KC, I have this stock in my watchlist. Apart from the lower ROAE and FCF vs Revenue, this company tick most of the boxes in my selection criteria. Especially for the high ROIC & CROIC of above 20%.
But I think the weak ringgit will continue to squeeze gross and net profit margins out of this business. Of course we do not know when Ringgit will recover, but right now the outlook remains unfavourable.
As a precaution, I am sitting on the sidelines until the situation looks better.
I will wait for the worst of this company happen, as the real discipline value investor as said, FEAR WHEN OTHER GREEDY, GREEDY WHEN OTHER FEAR. I see PAT latest quarter reduce about 35%, this didnt alight with the revenue grow. I will HOLD.
This is what i get from the 2014 annual report Currency risk sensitivity analysis A 10% (2013: 10%) strengthening of Ringgit Malaysia (“RM”) against the following currency at the end of the reporting period would have increased (decreased) post-tax profit or loss by the amounts shown below. This analysis is based on foreign currency exchange rate variances that the Group considered to be reasonably possible at the end of the reporting period. The analysis assumes that all other variables, in particular interest rates, remained constant and ignores any impact of forecasted sales and purchases. Group Profit or loss Profit or loss 2014 2013 RM’000 RM’000 USD 2,493 3,230 A 10% (2013: 10%) weakening of Ringgit Malaysia (“RM”) against the above currency at the end of the reporting period would have had equal but opposite effect on the above currency to the amount shown above, on the basis that all other variables remained constant.
"First-level thinking says, ‘I think the company’s earnings will fall; sell.’ Second-level thinking says, ‘I think the company’s earnings will fall less than people expect, and the pleasant surprise will lift the stock; buy.’" Howard Marks
This is a second level thinking:
Posted by NOBY > Jan 20, 2016 11:31 AM | Report Abuse Yes. We know that USD strengthening will impact ECS bottom line/revenue. Question is if its already priced in.
osted by Henry Tan > Apr 3, 2016 11:24 PM | Report Abuse
Can I understand why the profit margin is <2%? Should investor worried about it?
Trading business is generally come with low margin. As long as the margin is still positive, then the more important thing to look at is return on capital, or rather ROE. High ROE above its cost of equity is a good business. High ROE can also be achieved with volume of sales wrt it assets, or asset turnover.
And that is what ECS is able to do, so far so good.
Everyone talks about the most is if the business is a good business, and buy only if it is good. But few talk about if the price is right.
Even a so so business is a good investment if the price is cheap.
This book is the result of the author's many years of experience and observation throughout his 26 years in the stockbroking industry. It was written for general public to learn to invest based on facts and not on fantasies or hearsay....