Posted by kcchongnz > 2013-04-07 08:45 | Report Abuse

Value investors purchase stocks at relatively low prices, as indicated by low price-to-earnings (P/E), price-to-book (P/B), and price-to-sales (P/S) ratios, and high dividend yields (DY). Investing for "growth" results in just the opposite -- high P/E, P/B, and P/S ratios, and low DY. There are valid reasons why investors are willing to pay a higher price for growth stocks. A firm with a higher growth will grow its earnings at an accelerated rate compared to a low growth firm. Assuming a firm A earns 10 sen a share a year now and it pays no dividend, with all its earnings reinvested into the business with the same return. Assuming its earnings grows at 10% a year. In 5 years time, its EPS will grow to 16 sen (10*(1+10%)^5). If the growth rate is 30%, EPS after 5 years will be 37 sen, more than double that of the growth at 10%. Table 1 below shows the EPS at different growth rate. Table 1: Earnings growth rates Earnings growth 5% 10% 15% 20% 30% EPS in 5 years $0.13 $0.16 $0.20 $0.25 $0.37 So shouldn’t a stock with higher expected growth rate sell at a higher valuation, and how much should it be? This brings us to the concept that “The value of a firm is the sum of expected future cash flows generated by the firm discounted to the present value”. Assuming stock A above is selling at $1.00 and hence at a PE ratio of 10. Let’s say my required return investing in A is 10%. In 5 years time A’s EPS grows to 16 sen. Further assume that A is still selling at a PE of 10 in 5 years time, or $1.60. The present value of this future cash flow is also $1 (1.6/(1+10%)^5). So if you have bought the share at $1, you are paying a fair price. If you pay 1.50 for the stock now, or at a PE of 15, you are paying a high price; but you pay 50 sen for it, or at a PE of 5, you got a real bargain. Now let us look at a stock B with present EPS of 10 sen also but a high expected growth rate of earnings of 20%. Its EPS will grow to 25 sen in 5 years time. Assuming you pay a higher price at $2 to buy B now, or a PE of 20 and after 5 years, it is still selling at a PE of 20, the price then will be $5.00 (20*0.25). If you discount this price at 10% back to the present value, it is $3.10, more than 50% above the price you pay. You got a great deal even if you pay a higher price of PE of 20 for a stock B growing at 20% for the next 5 years. Table 2 below shows the effect of growth rate and PE ratios on the fair prices of stocks. Table 2: Effect of growth and PE ratio on stock prices Earnings Growth PER $1.00 5.0 10 15 20 25 30 5.0% $0.40 $0.79 $1.19 $1.58 $1.98 $2.38 10.0% $0.50 $1.00 $1.50 $2.00 $2.50 $3.00 15.0% $0.62 $1.25 $1.87 $2.50 $3.12 $3.75 20.0% $0.77 $1.55 $2.32 $3.09 $3.86 $4.64 25.0% $0.95 $1.89 $2.84 $3.79 $4.74 $5.68 30.0% $1.15 $2.31 $3.46 $4.61 $5.76 $6.92 We have seen that it is justified to pay a higher price for stock B which has a higher growth than A. If investors see the consistency of the growth in B, they may be willing to pay a higher valuation for it 5 years later. As shown from Table 2, if the rate of growth is maintained at 20%, and valuation expanded to a PE of 30, the present value of stock B is worth $4.64. The problem is the “growth” we are talking about is the future expected growth, a forecast figure which is not easy to predict. The growth estimate, especially those with very high rates often do not last long enough to justify the high PE. In the case of stock B, if the forecast growth rate is lower than expected, say at 10%, instead of 20%, and that the PE ratio contracted to 15 as a result, investors who have paid $2.00 initially, would have its present value dropped to $1.50 after 5 years as shown in Table 2. So there is a price to pay for growth. Paying a fair price for growth expectation may earn an extra-ordinary return for investors; but paying too much for growth is detrimental to the return of investment. Of course the best thing to do for investor is paying a good price for a growth stock. Do you have some stocks in mind to share? KC Chong (7/4/2013)

4 people like this.

123 comment(s). Last comment by necro 2013-05-09 11:55

Posted by faberlicious > 2013-04-15 08:01 | Report Abuse

thanks kcchongnz for that detailed look at Magni.So come Monday i just jump in head first n buy it bcoz its cheap n will not make me "pok kai" or go to Holland ! :D

Posted by faberlicious > 2013-04-15 08:05 | Report Abuse

btw kcchongnz,I'm big fan of yours.Follow your posting daily.

Posted by houseofordos > 2013-04-15 08:18 | Report Abuse

KC, did you have a chance to look at Willow ?

kcchongnz

6,684 posts

Posted by kcchongnz > 2013-04-15 12:41 | Report Abuse

Earnings and cash flows for Magni-tech Industry

As Magni has no or little debts, and negligible minority interest, and moreover, its cash flows and free cash flows are stable throughout the years, it is a good example to illustrate earnings and cash flows of a company. The table below shows the per share earnings and cash flows of Magni from 2008 to 2012.

Year 2012 2011 2010 2009 2008 Total
Earnings per share, RM 0.282 0.167 0.159 0.111 0.098 0.818
CFFO 0.321 0.086 0.129 0.216 0.286 1.038
FCF 0.282 0.035 0.058 0.191 0.226 0.792
Dividend+∂Book value 0.275 0.159 0.184 0.116 0.113 0.848

Magni’s EPS grows by 30% from 9.8 sen in 2008 to 28.2 sen last financial year. The total EPS for the 5 years is 81.8 sen. The total CFFO, i.e. the actual hard cash received in the 5 years was RM1.038, 22 sen more than EPS. This is the good quality of earnings I am talking about, i.e. the earnings is translated into hard cash. The main reason is each year there is this depreciation and amortization which is non cash, but is a form of accounting cost which reduces earnings. However sometimes EPS can be less than CFFO because earnings is not realized in hard cash; debtors owe the company money; sometimes the company may have booked this “earnings” but clients may dispute it. Some companies even book doggy “earnings” like what the infamous Enron did and many companies are doing now. Often company may have to build up its inventories and hence earnings is hidden there with more inventories, but not hard cash. Too much receivables and inventories build up causes CFFO less than earnings; and too much the gap means poor quality of earnings.

To maintain its competitiveness and growth, company got to spend money for capital expenses. After doing that, the money left behind is the FCF; cash which a company can use to distribute dividend, pay down its debts, make some investments and buy back shares. With capex, company then only can maintain its earnings and grow it earnings. There is why you can see earnings of Magni keeps on growing because of the capital expenses. However, each ringgit spent in capex may not grow as much earnings. Even without growth, company still have to spend money on maintenance capex like buying new machinery to replace old ones etc.
Hence according to Warren Buffet, the more important thing about a company is its ability to produce increasing “owner’s earnings”, or FCF, which Warren Buffet defines as:

"These represent (a) reported earnings plus (b) depreciation, depletion, amortization, and certain other non-cash charges...less (c) the average annual amount of capitalized expenditures for plant and equipment, etc. that the business requires to fully maintain its long-term competitive position and its unit volume”

In Magni’s case, the total Owner’s earnings for the last 5 years is 79.2 sen as shown in the table, slightly less than the total earnings.
The last line in the table shows the sum of dividend plus the change in book value per share of Magni of a total of 84.8 sen for the last 5 years. This according to the presenter of the video in the following link, is a more appropriate measure for return for an investor.

http://klse.i3investor.com/blogs/kianweiaritcles/26972.jsp

kcchongnz

6,684 posts

Posted by kcchongnz > 2013-04-15 17:38 | Report Abuse

house, you seem to be very interested in Willow. I promise I will write something about it, very soon. But before that, let me cite a poem translated from Chinese, just to add some spice to the boring market.

When wind blows, the branch of willow tree sways.
Big branch sways, small branch sways, every branch sways.

kcchongnz

6,684 posts

Posted by kcchongnz > 2013-04-15 18:16 | Report Abuse

Is Willowglen MSC Bhd a growth stock?

Willow is engaged in the research, development and supply of computer-based control systems. Its supervisory control and data acquisition (SCADA) system is used in security monitoring, building management and environmental control systems. The following table shows the financial performance of Willow from 2005 to 2012.

Year 2012 2011 2010 2009 2008 2007 2006 2005
Revenue 000 83427 52160 54470 62001 51157 51937 39445 36359
NI, 000 15231 8381 9312 12614 8061 8238 8055 4341
EPS, sen 6.2 3.4 3.8 5.1 3.3 3.3 3.2 1.8
DPS, sen 3.0 2.5 3.0 3.0 2.0 2.0 1.0 0.0

The revenue and earnings of Willow is relatively flat from 2006 to 2011, and hence is hardly a growth stock. The spike of revenue and earnings happened last year when revenue and earnings rose by 60% and 81% respectively. Is it the beginning of the high growth of Willow? It does seem so in view of the many contracts secured by Willow recently. Is Willow a value stock?

Willow closed at 41.5 sen on 15th April 2013. With a EPS of 6.2 sen per share, the PE ratio is just 6.7 (<10). P/B is also low at 1.4 (<1.5) is reasonable for an asset light technology stock. The dividend yield of 7.2% is very attractive to income investors. The quality of its earnings is reasonably good with positive CFFO and FCF every year as shown in the table below.

Year 2012 2011 2010 2009 2008 2007 2006 Average
CFFO 1623 5304 15065 8736 15309 5204 1759 7571
Capital expenses -1006 -381 -458 -2541 -1107 -3715 -989 -1457
Free cash flows 617 4923 14607 6195 14202 1489 770 6115
FCF/Revenue 0.7% 9.4% 26.8% 10.0% 27.8% 2.9% 2.0% 11.4%
FCF/IC 1.6% 21.5% 61.0% 22.0% 63.3% 5.1% 3.5% 25.4%

Average FCF is very good at 11.4% and 25.4% of revenue and invested capital. Willow also has a squeaky clean balance sheet with no debts at all.

A high growth stock has a major concern; that is if the growth adds value to the firm. Growth is considered shareholder value enhancing if the growth in earnings exceeds the weighted average cost of capital of the firm. With a return on invested capital of 41% and ROE of 21% last year, it has clearly demonstrated that any growth of Willow is shareholder value enhancing.

So how much you think the share price of Willow should worth? I hope to have some inputs here.

Posted by faberlicious > 2013-04-17 07:49 | Report Abuse

If u give it a PE of 8 times ,Willow being a smallcap stock could be worth about 49 sens.

Posted by faberlicious > 2013-04-17 07:58 | Report Abuse

kc I own Willow shares bought sometime last year when it was trading around 30 sens!. I was attracted by its 10 % yield. Still at 41.5 the yield is good at 7.2%. Besides that,it has yet to announce the ex date for 2012 final div. of 3 sens.

Posted by faberlicious > 2013-04-17 08:01 | Report Abuse

KC,when u r free please take a look at Deleum(5132) another value growth stock?

kcchongnz

6,684 posts

Posted by kcchongnz > 2013-04-17 18:47 | Report Abuse

Posted by seedarren > Apr 13, 2013 02:30 PM | Report Abuse
How about Mudajya?
Year 2012 2011 2010 2009 2008 2007 2006 2005 2004
Revenue 1655722 1347059 870428 719971 422382 273981 285933 293113 385139
Net Profit 237104 231032 215553 119180 45117 30140 16255 14724 26679
Equity 1103833 1007725 760988 422840 304132 253862 164187 153152 144195
ROE 23.53 30.36 50.98 39.19 17.77 18.36 10.61 10.21
Growth Analysis(2004 to 2012)
=============================
Revenue CAGR = 20%
Net Profit CAGR = 31.40%
Equity CAGR = 28.97

Stock Analysis
==============
Curr Price = 2.56
PER = 5.94
Div Yield = 2.54
P/Book Ratio = 1.26
Graham Number = 7.50
PEG = 0.19

Mudajaya certainly is a growth stock from 2005-2010. Revenue and net profit (NI) grew at the speed of bullet train. However after that, though revenue continue to grow, NI has stagnated. This is natural as Mudajaya grew to a giant size, it is harder to grow any more. Hence I would stop calling Mudajaya a growth stock from now on. But does MudaJaya qualifies as a value stock. Let us evaluate using Cold Eye's 5 yardsticks.

1) ROE is 23% tick
2) The quality of earnings for last year was fantastic. CFFO is 234% of NI and FCF is abundant at 29% of revenue, tick.
3) PE ratio at 6.5, <10, tick
4) Dividend of 9 sen, or DY of 3.5%, more than FD rate, tick.
5) Price-to-book of 1.3 <1.5, ok and tick

Hence Mudajaya qualifies as a value stock in all aspects.

I think there are two major reasons for the undervaluation of Mudajaya; one was the poor credibility of its management which investors have not forgotten yet. Secondly, I have doubt about its power plant in India. There are many political, social, economical, etc issues about this power plant development in India.

jm3525

94 posts

Posted by jm3525 > 2013-04-18 01:03 | Report Abuse

kc..

can u help me about MPAY..

kcchongnz

6,684 posts

Posted by kcchongnz > 2013-04-18 08:22 | Report Abuse

MPAY? Why?????
7.2m turnover for the whole of last year. Many traders have made higher turnover than that last year. Profit 122,000? Many punters here made much more than that in just one trade (not me lah). But actually if you take away the interest income from its cash of 22m, they made a loss instead. But be careful the burn rate of this cash from IPO (?) is relatively fast. Soon in two three years time, it will be all gone if MPay don't start making profit. Not only making profit but receiving real cash, unlike last year, 8.5m so called profit is actually built up of receivables and inventories.

So got big contracts from UMNO ah?

Sorry jm3525, no good news from me for MPay. If you are interested in this type of company, why not look at Myeg, prestariang etc. Sorry ah I promote my share a bit here so that I can sell high to you.

necro

4,726 posts

Posted by necro > 2013-04-18 08:29 | Report Abuse

Hai kcchong,
DELEUM this year i suspected they will reward shareholder bonus issue..
And people i see start picking palm oil stocks as they investment...

kcchongnz

6,684 posts

Posted by kcchongnz > 2013-04-18 08:38 | Report Abuse

Hi necro, I remember you asked me a lot of questions before and I tried to provide you some fundamentals of investing in those stocks. Have you followed what I told you in investing?

Whether a stock is good to invest or not depends on the company's business? Is it earning good return for investors? Does it have good cash flows? Does it reward you with cash? Is the business growing or at least sustaining? Is the management credible? Is it cheap of reasonably priced? etc. A bonus issue is not a reward in my investing dictionary. Cutting a cake into two to give me does not please me compared to given me the whole cake.

mrk2ca

106 posts

Posted by mrk2ca > 2013-04-18 08:51 | Report Abuse

Hi kcchongnz,
How about OPCOM? ROE high and PE below 6..,

Posted by faberlicious > 2013-04-18 09:43 | Report Abuse

mrk2ca,problem with OPCOM is it's too dependent on contracts frm TM.If contract flow stops then OPCOM will "ta pau"

mrk2ca

106 posts

Posted by mrk2ca > 2013-04-18 13:36 | Report Abuse

BOILERMECH also can fit to this group.

wayne1982

39 posts

Posted by wayne1982 > 2013-04-18 14:08 | Report Abuse

I prefer MBL but compared to Boilermech, it backed up by the majorshareholder, QL and its business is the similar with MBL.

necro

4,726 posts

Posted by necro > 2013-04-18 15:10 | Report Abuse

Bro Kcchong yup Deleum thus give dividen and its dividen if bro can see quite ummph and its earning is consistent,yes some ppl doesnt like bonus but if the bonus can propel the stock performance in mid term why not we can buy it...
In TDM case its price in uptrend mode since speculation its will reward its shareholder bonus issue,yes long timer dont like bonus issue as diluting EPS n ROE of company...
But everyone has it own gameplay...
Huhu

kcchongnz

6,684 posts

Posted by kcchongnz > 2013-04-18 15:37 | Report Abuse

necro, it is not that I dislike bonus issues. It is just that it does not add any value to my long term investment. Unless I want to sell the stock now which bonus issues will be good because speculators chase up the share price thinking that they got something from nothing when bonus issues announced. That was what happened before bonus issues of TDM was announced. Btw, TDM is worth its value now despite bonus issues is announced. Neither bonus issue destroy value, as though your EPS is diluted but you have the corresponding increase in the number of shares. It doesn't affect ROE also as R and E are the same as before.

necro

4,726 posts

Posted by necro > 2013-04-18 16:38 | Report Abuse

Ok bro kcchong but what in FA term you look Deleum is?
As HuaYang and Pos already rallied awesomely im thinking of anothers gem..
Currently im watching Deleum,Protasco,MFCB and Yokohama in my list...
Thanks bro on comment..

kcchongnz

6,684 posts

Posted by kcchongnz > 2013-04-18 17:44 | Report Abuse

oh necro, I remember you asked me about Pos and Hua Yang a few months ago besides others. Now you have made so much money in them and you never belanja me makan roti canai. Why roti canai ah? Ok lah, I will look into Deleum for you soon, very soon.

kcchongnz

6,684 posts

Posted by kcchongnz > 2013-04-18 18:16 | Report Abuse

Is Deleum a growth stock?

Deleum Berhad is an investment holding company engaged in the provision of gas turbines packages and related services, oilfield equipment and services, servicing and maintenance of rotating equipment for the oil and gas industry.

The following table shows the financial performance of Deleum from 2005 to 2012.

Year 2012 2011 2010 2009 2008 2007 2006 CAGR
Revenue 473240 396303 399045 514293 425055 665449 452047 1%
EBIT 52300 33637 29468 37316 21905 27950 17627 20%
Net Income 54214 34711 30214 35734 30440 27532 20799 17%

The revenue of Deleum is relatively flat from 2006 to 2011, and hence is hardly a growth stock. EBIT and NI however did show some good growth of about 20% a year. The spike of revenue and earnings happened last year when revenue and earnings rose by 19% and 56% respectively. Is it the beginning of the high growth both in revenue and earnings of Deleum? The management does seem very positive about them. I tend to believe what the management says. Is Deleum a value stock?

Deleum closed at 2.20 on 18th April 2013. With a EPS of 29.4 sen last year, the PE ratio is just 7.4 (<10). P/B is at 1.5 which is alright. The dividend yield of 6.8% is very attractive to income investors. The quality of its earnings is reasonably good with positive CFFO every year approximately equal to NI. FCF was also ok at 6% of revenue and 17% of invested capital. Deleum also has a healthy balance sheet with an excess cash of 81m, or 54 sen per share. Hence Deleum is a value stock too.

A high growth stock has a major concern; that is if the growth adds value to the firm. Growth is considered shareholder value enhancing if the growth in earnings exceeds the weighted average cost of capital of the firm. With a return on invested capital of 24% and ROE of 18.3% respectively last year, it has clearly demonstrated that any growth is shareholder value enhancing.

jm3525

94 posts

Posted by jm3525 > 2013-04-18 20:03 | Report Abuse

KC... thanks for your most informative info on MPAY..

necro

4,726 posts

Posted by necro > 2013-04-19 11:20 | Report Abuse

Thanks bro...
Now gonna put on my top list...
Huhu...how gonna belanja know u also in i3 meh

seedarren

12 posts

Posted by seedarren > 2013-04-28 11:44 | Report Abuse

Posted by kcchongnz > Apr 17, 2013 06:47 PM | Report Abuse

I think there are two major reasons for the undervaluation of Mudajaya; one was the poor credibility of its management which investors have not forgotten yet. Secondly, I have doubt about its power plant in India. There are many political, social, economical, etc issues about this power plant development in India.

kcchongnz,thanks for your analysis. Why Mudajaya have poor credibility of its management which investors have not forgotten?

kcchongnz

6,684 posts

Posted by kcchongnz > 2013-04-28 12:45 | Report Abuse

seedarren, "Why Mudajaya have poor credibility of its management which investors have not forgotten?"

Long story. Mudajaya share price went into a free fall some time in middle of year 2012 due to the query by Bursa on its funding for the IPP project in India. Go google the news in newspapers and financial papers around that time.

Posted by houseofordos > 2013-04-29 00:04 | Report Abuse

I got interested in NTPM after reading the blogs here and did some analysis

Year 2012 2011 2010 2009 2008 2007
Revenue 449786 420227 383123 358557 306173 270730
EBIT 62746 69314 76474 60620 43926 40258
Net Income 44780 52063 59321 46222 34108 32190


Cash Flow of NTPM from 2006-2012
Year 2012 2011 2010 2009 2008 2007
CFFO 47624 47250 85521 57996 49575 38622
Capex 36922 38777 29140 23857 17812 13475
FCFF 10702 8473 56381 34139 31763 25147
Dividends paid 32571 32572 32573 38413 21119 14532
FCFF/Revenue 2% 2% 15% 10% 10% 9%
CFFO/NI 106% 91% 144% 125% 145% 120%

Year 2012 2011 2010 2009 2008 2007
EPS (sen) 4.0 4.6 5.3 4.1 5.5 5.2
DPS (sen) 2.9 2.9 2.9 3.4 3.4 2.3
DP ratio 72% 63% 55% 83% 62% 45%
Equity 283198 248742 228457 203931 181389 171441
ROE 15.81% 20.93% 25.97% 22.67% 18.80% 18.78%

The company's net income seems to be decreasing over the years even with higher revenue suggesting tightening margins. The lower net income was achieved despite the fact that pulp prices (their main raw material) remained low for the past 2 years. Where is this margin compreession coming from ? The minimum wave policy is also expected to have an impact on margins in future. The FCF is also much lower possibly due to overseas expansion indicated in higher capex ? Dividend payout is good but the past 2 years, dividend payment exceeded the free cashflow suggesting that it is actually digging into the cash reserves to pay the dividend... Has anyone projected NTPM intrinsic value ? Appreciate some feedback here...

ryan78

176 posts

Posted by ryan78 > 2013-04-29 00:19 | Report Abuse

We'll only be seeing real growth value in stocks when you rid them of cronnies and fund manipulators that always play trap games with the public with their IPOs and frying.

Posted by houseofordos > 2013-04-30 08:07 | Report Abuse

kc ,any feedback on NTPM above ? I think you own these shares if I m not mistaken from your portfolio you shared a while back

kcchongnz

6,684 posts

Posted by kcchongnz > 2013-04-30 20:05 | Report Abuse

NTPM did very well from 2006 to 2010 when both revenue and profits grew in double digits. ROE and ROIC were great in the twenties. Plenty of FCFs then. Since then due to competition and the after effect of the global financial crisis, margins contracted and hence profits adversely affected, and hence lowering ROE and ROIC to about 16% and 12% respectively which are still acceptable. FCF were greatly reduced, partly due to decreased profit, and partly due to capital expenses, which hopefully will produce future benefits. I like NTPM because of its durable business; both in paper products and the newly health care products like diapers, sanitary pads etc. The new products seem to be have good growth and margins. The future of NTPM may have to depend more of the latter introduction.

The last few quarters seem to show improved profits. If NTPM's performance can return to its former glory in 2009 and 2010, which is likely, then it has good future prospects.

My valuation of NTPM shows an intrinsic value of 55 sen to 60 sen per share, or a margin of safety of 15% to 20%, ok lah for a durable business like that of NTPM. My assumptions are a required return of 10%, a growth of 12% for the next 5 years and 3% thereafter.

Posted by faberlicious > 2013-05-02 08:05 | Report Abuse

hi kc

when u say(for NTPM) u required a growth of 12% for the next 5 years and 3% thereafter do u mean every year grow by 12%? Isn't that a bit too optimistic? How about 8-10%.

kcchongnz

6,684 posts

Posted by kcchongnz > 2013-05-02 09:14 | Report Abuse

faberlicious, Good question. I have tabulated a table for various growth assumptions and NTPM's intrinsic values of its business from my analysis. Please note this is just an analysis of the business, nothing to do with the share price of NTPM, now or the future.

Growth 5% 8% 10% 12% 15%
IV 0.499 0.530 0.552 0.574 0.608

Posted by faberlicious > 2013-05-02 10:37 | Report Abuse

ok,thanks.Btw kc, what is FCFF and how did u get the figures? Pls. explain.

Cash Flow of NTPM from 2006-2012

Year 2012 2011 2010 2009 2008 2007
CFFO 47624 47250 85521 57996 49575 38622
Capex 36922 38777 29140 23857 17812 13475
FCFF 10702 8473 56381 34139 31763 25147
Dividends paid 32571 32572 32573 38413 21119 14532
FCFF/Revenue 2% 2% 15% 10% 10% 9%
CFFO/NI 106% 91% 144% 125% 145% 120%

kcchongnz

6,684 posts

Posted by kcchongnz > 2013-05-02 11:06 | Report Abuse

To me FCF is the most important thing a company produces from its business. It is from this FCF that a company can pay investors dividend without having to rely on borrowing to do that. It is FCF that a company can utilize to reduce its debts, to buy back shares and to invest in other business for shareholder profit maximization. Very surprisingly, hardly read anybody writing about FCF in this supposedly investment blog.

Investopedia has a good explanation of FCF as appended. You can see how house calculated FCF in his NTPM example.

http://www.investopedia.com/terms/f/freecashflow.asp

Posted by faberlicious > 2013-05-02 13:05 | Report Abuse

Thanks kc.Still do not fully understand all these accounting terms but e'day learn a bit more,hopefully "sikit sikit lama lama jadi expert" like u. When I read quarterly rpts I only read how much cash a company has, it's receivables,borrowings that's all !

Posted by faberlicious > 2013-05-02 13:22 | Report Abuse

kc,how about CMSB as a value & growth stock? It's trading way below its net assets p/share.

kcchongnz

6,684 posts

Posted by kcchongnz > 2013-05-02 14:06 | Report Abuse

I have no interest in a stock which primarily depends on political and government largesse.

Posted by faberlicious > 2013-05-02 15:32 | Report Abuse

kc,shouldn't u even look at it purely from a FA point instead of just dismissing it straightaway? :)

kcchongnz

6,684 posts

Posted by kcchongnz > 2013-05-02 16:17 | Report Abuse

faberlicious, it is like this.

For some funds investing in ethical businesses, they don't buy companies selling liquor, cigarettes, gambling etc. For me I see companies heavily controlled by political parties or their cronies, I just avoid and don't even want to look at it as I think I would be short-changed, unless under certain special circumstances.

Btw how do you find this "white hair" of Sarawak?

Posted by faberlicious > 2013-05-02 16:50 | Report Abuse

bro kc,since u have such strong views about CMSB,then we discuss some other stocks ok.Where did I find this "gem or bomb"? It was recommended by RHB Investment Research.

Steve Jub

4,203 posts

Posted by Steve Jub > 2013-05-02 19:34 | Report Abuse

kcchong, the free cash flow you always mentioned for example for skpres is it 61,886? for this figure how to measure good or no good?

kcchongnz

6,684 posts

Posted by kcchongnz > 2013-05-02 21:11 | Report Abuse

steve jub, skpres where got FCF of 61886? You think this company is like your Mini Apple ah?

Table 3: Cash flows of SKPR
Year ended 31/3/11 2012 2011 2010 2009 2008 2007
CFFO 29241 40255 19544 19705 30322 18264
Capex -10086 -17509 -5922 -5677 -13062 -7346
FCF 19155 22746 13622 14028 17260 10918
FCF/Revenue 5% 9% 7% 8% 10% 6%
CFFO/NI 79% 153% 146% 672% 166% 114%

FCF= Cash Flow From Operations - capital expenses

SkpRese produced 19.1m of FCF last year which is equivalent to 3.2 sen per share. If you invest in a company with RM3000 (10000 shares in SKPRes) and each year it earns RM320 in hard cash, after spending some money for buying some new machinery and other capital expenses, isn't that a reasonable good business?

If FCF/Revenue>5%, ok
If CFFO/net income >100%, good

Steve Jub

4,203 posts

Posted by Steve Jub > 2013-05-03 08:54 | Report Abuse

kcchong, thanks. from the financial report, i can find CFFO but couldn't find capex (capital expenses), from cash flow section. i can only see
- investment activities - 6276
- financial activities - 14967
- net cash - 7998
- cash b/f - 53809
- cash and bank balance - 8989
- deposit - 0
- overdraft - 3
- cash c/f - 61886

kcchongnz

6,684 posts

Posted by kcchongnz > 2013-05-03 10:31 | Report Abuse

Steve Jub, the cash of 61886 you are talking about is the cash it has in its balance sheet, not the cash flows from operations (CFFO),nor free cash flow (FCF). Think about it, the cash it has amount to 10 sen per share, or more than 30% of its net asset backing per share of 30 sen. Incidentally, the share price is also 30 sen now. Think about it, with its past growth of 20% for the last 5 years, Return of equity of 21%, return of invested capital of 29%, but selling at a PE of just 5, and its enterprise value just 2.6 times its EBIT, if you say this is not cheap, I really don't know what to say.

You can find capital expenses from its cash flow statement under "cash flow from investment activities". It is the amount spend on purchasing property, plant and equipment. For plantation company, you may have to also include procurement of biological assets.

Steve Jub

4,203 posts

Posted by Steve Jub > 2013-05-03 11:36 | Report Abuse

okay, actually i send order at 0.28 hehe ... but maybe that's not realistic..maybe i will try to q higher like 0.295. btw, what do you think of MBL? i had a quick look of it, seem not bad.

kcchongnz

6,684 posts

Posted by kcchongnz > 2013-05-03 11:39 | Report Abuse

Steve, I have written a lot about MBL in i3. If you are interested in my opinion on it, just Google it in i3. Again it is about the business, not about the share price. Sorry, I can't tell about its share price, now or future.

Steve Jub

4,203 posts

Posted by Steve Jub > 2013-05-03 11:42 | Report Abuse

i see. ok i will search for it. thanks.

Posted by houseofordos > 2013-05-03 13:39 | Report Abuse

KC, what is your opinion on Keck Seng as a value play ?

kcchongnz

6,684 posts

Posted by kcchongnz > 2013-05-03 14:19 | Report Abuse

Posted by kcchongnz > Mar 6, 2013 03:37 PM | Report Abuse X

[Keck Seng is an asset play. It's NTA is RM5.10 made out by RM3.46 of hard cash. Besides other valuable assets which book values of 65 sen per share is much lower than the current value such as land held under development and investment properties. Hey, I have not talked about its property, plant and equipment, Property development costs, inventories, receivables etc of about 800m yet. Whereas its total liabilities is only 108m. It is definitely a Graham net-net counter. Besides it has a profitable palm oil manufacturing work and plantation, property development, hotels etc and other business which are doing quite ok with positive free cash flows. It has about RM1.00 per share dividend which is tax imputable and has to be given out by this year. It seems it won't go wrong investing in this stock at current price now. You don't have to follow me. ]

house, when I first posted this, Keck Seng was trading at about 4.20. and I was hoping for the 1.00 dividend because Keck Seng has that amount of dividend which is tax deductible. However recent announcement of the normal 6 sen dividend is a big disappointment. The major shareholders/management is not one who takes care of the interest of minority shareholders.

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