Absolutely against the trend

How can one be successful if they are slow to reverse their mistake?

VGI I can be wrong, just offering another perspective for you to think about it. You need a dragonfly eyes, taking in perspective from different angle, calibrate and make a decision.

I have no insight into how US economy as a whole will impact SHH, it is way too macro for me to predict. It is predicting the unpredictable. I can only offer an alternative view which is a growing economy will potentially invite more competitors into the economy & industry.

Property revaluation is a non-issue. Cash flow determines how much the business is worth, regardless of whether the properties are being revalued or not. One could have taken all properties i.e. branches own by Public Bank, revalue them, and nothing will happen.

Personally I dont think it is what's going to happen going forward but what happened. When investor look at the record of SHH, SHH threw 30% of their operating cash flow into capex every year for the past 10 years but book value has not grown, while revenue has gone down by 50% and all of these are shown in their dismal ROE. That make sense why investors would give co like Latitude a higher valuation because of their stable history.

That bags a question: The whole market knew it is cheap, so why is it still cheap?

Everything can be misleading from ROE to PE to FCF. That is why it is important not to look at one number, the FCF. "ROE can be misleading" has very different meaning than "ROE is not important".

Chinwell's 10 years average ROE & ROIC are sitting at 7.6% and 8.4%, that is real numbers. The only difference is that they got higher leverage 10 years ago, means a 10% return today is better than the 10% 10 years ago because they borrow less.

Of course in saying all of above, you still can make money on it.

I never say you can't make money with low ROE stocks, especially if you use 'reversion to mean' method, but Fast is referring to 'Stocks to hold for 5 years' so my opinion is it is appropriate to hold stocks with moats if that is the criteria.

When you say ROE is not important, it is like saying "JT lent me 1 mil at 10% interest p.a, Ill put that 1 mil in FD that makes 3%". Would like you to enlighten me about the misunderstood.

To take one of the best ROE year for Chin Well, 12%. Their payout ratio is 30%, actually more than that in past 3 years. 12%*0.7 = Expected growth rate is 8.4% x 5 years = 42%, that is your so so case, assuming current price is fairly valued. The only way to achieve 119% is if current price is 50% undervalued.

FCF is the byproduct of everything. Yes it is important but it means little by itself alone. FCF can be incredibly high if company doesn't invest any PPE. Does not investing in PPE make a company more valuable? No doubt their gearing is dropping rapidly partly because of plenty FCF. But you need to tie ROE, Revenue, Earnings, Depreciation, FCF together. They dont function independently.

You have to ask things like Revenue barely growing, can FCF keep growing? Fixed assets are dropping while revenue is not growing much, where will FCF come from?

Some comments:

1. Curious to know when you mention alot of income & capital appreciation. How much of return over 5 years is a lot?

2. Curious to find out why Chin Well is the best pick? Because of current prospects? Current price certainly doesn't look overvalued but the company avg 10 years ROE is below 10% and 10 years return of only 58% makes me think how will it perform differently in the next 5 years.

3. 5 years is a considerably long time frame for most shareholders so I would think one would go for companies that have a strong records of sustainably high ROE. However in your list, only 3-4 (Dlady, Amway, Nestle) that have consistency in high ROE of >20%. Most of them are bordering on ROE 10%. Not a crap list, but they are more suitable for contrarian/arbitrage play I feel.

4. Nestle has grown their profit from 158 mil to 588 mil from 2002 til now, CAGR 10%. I considered the current price as 'fair'. Means to double their share price to $150 will take at least another 10 years, not considering the law of size. Investors also have to be very discipline in reinvesting every cents of dividend during this 10 years.

yea morningstar, since gurufocus went from free to paid

Net isn't excess. Working capital i.e. inventory consume cash too.

yea the hard thing about investing is feedback loop. The faster feedback we receive, the quicker we can improve. But investing, it takes months or years. Let me know if you are interested to read Superforecasting. It will help you to improve your forecast skill

1. If your TP is reflecting the value of Canone, you will mostly only find out in the long term, not 1 month
2. In estimating next quarter EPS, even analysts got it wrong, given how many information they have. And it will make sense for them to jump into a different industry you will expect bumpy ride

I control F many times, cant find 'homeritz'

again everything is up for interpretation. We are dealing with uncertainty. Their long term ROE is sitting at 10%, which is mediocre.

Refer to the link above, sorry not total assets but property plants and equipments assets - those are the one that drive revenue. It is going down from 183 mil to 155 mil. You may be right they are becoming efficient, but it is assumption.

http://financials.morningstar.com/balance-sheet/bs.html?t=5007&region=mys&culture=en-US

Please be mindful that capex has been lagging behind depreciation since 2011 or probably even longer. It could be a sign the company is underinvest, thus inflating FCF. And when you look at the total assets has been failing for 4-5 years already, you need to ask can they continue to grow revenue with less and less assets? Something got to give.

Let me put it on the record, when I bought it at $1.50, my estimate value of FL is $3 and that price does not factor in any currency changes at all.

Oil n Gas - I love your comment. As if people just started to travel few years ago using oil lol

Again IMO, value investors should not be looking at forex gain/loss at all.

Chill people, when Latitude is sitting at Rm8 im the harshest critic. With it's current price, i am salivating.

Favco do piling nice one.

That's good. Maybe you want to reconsider 'liking' my article about Favelle

from $8 to $5.70, valuation reappears again

thanks for the new name lol. at least my name doesnt have 'sifu' on it lol. Nice translation god family man. Translation fail

Stockraider, you see stop loss is the last defense for margin investment. And you mention during extreme time, aka during market panic.

A stop loss depends on liquidity, not volume. The liquidity of buyers to take the position you are selling. So during market extreme, fulls of volume in the market, but they are all sellers, zero buyers. Where are you going to initiate your stop loss? There are no buyers during market crash, you dont have anything to stop bro.

Looks like im late to the party. The easiest thing to see in the market is return, and the hardest thing to figure out is risk. Investors with alpha are the ones that can generate return above average while taking below average risk or without increasing risk substantially.

During bullish years when most investors achieve market beating return, most began to take on excessive risk without consciously knowing that they are doing so either 1) overconfident in their ability 2) psychology of the market etc. And guess what, it is during the bull year that people are 'cash poor'!. Just like business, business are cash flow poor during expansion, not contraction.

So naturally people takes on margin finance during? Bull market obviously. We get comfortable. We see people die from cancer and thought 'that can only happen to someone else' and comfort ourselves. So you have all these factors working in your way, tailwind. Great return, illusion the market is safe (it's bull), cash poor (too many opportunity not enough money) all these lollapalooza makes one goes into margin.

That's where the shit comes. We forgot black swan. It is a bit like the idiocy of buy when market goes up, sell when market is down. In this case, is margin yourself during bullmarket, and bankrupt by bear. Obviously no one would margin in a down market. But that reasoning that it is okay to margin finance on bull market is precisely the thing that kills investors. Because you keep thinking 'accidents' only happen to other people.

Easily available info of course must be looked at. But weighting them based on their importance to influence the valuation is necessary.

Yea that's good, that's the whole point to meet your financial goal.

ok I can be wrong, but most of your posts write about these stuff, so that's the impression I have. But that is good thing to know you do look at the business as a whole.

This isn't about big or small, savvy or non-savvy. It is the reality as a value investors. Information that are easily available doesn't mean they are the most important. And companies listed in Bursa makes it even harder with lack of disclosure.

I read once a fund manager, also a value investor teaches people how to improve their valuation skills in a magazine. Read 10 years company annual report, find 5 competitors, domestic or overseas, read their annual report, 10 years each. That's 60 reports already. Read industry publication, analysts reports etc. When I read that, I though to myself "fck, how many months I have to spend reading those". Then I think back, if that is what needs to be done, we do it. Hard work is something not many people willing to do.

So if you want to achieve 50% a year, you have to do what it is worth.

If you tell me they going to soar before the quarter result came out, maybe, just maybe, I would have believe in you.

Yistock, you are spot on about investing based on valuation. But the thing is, why do almost all of your blog posts talks about disposal, forex etc ? Because they are easy to find? You are fully aware all of these doesn't mean a thing in valuation.

The questions you should be asking is:
No one cares about the tin business (or you won't have invest in it), what is the competitive edge of their F&B segment?

What is their market share and how competitive are they in those market they export to?

You mention China 2 child policy. What makes you think China is dying to have condensed milk from Johotin? Can they have other brand condensed milk? Do they even want condensed milk!? They are dying for FRESH QUALITY thing. Go check out blackmore on ASX, $30 to $200 because of China. Go check out A2M on ASX that export milk, check out their share price, check out bellamy BLU on ASX too, they sell baby formula, what is their price. And ask why do China people wants condensed milk, even if they do, what makes Tarik-tarik, Boleh, Goolain so special?

These are tough questions, but exactly the type of questions you need to answer and estimate. They are the ones that determine long term value of Johotin not disposal or forex gain.

Wrote this on 11/01/2016 on Yistock post when it is trading at $2.90

My layman way of valuation

Moat: No
Valuation at Net Asset = $0.48

ROIC: 17% (2014)
Valuation at ROIC = $0.48 x 1.7 = $0.82

Free Cash Flow: 11.2 mil (2015) x 8x = 90mil = $1.17

DCF: EPS$0.13. WACC 10%. Growth 5%. Terminal 3% = $2.22


Valuation range: $0.48-$1.20

Leslie if you compare it that way, everything that is below PE 5 are all super undervalued

not as good as you though logan. how can i beat you on criticising people. You create account just for that purpose

oh hi you are back to get a life, long gan

75% in one stock, you serious?

Sounds like you are banking on faith.

I dont own any. Buy at your own will

Yes no doubt, Wellcall is a super quality company looking from profit margin, ROE, track record etc. But it is being priced like Hartalega. Using different valuation, the most I would pay for Wellcall is $1.50-$2.00. Im not saying this because the quarter result is bad. Wellcall will continue to do really well in the future, whether their business is impacted by O&G sector is another matter. But buying above $2.00 is likely to give you very low return over the long term. And of course, your buy price really depends on what kind of return you are after.

why is everyone surprised by the drop? Look at the valuation you know it is so richly valued

lol ok, thats good, if you can justify paying this price for the so-called biggest condom maker. So make sure your growth story is intact, at current price, Karex has to grow profit at 15% for the next 10 years.

final thing, if you dont mind the detail, is ultimately you have to look back at their ROE. As in if they use those money for reinvest and expand, how much are those return on investment? aka the ROE. Latitude doesn't have much borrowing (i think) so all are equity financing, then you are looking at 9-10% cost. Debt financing is lower at 6-8%, depends on the rate banks lend to you.

So if Latitude cannot reinvest those money and generate a return above 10% in long run, that means they are destroying the business.

yea you are right, hoarding large amount of cash is always a very subjective issue. Like for example Apple inc. Some ppl will think it is better to distribute them to shareholder, while mgt might think otherwise they can use it for rainy days, capex, acquisition or working capital etc.

Yea i guess one thing that is common for Bat, GAB or Dlady Nestle is that they are matured companies, their products have already blanketed Malaysia, not much opportunity for them to expand or reinvest, and plus they business are considerably stable, thus they think it is prudent to distribute profit to shareholders. In contrast Latitude might think they have plenty room for growth so they decide to keep all the cash.

2nd thing is their business models are very asset light. Unlike airline industry where you have to spend a lot on aircraft maintenance, purchase, workers etc producing more beers or cigarette are very asset light, they don't need to reinvest a lot of profits back into the business, which is another reason why they can afford to distribute high % of their profit in dividend. In contrast Latitude would face issue from sourcing quality wood, upgrade machinery, workers with good craftsmanship, design team etc, therefore they would have to spend more % of profit for reinvestment.

not negative, just stating a fact, you have to differentiate between opinion and facts.

Ive been comparing some interesting valuation here. Ansell, one of the famous condom maker besides Durex is selling at 1.7x to their NTA, and here you have an OEM trying to become an OBM, makes less than half of the profit compare to Ansell, and is given a valuation of 5.7x over NTA.

let's be clear here. There are many ways for a company to reward shareholder, dividend is just one way.

Latitude doesn't give special dividend or whatever surprise reward doesn't mean they are not generous. Berkshire Hathaway never have dividend since 1979, but look at the share price. Same theory, profit that are not distribute to you in dividend will be retained in the business. If the mgt use it for more productive investment i.e. expansion, acquisition etc to grow the value, that is a good thing. The only difference is that, one, you have the money in your bank acc, another, is in the form of increase in share price.

And if you ask me, all these bonus issue, split share, they are all just BS 'gimmick'. The more a company do all these, the more you have to be careful.

The ultimate question you need to ask is this - Does it increase the value of the business? Does it make more money?

Bonus issue - Yes they give you more shares, but does the company make more money because of bonus issue? NO

Split share - Does holding 100 shares become 200 shares make's you richer? NO

You have to know Karex is a condom maker while Latitude is a timber/furniture manufacturer, very different thing. And you are correct Karex NTA is only 60 cents and people are pricing it like Hartalega. Those people that enter at a high price banking on their future growth is going to get killed. Ansell, one of the famous condom brand is only selling at 1.7x NTA, and you have Karex going at 5.7x, crazy valuation

Now is the reality time for Hapseng with 50% falls in quarter earnings. We all see it coming, property arm has been the main pillar amongst all divisions that carry bulk of the earnings growth, but the growth story stops long ago. No one see that because EPS have been buffered by HS selling so many assets that contribute 40% of the operating profits.

Now there aren't any more assets to be disposed. And with debt ballooning by 2 bil. Good luck hitting $8

Didnt attack you, just stating the fact it is 'more undervalued' now based on your previous PE. You have the right to tell me if you think it is overvalued. Never blame you.

Pingdan should write a new post, stating the most undervalued is getting super undervalued