Hi KC, for sure ^^

Hi YiStock,

I noticed that you have a blog in i3 but I couldn't see any content inside?

Hi KC,

I believe we have reached quite the same conclusion towards Coastal. In my opinion, Coastal next growth driver is likely to be JU rig delivery rather than selling more and more OSVs....

Yup, hope we can exchange more ideas from each other. Below my personal mail box:

chinyongcheong85@gmail.com

I had just done my own research on this company too. Link as below:

https://drive.google.com/file/d/0By4ITWART_ZUMjFldGw4aElfUHM/view?pli=1

搞明白現金流比搞明白每年盈利更重要。 明白了現金流，你就不會再注重net profit, EPS 了。你更會注重operating margin, net capex,等數據。

HI KC, allow me to add one more point towards LondonBisc.

“Historically, LONBISC earnings decline from FY10 to FY12 is caused by its high investment to upgrade its capacity and expansion to modernise its equipment and machinery. However, the period of high capex should be coming to an end”
Look at the PPE spending at 2013 at the cash flow statement, it was just a modest amount of RM22Million which represents a total of 7.6% of total revenue.

Hell yeah the period of high capex should be coming to an end!!!

But wait a minute, part of the PPE spending was actually being funded by bank borrowings which we could find the little notes at the end of cash flow statement as below:

“Property, plant and equipment at aggregate cost of RM55,226,040 (2012 - RM115,409,572) was acquired during the financial year of which RM33,213,902 (2012 - RM23,730,715) was acquired by means of hire-purchase and term loan.”

Taking into account of the full PPE spending, it represents a total of 19% of total revenue!! What about for the latest financial year 2014?

“Property, plant and equipment at aggregate cost of RM58,768,000 (2013-RM55,226,000) was acquired during the financial period of which RM18,172,000 (2013-RM33,214,000 ) was acquired by means of hire purchase and term loan.”

In 2014, its total revenue was an impressive figure of RM360million but 16% of it is going back to PPE while its operating margin before Depreciation was just 15%. What a coincidence figures that whatever they earned (after COGS, after SG&A expenses) in the first place is going back to the machine. Well working capital, bank interest charges, taxes are yet to come to the picture.

Whatsoever, London Bisc is still making a not so bad on paper EPS of 9.68sens for the financial year 2014 and the company is priced at a ‘cheap’ valuation with PE less than 10 for its impressive sales growth.

The flawed logic of PE -"To estimate value, we require an estimate of value" -Expectations Investing

Hi Go4Share, maybe you can share with us how Malton is 3 times cheaper in value rather than in price. Will Malton provide 3 times margin of safety more than Plenitude?

Hello, pingdan, let the time proves itself, say 2 years after from now on which will have better performance in terms of market price as well as profitability.

I do not think Harta is overvalued and Supermx is undervalued. Quite the contrary, I believe Supermx is quite fairly valued, if not already fully valued. The 'Big Four' gloves manufacturer, I may arrange in this sequence(from best to bad), Harta,Topglove, Kossan, Supermx(at least for the time being)

Dear Jun Hean, are you sure Tasco not paying any dividend?

Dear Intelligent Investor, seems like the Malaysia 30year AAA Corporate Bond rate is 5.6% something. Will you adjust your calculation fir Apollo in this case?

Now only I realized there is such a good write up here. With current closing price of RM1.23, seems market is ignoring its excess cash of RM0.39 per share.

Hi Intelligent Investor, correct me if I am wrong. The 'constant' 4.4% in the formula is the average yield of high grade corporate bonds in US in 1962. Again the figure 4.4% is an average figure derived from US.

I am not sure if this model is suitable to apply in Malaysia without any further adjustment. Most important of all, I do not know how Benjamin derived the formula.

My question remain why did you choose US Bond Rate to calculate Malaysia's stock? Is US Bond rate a better benchmark to reflect Malaysia economic conditions as compared to Malaysia MGS or FD or any rate that is almost risk free and easy accessible to retail investors in Malaysia?

Dear Intelligent Investor,

I have no doubt at all on Apollo's quality and you have done a very good write up. My core question remain the same, why did you choose US Corporate Bond as benchmark to evaluate a Malaysian stock instead of MGS? Is MGS not considered as risk free?

If one day Malaysia long term interest rate or MGS drop to 3% or 2%, and US AAA Bond has a rate of 6%, what will you pick?

Dear Intelligent Investor, seems like you are selectively pick a higher rate to do the calculation. If this is the case, assume another situation where Europe AAA Corporate Bond has a rate of 6%, will will pick Europe AAA Bond to do the calculation? Or you will stick with US AAA bond rate?

Dear Intelligent Investor, let's assume a situation where US corporate AAA bond rate has dropped to 3% or 2%(jz assume), while MGS stay more or less 4%. Will you still use US Corporate bond to calculate?

Dear Intelligent Investor, seems like it is not easy to search for Malaysia Corporate AAA bond rate. In this case do you think it is appropriate to use US bond rate to calculate Malaysia stocks? Also, what rate you would recommend other than US one or MGS?

Hi Intelligent Investor, this site may help:

http://www.bnm.gov.my/index.php?tpl=govtsecuritiesyield

Hi Intelligent Investor, are you using US corporate bond rate to calculate Apollo's value?

I am looking forward the HSBB phase 2 project

I personal had done a dcf on London Biscuit, and my model told me to avoid it for the moment. Well, I am interested to see if it really breaks RM1.

Just run a DCF for both company, one should be able to justify which is better for investment.

Anyway, I recommend a good link:

http://pages.stern.nyu.edu/~adamodar/New_Home_Page/data.html

Professor Aswath Damodaran has done a very good job in compiling all the data e.g. PE, Beta, Cost of Euquity, etc for listed companies in US, Asia, etc etc.

The data can be a little bit academic, but for those who love to make PE comparison for companies in the same industry, or to look for a reference cost of capital for their DCF model, it can be quite useful.

HI Kcchong, I take back my comment. Yes, you were right, I made the wrong calculation on the terminal value. Again:

"Company B - Start from EPS 0.02 with compound growth 20% to year 10th, at year 10th, EPS = 0.1238, and the NPV for these 10yrs is 0.48. Growth stagnant thereafter, means terminal value = 0.1238 / 4% = 3.10. Total present value 3.58."

The terminal value should be approximately to 2.00 at 4% discount rate. So, in this case, both company A & B are at the similar value.

Hi Kcchong, regarding your question:

"But let us forget about borrowing. Two stocks A and B, similar kind of business. Company A earns 10 sen this year and it is expected that there will be no growth of its earnings. Company B earns 2 sen this year and it is expected that its earnings will grow at 20% a year for the next 10 years. Both pay out all their dividends every year. "

Allow me to one more assumption to your question for company B, 20% growth each year to the year of 10th and - here the assumption - no growth thereafter with EPS remain same as year 10th for the rest of its business life. If this is the case, company B is a better choice.

Here's the simple calculation, how good guaranteed 100% dividend payout for both company. As already guaranteed, so I may use the risk free rate, say 4%.

Companny A - No growth, so Value = 0.10/4% = 2.50

Company B - Start from EPS 0.02 with compound growth 20% to year 10th, at year 10th, EPS = 0.1238, and the NPV for these 10yrs is 0.48. Growth stagnant thereafter, means terminal value = 0.1238 / 4% = 3.10. Total present value 3.58.

Therefore company B is a better choice if we alrdy certain about its growth.

Hi Stockoperator, I have simply gone through Kluang, SgBagan, and Kuchai. All thses 3 companies are controlled by the same family if not mistaken. I believe these 3 companies do not really doing or focusing on plantation business, they are more on long term investment, either property, securities or anything else, no one know and too little info. But what I believe, most of their assets are hard cash or highly liquidable. Still the biggest doubt is, what kind of investment they actually involved in.

Hi Leno, I started stock investment only 4 - 5yrs back and I do not have accounting background. It just so happened I came across Megan and study its report. Yes, now we knew what is happening to Magan next and can easily speak out :" I won't buy due to its high receivables.". As I mentioned, to get rid of our own bias, assuming now is 2005 / 06 and know nothing about what will happen next. The high receivables contained huge deposits or prepayment for PPE, taking that off from receivables, its receivable days was about 118 or 120 days where this may not a desirable figure, but possibly still acceptable. Also, Auditor for Megan was one of the Big Four.
Therefore, I believe any of the investor can easily fall into trap like Megan. They can always find explanation due to the fantastic on paper figures.

Anyway, Leno, if a company able to pay high dividend, but it its current ratio is below 1 and quick ratio is 0.46 something, will you buy?

Hi kcchongnz, I think your question very tricky to answer. Your question recall me a company, Megan Media. Assuming now is 2005 / 06, and we do not know or cannot predict what will happen to Megan in 2007. Wow, fantastic report, sales doubled up, EPS doubled up, but debt double up, PPE spending almost 45% of sales, and PE just damn low at 5 or 2 I couldn't remember.

So, shall we buy Megan? huge jump for EPS, huge Jump for Sales!! And even ROE maintained at double digit!!

Similar case to LonBisc, although low ROE, Sales growing tremendously, so does EPS. And it is selling at dirt cheap PE. Shall we buy? (I have to intention to say that Lonbisc is same as Megan, just an example here)

Hi Calvin, I sort of agree with you that we should value a company the way a bank value a personal loan or whatsoever. Take personal housing loan for example, the bank will only approve a loan if there is significant residue left (after all other personal debt obligation & basic living expenses) for monthly instalment. In the case of common stock valuation, the residue left is either dividend or free cash flow that is readily distributable as dividend. If we able to project the residue left for common stock to the future and discount it with an appropriate rate, that’s the intrinsic value of a company.

Dear Mr Koon, yes I totally agree that Batu Kawan is a better buy as compare to KLK as it generated more return. However, the return rate of 22% was based on past data calculation. If a retail investor does not own any BKWAN now but would like to own some, how can he / she ensure that BKAWAN will continue to give such a return rate to shareholders for another 10years?

Hi Rookie, have you ever wondered why Mr Market willing to assign a lower PE to LONBISC?

Still, its 10 over years of high PPE spending really make me uncomfortable. For the past 10 yrs, its PPE spending was 13% - 36% of its total sales. Can you imagine if you own a business, and for every RM100 you earn, RM12 - RM36 will go to the machine by default and your on paper operating margin was just 13% (min) - 25%(max - 10yrs ago)? And that does not include the finance cost which account for another 6% - 7% of total sales. Ok, fine, they bought so much PPE because they expect for higher growth in the future. But looking back at its ROE, it seems it is on the 'bearish' trend too. So, they spent high capex just for the sake of maintaining high fixed assets?

Well I am not going to guess or speculate what is management intention or whatsoever. Before we are clear of what is the "for some reasons" of the high PPE spending or sure that their PPE may reduce, as a cautious investor I shouldn't have put my money on this counter.

1.请问伦敦食品近期的业绩表现，接下来的展望如何？
2.该公司资本开销是否会拖累业绩？
3.目前股价约90仙，属于昂贵吗？值得买入吗？
4.股息表现如何？有什么可以期待？
答
伦敦食品（LONBISC，7126，主板消费产品股）虽然是个小型消费股，不过自2002年上市以来，已成功连续12年获得净利。
我们认为，这符合消费领域的稳定趋势，因消费股大致上都是获利企业。
该公司是大马最大的糕饼制造商，产品包括什锦蛋糕、糖果、薄脆饼和零食等。
厂房分别位于柔佛的Ulu Tiram、巴西古当，及雪兰莪的斯里肯邦安、直落坡（Telok Panglima Garang）。
在三年连续出现净利萎缩后，伦敦食品的净利在2013财年增长11%，至1236万令吉。
更重要的是，走势成功延续至今年首季，录得926万令吉净利，按年扬25%。
该公司早前的净利萎缩，主要是因为2010至2012财年时，曾投入高额资金在提升产能、现代化设备和机械上。
资本开销减少
不过，投入庞大资金的时期已来到尾声，因2013财年的资本开销，仅企于2201万令吉，较过去三年平均5627万令吉的资本开销要低61%。
整体而言，我们预计2014及2015财年的净利增长，可分别达15%和14%，比我们所追踪的其他饮食消费股项要高，因后者的增长局限在5%至12%。
受惠于过去四年的投资计划，2014财年的净利料扬15%，报1420万令吉。
管理层曾披露，生产线的增加将让其获得新商机。
我们正面看待此事，因伦敦食品的净利复苏还在初期阶段，因此长期前景料更加明亮，特别是出口市场的新商机。
本益比折价不合理
伦敦食品目前正以9.2倍本益比的水平交易，比同行平均11倍本益比折价16%。
此外，目前的交易价位也只是2.17令吉账面价值的0.42倍。
我们认为，折价是不合理的，因该股的净利正稳健复苏中，获利能力也较其他消费股高。
伦敦食品首季的净负债率，已从2011财年时的0.77倍，显著下降至0.63倍。
现金流改善
虽然其净负债仍比其他饮食消费同行来得高，惟我们正面看待其不断下降的负债率，因这显示净现金流已获改善，且正逐渐将净负债削减至健康水平。
另外，该公司的高资本开销时期已过，伦敦食品理应开始享有较好的现金流。
我们估计该股总回酬可达30.6%，投资评级为“短线买进”，目标价格是1.18令吉。

Source: http://www.nanyang.com/node/622156?tid=687


"该公司早前的净利萎缩，主要是因为2010至2012财年时，曾投入高额资金在提升产能、现代化设备和机械上。"

---> The high capex only happened in 2010 - 2012?

'KNM management is going to reward the shareholders soon with bonus issues, free warrants'. I read the same statement at Fitters financial report (can't remember which year). Bonus issue and free warrants really a reward to shareholders?

ROE is a measure of internal efficiency rather than just a financial management capability. No matter how good a finance department could control the money flow in or out, without a good team spirit - dynamic team - company can never perform.

Dear Mr Koon, hope you will make another talk / speech on technical analysis....

Hi Kcchong, i am interested your valuation report too..appreciate if you could share.

Email: cyong2020@yahoo.com

Anyhow, we can get almost any book from Kinokuniya online. "ValueGrowth investing strategy of Glen Arnold" cost around RM480 from Kinokuniya.

Security Analysis is an intense reading whereas Intelligent Investor is just a summary.

Icon8888, which graham's book you are referring to? Intelligent Investor or Security Analysis?

I personally would suggest to read Security Analysis.

Graham's book is the best writing ever. Graham gives me the idea of value, and John burr William provided me the tools to evaluate value.

Dear redjacket, there is no way we can calculate the exact value of a company. Investing is all about after we have considered all the worst thing could happen to the company e.g. slower growth, lower profit margin, etc etc and the evaluated value still has a high margin of safety, then high chances this is a sound investment.

For PIE, its profit margin actually has dropped compare to years ago. Currently operating margin at the range of 10% - 11%. Assuming the company able to perform good at 10% operating margin, with 5% growth it worth RM7.11. For PIE to reach RM11.25, the company needs to achieve double digit growth which I do not believe it is able to do so. Anyhow, nothing is impossible in stock market. If the coming years it could make 7% growth per year, yes, it will reach RM8.60.

My opinion, absolute PE method is even harder to use compare to DCF method. First of all, there are no accurate way of computing the financial risk as well as the business risk of a company. Two of these variables are somewhat intuitive input. Second of all, this is a good forward looking valuation tools however it doesn't really reflect the company true cash flow even though it has taken into account of dividend payout. Thirdly, the creator of this method actually prefer DCF method.

Dear Mr Koon, Great Salute to You!

Hi redjacket, i am using 5% growth rate, 3% terminal growth and 10% discount rate.

i do not think 25% is a realistic figure.....but with a 6% growth rate, it should worth around RM7.84

Hi Mr Koon, could you post some comment on PROTASCO?

A superb good stock with great margin of safety. Even a very conservative of 5% growth the company worth at least RM6.00. Market is again ignoring its net cash position of around RM1/share...

PIE worths around RM7.11 with assumptions of 5% growth rate and 10% operating margin.

i bet protasco to have the least fair value of RM2.00..

The share is still undervalued at RM5.70. My DCF shows it worth RM6.5 at 5% growth rate....