This purpose of this article is to demonstrate the power of fundamental value investing. It is not a recommendation to buy or sell any stock. Buying or selling should be the sole responsibility of individuals.

This article is also not meant to trumpet how one had made so much money from investing in a stock, but merely to show how value investing has worked so wonderfully, over the long-term, and surprisingly, the short-term too in Bursa. I hope you can understand better what value investing is, and if it is a plausible investing strategy so that you can utilize it for your better investing outcome.

This article also to rebuke this comment below.

[Posted by stockmanmy > Apr 6, 2017 10:02 AM | Report Abuse

if KC is genuine value investor, he will recommend Genting ( Genting is fantastic under valued stock ) instead of recommending small little manufacturing company with a few million revenue per quarter. That is what irritates me.....KC, the self proclaimed value investor is but actually small cap speculator....hang pig head to sell dog meat.]

The above comment is a very interesting comment as it was repeated thousand times in many threads in i3investor by a very active blogger in i3investor. I just exaggerate somewhat; of course, not thousand times, but at least more than 10 times, 20 times, as if it is from the greatest investor in the world. I think the person concerned is trying to use psychology, that repeating something again and again and he think will eventual instil into the minds of people and make everyone believe in it.

Willow was a stock pick in my “Stock Pick Challenge 2013 2H” on 1^st August 2013 when it was trading at an adjusted price of 47 sen as shown in Table 2 in the link below.

http://klse.i3investor.com/blogs/stock_pick_challenge_2013_2h/35487.jsp

It closed at RM1.28 on 14^th April 2017, or a gain of 172% (against the gain of the broad market of about 8%) in about 3 and a half years, or a compounded annual growth rate of 30%.

Willow was the younger brother of James Bond, with a stock code of 0008, an ACE Market stock. It was transferred from the ACE market just three years ago when I picked it as a stock in my portfolio. It was obviously a small capitalized stock with a market capitalization of just RM131m then.

As explained in the link above, Willow was selected based on the durability of its business and its growth prospect. It is a Magic Formula stock with a very high return on invested capital, ROIC of 37%. It has zero borrowings, stable earning and consistent cash flows and free cash flows. Most of all, it was selling cheap with a PE ratio of 8.5 and the enterprise earnings yield of 20%.

A discount cash flow analysis (DCFA) shows the intrinsic value of Willow to be 83 sen then, or a high margin of safety of 36% at that time.

By the way, DCFA is a forward-looking exercise by estimating the future cash flows of a business and obtain the present value, or intrinsic value of a stock.

That is one of the common ways value investors go about selecting a value stock. It also includes the growth prospect of the business.

Willow’s business continues to improve and grow. Its share price rises in tandem and closed at RM1.28 on 14^th April 2017.

At this price of RM1.28, is Willow worth to continue to hold?

The Appendix shows a write-up about Willow by Tong in the latest copy of The Edge magazine today. Willow is a stock in his portfolio which has gone up by 62.4% in just a few months.

I can hear the dog meat thingy coming out again from this guy,

“KC, the self proclaimed value investor is but actually small cap speculator....hang pig head to sell dog meat’

Now please tell me, whose theory is that buying small cap stock is a speculator? I am sure it can’t be called stockmanny’s theory. Show proof of which famous super investor saying so.

“hang pig head to sell dog meat”?

Again, is this stockmanny’s idioms, or it has already become a famous Malaysia idiom made popular by Stockmanny after repeating, repeating and repeating? I only heard of the Chinese idiom “hanging sheep head to sell dog meat”. Wow, within a few months in i3investor, you have become so famous, popular and well-known!

What is value investing?

This is what I have written about what has been perceived as value investing by famous super investor such as Warren Buffett, Charles Munger, Seth Klarmen etc. as in the link below,

http://klse.i3investor.com/blogs/kcchongnz/120190.jsp

Let’s hear from our guru, stockmanny, what value investing is. Surely value investing can’t be just buying Genting shares, “Sailang”, “Panic moment”, “dynamite investing” and all that jest!

KC Chong

Appendix

Tong’s Value Investing Portfolio

Willow’s share price hit limit up and an all-time high of RM1.32 on Monday with over 10 million shares changing hands. That’s many times above its average volume over the past 200 days. It also earned the company an unusual market activity (UMA) query from Bursa Malaysia.
 
I have no specific insight as to why its share price and volume surged the way they did. The company in a reply to Bursa said it is unaware of the reason behind the unusual trading of its shares.
 
I think what’s important though is why InsiderAsia liked this company in the first place – a good underlying business with growth prospects, solid track record and governance. That has not changed.
 
The stock is one of InsiderAsia’s Top 10 Stocks for 2017. At the start of the year, its price was RM0.755. That means its shares are up a hefty 70% year-to-date.
 
For readers who are unfamiliar with this relatively low-profile company, Willow provides systems and solutions (through in-house research and development) for Supervisory Control and Data Acquisition (SCADA) as well as integrated video surveillance systems. Essentially, computerised systems for gathering (often from remote and inaccessible locations) and analysing real time data.
 
SCADA and Integrated Monitoring Systems are widely used across industries such as transportation (railways, MRT, LRT, highways) and utilities (gas transmission/distribution pipelines, power stations, port facilities, water and waste water treatment, etc) as well as municipal and housing estate projects.
 
Given the critical nature of such systems, reliability and brand reputation are crucial. In this respect, Willow has a good record.
 
The company’s main market is Singapore (which accounted for roughly 68% of sales in 2016) where its customers include the Housing and Development Board of Singapore (HDB), Singapore Power, Public Utilities Board of Singapore, etc.  
 
It is actively pursuing projects in new industries such as transportation and environment. Last September, the company entered into a JV with Secura Group Ltd, one of the leading providers of integrated suite of security products, services and solutions in Singapore. Secura is listed on Singapore’s Catalist board. Its biggest shareholder is Peter Lim.
 
Willow has also been expanding its customer base in Malaysia, targeting 3 sectors – power, highway and hospitals.
 
Last year, the company clinched a contract to provide Intelligent Transport Systems (ITS) – to supply and install a traffic control and surveillance system – for a highway project.
 
In March 2017, Willow secured its first contract from Tenaga Nasional Berhad (TNB), for the supply, installation, testing and commissioning of Secondary remote terminal unit (RTU). This bodes well as TNB is one of the biggest users of SCADA systems in Malaysia.
 
It is also expanding its geographical footprint. Willow has a team in Indonesia and most recently set up a subsidiary in Vietnam, to tap the potential in this rapidly growing country.
 
Apart from projects, the company earns some 22% of its revenue from the maintenance of installed systems, a steady income base.
 
Willow has a high Fundamental score of 2.55 of the maximum 3.
 
Its valuation score has fallen to 0.5 from 2.4 at the start of the year following its price run up. This is as it should be – an under-researched company will see valuations rise once investors discover its potential.
 
The stock is now trading at roughly 15 times forward earnings – which is, notably, still lower than that for most solution provider companies listed on Bursa.