Posted by jester > 2013-12-31 17:50 | Report Abuse

Superb run KC to have excess return of 38.9%. Boy I wish I could be as good as you. But in order to do that, I will learn more from you as well as everyone.

Thank you so much for your knowledge. Have a great fruitful year 2014.

Posted by CityTrader > 2013-12-31 18:09 | Report Abuse

Congrats u kcchongz!

Posted by waiming > 2013-12-31 18:41 | Report Abuse

TQ for sharing. Really appreciate your kindness!

Posted by jennylee1382 > 2013-12-31 18:58 | Report Abuse

Congrats u kcchongz! could you post yr stock pick portfolio for 2014. like abv.

Posted by seahsk > 2013-12-31 19:06 | Report Abuse

u did a greatjob welldone

Posted by hiddengem > 2013-12-31 20:27 | Report Abuse

Congratulation to Mr kcchongnz on yr great achievement of average return of 53.0% for year 2013 portfolio by outperforming the KLCI which managed to achieved only 14.1%.

Wishing you a year that is filled with all the fragrance of roses, illuminated with all the lights of the world. Hope this year will be the year when all your dreams come true. HAPPY NEW YEAR 2014.

Posted by Ooi Teik Bee > 2013-12-31 21:19 | Report Abuse

Mr Tan,
Please summarise my 2013 pick. Please adjust the price of L&G and KHSB.
Thank you.
Ooi

Posted by hiddengem > 2013-12-31 21:24 | Report Abuse

Mr Ooi Teik Bee wishing u a successful & rewarding year for 2014. HAPPY NEW YEAR.

Posted by Jvei > 2013-12-31 21:35 | Report Abuse

Happy new year to all.

Posted by King Kong73 > 2014-01-01 07:57 | Report Abuse

well done

Posted by kcchongnz > 2014-01-01 17:21 | Report Abuse

SKP Resources in this portfolio of mine lost 1.5% for the last one year, as compared with the gain of 14% of the broad market. The alpha is minus 15.5%, not good. Have I done anything wrong investing in this stock at 34 sen a year ago?

Just check my analysis a year ago, SKP Resources meets the Magic Formula of investing with ROIC of 34%, and at 34 sen, EV/Ebit was only 5.8. That is a steal considering its very high operating efficiency. Was it very risky investment at that time. Certainly not.

Investment risk comes with paying too high a price. How can it be high when the PE was 7.5, and earnings yield (EV/Ebit) at 17%? Moreover, SKP Resources had steady and growing revenue and income, at a compounded annual growth rate of 16% for the last 6 years. Its balance sheet is squeaky clean with an excess cash of 10 sen per share, and zero debt, and heaps of cash flows and free cash flows!

The problem is, its earnings has slipped by more than 30% for the last two quarters. Cash flow is also quite poor compared to previous time, but still with positive free cash flow. Yes, there must be some hiccups in its operations. Is it temporary or a long-term problem? I really don’t know. Could anyone foresee the deterioration of its business a year ago? Certainly not me. I read about the positive foray of Dyson into China actually.

Yes, there is a loss in this stock but not much. This was because I have built in a high margin of safety and had considered the risk assessments when buying this stock then,. Was it a wrong decision? I don’t think so.

“The correctness of a decision can’t be judged from the outcome. Nevertheless, that’s how people assess it. A good decision is one that’s optimal at the time it’s made, when the future is by definition unknown. Thus, correct decisions are often unsuccessful, and vice versa.“
Nassim Taleb in “Fool By Randomness”

Posted by Avocado_C > 2014-01-02 17:03 | Report Abuse

Hi, KCChong, Happy New Year! First, I believe 53% is an "understated" return for this portfolio as it is assuming equal weightage for all shares listed here, which I think in real life it may not be the case. If the "real-life" portfolio was heavy on Pintaras (which you were seen very confident in this company), Jobstreet or Prestaring, I am sure 53% is a "humble" figure. I have some questions for you ...

I noticed this is just your 1H portfolio of 10 stocks and you had another selection of stocks for 2H. Also, based on your postings, you did hold / invest in other counters which are not listed in these 2 portfolios. I am just wondering do you limit yourself to a maximum number of counters held at one time? What is your guiding principles on the "ideal" number of counters in your portfolio?

Warren Buffett is widely quoted as saying : “Diversification is protection against ignorance.” But, his mentor, Benjamin Graham was pro-diversification. What is your thoughts on this?

Posted by kcchongnz > 2014-01-03 15:41 | Report Abuse

Avocado, I strongly advocate diversification in stock investing. My thought about diversification is here:

http://klse.i3investor.com/blogs/kianweiaritcles/43093.jsp

Not everybody is Warren Buffet who is so good in his investing prowess. Actually many people do not realize Warren Buffet's Berkshire Hathaway actually have many companies and stocks under its portfolio.

Posted by Avocado_C > 2014-01-03 16:26 | Report Abuse

Thanks, I must have missed that posting of yours while on holidays.

I feel like I am having a dilemma whereby I keep adding stocks to my portfolio and not selling / removing ...

Posted by kcchongnz > 2014-01-05 10:22 | Report Abuse

Kimlun risk-adjusted return

One of the stocks Kimlun here returned 26% compared with KLSE of 14%. Is that a good risk-adjusted return? We know that return alone-and especially return over short periods of time-says very little about the quality of investment decisions. Return has to be evaluated relative to risk taken to achieve it. How do we evaluate it then?

We have used some academic approaches to evaluate the performance of the stock price of Kimlun for the past one year. One of the methods was the Sharpe ratios to measure its idiosyncratic risk as shown in the link here.

http://klse.i3investor.com/blogs/kcchongnz/44334.jsp

The above link shows that as Kimlun has an annual standard deviation of return of 38%, using a risk-free rate of 3.5%, the sharper ratio is 0.59, way below the Sharpe ratio of KLCI of 1.2 which returned 14% with a volatility of 8.8%. Hence one may say that the risk-adjusted return of Kimlun is below that of the KLCI, or the realized risk-adjusted return of Kimlun is below expectation.

Another academic way of measuring the risk-adjusted return of Kimlun is taking it as a stock in a diversified portfolio, the measure of its systematic risk using the Capital Asset Pricing Model as shown in the link below:

http://klse.i3investor.com/blogs/kcchongnz/44336.jsp

In the above, it was shown that Kimlun’s realized return was as expected with an α closed to zero in accordance to the CAPM.

The above two methods of assessing the risk-adjusted return of Kimlun, however, are just academic. How can we go about assessing the risk-adjusted return of a company based on some common sense, rather than the mumbo jumbo of α and β in academic? Let me venture into something controversial evaluation here.

In evaluating the performance of a diversified portfolio of stocks, I like look at it like the following way:

Risk-adjusted return Ra = α + β * Rm

where α is the excess return, β is a risk measure, 1.0 for the broad market, and Rm is the return of the market. What is this β then? Once we can measure β of the stock, using βm of KLCI as 1.0, we can evaluate if the stock make an excess return as measured by α over the market.

I will try to use the intuition of Katsenelson’s approach when he used some risks adjustments for obtaining his absolute PE in valuing stocks. Note that the method presented below is more of a judgement than hard numbers.

I will adjust the value of β of individual company, add or subtract certain percentage points to β according to its specific risks based on the following five conditions:
1. Earnings growth rate. Subtract when there is good growth rate
2. Dividend yield. Subtract if good and stable dividend
3. Business risk. Subtract if business risks low
4. Financial risk. Subtract if debt is low
5. and earnings visibility. Subtract if good visibility

Value β =1+Eearnings growth + dividend yield + Business risk + Financial risk + earnings visibility

1. Kimlun has a good growth of 16% per year in its earnings. However, for the last two quarters, its earnings has slipped quite badly by more than 40%. I will arbitrary add 15% to “earnings growth” in the formula.
2. Kimlun pays reasonable dividend. However, its cash flow is quite bad and I doubt the good dividend is sustainable. I will be neutral here.
3. Kimlun’s ROE and ROIC of 18% and 23% respectively for the last financial year was good. However, these were achieved with high leverage of 2.6, as its net profit margin is quite low at only 7.6%. Furthermore as discussed, the last two quarters financial performance has deteriorated quite badly. I will add 10% in business risk here.
4. Kimlun has quite a high debt of 161m, or a debt-to-equity ratio of 0.6. And debt has to be increased because of its poor cash flow in the near future. I will add 25% here in the “Financial risk”.
5. Kimlun has been securing some jobs recently and hence earnings visibility is there. However because of the recent drop in earnings, I will maintain neutral here.

Hence β=1.0 + 0.15 + 0 + 1.1 + 0.25 + 0 = 1.6

Hence β x Rm = 1.6 x 14% = 22.4%

AS Kimlun returned 26% last year, 3.6% over what was expected, it can be said that it has earned a higher risk-adjusted return according to this method of evaluation.

Posted by keanpoh > 2014-01-18 01:31 | Report Abuse

I think if you've included cash dividend payout, you've achieved a higher annual return on your portfolio. Congratulations!!

Posted by kcchongnz > 2014-01-18 06:04 | Report Abuse

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

Posted by Fabien Wong > 2014-01-18 21:26 | Report Abuse

Hi kcchongnz,

What are your views/thoughts on these stocks:
1) Padini
2) Weida
3) AeonCr
4) Johotin
5) TongHerr

Do you see any value in them? And what will be your required margin of safety if one to invests in?
Thanks.

Posted by kcchongnz > 2014-01-20 12:12 | Report Abuse

Do I see any value in Padini?

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

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

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

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

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

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

Yes, Padini meets Greenblatt's Magic Formula investing.

Posted by cstan > 2014-01-21 00:49 | Report Abuse

I was disappointed with profit decline in all of Padini's divisions except for its Brands Outlets. Its FY6/13 annual report showed the following segmental PBT:
Vincci (PBT $40.7m in FY12 to $29.5m in FY13), Padini Corp ($46.7m to $40.7m), Seed ($7.6m to $3.1m), Yee Fong Hung ($26m to $33.1m), Mikihouse ($3.8m to $3.0m).
The only division which grew was Yee Fong Hung which operates Brands Outlets. How do you interpret this data against the 9 months current year?

Posted by Chrollo > 2014-01-21 07:48 | Report Abuse

Hi kcc, can i ask you a favour? i have been calculating SBC's intrinsic value and i find it deeply discounted.. i am using operating cashflow over the years and also free cash flow for some calculation. However i worry i might use the wrong numbers.. do you mind if i ask you to guide me a lil bit?

Posted by kcchongnz > 2014-01-21 08:25 | Report Abuse

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

Posted by Chrollo > 2014-01-21 09:51 | Report Abuse

Hi yes, so i am using the the operating profit before working capital of 41m. Then with their past cashflow growth from 2008-2013, it works out to be at a compounded annual rate of 20% pa. So i forecast the next 10 years using growth rate of 15% to be conservative and then discount them back using a discount rate of 20%. This words out to be Rm2.09 with a MOS of around 40%. And should i use free cash flow instead of operating profit before working capital? But if i use free cash flow, it will be severely depressed on the year the company use it to acquire big assets. Thanks..

Posted by Chrollo > 2014-01-21 09:55 | Report Abuse

I take the sum of all discounted value from now to ten years later and then divide them by the sharesoutstanding to get the intrinsic value. As im having trouble sorting out which should i use for forecasting growth, i am confused on whether to use profit before taxation, free cash flow, net cash from/(for) operating activities/balance carried forward, cash flow from operation, or operating profit as the number. Please kindly advise meeeee.

Posted by kcchongnz > 2014-01-21 10:43 | Report Abuse

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

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

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

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

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

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

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

Posted by miketyu > 2014-01-21 12:59 | Report Abuse

Business risk: CENBOND’s business has high efficiencies with return of assets of 9.7% (>7%) and return of equity of 12.7%. Last year cash return (FCF/IC) is at 37% and average of last 7 years is 16%. Hence an arbitrary 10% discount is applied to its business risk.

Financial risk: CENBOND has a very healthy balance sheet with an excess cash of 64 sen per share. It has very little debt. Current ratio is very high at 4.3. Free cash flow is abundant at 7 times total debt. Hence a discount of 10% is applied to the financial risk.

Earnings visibility: CENBOND has stable and reasonable gross and net profit margin of 20% and 10% respectively. Its cash flow from operations averages about 140% of its net income. It has average free cash flow of about 8% of revenue. No premium or discount is applied to earnings visibility.

Hence the absolute PE for CENBOND is:

Abs PE = 12.8* [1+(1-90%)] *[1+(1-90%)] * [1+(1-100%)] = 15.5

Fair value of CENBOND= 15.5*0.16 = RM2.48

Dear Mr Kcchongz,
An arbitrary of 10& discount is applied to its business risk.
A discount of 10% is applied to the financial risk.
While no discount is applied to earning visibility.


How good is good and how bad is bad?
How exactly number of 10% is chosen? What if the business risk/financial risk/ earning visibility is high which number should I use?
Do you have a chart to refer to?
Thanks for your kind sharing.

Posted by kcchongnz > 2014-01-21 14:54 | Report Abuse

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

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

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

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

Posted by Chrollo > 2014-01-21 22:22 | Report Abuse

Hi kcc, thanks for the advise. Yes i realized that a company growing at a rate of 12% is consider a booming company according to Graham and after 7 years he told it is advisable to reduce it to growth of 7%.
SBCCorp CAR return for past few years is 20%. Actually i reduced it to 15% to be conservative and still it is high i believe.

For the 20% discount rate, i use it to actually discount it back to try and find stock which has this ability to tank such amount of discount rate. If i apply the Malaysian bond rate which is 4%, the intrinsic value would be too high and i would not hope that i only get a meager 4% return in market if i can get the same return for risk free investment.

I did not wan to use Free Cash Flow was also partly because it wipes out the operation profit ability of the company. Free Cash flow is only available after the company considered whether to use the cash or not to use the cash. If the company plans to use the cash, and depending on the amount, it actually wipes out what the operating activities can show. Free cash flow is a good indicator to show how the company is managing the money on whether they keep on using it up or not but to gauge the ability of the companies' operating ability thru free cash flow, it would give volatile numbers depending on the company's management and investment opportunities.

I guess there is still long way for me to go. Based on what you wrote, it seems different companies have different ways to valuate. How long you took to achieve the feat u are today kcc? Thanks

Posted by kcchongnz > 2014-01-22 10:10 | Report Abuse

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

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

More important is if the price is good or not.

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

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

Posted by Firebird2 > 2014-01-22 10:27 | Report Abuse

Thanks kcchongnz for looking into Johotin.

Posted by miketyu > 2014-01-22 12:10 | Report Abuse

Thanks kcchongz. I got what u mean. Crystal clear. Thanks again

Posted by Firebird2 > 2014-01-22 12:16 | Report Abuse

For those who are new and have not any experience, do pay more attention to what kcchong writes. Even sifus also learning from kc. Don't just follow any buy this buy that from ppl who have not done any anaysis. Read the facts that kc presents and decide for yourself and don't blame anyone. The market is a dynamic one

Posted by Fabien Wong > 2014-01-22 16:40 | Report Abuse

Thanks kcchong for ur valuable insights. After much thought, I decided against to invest in both Padini and Johotin and opted to invest in Thong Guan instead. I like Padini. I like how they managed to improve on cash conversion cycle and inventory management. It's FCF is impressive and growing hence evident by it's increasing dividend payout. However I'm slightly wary of its future performance but having said that I'm convinced Padini will able to ride out of any challenges faced as they have a very strong management team and it's business strategies are constantly changing to adapt to the market demands. I invested in Padini before and will look to add when the price is right. As for Johotin I had already invested last year at much higher price and not looking to add further.

Posted by stockoperator > 2014-02-27 17:55 | Report Abuse

Dear KC, i admire your fundamental selection. Having said that, we cant really know the real economy strength of company until the recession/crisis Hit. Who is swimming naked until the pool is empty right? Nowadays, the figure of your company selection is too rosy due to its small-sized? While You can be right with High risk appetite.

I am really looking at company with more than 20 years of records like Nestle,Dutch Lady, LPI, United Plantation, Public Bank,AEON, Mflour, Panamy, QL and all those company with tested Business model. Having said that, I like your Kfima, Fimacorp and jobstreet. I dare not touch construction and technology sector due to its volatile nature.

Posted by stockoperator > 2014-02-27 23:00 | Report Abuse

I would say minimum net profit of Rm100mil with net cash as a good criteria and you must know your company like your neighbourhood. To understand their competitive edge and monopoly business. Why min Rm100mil net profit and net cash? As I believe in Economy of Scale and Ruthlessness in the Cut throat Business and No Funding of Growth by Debt and Cash is King and Business could be wiped out Overnight.

Posted by stockoperator > 2014-02-27 23:09 | Report Abuse

I would be much more comfortable if I could befriend with directors and visit their office and know their products and More importantly what competitors talks about them than just knowing the company from reports. What I mean is we really need to spend a lot of time to think about their business As if you want to Buy then dont sell. If you want to sell for profit Dont Buy.

Posted by stockoperator > 2014-03-03 17:29 | Report Abuse

Most of KC counter has been shooting to the moon. Ironically the counter that i like kfima/particularly fima has not really moved yet.

I try to get some Fima but lack of volumn it further confirm my conviction that it is a good counter that nobody is selling to me at lower price.

Posted by kcchongnz > 2014-03-26 05:38 | Report Abuse

15 months have passed. What is the performance of the portfolio so far? Here is an analysis of their share price performance as shown in appended Table 1 below.

Table 1: 15 months performance of my portfolio
Date 21/01/2013 25/03/2014
Stock Name Ref Price Price now Dividend Gain % gain
Kfima 2.02 2.34 0.08 0.400 19.8%
Pintaras 1.56 3.08 0.125 1.645 105%
ECS 1.06 1.21 0.06 0.210 19.8%
Plenitude 1.85 2.55 0.06 0.760 41.1%
Jobstreest 1.20 2.44 0.06 1.300 108%
Pantech 0.78 0.89 0.07 0.180 23.1%
SKPRes 0.34 0.315 0.02 -0.005 -1.5%
NTPM 0.47 0.855 0.05 0.435 92.6%
Kimlun 1.25 1.57 0.05 0.370 29.6%
Prestariang 1.21 3.86 0.13 2.780 230%

Avearage 66.8%
FTSE Mid70 12294 13820 369 1895 15.4%
KLSE 1632 1837 49 254 15.6%

All 10 stocks in the portfolio, except for one SKPRes have positive total returns which varies from the lowest of 20% for ECS to 230% for Prestariang. The only poor performer, SKP Resources only lost about 1.5%. The other laggard, Kumpulan Fima, is now a gainer of 20%. The average return since 15 months ago improves to 67% from 53% three months ago. The broad KLSE market has a return of 15.5% in the same period. Hence the excess return of the portfolio has widened considerably to 51.3%.

This is for discussion purpose of the benefits of using fundamental investing strategies.

Posted by hammers > 2014-07-19 01:39 | Report Abuse

How will NTPM progress this time?