Posted by ccs999 > 2013-06-01 16:02 | Report Abuse

Hi kcchongnz, any comments on Cenbond 7171 & SBCCORP?
Appreciate your commenrs and thanks.

Posted by kcchongnz > 2013-06-01 18:01 | Report Abuse

Posted by ulalar > Jun 1, 2013 12:53 PM | Report Abuse
@kcchongnz, boss you even got spy within HLIND. I'm facing some problem with the EPS CAGR for 5-year & 10-year estimation, my figure deviated far from Dyanquest publication....so need to cross check with other reference. What is your EPS CAGR 5Y & 10Y for HLIND?

Say for example EPS in 2006 is 20 sen, it is 50 sen in 2012, 5 yr CAGR of EPS is (50/20)^(1/5)-1=20.2%

For 10 yrs is (EPS12/EPS01)^(1/10)-1

Posted by kcchongnz > 2013-06-01 18:29 | Report Abuse

Is Eforce a good company?

Posted by Joshua Lee > May 31, 2013 10:46 AM | Report Abuse
Anyone has any views on EFORCE? With Bursa 'heating up' now, the prospect for EFORCE looks good. And it gives good div too!

It does appear that Eforce is a reasonably good company with steady revenue and net profit for the past 2 years. ROE and ROIC though meet my minimum requirement, I would expect this type of technology, asset light company should have ROE and ROIC of more than 20% as they generally have high margins. It needs to have more jobs to increase its asset turnover in order to increase its ROE.

Well you if know this company well and it is good in your opinion, it is good to invest as its valuation is ok lah as shown in my assessment below:

Eforce a Good company? 0.330
Good governance ?
Durable business ?
Growth Neutral
ROE Yes 13% >12%
ROTC Yes 15% >WACC
Balance sheet Yes D/E 0.03
Cash flow Yes

Screens for investing
ROTC Yes 15% >WACC
P/B Yes 1.7 <2.0
PE ratio Yes 13.0 <20

Posted by soon5728 > 2013-06-01 18:46 | Report Abuse

I am holding Amprop since long time,now only at the gain.Is Amprop a good company to hold? can anyone help,tks.

Posted by iafx > 2013-06-01 19:07 | Report Abuse

since 40c? long time ago means u could be having 100% gains by now, congratulate! amprop is fortunate to have recurring rental, highway & power income, properties development is niche rather than theme driven, balanced with UK international properties market. healthy cash level with sustainable DY. once recommended by coldeye, certainly a counter to be considered especially in time of uncertainty.

juz a cheap view, yr $ yr choice :

Posted by jalenheng > 2013-06-01 19:24 | Report Abuse

Can share ur view on tecnic?

Posted by soon5728 > 2013-06-02 00:08 | Report Abuse

tks,iafx. my average price is 72c when shares consolidate long time ago.

Posted by kcchongnz > 2013-06-02 05:30 | Report Abuse

TanKW, yes, the link you provided is the way to calculate WACC, the "academic" way. My last example to calculate didn't adjust the tax shield for cost of debt. for example if borrowing cost is 6%, the after-tax cost of debt is 6%*(1-25%)=4.5%; assuming tax rate is 25%.

Risk free rate you can use the FD rate, but the more appropriate rate may be the 20-year MGS rate. Beta is the movement of the stock price in relation to the market obtained through a statistic analysis of standard deviation of the stock price. Risk premium is what an investor required over and above the risk free rate. Calculation of beta is tedious but in the US market, beta is provided from many free sites. I am not sure in Bursa. Anybody knows where to get it appreciate can let me know.

The above is too academic. Actual finance and investment need not to be that precise. So I normally make my own judgement. for example if a company has healthy balance sheet and good cash flow, my required return is 10%, 15% if the company is risky with big bets, poor balance sheet and not much cash flow.

Hope the above help.

Posted by kcchongnz > 2013-06-02 09:10 | Report Abuse

Is Redtone a good company? Is it a great investment?

Posted by nhkch > May 31, 2013 11:58 AM | Report Abuse
Hi kcchongz. Would like to know how you view redtone. Personally i think this counter going to perfrom well. The profit margin is high. From the financial report, it seem that the free cash flow is increasing.

I agree with you the above.

It does seem to me Redtone is a good company simply because of the turning around and the expected explosive growth in the near future.

[The Company is principally engaged in the telecommunication business. Operations are carried out in Malaysia, Singapore and People's Republic of China. Its direct subsidiaries are REDtone Telecommunications Sdn. Bhd., which is engaged in the research, development, manufacturing and marketing of computer-telephony integration products, and provision of communication services; REDtone Technology Sdn. Bhd., which is a provider of total solutions in business communication and telecommunication; REDtone Network Sdn. Bhd., which is engaged in the research and development and marketing of communication applications; REDtone Marketing Sdn. Bhd.; REDtone Multimedia Sdn. Bhd., and REDtone Software Sdn Bhd., which is engaged in the research, design, develop and commercialization of voice over Internet protocol (VOIP) customer premise equipment.]

The twelve month trailing revenue increased by 13% from 107m to 121m while earnings multiplies by 5.7 folds from 1.8m to 10m for fy ended 30/6/2013. This compared well when you consider Redtone was in the red for the same amount as at 30/6/2011. Margin expanded to double digit with ROE improved tremendously from 2% to 13%. ROIC is particularly impressive at 23%. Quality of earnings is great with ttm CFFO amounts to 20m. Will this great feat of Redtone continues? Hope someone in the know can shed some light on this.

And how about whether Redtone is a good investment now especially in view that its share price has jumped by more than 70% from about just 40 sen a month ago?

At the close of 71 sen last Friday, Redtone was traded at a PE of 7 times and 3.5 times its book value. The market must be having great expectation for Redtone. Below is my assessment on Redtone for you to judge for yourself if Redtone is a good investment.

Redtone a Good company? 0.71
Good governance ?
Durable business ?
Growth Yes 13% in revenue
ROTC Yes 23% >WACC
Balance sheet Yes 0.05 D/E
Cash flow Yes 163% CFFO/NI

Screens for investing
ROTC Yes
P/B No 3.5 >2.0
PE ratio No 27.4 >20

Posted by ZenZenD > 2013-06-02 09:43 | Report Abuse

Many tks, kcchongnz. Appreciate ur comments. Can I hv ur coments on KPJ as to whether it is fully valued at this current price?

Posted by kcchongnz > 2013-06-02 09:46 | Report Abuse

ZenZenD, why don't you look at KPJ's financial statement and let us kow if it is fully valued? We can discuss about your assessment and any doubt of your method of assessment here.

Posted by kcchongnz > 2013-06-02 12:28 | Report Abuse

Is Parkson a good company? Is it a good investment?

Posted by yfchong > May 31, 2013 02:14 PM | Report Abuse
bro KC from nz, any change to comment on Parkson..

Yeah, felicity has written a good analysis on Parkson and there are also valuable comments there. Go and have a read.

For me I still think Parkson is a good company. That is despite that its growth has slowed down considerably these two years. Its margin has also contracted, quite badly to 15% based on its 2013 ttm results, down from 20% a year ago. ROE and ROTC also suffered quite badly, retreating to 12% and 5% respectively. This is mainly due to the slowdown in the China market. Parkson has forayed into Indonesia, Vietnam and Sri Lanka. So Parkson’s continuous success very much depend on the recovery of China’s economy and the success in those new countries.

Below is my assessment of Parkson if it is a good company and a good investment.

Parkson a Good company? 3.82
Good governance Yes
Durable business Yes
Growth No 2.3% in revenue
ROTC No 5% <WACC
Balance sheet Yes 0.33 D/E
Cash flow Yes 157% CFFO/NI

Screens for investing
ROTC No
P/B Yes 1.5 <2.0
PE ratio Yes 14.4 <20

Posted by kcchongnz > 2013-06-03 10:26 | Report Abuse

Cenbond, is it a good company? Is it a good investment?

By looking at how its share price jumped from 90 sen to RM1.61 at the close of the market on 31/5/2013, there must be something about this company, isn’t it?

Cenbond business includes paper packaging, plastic packaging, contract manufacturing and packing sale of household care products and adhesive products, and investment and property holding.

Revenue for fy ending March 31 2013 shows an improvement of just 3% from 182m to 187m. However its net profit jumped by 32% to 20.6m. Margin improved by 2.6% which is substantial for this type of industry which could positively affect its bottom line. This helps in its return of total capital which improved from 15% to 17%, way above its cost of capital.

Is Cenbond reasonably priced after the jump in its share price recently. Yeah of course. Below is my assessment whether Cenbond is a good company and a good investment.

Cenbond a Good company? 1.610
Good governance ?
Durable business Yes
Growth Yes
ROE Yes 13% >12%
ROTC Yes 17% >WACC
Balance sheet Yes D/E 0.03
Cash flow Yes

Screens for investing
ROTC Yes 17% >WACC
P/B Yes 1.3 <2.0
PE ratio Yes 10.1 <20

Posted by kcchongnz > 2013-06-03 15:42 | Report Abuse

Is SBCCorp a good company? Is it a good investment?

Posted by ccs999 > Jun 1, 2013 04:02 PM | Report Abuse
Hi kcchongnz, any comments on Cenbond 7171 & SBCCORP?
Appreciate your commenrs and thanks.

SBCCorp’s share price shot up from RM1.00 to RM1.58 now, for a 60% gain just in 3 months. Wow! Even at this price, it is trading at a PE of just 5 and a price-to-book value of just 0.5, damn cheap isn’t it? So the momentum is there and the valuation is undemanding, what are you waiting for?

But wait, this thread is about finding a good company to invest, then only check if it’s valuation is not to high before investing. Let’s don’t jump the gun and evaluate if SBC is a good company or not first.
Siah Brother has been an established name in construction, in particular the superstructure construction. By superstructure I mean the building from above the ground, after contractor like Pintaras has done its foundation and basement work. Superstructure construction works has been a very competitive work and margin and profit is low. In fact the margin for SBCCorp is surprisingly high at 21% last fy. That was because of the inclusion of investment and other income. However the turnover of SBC is surprisingly low at 127m last year. Even with such seemingly good results last year, ROE is only at 9.2%, below my required return. ROIC at 8.8% is also not good enough, hardly above the weighted average cost of capital.

There is also up and down in construction and with many inherent problems in the industry. Unless that company is big and has influence, or it has a niche (like my favourite Pintaras), it is really hard to survive in this dog eat dog environment. Many construction companies, some high fliers, have vanished into the thin air after each crisis. Hence I could not myself rate SBCCorp as a good company. Below is my assessment:

SBCCorp a Good company? 1.580
Good governance ?
Durable business No
Growth No
ROE Yes 9.2% <12%
ROTC Yes 8.8% *=WACC
Balance sheet Neutral D/E 0.26
Cash flow ok

Screens for investing
ROTC Neutral 9% *=WACC
P/B Yes 0.5 <2.0
PE ratio Yes 5.0 <20

Posted by iafx > 2013-06-03 15:48 | Report Abuse

Suria Capital, SBC Corp in RM1.8b Sabah JV: http://biz.thestar.com.my/news/story.asp?file=/2013/5/22/business/20130522094320&sec=business

http://www.bursamalaysia.com/market/listed-companies/company-announcements/1297869

Posted by kcchongnz > 2013-06-04 06:32 | Report Abuse

Posted by jalenheng > Jun 1, 2013 07:24 PM | Report Abuse
Can share ur view on tecnic?

Is Tecnic a good company? Is it a good investment?

While many stocks surged in price in last year, Tecnics’s share price retreated from a high of RM4.10 to RM3.17 now. Is Tecnics necessarily a bad company? I don’t think so.

Tecnics operates in two segments: plastic wares and moulds. It is engaged in the manufacture and supply of plastic wares, which it offers the products in the areas of household, consumers, industrial and electronics. In addition, the Company is also engaged in the manufacture, fabrication and sale of moulds, which are used in the areas of electronics, automobile and plastic injection moulding.
Revenue for 2012 dropped marginally by 8% to 194m last year due to the decrease in order from its clients on the electronic and electrical moulds. Net profit for 2012 was down by 14% to 17.4m. However its ROE remains high at 17% and ROIC at 22%, way above the cost of capital. Cash flow is ok on average over the years and it has a healthy balance sheet. If things improve in the future, Tecnics should be doing very well again. Most of all, its valuation is undemanding as shown in the assessment below:

Tecnic a Good company? 3.170
Good governance ?
Durable business Yes
Growth No
ROE Yes 17% >12%
ROTC Yes 22% >WACC
Balance sheet Yes D/E 0.06
Cash flow Yes good quality

Screens for investing
ROTC Yes 22% >WACC
P/B Yes 1.3 <2.0
PE ratio Yes 7.4 <20

Posted by faberlicious > 2013-06-07 08:09 | Report Abuse

bro kcchong,

I'm looking at Tguan which looks cheap in terms of PER but not sure if it is a good company to invest in. I'd appreciate it very much kc if you take a closer look at it .

Posted by KY Lau > 2013-06-08 01:17 | Report Abuse

how u think mkh n tsh?

Posted by kcchongnz > 2013-06-08 18:02 | Report Abuse

Is Thong Guan a good company? Is it a good investment?

Posted by faberlicious > Jun 7, 2013 08:09 AM | Report Abuse
bro kcchong, I'm looking at Tguan which looks cheap in terms of PER but not sure if it is a good company to invest in. I'd appreciate it very much kc if you take a closer look at it .

Thong Guan Industries Berhad is principally engaged in trading of plastic and paper products. The Company's business segments include plastic products, food and beverages, and consumable products and machinery. It carries its operations in Malaysia and China.

Faberlicious, don't know too well about Thong Guan but looking at its business, I think it is a ok business. TG was doing quite well before the sublime crisis in its growth and profitability. It was hit quite hard during the crisis. Since then it has recovered nicely with revenue growing rapidly in double digits albeit with much slower growth in profit especially for last year at just 1% for shareholders.

Operating efficiency wise it is ok with ROE and ROIC at about 10%, closed to the cost of equity and total capital.

So personally I would rate Thong Guan as a slightly above average company. As investment wise, yes, it is very cheap and hence could be an excellent investment. Below is my assessment:

Thong Guan a Good company? 1.640
Good governance ?
Durable business Yes
Growth Yes
ROE ok 11% close to 12%
ROTC ok 9.6% about WACC
Balance sheet Yes D/E 0.2
Cash flow Yes good CFFO/NI>100%

Screens for investing
ROTC ok 10% about WACC
P/B Yes 0.7 <2.0
PE ratio Yes 6.3 <20

Posted by kcchongnz > 2013-06-09 17:26 | Report Abuse

Is KPJ really worth RM6.50 a share?

Posted by ZenZenD > Jun 2, 2013 09:43 AM | Report Abuse
Many tks, kcchongnz. Appreciate ur comments. Can I hv ur coments on KPJ as to whether it is fully valued at this current price?

This thread is about whether a company is a good company or not, and if it is, then only we check if it is still worthwhile to invest at the market valuation. It is not so much if the stock is undervalued or not.

Everybody seems to think that KPJ is a very good company; great business, stable and growing in revenue and profit, good cash flows, good governance, and high return in capital etc, but is it really that fantastic?

I would say ok lah at this stage because KPJ's growth has slowed down considerably. It borrows quite a bit of money with debt higher than equity now. However its return of total capital is just about 10%, slightly higher than the cost of capital.

But what do you think of its market valuation? For me I won't pay for a stock with a PE ratio of 31 and a price-to-book value of 3.7. Obviously the market is expecting that the fantastic growth of KPJ will continue for a long long time. No, a good company is not a good investment if the price is too high. Not for me.

Posted by necro > 2013-06-09 21:04 | Report Abuse

KPJ?...
Who never get treatment from KPJ please raise your hand!...

Posted by faberlicious > 2013-06-10 07:42 | Report Abuse

Bro. kcchong,many thanks for your answer on Thong Guan.Wow, now you have become the sort of unofficial "investment adviser" on i3.

Posted by aunloke > 2013-06-10 07:51 | Report Abuse

In the moonlight you just shine like a beacon on the bay.......

Posted by faberlicious > 2013-06-10 07:52 | Report Abuse

I totally,completety, absolutely 100% agree with you on KPJ. Way too pricey.

Posted by kcchongnz > 2013-06-10 19:30 | Report Abuse

Is TSH a good company? Is it a great investment?

Posted by KY Lau > Jun 8, 2013 01:17 AM | Report Abuse
how u think mkh n tsh?

TSH is a darling stock for most investment bankers and analysts. Phillip Capital is one of them who has been continuously recommending this stock since three years ago. They expect TSH will have explosive growth for the next 20 years for its palm oil production! Analysts have projected the planting and increased in acreage in its palm oil crop and I believe they have done a thorough job.

We will let the job of projection to the analysts as this is their rice bowl. But we just peep through the recent past and see how TSH has been doing in its business. The Table below shows it revenue and net income from 2006 to 2012.

Year 2012 2011 2010 2009 2008 2007 2006 CAGR
Revenue, m 984 1134 910 989 1110 862 625 8%
EBIT, m 112 167 115 89 101 117 74 7%
Net Income, m 84 130 92 64 85 110 73 3%
EPS, sen 9.1 14.4 10.3 6.7 9.8 11.5 8.6

I personally don’t see the “explosive growth in this company, especially the last three years since Phillip Capital started to make the projection. Do you? Ok I know I know, it is the future, the next 17 years. It is just that I am a suspicious person who doesn’t easily believe anything until I have seen it.

The following table shows the cash flow of TSH for the past few years.

Year 2011 2010 2009 2008 2007 2006
CFFO, m 17 153 120 147 15 48 91
Capex -225 -225 -225 -225 -225 -225 -225
FCF -208 -71 -104 -78 -209 -177 -134
CFFO/NI 20% 118% 131% 230% 18% 43% 124%

What is the problem with its cash flow? Why is the quality of earnings so bad last year with CFFO only 20% of net income? Do you see any positive free cash flow, even in a single year?

How is its balance sheet then? The table below shows how its debt has been increasing each year and it is now closed to a billion ringgit of total debt now.

Year 2012 2011 2010 2009 2008 2007 2006
Total debt, m 975 740 722 603 468 261 186

How is its performance for the past years in term of ROE, ROIC? Do you find them impressive?

Year 2012 2011 2010 2009 2008 2007 2006
ROE 8.5% 13.7% 10.9% 7.8% 11.6% 15.2% 13.9%
ROIC 5.4% 8.5% 6.9% 6.0% 8.2% 11.6% 10.6%

What about its valuation with its share price closing at RM2.50 today? Judge yourself from my assessment below.

TSH a Good company? 2.500
Good governance ?
Durable business Yes
Growth ?
ROE No 9% <12%
ROTC No 6% <WACC
Balance sheet No 1.10 D/E>1
Cash flow No No FCF for years

Screens for investing
ROTC No 6% <WACC
P/B No 2.4 >2.0
PE ratio No 27.4 >20

Posted by necro > 2013-06-10 20:35 | Report Abuse

Im still prefer THPLANT than TSH....
I dont know why....
But when i like the company then few month later surely price meletop2....
Hahahaha

Posted by kcchongnz > 2013-06-12 05:46 | Report Abuse

Management and corporate governance of a good company. A Look at Pintaras Jaya.

Most investors view the value of management as reflected by its stock price. There is some truth to this over the long run, but strong performance in the short run doesn't guarantee good management. One of the best example in Bursa is KNM group. Everyone is familiar with how the flamboyant CEO has been doing to jack up its share price by repeatedly issuing misleading statements about its future, engaging in company share buybacks to jack up the share price, engaging in acquisition spree all over the world which destroy value etc, instead of concentrating in improving the operation efficiencies and the bottom-line of the business. One better example is the failed Enron Corporation in this book, “Conspiracy Theory: the True Enron Story”.

Both the key man in Pintaras Jaya, Chairman and Managing Director Dr Chiu Hong Keong, aged 58, the founder of Pintaras , and Ir Khoo Keow Pin, aged 56, an Executive Director, are geotechnical engineer by training and have worked in the construction industry, in particularly the geotechnical works involving design and construct heavy foundation and retaining structure works for the whole of their career. The valuable specialized knowledge they possess ensures the effective operations and management of the company.

The management is compensated fairly with their salary each year. Total management compensation for last year was RM2 million, just about 1% of its turnover last year. There has been no options granted to anybody in the management before. Dr Chiu who holds the position of both the Chairman and Managing Director paid himself for less than RM800k a year, even though the company made a profit before tax of RM54m last year.

In actual fact, Dr Chiu and his management team does not required to be paid high salary for their commitment to the company. Dr Chiu and his spouse hold about 73% of the total of 80 m shares in Pintaras. When a dividend of 20 sen was paid last year, they pocketed about RM12m. So why is there a need to have high salary and compensation from the company? This high percentage of insider holding in itself aligns the interest of shareholders and the management and hence minimize the agency problem in a corporation.

In corporate governance, the Board comprises 4 Executive Directors, a Non-Independent Non-Executive Director and 3 Independent Non-Executive Directors. They have a vast range of experience and knowledge in the areas of business, engineering and finance. The Independent Non-Executive Directors do not form part of the management and are not connected with major shareholders. They provide a fair representation of the shareholder’s interest. So far, there have not been any unfair related party transactions in the company.

The management also has a focus strategy in its business. It concentrates in what the company can do the best, i.e. to embark on design and construction works of its niche market in deep foundation and basement work with less competition and higher margins, rather than engaging in every kind of construction work where the competition is keen and margin is low.

The above are some of the high quality of management I think one should focus on when investing in a company.

Posted by calvinwky168 > 2013-06-14 21:50 | Report Abuse

Hi, can take a look at silk holdings?
This is a company recently came out from pn17. While currently, nothing to shout about. I feel it is worth investing. But would like other sifus for 2nd opinion.
This is what I know.
Silk has 2main buss.
Toll highway = cash cow, steady revenue. Heard the traffic at their highway is increasing. They are widening the highway by building additional lanes.
Tug boat service to O&G, got Petronas license. All boat capacity are fully booked, so they have placed additional orders for new boats.
Currently, the debt is high, but their loan term is unique. Compulsory payment from their revenue. Auto deduction from account. So, once the debt go down, the cash flow and financial health should improve quickly. No dividend, as they need to pare down debt.
Any comment is welcome.

Posted by kcchongnz > 2013-06-15 14:17 | Report Abuse

calvinwky168,
I think you lost you way? This thread is about in search of excellence; looking for good company to invest for long term. How could you consider a PN17 company which has been making persistent losses in the last few years; making only 15 m for the last two quarters; while having a total debt of 1.6b and annual interest payment of more than 100m to pay, a good company?

Posted by Darren Kho > 2013-06-15 14:33 | Report Abuse

kcchongnz,
Please have a look at P&O, is it a good company and worth for long term investment? Appreciate your comment so much and thank you for that :)

Posted by houseofordos > 2013-06-15 17:21 | Report Abuse

KC,

Nice sharing... I think Muar Ban Lee, Willowglen also fits nicely into this criteria... To add...

P/B ratio of 2 may not be too expensive if we are looking at asset light companies so again comparison to sector average or peers will tell a better picture

P/E ratio of 25 is a good starting point, P/E =25 = earnings yield of 4% which exceeds FD rate. P/E ratio should be further compared to the sector or index average before decision is made...

Other screens I normally use are :-
Debt to equity < 0.5
Dividend yield > 5%

Posted by yeapmarghee > 2013-06-15 18:44 | Report Abuse

a good exposure of this kind for benefit of beginners.Thanks.

Posted by kcchongnz > 2013-06-16 07:58 | Report Abuse

Is P&O a good comapny? Is it a good investment?

Posted by Darren Kho > Jun 15, 2013 02:33 PM | Report Abuse
kcchongnz,
Please have a look at P&O, is it a good company and worth for long term investment? Appreciate your comment so much and thank you for that :)

Sorry Darren, I don't know how much about insurance business. But that won't stop me from giving an opinion too, will it?

Warren Buffet acquired a good insurance company in Geico. It gives him a lot of money paid upfront to invest and earns great return for Berkshire Hart away. So I guess insurance business is a durable one. But once and while insurance company get hit badly too when there is a natural disaster.

P&O makes good ROE and ROIC too and so this is a plus as a good company. However, I don't expect much growth. don't know why cash flows is not good. So this is a minus.

So overall i guess P&O is ok lah as a company. Lets look at whether it is a good investment.

Screens for investing
ROTC ok 17% >WACC
P/B Yes 1.5 <2.0
PE ratio Yes 10.0 <20

apparently P&O meets my requirement as an investment as shown above.

Posted by kcchongnz > 2013-06-16 12:16 | Report Abuse

Posted by houseofordos > Jun 15, 2013 05:21 PM | Report Abuse
KC,
Nice sharing... I think Muar Ban Lee, Willowglen also fits nicely into this criteria... To add...
P/B ratio of 2 may not be too expensive if we are looking at asset light companies so again comparison to sector average or peers will tell a better picture
P/E ratio of 25 is a good starting point, P/E =25 = earnings yield of 4% which exceeds FD rate. P/E ratio should be further compared to the sector or index average before decision is made..
Other screens I normally use are :-
Debt to equity < 0.5
Dividend yield > 5%

house, agree with you regarding your P/B=2 and P/E=25 are not high for investing in a good company. I am emphasizing "good" companies here.

Regarding your screen for D/E<0.5, and DY>5%, I am afraid you may lose out some fantastic companies to invest in if you put your requirements too stringent. Many good companies can leverage high with D/E even much higher than 1 to earn good ROE. A good business is good to have more debt because for good business, leverage enhances return to equity holders. I did not study good companies like Nestle, Carlsberg, BAT, Maxis, GAB etc, but i think they make good use of leverage to enhance ROE. Also a good company with steady cash flows have no worry of paying interest payment.

The other DY which at the start I have mentioned that there is no statistically evidence to show that high DY companies provide high total return. Think about it, a company pays out too much dividends is because they have nothing better to do with the money. A growth company which pays out too much dividend will suffer lower growth rate if less money is reinvested in the business.

Posted by kcchongnz > 2013-06-16 15:40 | Report Abuse

Is Muar Ban Lee a good company? Is it a good investment?

Posted by houseofordos > Jun 15, 2013 05:21 PM | Report Abuse
KC, Nice sharing... I think Muar Ban Lee, Willowglen also fits nicely into this criteri

First I would look at the business of the company if it is durable. A durable business is whether the business is a good one and will still persist many years in the future.

MBL is principally engaged in three core businesses: the design and manufacture of oilseed expellers and ancillary machinery for oilseed crushing plants; the design, fabrication, installation and commissioning of oilseed crushing plants, and the manufacture and sale of spare parts. It has evolved from a small scale manufacturer to the current position as one of the top manufacturers of oil seed expellers in Malaysia. It went public listing on 11 January 2007.

MBL being closely tied to the palm oil industry which is a durable business. Cheap palm oil is the cooking oil of choice in many parts of the world, and accounts for more than 30% of the world’s vegetable oil production . Palm oil exports bring Indonesia and Malaysia US $40 billion a year.

Secondly I would like to see the quality and credibility of the management of MBL. Dato’ Chua Ah Ba, aged 67, the Executive Chairman is the founder of our Group and has accumulated more than 39 years experience and expertise in the design and manufacture of oil seed expellers, ancillary machinery and spare parts. He is incharge of the overall business operations and strategic planning of the group. He is training his son Chua Heok Wee to take over his place. The business seems to be tightly held and controlled by the Chua family, with a couple independent directors. There doesn’t seem to be any unfair related party transaction.

Total management compensation for last year for the 5 executive directors of RM4.142m, or about 5% (>3%) of the revenue appears on the high side. That may be because the company is small with revenue less than 80m. If we gauge from the profits they made at 17m, or a net profit of 22%, it may be justifiable.

Next important thing for me is the quality of the business. The gross margin and net profit margin of MBL of 43% and 22% is pretty good to me. This is also shown in the high ROE and ROIC of 21% and 36% respectively. The high EBITDA/IC of 40% also demonstrates the high quality of its business.

Fourthly regarding the growth of its business. Revenue and profit has grown by 46% and 26% a year for the last three years since listing. This is a very good growth indeed. Actually if a good company can have a growth rate of 5-10%, I would be happy enough.

So taking all these into considerations, I would rate MBL as a above average company. What how about its price? We have discussed before that a good company may not be a good investment if it is very pricey.

At the close of RM1.15 on 14/6/2013, MBL is selling at a PE ratio of just 6.2. Market Enterprise Value is only 3.7 times EBITDA. Price-to-book is only at 1.3 (<2). I would say a good company of MBL is selling very cheaply.

Yeah, the first quarter result 2013 has shown MBL’s revenue and profit dropped substantially by 35% and 55% respectively. But that has not result in overvaluation of MBL even basing on this “bad” results. Not yet.

So I would say MBL fits in very well as a good company worthy of investing for long term.

Posted by yungshen1 > 2013-06-16 16:05 | Report Abuse

i like kcchongnz posting. he master every share. he can give u good share to invest. and he will tell u which share can not invest. he told me avoid invest in knm company. now i regret already never listen to him.kcchongnz he was great in share.we must learn from him

Posted by chengyee > 2013-06-16 19:04 | Report Abuse

Kcchongnz, have you done study on LBALUM and PMETAL before? Please share if you have. I am interested to know your valuation on them. Thanks.

Posted by houseofordos > 2013-06-16 23:59 | Report Abuse

Another undervalued company I see is Coastal contracts :-
ROE 13.8239
P/E 8.25
PTBV 1.1399

The company is involved in shipbuilding.. which is having some oversupply right now reason for their depressed earnings. . however, they do have a good management team.. and looking out for opportunities to diversify its sources of earnings.

It previously tried to enter the engineering & fabrication, FPSO and FSO segments but these have yet to take off. We note that it is also now contemplating the offshore drilling segment, in particular, as another avenue of recurring income (From Kenanga research)

Posted by kcchongnz > 2013-06-17 09:57 | Report Abuse

Is Willowglen MSC a good company? Is it a good investment?

First I look at the business of the company if there is economic moat. Two important attributes of economic moat is the durability and the quality of the business. A durable business is whether the business is a good one and will still persist many years in the future. High quality business has good cash flows, high margins compared to its competitors and provide excess returns to its capital providers.

Willowglen MSC Berhad 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 that has been showing promising growth trends in recent years. Its operations are mainly carried out in Malaysia and Singapore with the Indonesian market in the developing stage. In the Klang Valley, there are some key areas that will lead to the increase in the demand for SCADA and Security Systems applications, such as the High Speed Rail System, MY Rapit Transit andSewerage Non-River. In Singapore, there will also be more business opportunities in line with the Government’s initiative in construction of new infrastructure, facilities for transportation and utilities such as power, water and sewerage plants. This will directly or indirectly provide opportunities for growth and demand for SCADA and Security Systems. This shows the durability of Willow’s business which will continue to exist and prosper for years to come.

From the past years from 2005 to 2012, revenue and net profit of the company was quite flattish at an average of 50m and 8.5m respectively. However the last financial year saw revenue and net profit jumped by 60% and 80% to 83.4m and 15.4m respectively. This good performance continues in the first quarter of 2013. For the past 5 years, cash flows from operations has been about the same as net income and free cash flows abundant at 89% and 34% of revenue and invested capital. This is despite that they were pulled down by the poorer CFFO and FCF last year as a result of its 60% increase in revenue. The net profit margin of Willow has been quite consistent at an average of 18% (>15%) which is pretty good to me. This is also shown in the high ROE and ROIC of 18% and 37% respectively. All these demonstrate that the quality of the business is great.

The Board of directors is strangely just made up by one executive director who is the Managing Director, Puan Sri Khor Chai Moi, age 60, and an accountant by training. There are 4 independent directors. The business appears to be fully controlled by the major shareholder. The composition of the Board is very lean indeed. Total management compensation for last year was only RM512000, or about 0.6% (>>3%). Anyway, the major shareholder Puan Sri Khor and her family hold 52% of the shares and hence the interest of shareholders and management appears to be aligned.

So taking all these into considerations, I would rate Willow as another above average company. What how about its price? We have discussed before that a good company may not be a good investment if it is very pricey.

At the price of 48 sen now, Willow is trading at a PE ratio of just 7.7 (<20). Market Enterprise Value is only 4.6 times EBIT (<8). Price-to-book is only at 1.6 (<2). I would say a good company of Willow is selling very cheaply.

Posted by kcchongnz > 2013-06-17 15:16 | Report Abuse

Posted by chengyee > Jun 16, 2013 07:04 PM | Report Abuse
Kcchongnz, have you done study on LBALUM and PMETAL before? Please share if you have. I am interested to know your valuation on them. Thanks.

No, I haven't before you mentioned here. In fact I don't know what this LBALUM is also. But since you asked, I have a look at P Metal.

I saw a "big Head Devil" here. PMetal has impressive projects in Sarawak, the huge aluminum smelting plant which is in full operation now, and a few huge operations in China. Appeared to be very impressive. However, after normalizing its earnings to just about 100m last year (this year doesn't appear to be better), its ROE is only about 7%, way below my required return of 15% for this company.

PMetal has an astronomical amount of debts, 2.6b against its equity of just 1.4b. So yearly interest payment alone is 108m last year. So Pmetal didn't even earn enough to pay interest payment alone! Worst of all, it has no positive cash flow at all from its operations for at least the last two years(mind you I am not taking about free cash flow). So how? I jsut wonder how Pmetal could pay 6 sen a share dividend last year???

Since you want my valuation, I just give a shot. I use a simple but very useful valuation method basing on its ROE. My requirement of return for this kind of financial is at least 15%. With a NTA of 2.52 per share, I value Pmetal equal to 7%/15%*2.52 or just RM1.20 per share, against its market price of RM2.52 now.

Posted by fookchng > 2013-06-18 18:04 | Report Abuse

Dear KC, have you studied on PESTECH and CLASSIC SCENIC BHD before? I am interested to know your valuation on them. Thanks.

Posted by fatinvest > 2013-06-18 20:10 | Report Abuse

I think TSH can be classified as a potential good stock simply because it has >110,000 hectares of land , of which only about 50,000 hectares had been planted ( with relatively young oil palm trees ).
Its planted acreage now is roughly the same as United Plantation, whereas the profit is only about one third of United Plant.
If it has fully planted all the 110,000 hectares of land and only making 80% of what United Plant makes, the profit will still be 5x what it makes now.
I see potential in this company.
KC mind to share your view on this?

Posted by kcchongnz > 2013-06-19 12:58 | Report Abuse

Is Classic Scenic a good company? Is it a good investment?

Posted by fookchng > Jun 18, 2013 06:04 PM | Report Abuse
Dear KC, have you studied on PESTECH and CLASSIC SCENIC BHD before? I am interested to know your valuation on them. Thanks.

No, I have not studied those stocks before you mentioned here. But since you ask, I will try to look into one of them. And since you ask in this thread which discusses about searching for a good company, i will give my opinion if this is a good company worthy of investing also, before I attempt my valuation here.

Classic Scenic is engaged in the manufacturing of wooden picture frame moldings, and wooden pallets. Operations are carried out in Malaysia, North America, Australia, Europe and other Asian countries.

The business appears to be boring, isn't it? But often a boring traditional business is a good business. It's business has a high net profit margin of about 20% and provides a return of 16% (>12%) of invested capital. The quality of its earnings is good. Free cash flow is abundant at 20% of revenue (>>5%) and 16% (>>5%) of invested capital. That is why it can distribute a high dividend of 9 sen, (DY=8.1% at RM1.11). The only shortcoming is its business is quite stagnant with not much growth at a CAGR of only 4% fro the last 7 years. It is not that bad though as it is still growing in tandem with the broad economy. Last year's growth in revenue of 19% was great. So I can certainly say CScenic is a good company.

At RM1.11, its PE ratio is 10 (<20), EV/Ebit=6.7 (<8) and price-to-book of 1.4 (<2). So it is not expensive and hence may offer investors a good investment.

CScenic's valuation is quite straight forward as its revenue and earnings are quite stable. Assuming CScenic continues to grow in tandem with the economy at 3%, CScenic at RM1.11 is already fully valued as shown below, unless its business can continue to grow at last year's rate for a few more years.

Revenue 62329
Ebit 14753 24%
less income tax -3388 23%
EBIT after tax 11366
Add average D&A 2738
Less average capex -5983
Normalized Ebit 8121
Cost of capital, R 10%
Growth rate 3%
Capitalized earnings=Ad Ebit/R 116007
Add cash 21724
EPV 137731
Number of shares 120500
EPV/share 1.14 >

Posted by kcchongnz > 2013-06-19 15:44 | Report Abuse

TSH again? A great company? Not in my book.

Posted by fatinvest > Jun 18, 2013 08:10 PM | Report Abuse
I think TSH can be classified as a potential good stock simply because it has >110,000 hectares of land , of which only about 50,000 hectares had been planted ( with relatively young oil palm trees ).
Its planted acreage now is roughly the same as United Plantation, whereas the profit is only about one third of United Plant.
If it has fully planted all the 110,000 hectares of land and only making 80% of what United Plant makes, the profit will still be 5x what it makes now.
I see potential in this company.
KC mind to share your view on this?

This was what I posted some time ago.

Posted by kcchongnz > Jun 10, 2013 07:30 PM | Report Abuse X
Is TSH a good company? Is it a great investment?

TSH is a darling stock for most investment bankers and analysts. Phillip Capital is one of them who has been continuously recommending this stock since three years ago. They expect TSH will have explosive growth for the next 20 years for its palm oil production! Analysts have projected the planting and increased in acreage in its palm oil crop and I believe they have done a thorough job.

We will let the job of projection to the analysts as this is their rice bowl. But we just peep through the recent past and see how TSH has been doing in its business. The Table below shows it revenue and net income from 2006 to 2012.

Year 2012 2011 2010 2009 2008 2007 2006 CAGR
Revenue, m 984 1134 910 989 1110 862 625 8%
EBIT, m 112 167 115 89 101 117 74 7%
Net Income, m 84 130 92 64 85 110 73 3%
EPS, sen 9.1 14.4 10.3 6.7 9.8 11.5 8.6

I personally don’t see the “explosive growth in this company, especially the last three years since Phillip Capital started to make the projection. Do you? Ok I know I know, it is the future, the next 17 years. It is just that I am a suspicious person who doesn’t easily believe anything until I have seen it.

The following table shows the cash flow of TSH for the past few years.

Year 2011 2010 2009 2008 2007 2006
CFFO, m 17 153 120 147 15 48 91
Capex -225 -225 -225 -225 -225 -225 -225
FCF -208 -71 -104 -78 -209 -177 -134
CFFO/NI 20% 118% 131% 230% 18% 43% 124%

What is the problem with its cash flow? Why is the quality of earnings so bad last year with CFFO only 20% of net income? Do you see any positive free cash flow, even in a single year?

How is its balance sheet then? The table below shows how its debt has been increasing each year and it is now closed to a billion ringgit of total debt now.

Year 2012 2011 2010 2009 2008 2007 2006
Total debt, m 975 740 722 603 468 261 186

How is its performance for the past years in term of ROE, ROIC? Do you find them impressive?

Year 2012 2011 2010 2009 2008 2007 2006
ROE 8.5% 13.7% 10.9% 7.8% 11.6% 15.2% 13.9%
ROIC 5.4% 8.5% 6.9% 6.0% 8.2% 11.6% 10.6%

What about its valuation with its share price closing at RM2.50 today? Judge yourself from my assessment below.

TSH a Good company? 2.500
Good governance ?
Durable business Yes
Growth ?
ROE No 9% <12%
ROTC No 6% <WACC
Balance sheet No 1.10 D/E>1
Cash flow No No FCF for years

Screens for investing
ROTC No 6% <WACC
P/B No 2.4 >2.0
PE ratio No 27.4 >20

Posted by Avocado_C > 2013-06-20 01:18 | Report Abuse

What do you think about Sapura Resources?

Posted by fatinvest > 2013-06-20 13:41 | Report Abuse

Thanks KC.
Probably just KIV for the time being.

Posted by fatinvest > 2013-06-20 13:42 | Report Abuse

Thanks KC.
Probably just KIV for the time being.

Posted by Charles Lee > 2013-08-13 22:45 | Report Abuse

Hi kcchongnz,

what professional course did you take to be able to have the skills to analyze a stock?

Is pursuing Chartered Financial Analyst the right path?

your advice, thanks!

Posted by kcchongnz > 2013-08-14 09:58 | Report Abuse

Charles, CFA course would be the right one. No, I don't have any. Financial accounting knowledge could be more helpful. Ultimately it is some basic knowledge, the practice of analysis and experience that count more. Just academic is not good enough. I dare to say that.

Posted by kcchongnz > 2013-09-19 19:35 | Report Abuse

Is M-Mode good for a long term investment? (19092013)

M-Mode Berhad is engaged in the provision of mobile contents and data application services with platform connected to mobile network operators in Malaysia and China.

M-Mode has a fantastic growth story. From 2006 to 2012, its revenue and net income grows by a CAGR of 37% and 75 to 62.1m and 13.2m respectively as shown in the appended Table 1.

Table: Revenue and net profit for M-Mode
Year 2012 2011 2010 2009 2008 2007 2006
Revenue 62070 75395 29207 22335 16129 13540 9432
Net Income 13232 12867 3425 3026 2096 1189 465
EPS, sen 8.1 8.0 2.2 1.9 1.4 0.9 0.4

M-Mode is one of the rare companies having a gross margin of over 40% and net profit margin above 20%. ROE and ROIC are high at 25% and 51% respectively, much higher than the costs of capitals and my requirement of 15% for a small capitalized company.

Quality of earnings is good with cash flows from operations higher than its net income. Free cash flow is positive every year with FCF above 50% of invested capital and 19% of revenue. MMode has a healthy balance sheet with an excess cash of 33.6m. Hence MMode is great company in every aspect. But is it a good company to invest in?

M-Mode’s share price rose by 4 sen today. At 57 sen a piece now, MMode is trading at a PE ratio of just 7.0. Enterprise value is also low at 4.5 times ebit (<<8 times). The price-to-book ratio is not excessive at 1.8.

Hence in my opinion, M-Mode is a great company good for long-term investment.