Posted by kcchongnz > 2013-11-20 12:14 | Report Abuse

Well you have your own preference. Can't fault you at all.

But just one point here. whether a stock is cheap or expensive is not if it is 5 sen stock, or $50 stock. It is its price in relation to earnings, or assets.

Posted by JCool > 2013-11-20 12:19 | Report Abuse

kcchongnz... hi how r u??

I say my man... d biggest mistake u hv made is invested in pmcorp...

u made like wat... all of RM 668.35.. but really dragged urself thru d mud... lost ur street cred in d eyes of a lot... man

I m in good mood today cos I m making serious money in SBCCORP...

Posted by kcchongnz > 2013-11-20 12:24 | Report Abuse

I made the biggest mistake in investing in PM Corp? I bought at 15 sen, sold at 34 sen, for myself, my relative and my children. How is that the biggest mistake?

Where do you get the figure RM668.35? My book says 100 times of that. So???

By the way how is your AncomLB? You were chanting and chanting and chanting everywhere about AncomLB. So how much have you lost?

You make serious money in SBCCORP? Who the hell cares, like what you were chanting everywhere about AncomLB?

Posted by iafx > 2013-11-20 12:26 | Report Abuse

as usual, always bought at lowest sold at highest, what co-incident!! hahahahahahaaa.... congratulation! congratulation!

Posted by kcchongnz > 2013-11-20 12:36 | Report Abuse

Thank you thank you. Jealous or not?

But but but, is 15 sen the lowest and 34 sen the highest? You don't even know how to read stock prices. OMG!

Posted by sephiroth > 2013-11-20 12:42 | Report Abuse

kcchongnz, need yr help to check the fundamental of LCTH, thanks in advance

this is a major turnaround company

firstly the red flags, high receivable RM75m , losses for 2-3 years, negative cash flow from operations

the company have taken drastic steps to return to profit. To free itself from depreciation charges and lease commitment and improve cost effectiveness, the company have execute a sub-tenancy agreement to let out majority part of the factory to the puchaser Flextronics Technology and thus improve asset utilisation

and now the GREEN FLAG

As at 30 Sept 2013
Debt RM86,000

Cash RM67.225m
Short term investment RM8.975
Total liquid asset RM76.2m or 21.16 sen per share

Recurring income
every quarter receive RM1.8 to 2m cash from interest income/dividend/investment income

Posted by JCool > 2013-11-20 12:44 | Report Abuse

kcchongnz... actually I hv profit on ANCOMLB... n it remains u don't know how to value an ACE co.. whn d EGM comes it wil go up

By d way... how is MFCB?? Looks like ur half past six valuation has no effect at all... really hope it has...

Anyway bye... enjoy ur RM 668.35 worth of tudor chocolate.. but I c lots of ppl attacking u lo... haha

Posted by kcchongnz > 2013-11-20 12:54 | Report Abuse

Oh thank you for asking about my MFCB. Actually my posting was for education purpose, not for shouting about prices like what you do everywhere.

But since you asked about the return, including dividend, it is about 10% since 3 months ago. Annualized would be 40% a year. Not bad eh? See below link:

http://klse.i3investor.com/servlets/pfs/21089.jsp

Of course it is not bad compared with the apaini AncomLB lah, which hardly moved at all. Its assets and earnings also is far far away from that of MFCB. And don't get panic when you see the 30% of the portfolio in just 3 months there, ok?

So that "half-past-six" valuation of MFCB is any time far far better than your minus half past six ranting on apaini AncomLB, isn't it?

You really make serious money in SBCCorp ka? But I accidentally saw this post here:

Posted by kakijudi > Nov 20, 2013 12:09 PM | Report Abuse

Jcool I thought last time you rubbish this stock? Why now suddenly 360 u turn. And why you deleted your posts. Takut malu kah? What a joker

Posted by JCool > 2013-11-20 13:01 | Report Abuse

HaHa good tat u checked out SBCCORP... kakijudi shd b one of ur unqualified fan.... he is one of those blur blue ones too

hello FYI.. I was collecting SBCCORP along wit Sia TH d major shareholder of SBCCORP... ur fan hv not a clue.. d joke is on him n now u for posting his post here... haha bye......

Posted by bsngpg > 2013-11-20 13:22 | Report Abuse

Is our KFima GLC? Semi-GLC? If there is no linkage to G, how can the mgt buy-off took place in early day? And how to get the contract on security doc printing?

I see CIMB and MBB r quite competitive althought there r pure GLC. So the statement to avoid GLC is not right.

Posted by kcchongnz > 2013-11-20 13:24 | Report Abuse

bsngpg, I agree with this statement;

Posted by ipomember > Nov 20, 2013 11:35 AM | Report Abuse

No GLC is half right. lol

Posted by kcchongnz > 2013-11-20 19:48 | Report Abuse

SHL a Graham net net and a hidden gem?

Posted by hiddengem > Nov 19, 2013 08:58 AM | Report Abuse

Good morning Mr kcchongnz, I'm a strong follower, learner & believer in all yr threads that provide a clear direction for me to trade wisely & always making profits.

Can u kindly provide yr input whether SHL is indeed a hidden gem under the Graham Net Net Investment strategy. Yr input feed back is very much appreciated. TQ

After analysis, I find SHL indeed has a lot of quality assets. Its Graham net net is just under RM2.00 which is very close to the net net value of RM2.12.

But maybe you should look at its recent financial performance which is pretty good. ROE appears to be low at only 6% last financial year, but don't forget it has huge amount of cash of more than RM1 a share. Besides it has high quality asset such as land under development, investment properties which are equivalent to cash.

It has very good cash flow too. But the best thing about it is its cheap price. PE may appear to be slightly high at 15. But earnings yield (ebit/EV) wise it is very attractive at 18%, and price-to-book is less than 1.

It has good dividend yield too at 5.7%, much higher than FD rate.

Also don't forget its first quarter results was very good compared to the corresponding quarter last year.

Posted by hiddengem > 2013-11-20 20:15 | Report Abuse

Tqvm Mr kcchongnz for yr kind FA input on SHL which will provide me a valuable guidance for my own decision to invest in SHL for longterm position. Yr prompt input is very much appreciated. TQ

Posted by tptan45 > 2013-11-20 23:06 | Report Abuse

No one point is ever 100% right.
I don't like to generalize across the board but for people who are not very well informed like me, that is probably the safest. Well informed and competent financial experts might take a more complicated approach rather than a generalized simplistic approach.
A simple common sense approach usually works for me.
Thanks for informing me that Kfima is a GLC.
Coincidentally that counter happens to be the only red in my portfolio.

Posted by kcchongnz > 2013-11-21 06:13 | Report Abuse

bsngpg, tptan, hiddengem etc are some of the smart investors here.

Stay in your circle of competence, as Buffet said. Even Buffet stays within his circle of competence.

Acknowledging your own limitations, and working working within those limits rather than venturing beyond will give you a great advantage.

As Mark Twain said,"It ain't what you don't know that gets you into trouble. Its what you know for sure that just ain't so".

Posted by wajatimur_28 > 2013-11-21 06:54 | Report Abuse

mr kcchongnz...you are very kind and smart in stock investment based on FA...can u pls make some review on CAREPLUS stock (ace market)...it's a hidden gems stock or not?...based on EPS...-VE..but..the NTA of the company in gain so much..i think they us their profit to buy new asset..what do u think mr. market?...tq..

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

The successful recipe of direct sale(MLM) is no street- smart or creative, just follow the proven methods developed by the company and copy everything from the successful up lines.

In investment case, I wish I were not smart as what you described. I wish that I would have just copied everything from you, and then I would have made much more return than my own portfolio as at today. But I cannot help myself, as a technical guy; I am bound to have strong self opinion, which brings me success and failure too.

As MLM, one of the competent techniques in equity investment is finding one proven sifu who has high integrity, then just follow his recommendations and methods with certain degree of self-screening. As long as following and practicing consistently for long term, you will grow your wealth and clone yourself to become another sifu. Do you believe this ? I do.

Posted by w2sin > 2013-11-21 08:46 | Report Abuse

Hi kcchongnz, need your advice on RGB, thanks in advance.

Posted by aaron69 > 2013-11-21 09:42 | Report Abuse

Hi,kcchongnz,could you please give some comment on KESM?High NTA of 5.473 and net cash of nearly RM1.70/share.Thanks in advance.

Posted by hello > 2013-11-21 10:23 | Report Abuse

sifu kcchong, can have a look at insas? your comment is greatly appreciated :)

Posted by kcchongnz > 2013-11-21 12:07 | Report Abuse

Go for the one which I have done before first. Insas

Posted by hello > Nov 21, 2013 10:23 AM | Report Abuse

sifu kcchong, can have a look at insas? your comment is greatly appreciated :)

http://klse.i3investor.com/blogs/stock_pick_challenge_2013_2h/36493.jsp

Posted by houseofordos > 2013-11-21 12:10 | Report Abuse

haha... kc can see you are having a busy time these few days as more and more ppl start to seek your advice.... good to see you continue sharing and imparting knowledge.... you are the most qualified one to give the advice...

Posted by hello > 2013-11-21 12:16 | Report Abuse

arigato sifu ! you are the best !

Posted by kcchongnz > 2013-11-21 12:33 | Report Abuse

house, this is a two way thingy. Remember I got a number of good companies to buy from you, and some from others here too?

Many brains is better than just one, agreed?

Posted by wajatimur_28 > 2013-11-21 17:21 | Report Abuse

sifu kcchongnz..plz give some advice for CAREPLUS stock..tq..i'm very appreciated it..

Posted by kcchongnz > 2013-11-21 18:46 | Report Abuse

EAH? Very hot oh! One famous investment blogger keeps on recommending it woh!

Posted by The Picker > Nov 19, 2013 03:22 PM | Report Abuse
Hi KC, thanks for the Kuchai feedback.
I have another counter is EAH (ACE Market) & would like to seek for your advice.
This counter listed in year 2010 with IPO price RM0.250, now RM0.185 which even lower than IPO price. Technology counter with NTA 0.160, cash 7 mil but no debt. I have no idea if their business is consider good business.

Mind to share your opinion?

No lah, I don't know much about it lah. But again since you asked, just give my opinion just by looking at its financial statements only, yeah arm chair opinion ok?

EA Holdings Berhad is engaged in the provision of software solutions mainly in the business intelligence and data warehousing solutions and automated invoices processing solution; research and development, sales and distribution of radio frequency identification (RFID)-based tracking systems and the provision of access control systems, and the provision of information and communication technology (ICT) services mainly in system and infrastructure integration services and ICT consultancy services.

Business sounds very high tech. With the hoha hoha, I would expect it to have very high performance metrics. But only really that great lah. Latest report shows net profit margin, annualized ROE and ROIC in their teens only. OK lah but not that great, especially for this type of business.

Price wise at the close of 18 sen today, ok lah not expensive. PE less than 10 (assuming forward earnings 7-10sen per share) and enterprise value also not high at 5 or 6 times ebit.

Ok lah but I won't scream buy buy buy that loud.

Sorry just my personal novice opinion.

Posted by kcchongnz > 2013-11-21 19:31 | Report Abuse

LCTH? Yes a typical Graham net net.

Posted by sephiroth > Nov 20, 2013 12:42 PM | Report Abuse

kcchongnz, need yr help to check the fundamental of LCTH, thanks in advance

this is a major turnaround company

firstly the red flags, high receivable RM75m , losses for 2-3 years, negative cash flow from operations

the company have taken drastic steps to return to profit. To free itself from depreciation charges and lease commitment and improve cost effectiveness, the company have execute a sub-tenancy agreement to let out majority part of the factory to the puchaser Flextronics Technology and thus improve asset utilisation

and now the GREEN FLAG

As at 30 Sept 2013
Debt RM86,000

Cash RM67.225m
Short term investment RM8.975
Total liquid asset RM76.2m or 21.16 sen per share

Recurring income
every quarter receive RM1.8 to 2m cash from interest income/dividend/investment income

A company which continues to make losses every year including up to 30/9/2013. Its value lies only in its assets.

As I am not sure about the quality of the assets in its investment properties, and investment in associates, I just assign 75% for properties and 50% for associates, receivables and inventories. Note the receivables grew a lot recently.

The net net value of LCTH is 25.5 sen, as compared with its closing price of 20.5 sen. Good buy.

However some caveats below:

1) It is bleeding cash. CFFO negative. So hopefully the net net value will not be eroding in the future.
2) What is the quality of this receivables which has been increasing so much recently? Is the allowance of 50% adequate?

LCTH may be better dead than alive for its shareholders. Just my personal opinion.

Posted by saloma > 2013-11-21 19:50 | Report Abuse

hi, how bout unimech?

Posted by miketyu > 2013-11-22 09:58 | Report Abuse

Prlexus

Graham's number: (81158/74200)*0.1156*22.5)^0.5 = 1.68, current price 1.08. I used quarter EPS 0.1156 instead of whole year eps 0.40.

Net net: Cash = 28900 100% 28900
Trade & receivables 23744*0.75 =17808
Inventories = 17903*0.5 = 8951.5
PPE= 41435*0.5 = 20717.5
Total Liabilities=33774
Net net = 1.14
Current price 1.08
NTA 1.09

Mr Kcchongz. can u kindly review the above valuations either it is correct?
Because the business seems undervalued so far.
Note 3 sen dividend has been declared. Due 13/12/13

Posted by kcchongnz > 2013-11-22 12:17 | Report Abuse

Careplus hidden gem, or charcoal?

Posted by wajatimur_28 > Nov 21, 2013 06:54 AM | Report Abuse

mr kcchongnz...you are very kind and smart in stock investment based on FA...can u pls make some review on CAREPLUS stock (ace market)...it's a hidden gems stock or not?...based on EPS...-VE..but..the NTA of the company in gain so much..i think they us their profit to buy new asset..what do u think mr. market?...tq..

Me smart in stock investment? Didn't you see there is this fortune teller every time posting saying I am wrong in this stock, wrong in that stock? But actually I never like him forecast stock prices like a fortune teller. Because I can't make forecast of future stock price, period. So I usually talk about value and then compared with its prevailing stock price to see if worthwhile investing. Same thing for this stock. Since you asked me, I just give you my personal opinion what do i think about its business, not future stock price.

Ok good that you mentioned about it is losing money. So it can't qualify as a earnings kind of value, ie we can't gauge its value through earnings. So many gloves companies are making money. Wonder why its business is so bad.

So it leaves us to see its assets. However, I got a shock that such a small ACE company owes banks so much money, 53m, same amount as its total equity, and has only 3m cash. Wow!

And what kind of quality of its assets? PPE 76m and how much does it really worth if goes into liquidation?

Receivables, yes people owe them 8.5m, and 31.2m by a related party (what?), inventories, 14.7m. Wow!

Net tangible asset 18.5 sen and still trading at 33 sen. Are those people out of their mind?

Cash flow how? What cash flow? When is the next right issue or private placement or whatever.

No lah, they must have heard of news insiders going to goreng the stock.

Posted by houseofordos > 2013-11-22 14:49 | Report Abuse

KC,

With regards to your post on SHL, I have a few questions :-

1. How did you get earnings yield=18%. Did you also exclude investment properties besides the cash in the EV calculation ? At least that s what it took for me to get similar earnings yield as you.
2. Do you have any concern on the lower property development costs shown in the balance sheet for Q2 ? It seems like cashflow is high cause they already billed all their sales. The property development costs is the lowest for 3-4 years. Could mean slowdown in development ?
3. When you do graham net net and say that its net net value is close to RM2, I m assuming you put a high pecentage in its PPE which are mostly vacant land with appreciating value ?
4. I find ROIC is not good metric to evaluate property companies with high land bank / assets. Unless we exclude non-business related assets in the IC calculation to see the true operational efficiency.

Posted by kcchongnz > 2013-11-22 15:19 | Report Abuse

Posted by houseofordos > Nov 22, 2013 02:49 PM | Report Abuse

KC,

With regards to your post on SHL, I have a few questions :-

1. How did you get earnings yield=18%. Did you also exclude investment properties besides the cash in the EV calculation ? At least that s what it took for me to get similar earnings yield as you.

YES I DID. BUT THAT COULD BE A LITTLE LIBERAL, OR CONSERVATIVE. IT WILL BE HIGHLY ARGUABLE WHATEVER % ONE USES UNLESS HE GOES INTO DETAIL TO CHECK THOSE PROPERTIES AND THEIR ACTUAL MARKET VALUE.

2. Do you have any concern on the lower property development costs shown in the balance sheet for Q2 ? It seems like cashflow is high cause they already billed all their sales. The property development costs is the lowest for 3-4 years. Could mean slowdown in development ?

DIDN'T GO INTO DETAILS. BUT THE FCF THAT YEAR WAS PARTICULARLY HIGH. MAYBE SHOULD TAKE AVERAGE OF THE TWO YEARS. BUT THEN THE EARNINGS YIELD STILL OK AT DOUBLE DIGIT.

3. When you do graham net net and say that its net net value is close to RM2, I m assuming you put a high pecentage in its PPE which are mostly vacant land with appreciating value ?

NO I WILL NEVER USE HIGH PERCENTAGE FOR PPE BECAUSE OFTEN THIS PPE, IF THEY ARE NOT UNDERVALUED LAND, AND IF ARE MOSTLY MACHINERY AND PLANT, THEN THE LIQUIDATION VALUE WOULD BE LOW. I NORMALLY USE 50%.

THE HIGH NET NET COULD BE ME USING 100% FOR INVESTMENT PROPERTIES, PROPERTY DEVELOPMENT COST ETC. AGAIN THEY MAY BE TOO LIBERAL.

4. I find ROIC is not good metric to evaluate property companies with high land bank / assets. Unless we exclude non-business related assets in the IC calculation to see the true operational efficiency.

ROIC FOR PROPERTY COMPANIES NORMALLY LOW BECAUSE I INCLUDE LAND HELD FOR DEVELOPMENT, PROPERTY DEVELOPMENT COSTS ETC AS PART OF INVESTED CAPITAL. AGREE WITH YOU HERE.

I THINK FOR SHL WE HAVE TO TAKE THE WHOLE THING INTO CONSIDERATION TO DECIDE IF IT IS WORTH INVESTMENT. EG, NET NET OK AND CASH FLOWS, EARNINGS, FINANCIAL PERFORMANCE AVERAGE, THEN MAY BE OK.

THIS VALUATION IS AN ART. IN FACT ANY VALUATION METHOD IS ARGUABLE.

Posted by miketyu > 2013-11-22 16:52 | Report Abuse

MR KC,
Have you had a look at PRLEXUS?

Posted by houseofordos > 2013-11-22 18:46 | Report Abuse

KC,

Many thanks for the explanation.

Posted by Ryan Leong > 2013-11-23 00:11 | Report Abuse

KC ,How do you think of AWC Berhad..Price 0.27 but with cash around 0.25..almost buy its business for free

Posted by kcchongnz > 2013-11-23 12:54 | Report Abuse

I like this one. Investing exercise should follow a proper approach like this. Good effort.

Posted by miketyu > Nov 22, 2013 09:58 AM | Report Abuse
Prlexus
Graham's number: (81158/74200)*0.1156*22.5)^0.5 = 1.68, current price 1.08. I used quarter EPS 0.1156 instead of whole year eps 0.40.

Net net: Cash = 28900 100% 28900
Trade & receivables 23744*0.75 =17808
Inventories = 17903*0.5 = 8951.5
PPE= 41435*0.5 = 20717.5
Total Liabilities=33774
Net net = 1.14
Current price 1.08
NTA 1.09

Mr Kcchongz. can u kindly review the above valuations either it is correct?
Because the business seems undervalued so far.
Note 3 sen dividend has been declared. Due 13/12/13

First of all, you got to realize that there was a split of the shares after the last financial report and hence you have to adjust accordingly.

When you use the Graham number, EPS should be the annual figure, or 21 sen. Please note this valuation though simple, it should be used as a rough guide only.

Good to see you use net net valuation now. I feel this is a very useful valuation for a lot of companies with a lot of good assets but little earnings. I also believe that this knowledge could provide good return for investors if used correctly. In the US markets, net net is very hard to find now. But in Bursa, the market is more inefficient and hence net net valuation could be very useful.

You got the right net net valuation. However, you have to adjust for the share split. Hence the net net value is just half of what you got now, or 54 sen.

For me Prolexus is a value stock. An earnings based valuation model is more appropriate.

I use ColdEye's 5 yardsticks to evaluate Prolexus if it is worth investing as below:

Cold Eye’s 5 yardsticks for Prolexus
I will refer to the latest financial result ending 31/7/2013 for Prolexus for this exercise. The metrics are adjusted for the split of the shares a couple of months ago.

Yardstick 1: ROE
Prlexus reported an earnings of 15.3m, up from 10.0 m from the previous year for the common shareholders, or EPS 41.6 sen (pre-split) for the year ended 31/7/2013. With its net asset backing per share of 2.27, ROE is 23% which is better than the benchmark of 15%. This was achieved with little debts. Tick.

Yardstick 2: Cash flow and free cash flow
The average cash flow from operations (CFFO) last two year was 18.9. This is 110% of its earnings of 17.1m. This shows the quality of the earnings is good. After spending average 5.1m in capital expenses, there is a free cash flow (FCF) of 13.8m. This FCF is at 4.6% which is satisfactory.

Yardstick 3: PER
Prlexus is trading at 1.06 at the close on 22nd November 2013. With EPS of 21 sen, the PE ratio is only 5.1 (<<10). This is a reasonably low PE and considering that it has a healthy balance sheet with little debts.

Yardstick 4: Dividend yield
Prlexus paid a dividend of 3 sen for last financial year, or a dividend yield of 2.8%, not great but it is ok. Prlexus has not been paying any dividend for a long time already.

Yardstick 5: NTA
The net asset backing per share of Prlexus is 1.1. Hence at a share price of 1.06, the price-to-book value is only 0.9 (<1.0). It is inexpensive.

Prlexus generally meets all criteria of Cold Eye as an investment grade stock.

Posted by ganasai > 2013-11-23 13:05 | Report Abuse

QE tapering soon next year. So no need hidden gem. Just prepare bullet to collect blue chip. that's all.

Posted by tsurukame > 2013-11-23 13:16 | Report Abuse

Are you very sure that "QE tapering soon next year"? Can the US Govt with 17 trillions USD Debts up to their eyeballs pay higher interest rate for its Govt bonds which need refinancing??..

Maybe ...the term "Negative interest on cash deposits may be sounded next year...Janet Yellen had already mentioned about negative interest rate on cash deposit this some time ago "

As there is lots of uncertainty now and in the future ...it makes sense to be flexible and conservative in ones investment outlook ...hidden gem is one of the tools to evaluate future investment..

Posted by ganasai > 2013-11-23 13:21 | Report Abuse

i just advice for prepare, not all money throw in any hidden gem. now market so high, if the stock still hidden, most possible something wrong behind. If QE tapering announced suddenly, you can collect blue chip already when people sell. If not, you are the one make the sell.

Posted by miketyu > 2013-11-23 13:40 | Report Abuse

Thanks for pointing out my mistakes in the valuations. What formula did u use for calculating FCF? In what percentage range of FCF is considered satisfactory?

Posted by tsurukame > 2013-11-23 13:56 | Report Abuse

Market is imperfect especially small n medium cap stocks as most fund managers cannot invest as it is not their targeted stocks and liquidity is an issue with low market cap below RM 1 billion.

Posted by kcchongnz > 2013-11-23 14:35 | Report Abuse

How much FCF is considered satisfactory?

This is individual. For me if I invest $100,000 in a business with a turnover of $100000 a year and it earns $20,000, a net profit of 20%. Say in term of hard cash the business receives $22,000 (CFFO) because there is some non-cash item such as depreciation, and then it requires $15,000 for capital expenses for maintenance as well as growth, leaving behind $7000 cash (FCF) into my pocket. My cash return will be 7%. The cash is also 7% of the revenue. The capital expenses provides me with some growth in earnings say.

I will be happy about that. In general, I am happy if a business has over FCF of 5% over the revenue as well as invested capital. It is hard cash.

Posted by bsngpg > 2013-11-23 15:45 | Report Abuse

This is good, at least now I understand more on FCF, CFFO. However my current level is still insufficient to appreciate cash flow. I am still within the level of profit and revenue. Catching up slowly.
Thks for your detailed explaination.

Posted by tsurukame > 2013-11-23 15:57 | Report Abuse

kcchongnz,
Isn't the $15,000 for capital expenses for maintenance as well as growth already reflected in the P&L accounts at Net profit level in terms of equipment depreciation and maintenance expenses already incurred for that specific financial period??

When Cash flow is computed the deprecation, changes in working capital has to be added back to Net Profit figures ...

Posted by kcchongnz > 2013-11-23 16:44 | Report Abuse

Depreciation as a cost of the business is the depreciation of existing machinery. It is not capital expenses.

Capital expenses is money spend to maintain or increase the efficiencies of the production,new line of production, buy new machinery, new parts for increased production.

Capital expenses is capitalized in balance sheet for the benefits of many years to come in the future. It is not reflected in P&L. P&L only take out part of the cost as expense each year.

Posted by tsurukame > 2013-11-23 17:19 | Report Abuse

Capital expenses for machinery /production equipment has fixed depreciation schedule over say 5 years for equipment once it is incurred. The duration of the life of the equipment ( 5 years or longer span of life)is specified by individual companies anyway but IAS has certain guidelines on lifespan of production equipment.

The yearly equipment depreciated value for capital expenditure will be subtracted against Gross profit to arrive at Net profit figure. In Cash flow from business operations computation, the depreciated value of equipment will be added back( as depreciation is just a pure accounting treatment) to Net profit figures.

So in FCF computation, the balance value of the Capital expenses(Capital Expenditure value less accumulated depreciation to date ) will subtracted from the Normal cash flow from operations computation...Is that the correct treatment kcchongnz??

Posted by kcchongnz > 2013-11-23 17:40 | Report Abuse

This is what I, as a non accounting professional do when computing free cash flows of the firm:

FCF = Cash flow from operations - capital expenses

Cash flow from operations in the cash flow statements already added back non cash items such as depreciation and amortization into the net profit. These are for existing equipment and intangible assets. And also change in working capital etc.

Capital expenses are money spent on new plant and equipment, properties for the business etc. There may be some variation as what to use as capital expenses, whether growth capital expenses to be omitted here.

I as an investor just like to keep it simple to use the above formula directly abstracted from the cash flow statement

Posted by tsurukame > 2013-11-23 17:51 | Report Abuse

Capital expenditure once realized becomes capital expenses and these capital expenses has certain lifespan and will be depreciated over its lifespan on an annual depreciated value basis.

For instance plant machinery to improve future income once purchased in this year with a determined lifespan of say 5 years must be depreciated starting this year at 1/5 of its purchased cost. Buildings has say 20 years lifespan and will be depreciated accordingly. Software, office equipment is also depreciated over say 5 years period.
So the Net Profit figure for any particular year will have already taken off the annual depreciation value of these capital expenditures.

So how does one compute Free cash Flow??

Posted by kcchongnz > 2013-11-23 18:02 | Report Abuse

Unimech, is this "hi" referring to me?

Posted by saloma > Nov 21, 2013 07:50 PM | Report Abuse

hi, how bout unimech?

Unimech Group Berhad is engaged in system design, fabrication, manufacturing and distribution of all kinds of valves, instrumentation and fittings; heat and steam engineering, manufacture of electronic products and components and other related products; pumps, and others.

The revenue and earnings of Unimech is quite steady at about 200m and 20m respectively. At RM1.58, PE ratio and P/b of about 9 and 1 respectively are undemanding.

ROE at 13% is ok, not too bad. However it has considerable debt with D/E ratio of 0.5. Hence its ROIC, which I think is a better metric to measure efficiency, at less than 8% (<10%), is not good for me.

Actually its Achilles heel is its cash flow, very poor. There wasn’t any cash from the operations for the last two years. Hence it has to continue to borrow more money to fund its operations, and even more for capital expenses.

For me I won’t invest in this type of company.

Posted by Eric Wong > 2013-11-23 19:01 | Report Abuse

kcchongz, u missed out this --RGB

"Posted by w2sin > Nov 21, 2013 08:46 AM | Report Abuse

Hi kcchongnz, need your advice on RGB, thanks in advance."

Great to learn a lof from FCF explained by you two. At least more understand about the statement.

By the way, why many ppls attack you? Don't really understand when you always advise, teach and guide ppls here but still they attacked.

Anyhow, hows ya? Still in NZ and enjoying life there? i think i'm gonna change my job :)