HIAPTEK quick analysis:

Debt/Equity = 0.35 [YES]
Current Ratio = 1.9 [YES]
ROE = 18 [YES]
Growth [BIG NO]
Number of negative quarter in last 4Q: 0 [YES]
FCF(TTM) negative [BIG NO]
Dividend Yield = 2.33 [OK]
MC/FCF: 747/73=10.2 [got other cheaper option]

Verdict: Abstain

The gold standard for a buy is to have all yes.
Read the method in detail here: https://klse.i3investor.com/web/blog/recent/fundamental_trading

TECGUAN quick analysis:

Debt/Equity = 1.41 [BIG NO]
Current Ratio = 1.36 [no]
ROE = 26 [yes]
Growth [yes]
Number of negative quarter in last 4Q: 1 [no]
FCF(TTM) negative [BIG NO]
Dividend Yield = 0 [no]
Pump and dump high volume seen on 1 April [NO]

Verdict: 6 NO, 2 yes

Read the method in detail here: https://klse.i3investor.com/web/blog/recent/fundamental_trading

Cash Flows Explained https://www.youtube.com/watch?v=hefAHWvrFDQ

Free Cash Flow allows companies to:

1. pay off debt
2. pay dividend
3. pay bonus (if they want to)
4. share buy back
5. make business acquisition
6. fuel further growth

Negative Free Cash Flow companies can't do all of the above, or simply struggling to do so so much so that they have to use it all up making it negative, either that or the CFO is simply not paying attention to make the chicken lay eggs. You know there are many directors who can override CFO advice simply for their own selfishness to get bungalow and cars under the pretext of company properties.

btw FCF is required to sustain growth, not exactly NCF, not definitely not earnings per se.

If you know of other ratio that Warren Buffet likes, please share here. Cause he doesn't reveal a lot publicly.

To all forward PE advocates, please give me a video that Warren Buffet said he use this particular ratio.

I know one thing for sure is Warren Buffet don't look at earning per share.

On the other hand, let's investigate on what he like using instead with this video:

https://www.youtube.com/watch?v=jcbFh7Fdr_w

Keep the opposing views coming, it's healthy for learning for open minds.

Please stick to WB, Charlie Munger, or Peter Lynch and alike here.

In terms of MC/FCF (lower the better)

INSAS = 543/218 = 2.5
LCTITAN = 5170/748 = 6.9
ORIENT = 3840/353 = 10.9
UOADEV = 4118/214 = 19.2
HLIND = 2829/88.4 = 32

FCF > NCF, given any day

Property management business example:
https://i0.wp.com/www.rentalstowealth.com/wp-content/uploads/2017/08/Cashflow-Infograph_v2.png?resize=576%2C1024&ssl=1

FCF > NCF, given any day

Property management business example:
https://i0.wp.com/www.rentalstowealth.com/wp-content/uploads/2017/08/Cashflow-Infograph_v2.png?resize=576%2C1024&ssl=1

More: https://klse.i3investor.com/web/blog/recent/fundamental_trading

In this post, I only talk about stocks that fulfilled above mentioned criteria.

So let's continue this discussion, suppose we found 2 leaders with polarizing MC/FCF,

Stock Sub-Sector MC/FCF
HARISON Food & Beverages 3.3
INARI Semiconductors 29.4

would it be reasonable to swap high MC/FCF for low MC/FCF (when found) as it's consider "cheaper"? Well, if all else equal I supposed it's a rational move despite it's low volumn, cash (not earning) is king after all.

We need constructive critics to learn and grow here. So let's hear you out, would you rather invest in HARISON than INARI or vice versa?

Please don't let me dominate the comments sections, let me hear you out too.

When someone has a small trading account, greed for quick profit forces them to overtrade.

Similarly, someone big fund account who has little time left, he needs to see more quick action before the time off. Hence his erratic behavior, his perception of life is reflected in the words he chose - "hopeless".

To him, it's not even about money anymore, it's about the fun, not fund.

I do not know what is happening to him, but i know something is.

Are there companies that has good FCF but refused to pay dividend even though they can afford aka stingy? Absolutely.

One such company is MAYBULK, which did not get to my final list. Maybe you can safely put a min DY of 1 for that matter.

This is not a dividend game, but the fact they can afford but choose not to says a lot about their philosophy.

the same idea of chicken that lay eggs sort of applied here too.

@i3lurker

i just prefer to follow all buffet's rules that i'm able to get hold of hence ROE(TTM), if i use 8X4=ROE of 32 I will have too little stocks available to form a portfolio, hence for simplification ROE>10 as I already explained this in the post, it's bursa, not NYSE. Also to weed out quarterly fluctuation. Also i like double digit, it's just me.

BPLANT current ratio of 0.34 doesn't make me comfortable, I just want to fulfill the criteria of WB selection without any cherry picking, that is all, please don't need to get all worked out. Suppose it pass the CR, it's MC/FCF=2184/343.456=6.36 will appear overvalue if you compare to MHC, that's the rationale. I'm just stacking up all the favorable odds here.

I'm not interested to talk up or talk down any particular stock, we just discuss based on example in this blog.

We only discuss QUANTIFIABLE parameters here, you can jolly well open your blog to discuss UNQUANTIFIABLE parameter, business strategy or vision what not is nothing but sweet talking until they can make their chicken lay FCF eggs it means little. business strategy or vision are words told by their PR firm, don't let them fool you, check their bottom line yourself.

Would you call it a good business if the company unable to even generate cash (FCF)?

Would you call it a good business if the company unable to even manage it's debt?

Would you call it a good business if the company unable to even manage it's short term obligation?

Would you call it a good business if the company unable to sustain growth?

Would you call it a good business if the company can't even produce double digit ROE?

It's your choice you know, nobody is forcing this piece of info on you, you don't have to feel defensive even if you realized your stocks doesn't fulfill such safety criteria, some people might even like risk for they think taking risk means higher reward, which is completely bs.

At the end of the day, you can define yourself what is a good company; i simply just followed WB, no wheel reinvented.

A civil engineer has margin of safety when it comes to building design, the same goes to investors, if you don't understand what is fundamental risk, it's not too late to learn.

@Sslee I have walked the talk, all given in my comments above.

This blog is designed in such way to make those who do not want to seek walk away without getting anything.

what separates @soon2795 from people like @DickyMe is

1. the ability to seek/pursue/process new information vs blamer mentality
2. forward thinking vs backward thinking
3. positive energy vs negative energy

This blog is not written for everyone, so i don't owe anyone anything. It's intend to teach you fish and not to give you the fishes.

If there is anything for takeaway, is that this method do not depend on anybody's words, not even myself. Once you learn the Buffet way, bad companies will be punished, and reward only to well managed companies. If you don't like the corruption scene in malaysia, all the more you should screen them properly, and not let the management (or anyone) words to trick you for your hard earn money.

I just want to wake up some people, but not all wants to wake up.

Case in point is MHC that just announced dividend of 0.06 / 1.2 = a healthy 5% div yield.

@qqq3333 can your negative FCF company do that? Can high trading frequency (in Bursa) do that in the long run?

@speakup There is no target price, but there will be reshuffling during quarterly review, the idea is to hold on the great company at great price, which usually beat high frequency traders in the long run after factoring in the brokerage fees etc, and ofcause your broker will convince that i'm wrong or misunderstood the market etc because without your trading they will not get any comm, only sell if you can find a better FCF company, redtone fulfill all 5 criteria, most importantly it's the leader in telco sector based on this methodology, if you expect telco sector to grow, then hold on to enjoy the growth, hold until better opportunity arise, which i will share here in the comment section later on around the next QR season. So stay tuned.

@speakup low PE means high EPS(TTM) as PE=P/EPS(TTM), low PE is a good thing, but I don't use PE here, because PE can be manipulated, if u read from first comment to the last, which i recommend, you will know why I don't use PE.

If you are told the Buffet standard of investing and still decided not to take advantage of it, feel free to live with the risk.

https://www.youtube.com/watch?v=DCiMAFSJFTI

chicken that cannot lay eggs will eventually be slaughtered sooner, it doesn't take a farmer to know.

In terms of FCF pattern, the opposite of Genetec is REDTONE, case study:

On the surface, both ROEs are rising, BUT... look deeper...

Genetec: 3 quarters decline with FCF margin of -49%

REDTONE: 3 quarters rising with FCF margin of 78% trading at MC/FCF=6.6 aka 11% expected annual rate of return and I like double digits.

numbers don't lie, but management always lie. That's why if you use this method, you don't need to listen to anybody but the numbers itself.

negative FCF companies like GENETEC not only cannot afford to pay any dividend, with 49% FCF margin means half of it's revenue goes to generating negative cash flow e.g. directors vacation, whatever etc find out yourself as i won't waste time on it.

Last time it was positive was 3Q ago, and that was only mere 16m FCF, with today's unjustified market cap of 1.7b, anyone gotta be kidding me if he/she tells it's a great company, with so many article written about it when it's technically overbought, the modus operandi is pretty easy to tell.

If you don't buy the company for it's ability to generate free cash flows, then you are buying it to do charity for their directors lifestyle.

someone just realized that he is babysitting a bag full of negative cash flow portfolio and started to panic. ;)

@markgold thanks but i dare not take credit for something that i read especially from Warren Buffet and I simply put it all in together layman's term, never reinvent the wheel at all.

The 'best' industry is not difficult to spot as it's often the leader among the lowest MC/FCF, after taken all the safety measured, should the growth continues, we shall see this number lower by next quarter.

First we all need to say no to badly managed companies (regardless what method you deploy), and then profits shall follow as we sleep soundly.

@DickyMe3

Despite the inefficiency due to corruption need to secure projects, every company faces such challenge whenever they deal with gov officials.

But i was expecting you further establish the claim against Takaful and Petronas Chemicals specifically, even better if you could point us to exactly where in the financial report that you suspected this might have happened as you described. I'm sure there are many accountants and CFO here who can help to fact check if needed.

The ultimate objective here is the punish incompetency and reward performers as more and more people here realized what they should be avoiding, and not succumb to hearsays, opinion, or rumors.

@DickyMe3

Care to explain how they financially "dip their hand into the cashbox under the pretext of CSR"?

Rear view mirror gives you the view of track record and financial info that no mediocre companies can produce.

would you believe a fat person trying to convince you that high BMI is an indication of health?

would you believe a fat person trying to convince you that he has been very hard working that is why he became fat?

His abundant fats is a rear view mirror of his track records.

you need rear view mirror for judgements and opinions, don't self contradict.

@gohkimhock (anyone can reply yoo)

Q1: As a ex-speculator and incumbent value investor, would you offload your stocks when VIX bounce later on? If yes, is there such thing as seasonal value investor?

Q2: Hence, do you time your entry and exit?

After much sharing, I want to learn from people here too, let me hear you guys out.

VIX crushed lowered, good news for all equity holders. That is why keep holding fundamental is good, and good for sleep too. Those that breached critical financial ratios are more likely to get rude awakening, must understand whether trader or investors, we are simply a fund manager who manage respective risks here.

Any moments these abovementioned financial ratio got breached indicates that either the CFO is sleeping, or the business is struggling to even meet basic safety requirements. Furthermore, those are very essential elementary ratios that everyone here (I hope) can comprehend easily. Investors are risk phobia creatures, they are not exactly businessmen per se, there are distinctive nature between the 2 groups, some people just can't tell the difference, but then that's the nature of the market innit?

On the contrary, it's a test for listed companies whether they fulfill the margin of safety or not. Mediocre management won't get pass that.

Having said that, nobody here stops anybody from pursuing mediocrity, if that is the value they seek.

To me, numbers talk, opinions walk. Simplicity is the best.

Smoking (or injecting unknow chemicals in your body) is bad for you

A: So many smokers are still heathy, so smoking must be good.

Genetec's FCF -95m, in fact negative for 3Q already, enough said.

@king36 I don't know, depends how much you weight in those metrics, but i'm a little lazy here, so i have a quicker one (as illustrated) to get to what i need to look at, and suffice to get to the good one at good price.

Anyone who has a better selection model, feel free to drop a link here, I will take a look.

Another indicator you can use alongside is

FCF Margin = Free Cash Flow / Net sales * 100
(It reflects how well a company converts its sales into cash.)

Take the finalist REDTONE for example with FCF Margin of 78%,

Coupled with P/FCF of only 6.7 and rising QoQ FCF, impressive isn't it?

end of my community service. no further reminder.

end of my community service. no further reminder.

WARNING: THE FCF has been DIVING for 3 straight quarters.

u even know how to read fundamental?

The FCF is ROLLING DOWN IN THE DEEP for 3 straight quarters.

NEGATIVE FREE CASH FLOW COMPANY

NEGATIVE FREE CASH FLOW COMPANY.

NEGATIVE FREE CASH FLOW.

I urge everyone who visit this blog to spend 3 hours to watch this:

The Best Collections of Warren Buffett & Charlie Munger - Accounting

https://www.youtube.com/watch?v=ZXRKMeXnFV0

You don't need to be in accounting or finance to appreciate this.

Don't worry It's more about critical thinking than mathematics.

And I promise you that your time will not be wasted.

Jokes time.

Q: What type of CFO is likely to lose his job?

A: The creative ones with a bucket of excuses. Because they are the type that ends up with creative accounting.

Do you happened to be someone who prefers to invest in companies that has:

1. Debt higher than Equity?

2. Current Liability so much higher than Current Asset?

3. Insignificant Net Income or little return?

4. Negative Growth

5. Zero or little operating cash flow left after deduction?

If one of the above is a 'yes', I'm afraid to inform you that you have lost your way. The exit sign is the cross above right side of this window.

Let's stay on topic.

I cannot emphasize enough of the importance of Free Cash Flow, most of you can understand from property stand point the meaning of Net Cash Flow versus Free Cash Flow by reading this article:

https://www.rentalstowealth.com/understanding_cash_flow/

which is why i don't need to find net cash companies, but i want positive FCF companies to weed out all the incompetent managements that are prodigal, profligate, spendthrift, wasteful, extravagant, squandering, thriftless, unthrifty, excessive and imprudent, etc.

FCF by far is the most superior analytics you should always use, far more superior than Net Cash and far more superior than earning.

Hence my final step of valuation intent of using FCF (instead of EPS) should be well understood by now if read really read all my comments.

FCF -893M

@ProfitMan

you are welcome. CR higher than 1.5 is an entry clearance provided all other rules are also cleared, because safety is the number one priority when it comes to our hard earn fund, that is why first 2 rules are to address long term debt and short term liquidity.

in case CR turned 1-1.5 it's still a hold, or giving you escape time at least to reshuffle portfolio, based on your system.

but CR < 1, especially very low, should be a sell, usually it's an indicator for what it's about to come. Of all the indicators, this should be the first forewarning tell tale signal.

I mean all CFO of the listed company are supposed to monitoring these essential ratios and advise the CEO accordingly, if CFO failed to do their job, then it's the CEO that should be blamed for not hiring right talent. If the management is not bother to track their financial health, why should we as investors need to waste our fund on them?

Malaysians, let's have a better standard here, at least to show respect to our hard earn money.