A recent Market Watch report on Keurig 2 days back

http://www.marketwatch.com/story/keurigs-turnaround-plan-a-telling-sign-of-a-floundering-business-analysts-say-2015-08-06

KC, another important metric to measure management effectiveness is Cash Conversion Cycle ("CCC"). In VS case, its CCC has deteriorated from 33 days in FYE 07/12 to 52 days in its latest Q3 ending 04/15 report.

take care and good luck for those who believed in luck.....

Businesses that can achieve long term sustainable earning in excess of its cost of capital, generating positive free cash flow to support dividend payment and servicing their debt obligations will definitely able to survive the onslaught of financial turbulent.

In time of crisis, lower sale volume, drop in price, rising interest rate, debtors’ default in payments etc will hit businesses at the same time with lightning speed.

Businesses that have overstretched themselves will be on the chopping boards either waiting for the white knight to save them or liquidated by lenders.

If you do not put in effort to analyse the fundamental of the business and factors that affect its future performances, you will be like the three blind men depending on the one-eye jack to tell you what an elephant looks like.

I agreed with Mr Wealthy that nobody will care about your finances than you. There is always a conflict of self interest when it comes to money.

The key to investment is to minimize risks to achieve certainty in growth on capital and dividend yield. Only companies with strong balance sheet, proven track record and sustainable business model can deliver that certainty with minimum risks.

In FYE 07/13, VS has acquired 17.19% of V.S. International Group Limited (VSIG) and resulting VSIG being consolidated as a subsi. By doing so, it has reported a fair value gain in re-measurement of RM 28.4 million, effect of acquisition of a subsidiary.

In the last quarter ended 30/4/15, it has diluted its interest in VSIG to 43.92% arising from new issue of shares (refer to note 10). In other words, VS no longer consolidate VSIG result but merely equity accounting its results going forwards.

It did not report why it has change its strategy on VSIG and the impact of such move on its profit & loss. Such financial engineering acrobatic move does not reflect well on the management.

The perception of risk and reward differ from one person to another residing in country with different tax regime, there are three factors that determine your returns; current yield, earning growth rate and revaluation or change of price/earning multiple.

Current yield depends on dividend payment (net of tax) and entry price. US Federal Tax on corporation profit on worldwide scope and also tax on the same profit declared as dividend to shareholder (double taxation). President George W. Bush in 2003 managed to sign a new tax law to tax qualified dividends at the same rate as long term capital gains.

Malaysia has changed from a dividend imputation system to a single tier system in 2008. In other word, the tax suffered at company level will be final. There is no tax on capital gain on buying and selling shares.

If business can continue to reinvest their excess cash and generate return on invested capital (from equities and borrowings) over and above of its weighted average cost of capital (positive EVA). This will add value and share price will move in tandem with revaluation of P/E multiple.

A US shareholder in this case will prefer hold and pay capital tax later if business has the ability to produce positive EVA. On the other hand, if it has no avenue to invest its excess cash and earning is flat or on downward spiral, shareholders will prefer dividend payment or business to hold more treasury shares. It will be foolish for the business to continue holding the excess cash and destroying shareholder value. Its enterprise value will also be lowered by the excess cash holding. Excess cash is the lesser of cash and cash equivalent or the current assets – 2 x current liabilities.

Businesses which have proven capability to generate sustainable earning growth with a right mixed of debt/equity structure and the ability to generate positive free cash flow will be able to maintain a steady dividend payout policy. Normally, as a rule of thumb, businesses which are light in assets have a better chance of achieving this. Those need high capex to generate growth, their earning will be impacted by inflationary pressure.

KC, actually the description for this negative goodwill is "Gain in Fair Value for re-measurement".

Just to highlight a few points why cash flow is more reflective on the quality of earning, in FY 13 VS has acquired additional 17.19% shares in VSIG for RM32.77 million satisfied in cash, increasing its ownership from 38.06*% to 55.25% resulting in VSIG being consolidated. As a result of this, it has recorded a negative goodwill of RM 28.45 mil on its profit and loss statement. Mainly due to the fair value of the identifiable net assets is more than the total considerations that VS has paid to acquired the 55.25% interest.

This one-off accounting treatment gave an impression that VS is very profitable. The true fact is VSIG business operation is not profitable at all. On consolidation, for the one month up to 31 July 2014, VSIG contributed revenue of RM44.71 million and net loss of RM5.88 million to the Group. (refer to note 22 of FY 14 annual report)

This probably explained why there is a disparity on the profit after tax of RM 40 mil and operating cash flow of RM 20 mil.

Another questionable treatment on costs, if you look at the inventories costs charged out to p/l, it is exactly the equal to the inventory costs recognized as cost of sale (refer to note 10). However, if you look at note 18 on operating profit disclosure, depreciation, wages, salaries and others amounted to RM 316 mil, these periodic costs are much higher than those shown in the p/l. I suspect some of these costs are residing in the inventories. The argument here is whether the inventory is overvalued most auditors will use the test case that the unit cost should not exceed the market price. I hope KPMG has done a good job here. An overvalue inventories can jack up the profit.

I agreed with KC that cash flow is more reflective on the quality of earning. We must bear in mind that change in accounting didn't alter the underlying cash flows.

Some executive believe that good earnings numbers can boost the shares of their companies even if these numbers don't reflect any change in the performance of the underlying businesses. In reality, with the right level of disclosure, markets would see through manipulation of this kind.

When we try to predict future cash flows and profits, past performance becomes the foundation of credible forecasts.

Quarter to Quarter revenue & profit very erratic. Its inventories & receivables rises at a much faster rate than revenue. Unless this structural weakness is addressed. Its plan for growth will entail more borrowings either cash call from shareholders or commercial loans.

EVA remain negative for the past 5 years. Hope KYY business sense on VS bear fruit this time.

It is a proven fact that children who have inherited the wealth from their super rich parent will most likely loose their ability to compete and earn on their own. Malaysia is fortunate to be rich in natural resources and it can a curse if we relied too much on them and fail to groom the human capital to sustain growth in future when the natural resources reserve dwindle over time.

Leaders who back up their words with actions will earn respect and support from the people as long as they deliver the results effectively for everyone to see. The present government do have strategies to promote growth but at what costs in delivering the results is also vital. Delay, leakages and mismanagement are just too glaring in the audit general reports. Lack of accountability will only allow these wasteful practices to perpetual unabated.

We should look at Singapore delivering system, how and why it can be so effective. Is it because the ecosystem that encourage competition by meritocracy? Is the education system encouraged critical thinking besides seeking knowledge?

We should adopt an open mind to learn and take corrective actions on our weaknesses. If we are still complacent with our wasteful ways of doing things in the past, the future generation will have to bear the blunt when the day of reckoning comes.

Kooncon…before you start condemning others look at your self in the mirror, have you accomplish something in life that make you feel proud of yourself. From your postings, it goes to show that your knowledge of Malaysia history is very shallow. Do you realize that you are insulting yourself and other intelligent moderate Malays by saying that Malays can be easily exploit.

Before we get carry away in counting the chicks before the eggs hatched. Take a hard look at your portfolio – equity and cash holdings, what sort of return are you getting every year. Stop dreaming of the 26% CAGR, give yourself a pat on the back if your annual return fall within the range of 6% to 15%. Make sure your holdings comprised on businesses which are fundamentally sound.

Too much complacency also breeds excessive risk aversion when conditions change. If all you've become accustomed to is the market going up, well when the market falls, many are going to panic hard and panic fast. And you’re likely to sell. Most studies found you’re likely going to sell close to the bottom. Buying low and selling high rarely happens; many people tend to buy high and sell low instead.

Deep down, you know that you should buy and hold and just ride out the volatility wave but emotions and panic will likely override your better judgment. Studies have proven time and time again that bad psychology is one of the worst enemies of successful investing.

Do some what-if exercises. What if your biggest holding drops 10% or more? What if the market drops 20% or 50%? What if your friends or analysts started yelling “sell! sell! and sell!”?

While you are still cool and collected. Write out some plans, how long is your horizon, remind yourself how you can navigate the financial crisis, will buy and hold on diversified assets is a proven method. You really need to put down some logical numbers and rational conditions for what will make you sell a holding.

Not trying to be pessimistic here, sometimes it is better to be prepared for the next down-cycle if you want your nest egg intact.

http://www.marketwatch.com/story/stock-market-crash-of-2016-the-countdown-begins-2015-02-25?page=1

I don't mind telling you that a big portion of my portfolio are currently in the REIT counter, mainly Sunreit, CMMT and YTLREIT.

My first block of Sunreit is 1 sen below IPO price of 90 sen. I continue to buy due to the fact that the promoter Sunway is a reputable developer with good track record. My average cost now is 1.15.

My favourite possessions are Uchitec and CScenic which i am still keeping till today. Uchitec is an exporter with strong R&D, customer relationship and most of all able to get pioneer status for its new product. It has gaining ground in the biotech sphere.

Value investing is like joining a marathon, the objective is not finishing the race before others, the aim is to complete the race with your objective intact. Just like a golfer challenging oneself to improve his/her handicap over time.

Wishing you all a happy and prosperous Chinese New Year, "Gong Xi Fatt Cai"!!!

Of course there will be looser in my portfolio, like CIMB which i have bought over a period of time and my average cost is 6.24. I am not selling because company fundamental is still alright with decent dividend payout. It is a temporary setback because of lower loan growth and higher provision of NPL (still manageable). Its exposure in Indonesia which contribution significantly to its bottom-line.

Another one is Padini, which i bought recently at 1.80, I have also bought at 1.45 to averaging down the cost. As long as they are fundamental strong and will not collapse.

Don't forget these looser still paying decent dividends.

As long as you are confidently the company financial health can withstand the crisis and will not turn into PN17 status.

I am not selling but will continue to buy if the price drop to an attractive level. In the meantime, just collect dividend.

Hi KC, personally I like to read financial news daily mainly to keep track on any changes in business direction especially on counters that i have invested (mainly using Google search).

The reasons of selling them are:

a>The future direction of the business does not meet my original objective of buying it in the first. For example, I have bought YTLPOWR in 2006 purely for its good dividend yield. However, in 2010 the management has decided to venture into telecommunication business. I sold all my holdings around 2.40. Knowing very well telco business incurred high capex upfront and this will undoubtedly affect its ability to continue the generous dividend payout.

b>Unusual uptrend in market price within a short period without valid catalyst. Examples are Zhulian, Coastal Contracts and Marco which i have sold when share price shot up abnormally.

KYY criteria to invest is based on underlying assumptions to project future earnings. Though some of them are valid but a lot depend on external factors which can derail his forecast which in turn drive the share price down due to the business weak fundamental.

It is unwise to depend on KYY reputation to invest. If that is your criteria, might as well invest in SPAC counters. At least the promoters' proposal are being vetted by the authority with built-in safety mechanism.

The drastic drop in oil price has caught many flat-footed, do you blame the promoter and the authority for the negative external factor when the share price drop like a rock.

Unlike a marathon race - the objective is to cross the finish line first before everyone does. In value investing, the aim to finish the race in one piece with your original target intact.

We treat investing like a popularity contest, online forum, financial media and social media make it easier for investors to share portfolio ideas. These contribute to a herd mentality in investing.

Herd investing can lead to poor returns. You may have a situation like the blind leading the blind. Unfortunately, retail investors are very emotional with their money. They will buy when stock prices are on the way up and dumped on the way down.

When someone posted an unrealistic return of a particular stock, always remember there is no such thing as guarantee profit.

Study the reputation of the business. Invest in companies which have with proven capability to generate sustainable earning growth with a right mixed of debt/equity structure. EVA should be positive in the long run.

The business must have the ability to generate positive free cash flow. Normally, companies which are light in assets have a better chance of achieving this. Those need high capex to generate growth, their earning will be impacted by inflationary pressure.

The management must have the intention to pay dividend. The past dividend payout policy based on a certain percentage on earning, preferably not more than 75%, the balance to be retained for reinvestment.

There are three factors that determine your returns; current yield, earning growth rate and revaluation or change of price/earning multiple.

If P/E is on the lower end of a long term average while margin is on uptrend, there is a good chance of value investment opportunity.

Last but not least, don’t forget the margin of safety principle.

I strongly recommend you to read KCChong’s articles to understand the art of value investment.

Lets analyse based on the fact as per financial reports, the 31.9% top line growth in FY 14 was mainly contributed by Vietnam market. The 1st half of FY 15, the revenue growth is less than 1% compared to previous year.

In other word, the explosive growth in revenue cannot be repeated in FY 15. The growth in PATAMI margin 9.29% to 12.07% for the 1st half of FY 15 was mainly to the group restructuring done in FY 14 which have reduce the minorities share of the profit drastically.

Latitude historical P/E for the past ten years is in the range of 3 to 6. At current price of 5.58 per share, even if the EPS has gone up to RM 1 (since its first half of FY 15 EPS is 45.31 sen per share) its P/E will be around 5.

The upside of Latitude price is limited unless there is further upside of its top line growth.

I agreed with OTB,everyone must realize that volatility is a bigger risk short term than long term. If you have a longer horizon to reach a goal, market volatility that causes the value of your investment to plunge may not be an immediate danger given that you are not under pressure to cut loss as the underlying business fundamental still intact. If you do your home work, you may have the conviction to buy more when the price has reached a bargain level.

Valuation of a company involved three levels in order to give a good picture of where the company stands in term of value versus price. KYY use the first approach by estimating the growth rates and margins of the business in the future. Such projections are high sensitive to the underlying assumptions.

In addition to the above, we need to do a benchmark valuation of the target business with its competitors. Pick appropriate metrics to compare for decision making process.

Finally, we need to perform an analysis on price to earnings and EBIT margin on a historical basis to study the trend in relation to the business performance over time. If P/E is on the lower end of a ling term average while margin are on uptrend, there is a good chance of value investment opportunity.

The key question here is, did KYY behave morally or get away with immoral acts which promote his self-interest? Mr Koon had achieved success and believed in sharing his success story with others. His motive is noble and he truly believed his stock picking skill will bring good fortune for himself and others.

What is distinctive about us is our capacity to reason. Whatever decision we took should be based on our own judgement.

Whatever approach you choose, whether selecting high growth business or business with sustainable growth and decent dividend policy. The basic criteria are simple and easy to understand business model, management with proven track record, healthy financial numbers and cash flow, most important of all, accurate valuation.

We should emphasize that the value investing mentality sees a stock as the vehicle by which a person becomes an owner of a company - to a value investor profits are made by investing in quality companies, not by trading.

Value investors disagree high beta stock are risky investment. KC has explained clearly the value investment approach.

A company with an intrinsic value of RM2 per share but is trading at RM1.5 would be, as we know, an attractive investment to value investors. If the share price dropped to RM1 per share, the company would experience an increase in beta, which conventionally represents an increase in risk. If, however, the value investor still maintained that the intrinsic value was RM2 per share, value investors would see this declining price as an even better bargain.

Investment is a very personal the key takeaway is selecting value stock that provide total shareholder return (capital gain + dividend yield) that satisfied individual needs.

Challenging someone to a contest to satisfy a personal ego should be discouraged. On the other hand, we welcome positive contribution of fresh ideas in value investment. Personally I have enjoyed KC articles and benefited from them.

Try these, see whether these are what you wanted.
https://biz.yahoo.com/p/sum_conameu.html
http://www.bloomberg.com/research/stocks/snapshot/snapshot.asp?ticker=IJM:MK
http://www.bizstats.com/corporation-industry-financials/construction-23/construction-of-buildings-236/show?asset_class_id=4&submit=Apply

The key word here is "discipline" without which any good advice will go down to drain. It is better to scout for mature companies with healthy balance sheet, produce stable cash flows and a history of paying decent dividends.

Invest in expensive high-growth business, high gearing with negative free cash flow is risky unless it has quality assets and the risk/return profile is palatable.

The message is if you place your bet purely base on chance rather than the fundamental of the business. The survival rate is low in the long run, the winners are just lucky.

It is better to understand the environment at the top of waterfall and the subsequent impact before choosing the right spot at the bottom else you may get sweep away.

Lets look at the fact, Uncle Koon has walked the talk and has taken ownership of his decision. His admission of past mistake deserved my respect. No-one is invincible and make flawless decision no matter how careful you are, even Warren Buffett also make mistake in these volatile environment.

The important thing is each of us should be aware of your own limit and risk tolerant level before investing. We must take ownership of our decision and stop blaming others.

无知是需要克服的，克服无知的想法很重要，因为知识是唯一可以改变生活的潜能。无知就像是井底之蛙的世界。
Robin S. Sharma, The Monk Who Sold His Ferrari: “investing in yourself is the best investment you will ever make. It will not only improve your life, it will improve the lives of all those around you.”

If you compared the 09/14 quarter with preceding quarter in term of PBT, the loss of RM 6.3mil is mainly due to increase in interest charges of RM 1.1mil, higher admin cost of RM 4.8mil and the remaining due to unrealized forex loss. If you add back the interest charges and depreciation, the difference on EBITDA is only negative RM 0,64mil.

The free cash flow (operating cash flow less capex) increase by RM 7 mil from RM 34.5mil to RM 41.5mil, an increase of 20.5%.

Cash available for distribution after net interest paid (interest paid less interest received) in 09/14 quarter is RM 23.6 mil which is RM 1.8mil short from the RM 25.4 mil provision for income distribution.

tonywong8, the 10% withholding tax is a final tax. You are not required to declare REIT dividend income in your tax return. As such, you are not allowed to claim tax refund or tax offset in your tax returns. It is more beneficial to those whose tax brackets higher than 10%.

Agreed, but i like to explore new idea. When there is doubt can seek others opinion. kc past recommendations have been quite enlightening, that's the reason why i sought his opinion when i have doubt.

kc, will you be interested to evaluate this if i email a copy of the template to you. If it is a fruitless exercise, i would not want to continue to use this as a yardstick.

kc, you are right. Getting the right EPS, DPs is vital especially when there is a price adjustment events like bonus issue and share split or any price sensitivity event subsequent to year end may affect the EPS and P/E calculation.

I find that even in I3Investor, the current price has changed after announcement of bonus issue but the EPS, DPS of past years remained the same which reflect wrong P/E and Dividend yield results.

The reason i am asking this is because i am using the past 5 years average P/E ratio to project the future price. Using VWAP will iron-out the volatility issue if i just use the year end price to compute P/E.

kc, thanks for your comments and recommendation. I will find time to read Seth Klarman principle on value investing.

One last question, when computing P/E ratio. Is it better to used volume weighted average price of a stock "VWAP" or the year end price.

For Uchitec, its VWAP for FYE 31/12/13 is 1.24 (P/E 12.0) whereas the adjusted year end price is 1.37 (P/E 13.2). Normally i will download from Yahoo Finance for the daily data to compute the VWAP.

sorry, correction P=(X+Y)/(1.1)^5

Like stockoperator mentioned earlier, beside this mechanical calculation as a guide, we need to look for other indicators which is the key drivers for future top -line and earning growth. Its current financial health etc.

kc, TSR is based on the capital gain and dividend yield. The former is a product future market price less the entry price. The assumptions here are the P/E will prevail and the sustainable earning growth rate will propel the market price into the future.

If you disposed the share after 5 or 10 years later, the total proceeds from disposal (say X) plus cumulative dividend received (say Y) minus initial price (P) will give a compounding return of 10%. Frankly speaking, 5% is required to take care of inflation rate and transaction costs. The real return is only 5%.

P*(1+10%)^5=X+Y
P = (X+Y)/(1+1.1)^5

These depend on a> sustainable growth rate ROE*(1-dividend payout), b> dividend payout ratio, c> the current average P/E continue to be prevailed into future.

There is another approach mentioned in "Intelligent Investor" for defensive investor using P/E x PBV < 22.5. The logic of this approach not to pay for P/E exceeding 15 and PBV <= 1.5.

kcchongnz, thanks for your reply. I like to read your articles whenever i am free. PATAMI is a short form for owner's earning. Profit after tax after minority interests. I read this valuation method in Share Fundamental website. It is using this a check on earning quality (some company like to use financial engineering to prop up profit but operating cash flow is poor, for example sudden jump on debtor or inventory level etc.)

I would like to seek your view on Intrinsic Value, “Intrinsic value is the present value of all cash that will be distributed from now until judgment day”.

One of my measurement of Intrinsic Value is based on applying a discounting factor (my expected return) on total shareholder return (TSR). In order to project future cash flow on TSR, i need to ascertain over the passed 5 years the P/E ratio, sustainable growth and dividend payout %. I will get the average of these three parameters for my TSR projection and discounted with my expected return (minimum 10%)

TSR Projection

A> EPS x sustainable growth (average growth rate)
B> then multiply with average P/E to get the future market price
C> Apply average dividend payout % on the projected EPS and accumulate this over the year.
D> Add B+C = TSR
E> Apply the discounted factor on D to get the present market price.

kcchongnz, is there any flaw on this calculation? In current scenario, very difficult to select stock with the desired price using this method unless i lower expected return or increase the growth rate on positive news flow and better quarterly result.

Will appreciation your comments on room for improvement.

kcchongnz, what is your view of using PEG (<1) as a yardstick for valuation. Growth rate is based on the average of past 5 years sustainable growth rate formula [ROE x(1-Div Payout)].

Another ratio is the incremental net earning (PATAMI)over the incremental average owner equity. This is to check on the incremental return on equity reinvested.

Is the operation cash flow over PATAMI a good indicator on earning quality?

Invest in yourself is the ticket to success. The knowledge that you gain will sustain you both mentally and economically.

Well said sosfinance, I still remember when IOI Corp faced with an unrealized RM 100m forex loss in 2008, its share price plunged 40% to below RM 2.50. An opportunity to accumulate and keep.

About time to bottom fish

Strengthening of the US Dollar may hurt its export and US MNC future earnings in dollar term.

Opec lead by Saudi are willing to go for a price war with US shale than to sacrifice market share. Saudi think US shale threshold is around USD 90 per barrel, anything below that is not commercially viable for them to continue unless extraction technology improve further. Anyway, a lower oil price will benefit economies in general especially airline.

With so much uncertainties, investors will be very jittery and market volatility will be inevitable. I agreed with fortunebullz to go bottom fish for fundamentally sound businesses when market get oversold.

Most Business loans are working capital in nature unless it is for capex. A mortgage loan is fixed amount for a fixed term with regular fixed repayment schedule. Whereas for an overdraft account, the borrowing amounts varies on a daily basis and the interest rate tend to be more. Bank do not wish to tie-up too much fund with low usage. If the usage is low, bank will reduce the limit on annual renewal. The rate also varies according to credit rating.

Another concern is whether the operating cash flow in sufficient to cover interest (including loan principal repayment in future) and dividend payments.

YTLREIT high debt level is definitely a concern esp when the prospect of future interest rate hike will definitely impair its ability to continue current dividend policy.

The accounting treatment of assets under REITs are mostly classified Investment Properties, hence there is no depreciation charged. YTL REIT Australia Hotels are classified as PPE, as such there are depreciation charged in the P/L.

The correct parameter to compare the REIT performance should be earning before interest, tax, depreciation & amortization (EBITDA).

In recent years, the easy-money policies particularly in the US have fueled dollar-carry trades to Asian economies as investors chase higher yields, with investors borrowing at low rates in developed economies to earn higher returns in emerging countries.

By distorting stock and bond prices, central banks have been financing government deficits without really doing much for growth to create jobs or stimulating private investments.

There is a risk of capital outflows when US interest rate rise. Countries with twin-deficit problem – fiscal deficit due to high subsidy bills and current account deficit due to high import bills, will be more vulnerable.

About 40% of MGS is owned by foreign funds, if the interest rate differential between US and Malaysia narrowed, chances of foreign funds pulling out is real especially when geopolitical risk rises. When that happened, EPF, PNB etc will have to sell equities to support government bonds.

Local banks have begun to raise funds to strengthen their capital base and compete for deposits. They are more vigilant in approving and disbursing loans as NPL escalated.

Most of the big caps in KLSE are staying flat or on downtrend, only the mid and small caps are moving up with positive news. If you wish to stay invested, it is better to stick to counters with sustainable quality earning growth, low gearing and strong cash flow with above FD rate dividend yield.