Posted by TeckChuan Lee > 2013-07-20 18:54 | Report Abuse

Non Current Assets

1. Land held for property development
2. Intangible assets
3. Investments in subsidiaries
4. Other investments

Mr kc are these considered invested capital?

Posted by kcchongnz > 2013-07-21 04:55 | Report Abuse

Invested capital means capital you have invested in the business.

You need money to buy land for property development for property companies. so yes.

Intangible asset? arguable, I ignore.

Investment in subsidiaries, other investments. this is investing in another company. Its result doesn't appear in the operating business of the company. It is not "consolidated" in the financial statement. No

Posted by TeckChuan Lee > 2013-07-21 10:57 | Report Abuse

I have seen financial statements where the 'Group' makes money but the 'Company' were at a huge amount of loss. Same goes to its cash flow.

Does the 'Company' side of balance sheet, cash flow and income statement has any concern with our evaluation? Or should we only look at 'Group' statements?

Posted by kcchongnz > 2013-07-21 11:07 | Report Abuse

A company's business is the aggregate of all its businesses of the company and in all its subsidiaries. It's performance is shown in its financial statement of the "group". This is what as an investor, should concern with.

Posted by mlg123 > 2013-07-21 12:05 | Report Abuse

kcchongnz,
can you please share your opinion on CSC steel?

Posted by TeckChuan Lee > 2013-07-21 15:09 | Report Abuse

YTL E-Solution BHD. RM0.70

Pros.
1. Profit margin is extremely high.
2. Revenue, Net income, FCF improving every year since 2009
3. High payout ratio
4. ROE ROA improvement
5. Piotroski scored average 7.3 for FY2010, 11, 12
5. Cheap share price.

Notes.
1. ROIC off the chart for FY2012 & FY2011.

2. In FY2010, there was a Fixed Deposit of 175M, which I included into Invested Capital. 'Cash & Bank Balance' 800K.

3. FY2012 & FY2011, no Fixed Deposit, but Cash and Bank Balance shot up to 180M. Question. Do we need include 'Cash and Bank Balance' into Invested Capital? Cause we usually dont right?

Any comments?


YTLE RM0.7
Year 2012 2011 2010 2009
Revenue 86,054 74,246 44,067 36,508
Cost of sales 5,517 11,391 17,424 16,116
Gross margin 94% 85% 60% 56%
Margin 66% 68% 29% 8%
Net Income 57091 50533 12860 3092
Net profit to common share 34490 35706 8831 4151
No. of shares 1345328 1345328 1345328 1345377
EPS 0.026 0.027 0.007 0.003
Dividend 0.019999584 0.019999584 0.01 0.00
Payout ratio 78% 75% 124% 73%
Net asset per share 0.15 0.13 0.13 0.12
Operating cash flows, CFFO 56,350 44,681 28,552 6,813
Capex -520 -592 -629 -37608
Free Cash Flow, FCF 55830 44089 27923 -30795
CFFO/NI 99% 88% 222% 220%

Total Equity 227,756 198,901 192,436 184,779
Total Common Equity 202,553 181,393 170,923 164,512
Common Stock 135,000 135,000 135,000 135,000
ROE 17% 20% 5% 3%

Total Asset 234,952 205,954 206,482 196,280
ROA 24% 25% 6% 2%

Long Term Borrowings 0 0 21 121
Short Term Borrowings 0 21 100 98
Total 0 21 121 219

Current Asset 230,603 201,692 197,391 186,107
Current Liability 7,194 7,009 14,025 11,124
Current Ratio 32.1 28.8 14.1 16.7

EBIT 77,018 64847 16689 6822
Profit Before Tax 77,018 64,843 16,676 6,797
Tax 19,927 14,310 3,816 3,705
Tax Rate 25.87% 22.07% 22.88% 54.51%

NOPAT=EBIT*(1-tax rate) 57,091 50,536 12,870 3,103
INVESTED CAPITAL 15910 14746 190781 184964
ROIC 358.84% 342.71% 6.75% 1.68%

Total Equity + Debt 227,756 198,922 192,557 184,998
Cost of Equity 12% 12% 12% 12%
Cost of Debt 8% 8% 8% 8%

WACC 12.00% 12.00% 12.00% 12.00%
ROIC - WACC 346.84% 330.71% -5.25% -10.32%

Posted by CityTrader > 2013-07-21 15:10 | Report Abuse

Hi kcchongnz,

Sorry to disturb your wonderful & peaceful weekends, I m currently learning to find out the intrinic value of Engtex but i dont have any accounting background so need to consult u & hope u dont mind. My questions are as below:-

1) In financal Report, Engtex belongs to "Group" or "Company"?
2) Group if i use common sense, should mean all subsidaries, am i right?
3) So now i want to calculate the EPSGR of Engtex, then which report i have to look at' "Group" or "Company"?

TQ if u can engligthen me & below is your posting which i checked the Cash Flow Statement but i couldnt get the same figure 190m & 200m as yours, so i wondered if i was actually on your same page & again, pls enlighten me.

In additions, TQ for your continuous postings & honestly i didnt pay attention to your previous postings, my apology as i didnt believe in value-investing & not even bothered what the hack the companies do until recently that i had the same wavelength with Ooi that TA + FA = Success.


Posted by kcchongnz > Jul 20, 2013 03:28 PM | Report Abuse

From the cash flow statement under the "Cash flows from operations", you see that the 2012 results shows that the cash flow from operating activities (CFFO) is 190m. This is the net cash the company received during 2012; eg cash payment from house buyers less the operating costs in cash payout. From the "cash flow from investing activities", you see that the company spends about 200m in acquisition of property, plant and equipment and "Land and Development costs". That 200m is the capital expenses for Hua Yang

Posted by kcchongnz > 2013-07-21 16:30 | Report Abuse

CityTrader

1) In financal Report, Engtex belongs to "Group" or "Company"?

ALWAYS USE GROUP RESULTS. THE GROUP CONSISTS OF THE COMPANY PLUS ALL SUBSIDIARIES. IT IS THE GROUP WHICH IS LISTED AND YOU INVEST IN. COMPANY IS JUST PART OF IT. COULD BE JUST A MANAGEMENT OUTFIT.

2) Group if i use common sense, should mean all subsidaries, am i right?

ANSWERED ABOVE.

3) So now i want to calculate the EPSGR of Engtex, then which report i have to look at' "Group" or "Company"?

IS IT CLEAR NOW?

TQ if u can engligthen me & below is your posting which i checked the Cash Flow Statement but i couldnt get the same figure 190m & 200m as yours, so i wondered if i was actually on your same page & again, pls enlighten me.

HUA YANG'S LAST ANNUAL FINANCIAL RESULTS? FIGURES ARE ROUNDED OFF. NO NEED TO BE TOO PRECISE AS INVESTMENT IS AN ART MORE THAN A SCIENCE OR MATHS. 190 IS THE NET CASH FLOW FROM OPERATIONS FROM THE "STATEMENT OF CASH FLOWS". 200M IS THE SUM OF "PURCHASE OF PROPERTY, PLANT AND EQUIPMENT" PLUS THE "LAND AND AND DEVELOPMENT COSTS'. THIS FIGURES ARE UNDER THE "CASH FLOW FROM INVESTING ACTIVITIES". FOR MOST COMPANIES WHICH ARE NOT PROPERTY COMPANIES, USUALLY JUST PPE, UNLESS IT IS A PALM OIL COMPANY, THEN ADD THE BIOLOGICAL ASSETS. OR IF IT IS TECH COMPANY, "SOFTWARE DEVELOPMENT COST' ETC

In additions, TQ for your continuous postings & honestly i didnt pay attention to your previous postings, my apology as i didnt believe in value-investing & not even bothered what the hack the companies do until recently that i had the same wavelength with Ooi that TA + FA = Success.

GOOD ON YOU. ALWAYS REMEMBER, WHEN YOU INVEST (NOT TRADING OR GAMBLING), YOU MUST KNOW THERE IS A COMPANY BEHIND THE STOCK. SO KNOWING THE BUSINESS OF THE COMPANY IS ESSENTIAL.


Posted by kcchongnz > Jul 20, 2013 03:28 PM | Report Abuse

From the cash flow statement under the "Cash flows from operations", you see that the 2012 results shows that the cash flow from operating activities (CFFO) is 190m. This is the net cash the company received during 2012; eg cash payment from house buyers less the operating costs in cash payout. From the "cash flow from investing activities", you see that the company spends about 200m in acquisition of property, plant and equipment and "Land and Development costs". That 200m is the capital expenses for Hua Yang

Posted by sephiroth > 2013-07-21 17:04 | Report Abuse

teckchuan, ytle fy12 eps of 2.56sen and pe of 27.3 times is damn high and yield of 2.8% is not attractive

Posted by CityTrader > 2013-07-21 17:28 | Report Abuse

Hi kcchongnz!

TQ for clearing my doubts. Below is the teckchuan's posting & if i use the formula i jst learned today; ESP=NI/oustanding shares=57091/1345328=0.042 & the eps listed below is different? Does it mean that ytle has paid lower eps?

If we use the same pe given by sephiroth 27.3, then price=pe*eps=27.3*.042=1.14. Can i say that the current price is below the fair value if we based on the financial reports?

Appreciate your advice. TQ



Net Income 57091 50533 12860 3092
Net profit to common share 34490 35706 8831 4151
No. of shares 1345328 1345328 1345328 1345377
EPS 0.026 0.027 0.007 0.003

Posted by TeckChuan Lee > 2013-07-21 17:36 | Report Abuse

Ahem. Mistake. EPS = net profit to common shares / share outstandings
34490/1345328

Posted by whkwoon > 2013-07-21 17:54 | Report Abuse

Anybody got command of Catcha Shares , is the share worth looking at?

Posted by CityTrader > 2013-07-21 18:24 | Report Abuse

Hi teckchuan, may i know how did u get this figure "net profit to common share 34490"

Posted by TeckChuan Lee > 2013-07-21 19:09 | Report Abuse

Dear CityTrader

Check 'Income Statement'

Profit for the financial year 57,091

Profit attributable to:
Owners of the parent 34,490
Non-controlling interests 22,601

YTLE FY2012

Posted by kcchongnz > 2013-07-21 19:47 | Report Abuse

CSC Steel, wah good man, high dividend woh!
Posted by mlg123 > Jul 21, 2013 12:05 PM | Report Abuse
kcchongnz,
can you please share your opinion on CSC steel?

I invested in this stock some time in 2009 as I was attracted by the high dividend yield of 8% at that time. Little did I know that I made another mistake again, thinking that it is a good strategy to invest in high dividend yield stock.

CSC Steel 1.33 20/07/2013
Period 2-week 6-month 1 year 2-year 3 year 4 year 5 year
Price 1.28 1.19 1.24 1.63 1.65 1.01 1.30
Return of stock 3.9% 11.8% 7.3% -18.4% -19.4% 31.7% 2.3%
CAR 171% 24.9% 7.3% -9.7% -6.9% 7.1% 0.5%
Dividend 0 6.3% 5.6% 8.0% 12.1% 6.4% 9.2%
Stock appreciation 171% 18.6% 1.6% -17.6% -19.1% 0.7% -8.8%

As shown in the above stock price of CSC from 5 years ago. The total return of the stock was terrible as compared to the market. For example, investors who bought CSC three years ago would have lost a total of 19.4%, or negative 6.9% in compounded annual rate, while the market gained a CAR of about 10%. Another classic example of high dividend yield not necessary a good investment.

CSC’s revenue has been stagnant at about 1.1-1.2 b for the last 8 years, no growth. Its net income in fact has been deteriorating progressively since 2009, from 116.5m to just 37.5m last year. Not good at all. So I will straightaway rule CSC out as a good company. So the only thing I can do is to assess if CSC is a value stock using the 5 yardsticks of ColdEye. We must always stand behind the shoulders of giants mah!

5 yardstick of investing by Cold Eye
CSC STEEL HOLDINGS BERHAD 1.33
1 ROE 3.6% No <10%
Net profit 28006
Equity 773097
2 Cash flows
CFFO 63129 Yes CFFO/NI 225%
FCF 24054 Neutral FCF/IC 4.2%
3 PE ratio 17.7 No >15
Price 1.33
EPS 0.0751
4 Dividend yield
Dividend , sen 7.0
Dividend yield 5.3% Yes >3.5%
5 Price/NTA 1.04 OK
NTA 1.281

CSC failed miserably in ROE with a very low ROE of just 3.6%. It has substantial amount of cash sitting in its balance sheet doing noting useful. Its ROIC is not fantastic too at 9%. Last year cash flows is ok, but not the year before. The best part is its dividend of 7 sen, or a yield of 5.3%. However don’t fall into this trap of high dividend yield strategy again as explained before.

Valuation wise, CSC is not that cheap at a PE ratio of 17.7 and a P/B of 1.0. So for me there is no attraction to invest in CSC. Its earnings yield (ebit/EV) of 11% is also not an inducement to shout buy, buy, buy too.

CSC’s first quarter 2012 results improved substantially, but to me it is still too early to pass another judgement.

Posted by CityTrader > 2013-07-21 20:07 | Report Abuse

TQ TeckChuan,,

It is very complicated & am stil blur blur..

Posted by CityTrader > 2013-07-21 20:14 | Report Abuse

TQ guys for yr clarification. read a book but it diesnt state clearly that net profit to "common stock". a layman like me definately will come out wrong figure which leads me to holland..

Posted by CityTrader > 2013-07-21 21:57 | Report Abuse

Hi Teck Chuan

May i know where did u get this figure 1345328 which is the number of shares? I cant find so need to consult u. TQ in advance for yr kind advice.

Posted by CityTrader > 2013-07-21 22:28 | Report Abuse

Yap! i think i finally found it at Analysis of Shareholding..

Posted by TeckChuan Lee > 2013-07-21 22:36 | Report Abuse

Press "Control + F". Locate "earnings per share" at the bottom notes section. There, you will find "weight average number of shares"

Posted by keanpoh > 2013-07-22 00:16 | Report Abuse

Posted by CityTrader > Jul 21, 2013 09:57 PM | Report Abuse

Hi Teck Chuan

May i know where did u get this figure 1345328 which is the number of shares? I cant find so need to consult u. TQ in advance for yr kind advice.

===================================

To find the total number of common stocks issued, one can always refer to the Notes section in an annual report whereby they show clearly how EPS is being calculated. Try looking for the Notes reference number when reading the Income Statement. :)

Posted by keanpoh > 2013-07-22 00:21 | Report Abuse

Posted by TeckChuan Lee > Jul 21, 2013 03:09 PM | Report Abuse

YTL E-Solution BHD. RM0.70

3. FY2012 & FY2011, no Fixed Deposit, but Cash and Bank Balance shot up to 180M. Question. Do we need include 'Cash and Bank Balance' into Invested Capital? Cause we usually dont right?

==================================

No. I don't think we should include Cash and Bank Balances or even Cash & Cash Equivalents as invested capitals. Please correct me if i'm wrong. :)

Posted by Chua Chang Chiang > 2013-07-22 11:20 | Report Abuse

Hi. Need some help here. I have been looking at whitehorse for sometime. I wonder if Whitehorse is a good share for investing? If yes, is the current price suitable for collecting? Thanks.

Posted by kcchongnz > 2013-07-22 11:22 | Report Abuse

Invested capital means the capital invested in the ordinary or normal business of the company. It does not include excess cash which is not required for the operations. It also doesn't include capital used for investment in associate and jv companies which the their financial statements are not "consolidated" into that of the company. Other investments such as investment in quoted or unquoted shares, investment properties (for company which rental income is not its ordinary business) also should be excluded.

Posted by TeckChuan Lee > 2013-07-22 11:22 | Report Abuse

Thank you keanpoh. Thanks kc. I have no accounting basics. At all. Most of the figures I took blindly following kc s formula in his templates. I need to start picking up accounting basics

Posted by kcchongnz > 2013-07-22 11:31 | Report Abuse

teck Chuan, try to find this book.

What’s Behind the Numbers by John Del Vecchio and Tom Jacobs

Posted by JTFX > 2013-07-22 11:38 | Report Abuse

Hi KC, do u have a blog..for those interested in yur writings, views n thots??TQ.

Posted by TeckChuan Lee > 2013-07-22 12:04 | Report Abuse

Thanks kc. Found the book. Ill read up ASAP.

Posted by kcchongnz > 2013-07-22 16:42 | Report Abuse

Mega First? Interesting!

Posted by Jaack1 > Jul 20, 2013 03:31 PM | Report Abuse
Dear Mr KC Chong,
MFCB (MEGA FIRST)
MFCB has always been profitable, Net Cash, pays good dividend, sustainable industry, etc., The only concern is they have huge exposure investing in the market.
What is you view on MFCB (Mega First)?
Tks/Rgds
Jaack

Mega First Corporation Berhad (MFCB) is principally engaged in the provision of management services. It operates in five divisions: Power, Property, Limestone, Engineering and Investment Holding. The Power segment builds, owns and operates power plants.

The main earner is the power division which owns two power plants, one in China and the other in Sabah which provide steady income for MFCB of more than 70% of the total profit of the company. It operates one of the largest limestone hill reserves of more than 100 acres in Perak. It is also one of the country’s largest producers of lime products.

MFCB’s revenue and net profit averages about 620m and 100m respectively for the last two years. There is not much growth in the company. Hence MFCB is best evaluated with ColdEye’s 5 yardsticks of value investing to see if it is a reasonable company offering at an attractive price.

MFCB has a reasonable ROE of 12% which meets my minimum requirement of return. However, as MFCB is cash rich company with 126m cash sitting in its balance sheet, and 240m other investments in investment properties and associates, it is best evaluate its operating efficiencies in term of ROIC; and its ROIC is fantastic at 20%, much higher than the cost of capital.

MFCB’s quality of earnings is good with CFFO 124% of net income. It also produces huge amount of free cash flow, 15% and 23% of revenue and invested capital respectively, which is way above my bench marks. Hence MFCB is able to increase its annual dividend payment yearly, now to 8 sen a share. This gives a good dividend yield of 4.6%.

With these nice metrics, it is a surprise that the valuation of MFCB is undemanding. PE ratio is only 6.8, and Price-to-NTA only at 0.7. If you look at the valuation of the firm, it is much more attractive with enterprise value less than its ebit, or an earnings yield (ebit/EV) of 100%!

So is MFCB a hidden gem?


5 yardstick of investing by Cold Eye
Mega First 1.730 22/07/2013
1 ROE 12.5% >12% Yes
Net profit 92818
Equity 744657
2 Cash flows
CFFO 114683 124% Yes
FCF/Revenue 15% >5% Yes
FCF/IC 23% >10% Yes
3 PE ratio 6.8 <10 Yes
Price 1.730
EPS 0.256
4 Dividend yield
Dividend , sen 8.0
Dividend yield 4.6% >3% Yes
5 Price/NTA 0.70 <0.8 Yes
NTA 2.47

Posted by CityTrader > 2013-07-22 20:43 | Report Abuse

Hi kcchongnz

I copy & paste below teckchuan's posting (sorry teckchuan as i need kcchong to clarify my doubts as i dont have financial knowledge & hope u dont mind) as below;-

Return on Equity = Net Income/Shareholder's Equity

why do some ppl say the correct way is ROE=57,091/227,756=25% but teckchuan uses 34490/202,553=17%.

Since the difference is quite big, i need to seek yr clarification.

TQ


YTLE RM0.7
Net Income 57091 50533 12860 3092
Net profit to common share 34490 35706 8831 4151
No. of shares 1345328 1345328 13Return on Equity = Net Income/Shareholder's Equity

45328 1345377

Total Equity 227,756 198,901 192,436 184,779
Total Common Equity 202,553 181,393 170,923 164,512
Common Stock 135,000 135,000 135,000 135,000
ROE 17% 20% 5% 3%

Posted by CityTrader > 2013-07-22 21:06 | Report Abuse

Hi kcchonhgnz

i vetted the finanacial statements of MFCB fy ended 31 dec 2012 & the fig i saw is not tallied with u eg below:-

net profit= 93,662
profit attributes to owner of the co=57,927
so which one did u use?

Your CFFO also different from the report; 115,207

Can u pls enlighten me?
TQ


5 yardstick of investing by Cold Eye
Mega First 1.730 22/07/2013
1 ROE 12.5% >12% Yes
Net profit 92818
Equity 744657
2 Cash flows
CFFO 114683 124% Yes
FCF/Revenue 15% >5% Yes
FCF/IC 23% >10% Yes
3 PE ratio 6.8 <10 Yes
Price 1.730
EPS 0.256
4 Dividend yield
Dividend , sen 8.0
Dividend yield 4.6% >3% Yes
5 Price/NTA 0.70 <0.8 Yes
NTA 2.47

Posted by houseofordos > 2013-07-23 00:26 | Report Abuse

Company (MFCB) also does seem to be quite active buying back its shares. A large amount of its cash (CFFO) is used for this purpose. I m not sure if the rate of buy back is normal... could someone advise ?It could mean that management believes the price is undervalued.

Posted by kcchongnz > 2013-07-23 06:41 | Report Abuse

Posted by CityTrader > Jul 22, 2013 08:43 PM | Report Abuse
Hi kcchongnz
Return on Equity = Net Income/Shareholder's Equity
why do some ppl say the correct way is ROE=57,091/227,756=25% but teckchuan uses 34490/202,553=17%.
Since the difference is quite big, i need to seek yr clarification.

Citytrader, damn good question! You know what? I need help too. I ain't an accountant. Any accountants or others knowledgeable to help?

My novice view is you see the financial statement is a consolidated one with a subsidiary's (or subsidiaries) financial statement "consolidated" into YTLE's. Hence there is this minority interest which is subtracted to obtain the net income attributed to the common shareholders of YTLE.

As you are looking at the angle of the common shareholder of YTLE, the right ROE, I think, should be (NI attributed to common shareholders/common shareholder equity), or 17%.

The higher 25% for ROE for (Total NI/total equity) could be due to the higher operating numbers of that subsidiary.

I need confirmation of my above opinion too.

Posted by kcchongnz > 2013-07-23 07:12 | Report Abuse

Posted by CityTrader > Jul 22, 2013 09:06 PM | Report Abuse
Hi kcchonhgnz
i vetted the finanacial statements of MFCB fy ended 31 dec 2012 & the fig i saw is not tallied with u eg below:-
net profit= 93,662
profit attributes to owner of the co=57,927
so which one did u use?
Your CFFO also different from the report; 115,207
Can u pls enlighten me?
TQ

CityTrader, you got me again. I hope certain character won't start calling me names again. You know lah, si-roti-canai-pusing etc.

But I check again the figures from Bursa website, and I found the same figures. Did you use the Annual report which could be different from mine because mine is the financial statements (unaudited) when first published in March 2013? If so then your is the more accurate one.

However, again there is not much difference. Remember what I just said? Finance and investment is not an exact science. But watch out, some companies have the habit of amending their financial report, that the audited report could be very much different from when the results were first announced.

Which profit to use, the net profit or the profit attributed to the common share holders, and the ROE? I have just explained above.

Posted by CityTrader > 2013-07-23 07:46 | Report Abuse

Hi kcchongnz, Tqvm for yr clarification.

Posted by TeckChuan Lee > 2013-07-23 09:36 | Report Abuse

I have noticed that figures might change slightly every year. For example Net profit is 15000 in FY 2011, but Net Profit of 2011 changed slightly to 15200 in report 2012. Same goes to CFFO and the rest.

Use the updated figures in the latest report perhaps?

Posted by newbiestock > 2013-07-23 09:38 | Report Abuse

HLIND hidden gem just discovered.

Posted by CityTrader > 2013-07-23 09:49 | Report Abuse

Hi kcchongnz

I happened to come across this formula before & at that times, i was not interested of FA & formula is as below:-

(ROE/expected return in %) x (total equity/equity to common shares).
This formula is used to predict the share price. What is your opinion?

TQ

Posted by newbiestock > 2013-07-23 10:07 | Report Abuse

woohoo HLIND . now u see. get ready for RM10

Posted by TeckChuan Lee > 2013-07-23 11:35 | Report Abuse

HONG LEONG INDUSTRIES BHD RM 5.20 23/07/2013

BASED ON FY2012 REPORT
1.ROE = 11%

2. CFFO/NI = 102%
FCF/REVENUE = 6.45%
FCF/IC = 19.10%

3. DIVIDEND = 0.22
DY = 0.04 (DIVIDEND/OLD PRICE)


BASED ON 'klsepsp.com/p/financial-checker.html'
4. PE RATIO = 12.90
EPS 0.40
PRICE 5.20

BASED ON FY2013 QUATER 3
5. NTA = 3.68
PRICE/NTA = 1.41

Posted by keanpoh > 2013-07-23 12:03 | Report Abuse

Hi CityTrader, kcchongnz,

I'm not an accountant, but ROE should be calculated based on "Net Income Attributed to Common Stock Holders" and NOT "Net income".

Posted by kcchongnz > 2013-07-23 12:09 | Report Abuse

Why does a company buys back its own shares?
Posted by houseofordos > Jul 23, 2013 12:26 AM | Report Abuse
Company (MFCB) also does seem to be quite active buying back its shares. A large amount of its cash (CFFO) is used for this purpose. I m not sure if the rate of buy back is normal... could someone advise ?It could mean that management believes the price is undervalued.

Does it necessary mean that company buys back its share that its share price is definitely undervalued?

I know of a company named KNM which used to buy back its shares from borrowing money from the banks or from money from right issues. I did not see the share price was undervalued as its operating efficiencies were deteriorating, very poor cash flow and no free cash flow. Why did they do that?

They did that because the major shareholders wanted to send a signal (but a misleading one) to the public that the share price was undervalue and they could sell their own personal shares at a high price to others.

But you are right, most of the time the company buys back its own shares because they themselves know the company very well and that the share price is undervalued in relation to its value. They should only do that if they have nothing better to do with the free cash flows, and definitely a no no from borrowed money.

Buying back its own shares in the market reduces the number of shares outstanding in the market. The same amount of earnings are shared by lesser amount of shares, and hence higher EPS. Any dividend to be declared also shared by lesser number of shares and hence higher DY. Hence generally the share price rises with lesser shares outstanding.

Having the ability to buy back share is a good way of returning some cash to the shareholders.

So is share buyback good for MFCB shareholders. The answer should be obvious.

Posted by CityTrader > 2013-07-23 12:10 | Report Abuse

Hi kcchongnz

When we calculate the capex, we add the "purchase of assets, plants, consession assets" - "proceeds from disposal of property plant etc"?

Or we just ignore the line of "proceeds from disposal of property"

TQ

Posted by CityTrader > 2013-07-23 12:12 | Report Abuse

TQ keanpoh, kcchongnz & teckchuan to clear my doubts, appreciate very much..

Posted by kcchongnz > 2013-07-23 12:19 | Report Abuse

Posted by CityTrader > Jul 23, 2013 09:49 AM | Report Abuse

Hi kcchongnz

I happened to come across this formula before & at that times, i was not interested of FA & formula is as below:-

(ROE/expected return in %) x (total equity/equity to common shares).
This formula is used to predict the share price. What is your opinion?


Not very sure of what your formula is, but definitely is not a formula to predict share price. Predicting share price is not an easy thing. Very very few people in the world can predict share price correctly and consistently. Paul the octopus had already died.

But I do know of an intuitive formula, which looks similar but not, to gauge the value of a stock, ie

Value of a stock=ROE/Expected return * net asset backing per share

Or V=ROE/[E]R * common shareholder equity/no. of shares

Posted by kcchongnz > 2013-07-23 12:40 | Report Abuse

Posted by CityTrader > Jul 23, 2013 12:10 PM | Report Abuse
Hi kcchongnz
When we calculate the capex, we add the "purchase of assets, plants, consession assets" - "proceeds from disposal of property plant etc"?

Or we just ignore the line of "proceeds from disposal of property"

In most financial statements, it is 'purchase of property, plant and equipment", or PPE. You could deduct the "proceeds from disposal of PPE" from capex. Normally I don't and it is usually a small figure.

Again finance and investment is not an exact science.

Posted by sephiroth > 2013-07-23 13:31 | Report Abuse

kcchongnz, need your help to do FA on SCGM a smallish but growing company

Posted by kcchongnz > 2013-07-23 13:53 | Report Abuse

Sep,
A cyber friend of mine described SCGM and asked me whether it is good to invest as below.

Friend:
[About SCGM's business. This is another one of those companies making plastic products and packaging. But I m looking at it more in terms of value stock. Based on their latest numbers, it does seem like they are turning around their business with some good numbers in 2013 especially growth in cashflows. They are almost debt free with a strong balance sheet.

Growth rate
Revenue 18%
Operating income 32%
Net profit 28%
Equity 9%
Cash flows 178%

ROIC
12.2%
EV/Ebit 7.5
EV/Ebitda 5.4
FCF/Sales 9%
　
I know you dont use TA much, but I see some sign of strength from technical standpoint as director was accumulating when stock dipped to around RM 0.955, so this would be a good support level.]

My reply was as follow:
[Looking at your numbers, SCGM appears to be great in term of its last growth in revenue and earnings. Its operating efficiencies in terms of ROE, ROIC are ok lah for last year, but there were very poor before that. Cash flows was excellent but that was only for last year. So it has not shown the consistency yet. Valuation wise is also ok lah but not screaming buy, buy, buy. Those are the past. May be you know more about its near future.
Of course having the information that insiders are buying, and technical buy signals do help. May be you should also compare with its peers such as Daibochi, Tommypack, Cenbond etc to see which plastic packaging company is most efficient and which offer the best value for money in terms of PE ratio, earnings yield etc.]

My further comments;
You see investing and trading stocks are two different things. Share price changes all the time and often the share price doesn’t reflect the true value of a company. One can certainly make a lot of money trading, using some technical skills, or short-term insider information. But more people lose money gambling with insiders and manipulators. Agree?

Posted by tonylim > 2013-07-23 14:03 | Report Abuse

sep, I traded (oh shit) or bght at 96 sen onwards, remisier TP then was 1.30

Posted by sephiroth > 2013-07-23 14:36 | Report Abuse

thanks kcchongnz, scgm dividend use to be 3 sen for many yrs when the share price stuck at 40 sen level for a long time. now dividend of 5 sen is great, hopefully they can maintain the 5 sen dividend