Posted by 3iii > 2018-03-16 08:48 |

Post removed.Why?

Posted by siradrian > 2018-03-16 09:05 | Report Abuse

David, thank you for your time and efforts in this analysis. At least your thesis were supported with solid facts and reasonable assumptions. Kudos..

Posted by ordinaryjoe > 2018-03-16 09:29 | Report Abuse

Good effort.

As highlighted by some, discount rates too low. U r using reported cost of debt. Interest rates are rising. Even our government 10 year bond yield is almost 4% NOW. likely to move to 5% by early 2019. Cost of Equity is way too low.

BTW, have u look at the analysts DCF for those KLSE blue chip stocks whereby Cash Flows are more predictable?

Haha.. U would likely find that there are so many quality stocks trade at huge discount to their DCF value!!

Posted by Faiza > 2018-03-16 10:00 | Report Abuse

dream on if goring kaki already disposed
who is going to goring for you?

Posted by ktsk88 > 2018-03-16 10:05 | Report Abuse

all bullshit stories just to entice ppl to support HRC

Posted by traderman > 2018-03-16 10:07 | Report Abuse

so called ANALyst

Posted by limhh > 2018-03-16 10:11 | Report Abuse

lucky that I3 still have sharp readers who can identify "garbage in garbage out"

Posted by Jon Choivo > 2018-03-16 10:32 | Report Abuse

Also david,

out of the last 9 years, they made refinery losses in 4 years. Some large some small. And only a small profit in one.

Your 1.3bil refinery profit is insane.

Posted by probability > 2018-03-16 11:12 | Report Abuse

if use past to data to come out with a value on price.....the probability of price moving higher or lower in the future is the same. Then its good as tossing a coin to see your luck in stocks...

Past has absolutely no effects...on future direction of a moving ball...except momentum....and to know momentum you only need to know the displacement (price change) it took place a few seconds ago...with what mass (trading volume)...

just like the data itself...momentum may only predict the displacement the next few seconds...


For long term displacement prediction...you need to what is there at its path. How many massive gravitational forces will act on it...and which direction...

So please forget about DCF....and history.

Posted by Ricky Yeo > 2018-03-16 11:17 | Report Abuse

If the past tells you a relevant reference class of stocks have never achieve >35% ROIC long-term, while those stocks have no effect on the stock you are interested in, nonetheless it tells you the probability that you will come across an outlier is so small that you better think twice.

Posted by probability > 2018-03-16 11:28 | Report Abuse

But then again...the price had already measured this advantage (ROIC (1) and historical Reinvestment (2) records) and given its premium...in the form of a high PE...as both (1) & (2) are factors for growth;

there is only one and only factor that determines its future direction...

"'the disadvantage market has in predicting the future''...

and if you have advantage over the market..then u win...else you lose...


Posted by Ricky Yeo > Mar 16, 2018 11:17 AM | Report Abuse

If the past tells you a relevant reference class of stocks have never achieve >35% ROIC long-term, while those stocks have no effect on the stock you are interested in, nonetheless it tells you the probability that you will come across an outlier is so small that you better think twice.

Posted by wryn > 2018-03-16 11:34 | Report Abuse

Using the last 8 quarter of profit figure would easily skew the entire model calculation as we know refiners are enjoying extra ordinary profit margin over the last year or so.

Posted by Zhuge_Liang > 2018-03-16 11:36 | Report Abuse

Posted by Jon Choivo > Mar 16, 2018 10:32 AM | Report Abuse

Also david,

out of the last 9 years, they made refinery losses in 4 years. Some large some small. And only a small profit in one.

Your 1.3bil refinery profit is insane.

Jon Choivo,
I have very high respect on you and also your write up.
I wish to learn from you.

I am not happy that you attack David_Tan.
Very few writer in I3 now because of this type of attack.
Nothing wrong you point out his mistake if any,
do it politely.
At least David_Tan is not demotivated.

Posted by andrewong > 2018-03-16 11:38 | Report Abuse

buy buy

Posted by Helpinghand > 2018-03-16 13:49 | Report Abuse

https://klse.i3investor.com/blogs/helpinghand/150975.jsp

Posted by Helpinghand > 2018-03-16 13:49 | Report Abuse

https://www.youtube.com/watch?v=3a7aeammsVw

Posted by dusti > 2018-03-16 21:25 | Report Abuse

On one hand I think you are trying to show off, but on the other I think you want to invite other smart asses to highlight the flaws of assumptions and benefit indirectly. You can do this exercise in just one sentence......."USING THE DCF I VALUE HY RM 20.00" Good luck all.

Posted by vespa > 2018-03-16 21:30 | Report Abuse

David had the guts to put his analysis online and I am pretty sure it took him time to gather the info. I know as I do it too. So please build on it rather than criticising it. Look at his assumptions and challenge them if you need to.

Posted by brisk > 2018-03-16 22:04 | Report Abuse

Is anyone really that gullible to believe the above thesis? A lower than risk free discount rate for a cyclical refinery business? How much are you bag holding or get paid so you would stoop so low and try to mislead the public?

Posted by probability > 2018-03-16 23:44 | Report Abuse

people are doing DCF without risk consideration into cost of capital because they are predicting the cash flow conservatively...the risk had already been accounted on the cash flows...

now if you bring in an additional factor to account risks that is ""your weakness"...you are making valuation very subjective then.....anyone can plug their own figure to add above risk free rates...

now those kinda valuations are the ones which u need to stay away.

Posted by stockraider > 2018-03-17 00:46 | Report Abuse

Just remember current data will have a higher weightage than past data, we do not need to totally ignore past data loh, but usually past data overwhelm by current data mah...!!

Imagine your son start started primary 1....his position is no 240 out of 300 in the whole form loh...!!
When he was primaryd 6 his position is 260 out of 300 position

As your son progress he improve loh...!!
When he was form 3 his position was 20 out of 300 student loh...!!
When he was form 4 his position was 16 out of 300 student loh....!!
Now when he is form 5 his position was no 1 out of 300 student loh...!!

In assessing your son performance trend, do u look at his earlier yr of poor performance in primary 1 to primary 6 when he did really badly in the earliest yr leh ??
Or do u look at the latest yr of performance with performance in form 5, form 4 and form 3 leh ??

Do u average his poor performance in primary school with his good performance in secondary form 3, 4 and current form 5 leh ??

Of u use the latest 3 yrs performance mah....!!

Thus in Hengyuan u use the latest 3 yrs of hengyuan as the performance measurement as most accurate loh.....!!


Posted by probability > Mar 16, 2018 11:12 AM | Report Abuse

if use past to data to come out with a value on price.....the probability of price moving higher or lower in the future is the same. Then its good as tossing a coin to see your luck in stocks...

Past has absolutely no effects...on future direction of a moving ball...except momentum....and to know momentum you only need to know the displacement (price change) it took place a few seconds ago...with what mass (trading volume)...

just like the data itself...momentum may only predict the displacement the next few seconds...


For long term displacement prediction...you need to what is there at its path. How many massive gravitational forces will act on it...and which direction...

So please forget about DCF....and history.

Posted by probability > 2018-03-17 02:14 | Report Abuse

past has no influence on future direction.....provided where it stands is reflecting the past data.

Reflecting means the probable value of the stock is reflected by its price taking consideration of its past and current (recent) performance without any biased information available on business environment in future.

Once the future information becomes more and more apparent...price will move in that direction...up or down accordingly.

To make money, one needs price movement....if you have an advantage over the market on the future path of the business...then you have an opportunity to make money...either going for long or short.

Posted by probability > 2018-03-17 02:14 | Report Abuse

what you said below is true raider...

for HY case, the distant past had influenced more on current valuation than its recent performance.

So the current price is not reflecting past data as its much more prejudiced by the distant past (thinking it is cyclic in nature).

With some future insights...market will slowly realize their bias-ness...as the future shows its much brighter than perceived.



Posted by stockraider > Mar 17, 2018 12:47 AM | Report Abuse

Just remember current data will have a higher weightage than past data, we do not need to totally ignore past data loh, but usually past data overwhelm by current data mah...!!

Posted by vespa > 2018-03-17 05:59 | Report Abuse

Brisk you are spot on..Malaysia's risk free rate is about 4% (10 yr bond).

Posted by Ricky Yeo > 2018-03-17 06:13 | Report Abuse

Past always have reference for future. Imagine someone saying all the past earthquakes have no relevance. True to a point, past cannot predict future earthquakes, but we do discover Gutenberg–Richter law.

The only way to bridge between past and current data is through constant updating our view using bayes rules. But no one ever apply that in investing. Not to mention the amount of noise one encounter to find the real signal.

Posted by brisk > 2018-03-17 08:31 | Report Abuse

You guys are going to give the reason that he's using a low discount rate because he's forecasting cash flow conservatively? I only see flat 1.3b profit and no loss making year not even a drop in profit in his forecast, which is very common for a refinery especially if you forecast 10 years forward. And seriously? DCF for a refinery business? Stop trying to trick the gullible. My god

Posted by CharlesT > 2018-03-17 08:34 | Report Abuse

Exactly

Posted by CharlesT > 2018-03-17 08:36 | Report Abuse

When the nature of the biz is so volatile....

Posted by CharlesT > 2018-03-17 08:49 | Report Abuse

Bsides he used the best record crack spread years (2016 & 2017) as his based for his dcf models...

If he uses 5 years average (2013 to 2017) then his results will b very different...

Still i dont know why u guys focus on the discount rate of 1 to 2% difference while the swing in their profit margin could be 10 times difference

Posted by CharlesT > 2018-03-17 09:07 | Report Abuse

Infact i m a bit sceptical on david tan after seeing his 2 posts here...

He is either a bookworm or trying to mislead

Posted by Flintstones > 2018-03-17 09:11 | Report Abuse

David tan should stick to his whatever profession. Security analysis is clearly not his forte. We dont need half pail water analysis here

Posted by CharlesT > 2018-03-17 12:13 | Report Abuse

http://klse.i3investor.com/servlets/stk/fin/4324.jsp

PROJECTING GROSS PROFIT

Here are some key assumptions:

1. Average gross profit for the past 8 latest reported quarters (1 January 2016 to 31 December 2017) is used as the base number. In determining this average, quarters with the highest and lowest gross profit were disregarded to eliminate unusual fluctuations.

Suggest David Tan to use average gross profit for the past 5 years (2013-2017) instead of 8 latest reported quarters, others assumption remained.

Based on the above revision and the same discount rate using WACC of 4.44%, what will be value of HRC now.....

Posted by CharlesT > 2018-03-17 12:17 | Report Abuse

Or basing on the past 8 years or 10 years etc

Dont u think it may not give u a realistic picture just basing on the last 2 best financial year results to work out yr DFC model?

Posted by CharlesT > 2018-03-17 12:18 | Report Abuse

Especially after seeing the extremely volatile results for the past 10 years

Posted by david_tan > 2018-03-17 12:22 | Report Abuse

Don Choivo,

Re your comment on non-cash items such as impairments and write-downs not being included in the calculation above.

One of the key purpose of the DCF method is to specifically exclude such non-cash items and to place emphasis upon the cash flows of the entity.

Posted by hstha > 2018-03-17 12:25 | Report Abuse

There is limitation of predicting a company's future results from its past results. The DCF is still used because some people still trust them. But everyone gets a different target price using the DCF. It's not science, but something like fortune telling! Economists predict future events and numbers, but they hardly predict them correctly because what they do is nothing but fortune-telling!

Posted by CharlesT > 2018-03-17 12:25 | Report Abuse

EPS
2017 Rm3.04+
2016 Rm1.10+
2015 Rm1.10+
2014 (RM4.00+)
2013 (RM0.50+)
2012 (RM0.30+)
2011 (RM0.30+)
2010 RM0.30+
2009 Rm0.90+
2008 (RM1.10+)

Posted by david_tan > 2018-03-17 12:25 | Report Abuse

3iii, brisk and CharlesT,

Please read paragraphs 1, 2 and 3 at the beginning of the article.

Thank you.

Posted by CharlesT > 2018-03-17 12:28 | Report Abuse

But the use of DCF is not without merit. Personally, I find that DCF is useful when valuing a stable company where the operations are mature, the industry it operates within is stable, and its historical accounting numbers do not fluctuate significantly. Under these conditions, the analyst is allowed to work within a more predictable environment leading to more reliable numbers being used in the forecast and projections. Unfortunately, I do not see HRC falling within these criteria as the refinery business is highly volatile. Nevertheless, I am also intrigue by what sort of numbers may possibly come up for HRC via applying the DCF method.

Yr paragraph 3....

So do u think Heng Yuan fits into the above conditions?

Posted by CharlesT > 2018-03-17 12:29 | Report Abuse

Personally, I find that DCF is useful when valuing a stable company where the operations are mature, the industry it operates within is stable, and its historical accounting numbers do not fluctuate significantly

Seriously??

Posted by CharlesT > 2018-03-17 12:30 | Report Abuse

Maybe Nestle or Dutch Lady lah

Posted by hstha > 2018-03-17 12:30 | Report Abuse

You should know economists are good at analysing past events and results, not predecting future events and results.

You should also know analysts are good at analysing past finanical reports, not predecting future financial results.

Posted by probability > 2018-03-17 12:32 | Report Abuse

like i said the greatest fortune teller wins....as he can predict future correctly.

its all about the future.

those fortune teller that rely on past earth quakes and made extra supports on to make earth quake prove buildings....and bridges...have less return lor...

as the ring of fire ....the tectonic belts itself had moved...very few could realize this....and that is why not everyone can be the greatest fortune teller.

Posted by arv18 > 2018-03-17 12:33 | Report Abuse

David, thanks for taking the time out to do this.

Posted by CharlesT > 2018-03-17 12:34 | Report Abuse

I better trust my crystal ball or Paul on my TP instead of this DFC Model

Posted by CharlesT > 2018-03-17 12:35 | Report Abuse

The key assumptions are koyak in the first place

Posted by CharlesT > 2018-03-17 12:36 | Report Abuse

And funny that most sifu are busy here arguing on the 1% to 2% discount rate difference applied

Posted by probability > 2018-03-17 12:37 | Report Abuse

important thing is not to ass-u-me lor...

finding a logical basis...intelligent basis for the variables used lor...kiki

Posted by CharlesT > 2018-03-17 12:38 | Report Abuse

Good for academical discussion lah

Posted by CharlesT > 2018-03-17 12:44 | Report Abuse

Posted by probability > Mar 17, 2018 12:32 PM | Report Abuse

like i said the greatest fortune teller wins....as he can predict future correctly.

its all about the future.

So what do u think will affect the profit of Heng Yuan in 2018 (dont want to talk too far like beyond 2020 or 2050)?

Crack spread? Plant shutdown? Forex?Others?