareholders can ride on the profit the companies earn and dividends declared as all these companies are making money with positive cash flows and free cash flows every year. In fact these companies shares are also selling cheaply, and even very cheaply, in relation to the earnings they make as shown below:

Table 2: Market valuation based on earnings
Company Price PER EV/Ebit EV/Sales
Daiman 2.63 8.0 4.5 1.7
KSL 2.02 6.1 5.2 2.4
Plenitude 2.10 7.4 2.0 0.9

Posted by kcchongnz > 2013-10-02 17:40 | Report Abuse

Mark Sellers Speech to Investors – Focus on the Downside, and Let the Upside Take Care of Itself

http://www.gurufocus.com/news/106292/mark-sellers-speech-to-investors--focus-on-the-downside-and-let-the-upside-take-care-of-itself

Posted by Avocado_C > 2013-10-04 11:07 | Report Abuse

Hi, Mr. KCChong, can we apply Graham net net valuation to plantation companies too? I noticed most plantation companies are traded at high P/E, but low P/B ratio. Can you share your thoughts on this? (P/S: I m prepared to be lectured by you again, still remember you sound me on the "excitement" phrase used in the PMCorp thread).

Posted by kcchongnz > 2013-10-04 11:23 | Report Abuse

Avocado, if you read Graham's net-net, you would know that it is best for assets which are more tangible, for example cash, quoted investments, inventories, receivables etc which can fetch a price in the market not too far from your estimate. Cash and quoted stocks have market values equal to their book value. Land for property development and properties not revalued can be conservatively assumed to be at it book value, take a cut on the inventories and receivables, etc. So if the share price is below this discounted assets value, it is thought to be safe to invest in the company.

For plantation company, the major value is in the agriculture land which is very subjective in valuation. Many based on the other agriculture land just transacted, say so much per hectare etc. But is it so sure that you can sell at that price? Are you in the business of selling land? Are the land actually equal, won't there be some land more fertile,productive and more suitable for say palm oil plantation than others? etc etc.

That is why I personally don't go and chase those stocks people say the land itself worth so much so much. I would depend on a earnings based valuation for a plantation company.

Posted by Avocado_C > 2013-10-04 13:03 | Report Abuse

Mr. Chong, sorry I have to be more specific about my questions. I am actually referring to these 3 listed companies - Kluang Rubber, Kuchai Development and Sungei Bagan. The latter two are the associates of the first. I did my own calculation and I realised that they are all traded at a discout based on the formula which you gave. For instance:
Kluang Rubber Co.
Mkt Price: RM3.39
Freehold land = RM73.5 mil
Invesment in associates = RM232.6 mil (i.e. Kuchai & Sg Began)
AFS securities = RM36.9 mil
Cash = RM44.3 mil
Total liabilities = RM1.9 mil
Total net assets = RM385.4 mil
No. of share = 60.19 mil
Net Asset per share = RM6.40

Also, I noticed an item called "Biological Assets" worth RM336k in the accounts which have not been revalued since 1965. It just said "oil palm" ... What kind of asset is this?

Mr. Chong, what do you think? I also cross check the other two with similar results.

Posted by Avocado_C > 2013-10-04 13:06 | Report Abuse

And yes, the market value of the two associates are only half of the value reported in Kluang Rubber's book. Which of these 3 are more worthy or all three are no no?

Posted by kcchongnz > 2013-10-04 13:30 | Report Abuse

Avocado, when you talk about those three companies. Yes, yes, yes, they are all typical Graham net nets. Their assets are mostly high quality assets.

My minimum values given to them are 6.45, 5.60 and 2.66 for Sg Bagan, Kluang and Kuchai respectively. This compare to the market price of 3.34, 3.39 and 1.32 respectively, there is huge margin of safety. Below is my comments. You have judge yourself whether to invest or not.

[I agree with you that out of the three companies, Sg Bagan is the best bet. My rationale is more of its special dividend yield of 10% now which it continues to give in the future, it would be great. However, will it, or is it just one off event just before the expiry of of tax imputation of dividends?

This group of people are well known for their stinginess in rewarding the minority shareholders. yes, they hoard cash all this while. Unlikely unless their next generation, hopefully are more generous takes over.

The other way is a hostile takeover. But that is highly unlikely as these companies cross-holding each other. nobody can touch them.

So you have to evaluate yourself. Net net? Absolutely. Will you earn extra-ordinary return? I don't know. But one thing I am sure is it is quite safe to keep this shares as most of the assets is in cash or cash equivalent.

Posted by Avocado_C > 2013-10-04 14:51 | Report Abuse

Mr. Chong, seems like you have already discussed these 3 companies before with another person :-) I feel that you are already an expert diver in the sea of Bursa and knew every single spot for hidden treasures or best school of fishes. Whereas I am still snorkelling around ...

I also tend to think Sg Began is the best of the 3, my goodness, just the cash and securities already worth more than share price. But, like you said no one knows how would the value be "realised", perhaps more dividends in the future (again, they are "stingy" people ... Like the Keck Seng gang, are they from the same family too?).

Posted by kcchongnz > 2013-10-04 16:59 | Report Abuse

Avocado,
You are wrong again about me. I got most of the stocks from people in i3. Think of it, how much me as a single person can search and do in the sea? Some of the people here like you also are value investors. So often they mentioned those stocks in the forums, some asked me in the forum, and some asked me through e-mail. I try to look at the financial statements and see if there is any opportunity to invest in some good companies.

That is all I can do. I can't tell if the stock price can go up and down.

Posted by Avocado_C > 2013-10-04 18:00 | Report Abuse

Ha ha ... You don't like my flatter... Just my respect, don't say I am wrong again, so demotivating. Otherwise, I also don't dare to comment on your thread. Have a good weekend!

Posted by kcchongnz > 2013-10-04 18:04 | Report Abuse

Hey Avocado,
don't go away from my thread. I enjoy your comments. Your kind of good comments are really hard to come by. I also like you to share with me your thoughts on investment. Like I have said, I can't do much alone.

Posted by kcchongnz > 2013-11-01 09:24 | Report Abuse

Insas and Graham net net

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

Insas’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. 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 Insas is RM1.23. This is more than twice its closing price of 64 sen on 30 October 2013.

Besides Insas has been profit averaging 6 sen per share for the last 10 years. It has on average positive free cash flow and a healthy balance sheet.

Why is Insas trading at such a big discount to its Graham net net value? I guess is investors have not much trust in the management in maximizing minority shareholder value. No dividends have been declared until recently, although it has been buying back its shares. So with the beginning of this more tangible dividend distribution, will Insas be re-rated in accordance with its value?

Insas Graham net net
Cash and equivalent 532,894 100% 532894
Investments 120,290 100% 120290
Investment properties 151,432 100% 151432
Associate companies 90,145.63 100% 90146
Receivables 345,289 75% 258967
Inventories 15,830.73 50% 7915
PPE 59,765 30% 17929
Other assets 43,503 0% 0
Total assets 1,359,150 xxxx 1179574
Total liabilities -325,949 100% -325949
Net assets 1,033,201 xxxx 853,625

No. of shares 693,334 xxxx 693,334
NAB 1.49 xxxx 1.23

Posted by haikeyila > 2013-11-01 09:33 | Report Abuse

if insas was so good, surely the fund managers have jumped in long ago? yes, the lack of a divvy is a put-off, but there must be something about it that we don't know? recent price increase seems to be caused by buybacks.

Posted by kcchongnz > 2013-11-01 11:07 | Report Abuse

This is the kind of attitude an investor, I mean a true investor must have.

Posted by haikeyila > Nov 1, 2013 09:33 AM | Report Abuse
if insas was so good, surely the fund managers have jumped in long ago? yes, the lack of a divvy is a put-off, but there must be something about it that we don't know? recent price increase seems to be caused by buybacks.



Just like what this famous investor says here:

"When you locate a bargain, you must ask, 'Why me, God? Why am I the only one who could find this bargain?'" - Charlie Munger

So haikeyila, why do you think the company wants to buy back its own shares then? What else do you think there is a catch here?

Posted by kcchongnz > 2013-11-04 11:12 | Report Abuse

A Graham net net play for Insas.

Sometimes the old Graham investing strategy still works well.

Posted by kcchongnz > 2013-11-08 14:42 | Report Abuse

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

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

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

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

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

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

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

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

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

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

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

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

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

Posted by kcchongnz > 2013-11-09 18:03 | Report Abuse

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

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

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

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

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

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

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

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

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

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

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

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

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

Posted by inwest88 > 2013-11-09 18:10 | Report Abuse

# sjcm3 - kcchong got a point,. In fact he has not included some of the others which made huge gains like Fibon, Willow, Dsonic, Pintaras, Willow etc. Also on FLB which he concurs is a good stock for investing after I asked him.

Posted by inwest88 > 2013-11-09 18:36 | Report Abuse

# sjcm3 - I am fine. Making some small money from the daily fun trades here and there whilst the market is still "good". But deep inside I sense a correction may be just around the corner.

kcchongnz analysis on stock picks is definitely a winner - there is no doubt about it. Although most of his picks are for long term value investing, surprisingly some have performed amazingly well over a short period with increased volume like Fibon, Homeritz etc. Probably the fund managers are paying heed to his selected stocks.

Hope you are doing well too !

Posted by kcchongnz > 2013-11-09 18:38 | Report Abuse

A mistake corrected and prices updated as shown:

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

Average xxxx xxxx 37%

* Price when I was first bought

Posted by MG9231 > 2013-11-09 20:49 | Report Abuse

Kc Chong
For graham net-net, I have 2 more stocks with similar feature,
1) suiwah bhd
2) choo bee industry bhd

Posted by kerenie > 2013-11-12 14:06 | Report Abuse

Dear Mr kcchongnz, I've been following your posts since I've discovered this forum.. Do you mind to share with me the template that you used for calculations? I've no accounting background but have been learning from the postings here.. My email add is kirstenkl.v@gmail.com Thank you.

Posted by miketyu > 2013-11-13 12:28 | Report Abuse

In the net net valuation for Insas why PPE are taken only 30% percent to its value instead of 50%?

Posted by kcchongnz > 2013-11-13 12:58 | Report Abuse

miketyu, you are one of the very very few who spots my "mistakes". That shows you did look into the details of my analysis. This is good for me because as a lone ranger doing all these stuffs, there are bound to be mistakes everywhere. Correcting the mistakes would be good for me too as if not, I won't even know I have made wrong analysis. Thanks first.

However in this case, I didn't really went into very detail of finding what this "PPEs" are. So I just use an arbitrary lower percentage, ie 30%. I just want to be conservative when I want to invest in this share. You could very well use 50% or 75%, nothing right or wrong. But in this case, it doesn't make any difference, may be a sen more in net net value.

Similarly for other assets like receivables, may be one should go into details of what these receivables are more substantial, you would be more certain what value is more appropriate to use and come out with a better net net value.

Posted by coolio > 2013-11-13 14:32 | Report Abuse

Dear Kcchongnz, please share the calculation template as well. My email address is fonseka_82@hotmail.com. Thanks

Posted by houseofordos > 2013-11-13 15:45 | Report Abuse

KC, please take a look at AWC. (found this out courtesy of faberlicious)


Graham net net valuation for AWC
Graham net-net BS value Wt Liq value Per share
Cash and cash equivalent 63766 100% 63766 0.28
*Other investments 2061 100% 2061 0.01
Inventories 11341 50% 5670.5 0.03
Trade Account Receivables 52986 75% 39739.5 0.18
Property, plant and equipment 8700 0% 0 0.00
Intangible assets/tax recoverable16477 0% 0 0.00
Total assets 155331
Total liabilities 60087 100% 60087 0.27
Total equity 95244 0
Number of shares 225352 100000
Net tangible asset per share 0.42 0.23

At a price 0.265, we re only paying 0.035 for its business assuming net-net. Most of their assets are in hard cash with RM0.28 per share. The earnings are not great, earnings and FCF are lumpy. However, 80% of their income is derived from facilities management in Malaysia which is recorded strong growth last year due to revision in the concession rates. This division is also expanding into the biomedical maintainence services segment to reduce dependance on concession based income. The slowdown in middle east adversely impact earnigs from environment business Loss making technology segment was disposed in 1Q13.

The dividend payout historically has been between 1.5 to 2.5 sen and they have the cash to continue supporting this payment. This translates to a dividend yield between 5.7 to 9.4% which is great.

Posted by kcchongnz > 2013-11-13 18:43 | Report Abuse

house, AWC doesn't qualify as a Graham net net play as although it has high excess cash per share, it has relatively high total liabilities.

However AWC can be a great investment if you look at it from the angle of a good company (good ROIC and good cash flow) selling at a low price (earnings yield). And also from the angle of high dividend yield investing strategy.

Try that and let me know.

Posted by houseofordos > 2013-11-13 18:56 | Report Abuse

kc, u re assuming. that only cash can be used to pay liabilities... that may be bit conservative... receivables do have some value as it is part of working capital

Posted by kcchongnz > 2013-11-13 19:06 | Report Abuse

I did not treat receivables and inventories as zero value. I will use 75% and 50% of the book values respectively as by Graham. You add up the assets then subtract total liabilities and divide by the number of shares. That will give you the net net working capital. You then compare with the share price to see if it is higher than the share price. Read the following article:

http://klse.i3investor.com/blogs/kianweiaritcles/38350.jsp

Posted by houseofordos > 2013-11-13 19:14 | Report Abuse

kc that is what i did... graham net net is 23 sen... see my analysis above

Posted by kcchongnz > 2013-11-13 19:30 | Report Abuse

Yes, Graham net net working capital is 23 sen according to your computation. This is still lower than the share price of 26.5 sen. Hence the share price is higher than the Graham net net working capital. Hence it is not qualified as a net net investment. And you cannot say you are paying just 3.5 sen for its business. The business needs those working capital such as receivables and inventories and PPE etc.

But actually I think you haven't net off the minority interest which is quite a high proportion.

Posted by Avocado_C > 2013-11-13 19:32 | Report Abuse

KC, do you have any reservation by assigning 100% factor to land and properties? In the original Graham's formula, real estate property seems like not part of the equation. When I compute the net net value, I still assign 100% value to land & properties if the company doesn't adopt a revaluation policy in its balance sheet, I feel safe to assign 100% when these properties are recorded at cost compared to revalued amount.

Posted by kcchongnz > 2013-11-13 19:35 | Report Abuse

Avocado,
Graham net net is used for mostly manufacturing companies at Graham's era. So properties were not in the formula.

I agree with you about your rational about properties percentage used. That is what I did.

Valuation is an art.

Posted by houseofordos > 2013-11-13 20:03 | Report Abuse

kc, thanks for the explanation. So if there is significant minority interests means that i should shave off that percentage from the Net net value right ?

Minority interest = 25%
Net net value = (1-25%) * 0.23 = RM0.17

you are right..not a graham net net play... I think only qualify as high dividend yield play.

Posted by kcchongnz > 2013-11-13 20:14 | Report Abuse

house, look through the angle of "In search of excellence" and let me know.

Posted by ctw101 > 2013-11-14 08:25 | Report Abuse

Dear kc, I have been following your posting for a while. I find that you re truly a real gentleman and genuinely willing to share and teach. You are a very good mentor. Can I also ask for your calculation template? Pls do allow me to communicate with you via email. My email add ctw101my@yahoo.com.thanks heap. Anne

Posted by steph94 > 2013-11-14 09:29 | Report Abuse

dear mr kcchongnz
i appreciate your posting and calculation. we cant bog you down with each counter ..pls help...email me the calculation template...teach us how to fish rather than give us the fish...thank you. my email
janng_59@yahoo.co.uk..

Posted by ongpeter99 > 2013-11-14 10:24 | Report Abuse

dear Mr kcchongnz
i appreciate if you can email me the calculation template......thanks. my email ongpeter99@gmail.com

Posted by faberlicious > 2013-11-14 11:24 | Report Abuse

kc,dividend yield for Hexza not 6.5 %. The 10% dividend less tax is only 4 sens.So at the price of 77.5 sen yield is only 5.10%Still ok lah.

Posted by miketyu > 2013-11-14 13:58 | Report Abuse

Thanks Mr kcczhongz. I only had 8 months of trading experience and my losing is more than earning so far. Hence i would like to learn the art of value investing from you.

Posted by kcchongnz > 2013-12-04 11:10 | Report Abuse

Three months ago I wrote about the Graham net net valuation of the following three companies as shown below:

Table 1: Graham net-net valuation of Daiman
Company Price NTA Net-net Discount
Daiman 2.63 4.85 3.76 -30%
KSL 2.02 3.13 2.47 -18%
Plenitude 2.10 3.35 3.04 -31%

At that time Daiman and Plenitude are clearly more undervalued than KSL by a wide margin and hence those two companies were preferred to invest than KSL.

Since then Daiman and Plenitude has gone up in prices by 25% in three months as shown below, whereas KSL share price has only gone up by 3%.

Company 6/09/2013 4/12/2013 Change
Daiman 2.62 3.28 25%
Plenitude 2.10 2.67 27%
KSL 2.02 2.09 3%

Since then they have also released their latest quarterly results as at 30/9/13. Has anything changed? Yes, there is.

KSL's latest balance sheet shows its net tangible asset has increased from RM3.13 to RM3.30, and its Graham net net also increased by 6% from 2.47 to 2.61. The following table shows the comparison of the revised net net, the share price now and the discount of the share price to the net net:

Company Price NTA Net-net Discount
Daiman 3.27 5.02 3.82 -14%
KSL 2.08 3.30 2.61 -20%
Plenitude 2.67 3.44 3.11 -14%

Now due to the revised net net and the present share price of each, the investment preference is reversed with KSL more favourable at 20% discount to its net net compared to 14% of the other two.

Moreover the three quarter results shows the EBIT of KSL has improved by 85% to 250m.

So KSL, at RM2.09 appears to be a better buy.

Posted by francis5269 > 2013-12-06 01:52 | Report Abuse

Hi, mr.chong... im so impressive of your using graham method to value a company...thx for sharing... I think I have long way to learn... by the way ... can give some tips abt hw to start it... tis my email address. francislsf@hotmail.com... hope can get u reply...thx aagain...

Posted by kcchongnz > 2013-12-06 09:41 | Report Abuse

francis5269, Graham net net valuation is not a holy grail in investing. As a matter of fact, there is no holy grail in my opinion.

Graham net net is only used for asset based valuation. It is a safer method as compared to forecasting of future cash flow in earnings based valuation. You have to look at the company's balance sheet and make some judgement as shown in the valuation of KSL below:

Graham net-net BS value Wt Liq value Per share
Cash and cash equivalent 112739 100% 112739 0.29
Land held for property development 588706 100% 588706 1.51
Investment properties 445459 100% 445459 1.14
Property development costs 234452 100% 234452 0.60
Inventories 81227 50% 40614 0.10
Trade and other receivables 184173 75% 138130 0.35
Property, plant and equipment 157707 0% 0 0.00
Other assets 27379 0% 0 0.00
Total assets 1831842 xxxx 1560099 3.99
Total liabilities 541,320 100% 541320 1.39
Total equity 1290522 xxxx 1018779 2.61
Number of shares 390548 xxxx 390548 xxxx
Net tangible asset per share 3.30 xxxx 2.61 2.61

Posted by francis5269 > 2013-12-06 12:12 | Report Abuse

hi，mr.chong. may i know how to get "Net-net Discount"? is it "Net Net Working Capital/ outstanding share"?

Posted by sense maker > 2013-12-06 12:32 | Report Abuse

Discount in market price from net asset or net current asset values as per book is such mostly because investors discount the possibility of value trap. This is often found in companies that do not have a formal dividend policy normally due to poor ongoing operating business. It is also found in companies sitting on loads of cash, but unable to deploy it for new biz or biz expansion in a timely manner.

So, the existence of a discount does not call for a buy decision unless distribution to shareholders is immiment or foreseeable.

Posted by ipomember > 2013-12-06 13:48 | Report Abuse

well said sense maker

Posted by houseofordos > 2013-12-06 14:09 | Report Abuse

Posted by sense maker > Dec 6, 2013 12:32 PM | Report Abuse
"So, the existence of a discount does not call for a buy decision unless distribution to shareholders is immiment or foreseeable."

Well said but the problem is you need insider info to know this and by that time the price would already have run up. But in general what you say makes sense... better if we found a net net counter with earnings potential and a dividend policy

Posted by sense maker > 2013-12-06 14:20 | Report Abuse

Our money is hard earned. So, as minority shareholder, the safest is to value the investee company from all angles and all methods (i.e. dividend yield, GP, ROE, ROA, PE, net cash position, net tangible asset backing, DCF, capacity expansion potential).

Insider information is quite impossible to obtain in a timely fashion. Management integrity on the other hand may be assessed based on past records.

We invest only if all areas prove good which in combination represents good value proposition.

We try to spot catalyst and buy 3 to 6 months ahead and before others. Determining fair value is important as it guides you on what price and when to sell.

Posted by houseofordos > 2013-12-06 14:23 | Report Abuse

sense maker, you talk a lot of sense. may I know what counters you are invested in or feel are good companies ? Would sure like take a look at them.