Posted by moneySIFU > 2016-05-28 23:57 | Report Abuse

Mr Chong, what do you think on the dividend payout by the management? I am quite confused on this part.

I thought I used to be long term investor, I did that, bought & keep for many years, life is busy.

Now, when I have more time to participate the discussions with many forum members in i3, I have the tendency to become short term trader.

My question is:

What is the effect of paying good dividend payout like Lii Hen & Poh Huat comparing to Hevea who is busy on repaying back loan until recently & opted for low dividend payout.

The 3 are on my top priority observation list, so I like 3 of them.

Posted by moneySIFU > 2016-05-28 23:58 | Report Abuse

Effect for long term investors (more than 1 year) & short term trader (holding 6-12 months)

Posted by iamsoonoob > 2016-05-29 00:27 | Report Abuse

hello,kc and thanks for your great analysis on hevea.i do agree with the calculation and the metric benchmark but too bad in my personal opinion,its dividend payout not consistent and not so attractive to me......maybe its depend on individual taste though.......

Posted by Ezra_Investor > 2016-05-29 01:11 | Report Abuse

Woah... even my most respected teacher, KC finally wrote an article about Hevea.
I'm really glad. Thank you KC teacher.
This certainly boost my confidence that it's a right decision to invest and keep holding Hevea all along.

To be honest with you KC, I was getting a little worried and impatient if I made the right decision by keep holding and not selling. Even though I sticked purely to Fundamental Investing (because TA wise, Hevea's chart is not looking nice), as the price dropped a lot recently and remained flat for a long time.

Your article certainly reaffirmed my decision. Thank you.

Posted by Blacksails > 2016-05-29 01:43 | Report Abuse

Stock investment is a funny thing;if a stock has no strong supporters or sponsors like fun managers, it is not going to perform well long term. Hevea
could be one of them. Funny thing is that sometimes FA isn't important.

Posted by Ezra_Investor > 2016-05-29 04:33 | Report Abuse

I totally disagree.

1. Warren Bufett once said: "If The Business Does Well, The Stock Eventually Follows."
Fund managers are just normal person like you and me. When a business is doing so well, it's just a matter of time where they will be attracted to invest in it, like any other individual investor. You'll be late to the party if you wait for them.

2. Warren Bufett: “You should invest in a business that even a fool can run, because someday a fool will.” In my translation, it's "You should invest in a business that even a fool can invest, because someday even a fool will."

This is why sometimes I ignore the technical chart, share price & market movement. To me, FA is utmost important aspect to consider.

Posted by Icon8888 > 2016-05-29 07:01 | Report Abuse

http://klse.i3investor.com/blogs/icon8888/80293.jsp

Posted by Icon8888 > 2016-05-29 07:02 | Report Abuse

Previous two rounds USD bull run both lasted for seven yearsc

Posted by Icon8888 > 2016-05-29 07:22 | Report Abuse

stockmanmy, KC spotted Hevea few years ago at 23.5 sen. That time u were still slogging away at your desk doing your accounting chores. Please stop lecturing KC about investing, you fool

--------------------
"I first wrote about Hevea just three years ago when its adjusted share price was just 23.5 sen apiece, together with other furniture stocks as appended in the link below."

Posted by hissyu2 > 2016-05-29 11:32 | Report Abuse

@moneysifu, Hevea's direction is pretty clear. Clear off the debt to reduce financial cost, 2. enhance automation to increase profit margin.

Compared to its closest peer, Evergreen(which is also a particleboard procedure). Hevea is trading at 6x PE with high ROIC, ROE and terrific FCF generated. Evergreen is only paying 1 cent of dividend at 2016, with PE of 10x.

Certainly, if heave continues to do good, it is definitely able to pay more dividend while expanding and improving its business. With multi-millions of FCF, Hevea is certainly able to pay more dividend. It is just a matter of time :)

Posted by kcchongnz > 2016-05-29 12:57 | Report Abuse

Posted by moneySIFU > May 28, 2016 11:57 PM | Report Abuse
Mr Chong, what do you think on the dividend payout by the management?

Posted by iamsoonoob > May 29, 2016 12:27 AM | Report Abuse
hello,kc and thanks for your great analysis on hevea.i do agree with the calculation and the metric benchmark but too bad in my personal opinion,its dividend payout not consistent and not so attractive to me......maybe its depend on individual taste though.......


The most important thing for a business is its ability to produce cash flows from its core operations over a period of time, free cash flows (FCF) in particular after spending on necessary capita expenses for growth.

It is from this FCF that the company can do a few shareholder value enhancing things:

1) To invest in new ventures which yield higher return than the alternative investment the company can use this FCF

2) To pay down debts

3) To buy back its own shares if they are selling cheap

4) To pay dividend.

I roughly rank this order of importance for its use of FCF.

If the debt of a company i manageable, like what happen to Hevea now, and it can make better use of the money to pay down debt, (2) may not be that important any more.

Hevea was having huge USD denominated debts a few years ago which made its operation risky in time of economic down turn. It is no longer the case.

Posted by kcchongnz > 2016-05-29 13:31 | Report Abuse

Posted by Blacksails > May 29, 2016 01:43 AM | Report Abuse
Stock investment is a funny thing;if a stock has no strong supporters or sponsors like fun managers, it is not going to perform well long term. Hevea
could be one of them. Funny thing is that sometimes FA isn't important.


Where do your statistics come from?

I have shown many cases contrary to your point of view. Here is one of them

http://klse.i3investor.com/blogs/kcchongnz/92580.jsp

Posted by bcllct > 2016-05-29 15:14 | Report Abuse

Great write up KC.
I noted that the 5 yr average FCL of 53.5m is much higher than the 5 yrs ave PAT of 29m i.e. over the last five yrs it produced 120m more cash than its PAT.
on closer analysis the bulk of the excess came from its 127m non cash depreciation charges vs its 38.4m net capital expenses. I am wondering is this sustainable ?

Posted by stockmanmy > 2016-05-29 15:49 | Report Abuse

450 m shares
120 m warrants


is it really under valued?

The reason it is relatively unaffected by adverse currency movements against USD is because its sales are mainly to Japan and China. ...not USD.


If you want to buy, go ahead la.



warning.....FA of the type preached are based on historical records , how much of a predictive power, I leave it to you.

Posted by Ezra_Investor > 2016-05-29 16:04 | Report Abuse

Please lah. They export to other countries, but it's denominated in USD.
Desa, oh desa. Please do your research first before you start criticizing without basis.

Posted by 10bagger10 > 2016-05-29 16:14 | Report Abuse

\enyone?

Posted by Icon8888 > 2016-05-29 16:15 | Report Abuse

He thought export to China means it is Yuan

Exports to Japan is Yen

LOL

Posted by kcchongnz > 2016-05-29 17:31 | Report Abuse

Posted by stockmanmy > May 29, 2016 03:49 PM | Report Abuse
1)450 m shares
120 m warrants
is it really under valued?
2)The reason it is relatively unaffected by adverse currency movements against USD is because its sales are mainly to Japan and China. ...not USD.
3)If you want to buy, go ahead la.
4)warning.....FA of the type preached are based on historical records , how much of a predictive power, I leave it to you.


In your first concern (1), if you read and can understand the valuation in Table 4, you won't ask this question any more, especially if you are an accountant.

Your good friend, who aren't an accountant have corrected your statement (2) aptly, a statement of an accountant.

3) Did I ask you to buy?

4) You have posed this same statement again and again as below

Posted by stockmanmy > Mar 3, 2016 10:48 AM | Report Abuse http://cdn1.i3investor.com/cm/icon/trans16.gif
What Fa what Ta?
It is instincts ......either you got it or you don't.

I have addressed your statement in a full article with evidence here. Please read and appreciate your further comments.

http://klse.i3investor.com/blogs/kcchongnz/92580.jsp

I am still awaiting your substantiation and evidence on your statement of "It is instincts ......either you got it or you don't."

Mind to share with us the academic research that instinct is the way to go in investing?

Posted by stockmanmy > 2016-05-29 18:02 | Report Abuse

They have done quite well expanding their markets in Japan and China, haven't they?
The share came down from a high a $ 1.80 to its current level and report a decent set of figures, contradicting the message send by the share decline in the same period. , thus offering a good trading opportunity.


well, go ahead....just want to know do Malaysia really have strategic advantage in this business compare to competitors from Thailand and Indonesia and other countries?

450 m shares
120 m warrants

sales about $ 500 m

not my money. up or down don't affect me.

Posted by stockmanmy > 2016-05-29 18:29 | Report Abuse

why insiders not buying on good news one?

Posted by silom > 2016-05-29 19:11 | Report Abuse

instincts or intuitive or gut feeling ? you worship your idol too much, he could predict half correct the other half he manipulate !

Posted by Ezra_Investor > 2016-05-29 19:18 | Report Abuse

Haha KC, sorry but I'm no good friend of Desa. Though neither am I an enemy of his.
I'm just a peaceful passersby who is trying to correct an ignorant statement.

-------------------------------------------------------------

Posted by stockmanmy > May 29, 2016 06:29 PM | Report Abuse

why insiders not buying on good news one?

-------------------------------------------------------------

I guess this is what people called "Picking bones from eggs".
You know Desa, if you're smart enough, i3investor actually have a column that allows you to check insiders purchases.

http://klse.i3investor.com/servlets/stk/annchdr/5095.jsp
http://klse.i3investor.com/servlets/stk/annchsh/5095.jsp

As usual, do your research first before picking bones from eggs. Otherwise the joke's on you.

Posted by oregami > 2016-05-29 19:46 | Report Abuse

He thought when insiders buy share price must shoot up one. Cannot collect low ar? Why must give u opportunity to trade?

Posted by kcchongnz > 2016-05-29 20:05 | Report Abuse

Posted by bcllct > May 29, 2016 03:14 PM | Report Abuse
Great write up KC.
I noted that the 5 yr average FCL of 53.5m is much higher than the 5 yrs ave PAT of 29m i.e. over the last five yrs it produced 120m more cash than its PAT.
on closer analysis the bulk of the excess came from its 127m non cash depreciation charges vs its 38.4m net capital expenses. I am wondering is this sustainable ?

Great observation bcllct.

The high free cash flow is due to the charge back of depreciation from the very high capex made in 2005 and 2006. No, the continuous high Free cash flow is not sustainable. Eventually capex has to be about depreciation, and hence FCF closely follows net income.

Hence my estimate of FCF using its average last 5 years FCF is too liberal. Thanks for pointing out.

However, its latest trailing net profit of RM57m closely resemble my my assumption of base FCf of RM56.2m used in the constant growth model.

Valuation is also an art, but I believe it is better than "intuition" and "gut feeling".

Posted by stockmanmy > 2016-05-29 20:07 | Report Abuse

450 m shares
120 m warrants
Heaveaboard, up or down does not affect me.
just let you know it is not PE 3 as shown by i3 in financial analysis column. hahaha

Posted by stockmanmy > 2016-05-29 20:09 | Report Abuse

fcf.....

there is nothing you can get anywhere that is subject to as much fluctuations as FCF..................

and all for very legit reasons.

Posted by stockmanmy > 2016-05-29 20:16 | Report Abuse

people in i3 have been trained to look at cash levels in the Balance Sheet. Even go calculate cash per share as if give them margin of safety.
some have comments like high cash levels good.

well, if cash so important for share price, nobody will want to declare dividends.

Posted by probability > 2016-05-29 20:21 | Report Abuse

my 'intuitive' 'gut feeling' is...he is a tin kosong.

Posted by chl1989 > 2016-05-29 20:26 | Report Abuse

everyone has different strategy when it comes to investment. coz we are all different. different personality, different upbringing, different life experience, different work experience, different background, different knowledge, etc. As long as you are comfortable with your strategy and you make money, then congratulation! If you are not, KC's methods of "head i win, tail i don't lose much" might be a viable option for you. Remember, there is no "best strategy" in this world! :)

Posted by soojinhou > 2016-05-29 20:27 | Report Abuse

Once in a while, specific trigger drives share price so unjustifiable low that value investors who can rationalise well stand to make a nice sum by being a contrarion. Part of the reason for Hevea's share price decline is due to persistent attacks from a blogger by the name of Robertl. Interestingly, unlike professional short sellers who are experts in casting doubt on financial numbers, none of Robertl's allegations actually question the stunning numbers achieved by Hevea. This make the sell down even more ridiculous than those who fall victim to professional short sellers.

Posted by kcchongnz > 2016-05-29 21:00 | Report Abuse

Posted by stockmanmy > May 29, 2016 08:09 PM | Report Abuse
fcf.....
there is nothing you can get anywhere that is subject to as much fluctuations as FCF..................
and all for very legit reasons.

Posted by stockmanmy > May 29, 2016 08:16 PM | Report Abuse
people in i3 have been trained to look at cash levels in the Balance Sheet. Even go calculate cash per share as if give them margin of safety.
some have comments like high cash levels good.
well, if cash so important for share price, nobody will want to declare dividends.


Without FCF, and without cash in the balance sheet, tell us where the money from dividend payment comes from?

And tell us, not looking at balance sheet, free cash flow, PE etc, how do you do your investment?

"Instinct", "Intuition", "gut feeling"? Tell us your personal experience how you have made your big money?

Someone have done that? Provide us with evidence, say the last 5 years, a history and record of how big money he has made? This is the clue, the history and record can be found, just right here, in i3investor.

Without doing the above, how are you going to convince us that basing on those instinct, intuition and gut feeling is a better way to go in investing?

Posted by Alphabeta > 2016-05-29 22:05 | Report Abuse

The B/S strength has indeed improved substantially and should be in a position to pay better dividend in future. The management intention to spend RM20 mil capex to upgrade to increase automation and reduce labour costs is aright step to improve the quality of its products to retain and attract premium customers.

My only concern is 90% of its revenue is denominated in USD but its input costs are mostly denominated in Ringgit. You can see in its annual report that most of its receivables and payables were denominated in USD and Ringgit respectively.

At current ROE of around 20%, if the dividend payout increase to 30% of EPS. Its sustainable growth rate at 14% is very good. Hence, at RM 1.18, achieving a TSR of 10% should be sustainable.

Posted by Alpha Trader > 2016-05-30 00:40 | Report Abuse

salted fish will hate u and spam you next

Posted by Longan_Sui > 2016-05-30 01:15 | Report Abuse

Salted fish is only a small potato...he left everywhere smelly

Posted by Ezra_Investor > 2016-05-30 04:53 | Report Abuse

KC, I usually use 5 years data when doing Fundamental Analysis.
Do you advise to use 10 years data instead of 5 years?
Because I kinda think 10 years is quite far fetched because the macro and micro economy has changed drastically.

Posted by kcchongnz > 2016-05-30 07:09 | Report Abuse

Posted by Ezra_Investor > May 30, 2016 04:53 AM | Report Abuse
KC, I usually use 5 years data when doing Fundamental Analysis.
Do you advise to use 10 years data instead of 5 years?
Because I kinda think 10 years is quite far fetched because the macro and micro economy has changed drastically.


Investing is about the future. The past is used as a guide. What to use depends how well one knows about the industry, and the company is specific.

Sometimes I use 5 years' past as a guide, sometimes 10 years, but sometimes just the last year. If there is a good guidance from the company or the analysts about the future, that should be a better guide.

I kind of agree with you because not only macro has changed, the micro of the company may have changed too. So using the past too far back may not be right.

Posted by Flintstones > 2016-05-30 07:55 | Report Abuse

Here comes K Chong with the "extrapolate past earning" fundamental analysis again. Remember Pintaras? And how I asked you about its earnings prospect? In hindsight, isnt it safe to conclude that I understood Pintaras business better? How is the company doing now fundamental wise?

Posted by duitKWSPkita > 2016-05-30 07:55 | Report Abuse

Wao.

Gentleman KcChong is back...where have u been ?

Posted by cheahsk > 2016-05-30 09:14 | Report Abuse

Hi KC,
Could you please explain a little bit more of what you mean in the last part of your statement?

"The return on equity and invested capitals, both of which are my favourite metrics to measure ..........., have both shot up to 22%, way above its costs".
Thank you
Yes, it is so good to see you back.

Posted by stockmanmy > 2016-05-30 09:53 | Report Abuse

"extrapolate past earning" fundamental analysis would be the only competitive for a guy from NZ
and NZ market is too boring to cari market.

no need to know the business.

Posted by TAH > 2016-05-30 10:11 | Report Abuse

Stockmanmy, u are wrong,fundamental analysis play an important role in investing other then technical.

Posted by bearbear11 > 2016-05-30 11:06 | Report Abuse

Good analysis by KC.
Buy Hevea !!!

Posted by kcchongnz > 2016-05-30 14:52 | Report Abuse

Posted by cheahsk > May 30, 2016 09:14 AM | Report Abuse
Hi KC,
Could you please explain a little bit more of what you mean in the last part of your statement?
"The return on equity and invested capitals, both of which are my favourite metrics to measure ..........., have both shot up to 22%, way above its costs".
Thank you
Yes, it is so good to see you back.


Customarily, most investors measure annual company performance by looking at earnings per share (EPS). Did they increase over last year? Are they high enough to brag about? For his part, Buffett considers EPS a smokescreen. Most companies retain a portion of their previous year's earnings as a way of increasing their equity base, so he sees no reason to get excited about record earnings per share. There is nothing spectacular about a company that increases earnings per share by 10%, if at the same time, it is growing its equity base by 10%. That's no different, he explains, from putting money in a savings account and letting the interest accumulate and compound. Worse still, there are many companies borrow huge amount of money to improve EPS, but the marginal return is way below its borrowing costs.

For example, a company borrows RM100 m and invest in a new project making RM2 m for the year. Its earnings would grow by RM2 m for the year. Is that a good move? Obviously not. How can making a 2% of an additional capital a good thing?

The test of economic performance, he believes, is whether a company achieves a high earnings rate on equity capital ("without undue leverage, accounting gimmickry, etc."), not whether it has consistent gains in EPS.

If your cost of capital is 10%, and your return on the capital is 20%, isn't that wonderful?

Posted by moneySIFU > 2016-05-30 14:56 | Report Abuse

Thank you, Mr Chong

Posted by kcchongnz > 2016-05-30 15:31 | Report Abuse

Posted by stockmanmy > May 30, 2016 09:53 AM | Report Abuse
"extrapolate past earning" fundamental analysis would be the only competitive for a guy from NZ
and NZ market is too boring to cari market.
no need to know the business.


Fundamental analysis is "extrapolate past earnings", and "no need to know the business"?

Is your opinion above an opinion of self proclaimed accountant?

Posted by Icon8888 > 2016-05-30 15:38 | Report Abuse

talk clever.... if you have only RM100,000 at retirement, it is difficult to convince people that you are good with stocks. People will ask you "what have u been doing all these years ?" LOL

Posted by Ezra_Investor > 2016-05-30 15:49 | Report Abuse

Thank you KC, for answering my question.
I guess like they say, "Investing is more of an art, than science", hence very subjective the methods of fundamental analysis.

Posted by Blacksails > 2016-05-30 15:54 | Report Abuse

Particleboard industry is like commodity and even furniture industry; there is boom and bust. Be cautious for long term.

Posted by probability > 2016-05-30 16:00 | Report Abuse

furniture cannot be compared with commodity la....there is unique craftsmanship-design & quality involved.

Posted by stockmanmy > 2016-05-30 18:17 | Report Abuse

in a bull market, any thing that gives people confidence and hold will make money

in the case of this Hevea, its probably oversold and go up a bit.....

this commodity share is fully valued by any metrics I use....taking into account the state of the market., world economy....and I still don't know how they can compete with the Thais who are champions in this business.