letitgo, agree with your assessment, my point was absolute value of revenue and PBT will go up even if profit margins were stagnant simply due to the forex effect. However, agree that those receivables booked at RM exchange of 4.4 will incur a forex loss once RM strengthen so the risk is high. This is why some companies prefer to enter into forward currency contracts to hedge against this movements.

Hi... even though you wont see forex gain if lets say USD stabilize ar RM 4.4 from now onward... the revenue in RM terms will still be higher.

Definitely worth a look... but I checked this website http://paultan.org/topics/special/maa-vehicle-sales-data/ and it seems the sales have gone down in Q4... For Oct-15 and Nov-15 total sales volume is 1200 cars. They need to sell about 2000 units in Dec-15 to match Q2 and Q3 numbers...

Dec-15 ??
Nov-15 929 Q4 - 1875 (2 months data)
Oct-15 946
Sep-15 1023 Q3 -3106
Aug-15 1033
Jul-15 1050
Jun-15 1022 Q2- 3112
May-15 1152
Apr-15 938
Mar-15 986 Q1- 1921
Feb-15 935
Jan-15

I m not sure... they may go by different name here compared to the private blog.

Posted by Tan KW > Jan 4, 2016 02:45 PM | Report Abuse

@NOBY - good!

want to know who else is kc student in this list? beside you and II

@TanKW, this shows you that KC Chong teach us how to fish instead of giving us the fish. :)


Posted by Tan KW > Jan 4, 2016 01:56 PM | Report Abuse

@NOBY, your pick is totally different with @II

same sifu, buy different kung fu?

@TanKW, I believe KC Chong has shared his picks and write ups on i3 and will continue to do so outside this competition.

TanKW, these are my 2016 stock picks with some reasoning

KESM 10% (Their major capex cycle is complete. Expect their margins and free cashflows to start growing with their renewed focus into automotive chips testing which should see bright prospects with the thrust towards self-drive cars)

MUDAJYA 10% (Contrarian buy and follow the superinvestors. Hoping for Indian IPP venture to start turning around earnings. Prem Watsa from Fairfax Capital is also vested last year)

HEXZA 10% (Safe and boring stock with strong balance sheet and good dividend yield. Myanmar IPP earnings to start contribute in 2016 and to also see margin improvement due to disposal of loss making business)

GADANG 10% (Magic Formula stock. Good earnings visibility and undervalued)

ADVENTA 10% (Strong moat healthcare related company. Lucenxia will start contributing in Jan-2016. Hope to see earnings move to a new level this year)

SMI 10% (Net net stock which may turn around this year due to sales recognition from its Pinnacle Kelana Jaya project. Already turned ~9 mil of FCF for the first 9 months of FY2015 and should improve further as more sales get recognized)

LUXCHEM 10% (In a sweet spot with it benefiting from both low crude and weak RM. Growth in bottom line will come from its manufacturing division which fetches higher margins)

HIL 10% (A laggard among the plastic injection moulding peers which also set to benefit from lower crude oil prices. It is still trading at 3.7x EV/EBIT. Net cash of RM0.53 per share vs share price of RM 0.84. While the group is also involved in property development, its focus towards affordable housing makes it less vulnerable to the property down-cycle. Its previous 2 projects were very well received with take up rate >90%)

MAA 5% (PN17 stock with a chance of capital repayment this year? Sale of insurance arm to Zurich insurance in progress. The TAKAFUL arm should fetch a high price due to the limited license and growth potential in Malaysia. Syarikat TAKAFUL is already trading 4x book value, if MAA Takaful was sold at even 2x book value, the stake is already worth RM0.59. MAA as a whole should already be worth RM 1.7 assuming its remaining assets (mostly cash) is valued at 1x book)

TURBO 5% (Magic formula stock. Produces OnG process equipment. Revenue and profit is declining but price may have already reflected that. Dividend of 5 sen and strong cash position limits the downside)

APB 5% (Distributor of OnG process equipment for OnG downstream. Recent 2 quarter results were encouraging. Expect them to benefit from RAPID. Strong cash position and dividend yield)

NOTION 5% (Close to all time low. Might be a late bloomer for 2016 as its losses was mostly caused by hedging contracts. The contracts are set to fully expire by Sept-2016. The group is also starting to divest some of its PPE and become more asset light. The debt has been significantly reduced and the group is now net cash)

Icon8888 , great article. The blog below did a similar study on value and momentum and concluded the same thing that starting from Value first then sorting the value ideas by momentum yielded the best results. However, one thing we always forget is that these studies do not take into account the transaction costs involved in adopting a momentum strategy which requires more rebalancing. In the short run, these may not matter, but in the long term (like 10-20 years), the returns could be greatly reduced...

http://blog.alphaarchitect.com/2015/03/26/the-best-way-to-combine-value-and-momentum-investing-strategies/

JT Yeo, superb line of thought.....

Icon888, wow you are KC's student ? Come on please share your marvelous stock write ups on the KC Chong facebook page first la... sharing is caring... :)

P/B valuations of some insurance companies on Bursa

TAKAFUL - 4.87x (only listed Takaful player)
LPICAP - 3x (No Takaful business)
ALLIANZ - 0.72x (No Takaful business)
P&O - 0.89x (No Takaful Business)
Average P/B = 2.4x

Based on last annual report,

MAA Takaful minority interest = 25%
MAA Takaful minority interest book value = RM 29.4 mil
MAA Takaful controlling stake = 75%
MAA Takaful controlling stake book value = RMM 88.3 mil
No. shares outstanding = 301.7 mil

Valuation of MAA Takaful (75% stake) on different P/B scenarios
P/B =1x , RM 0.29
P/B =1.5x, RM 0.44
P/B =2x, RM 0.59

Valuation of MAA other remaining assets
Consolidated Book Value = RM 423.9 mil
Book Value excluding MAA Takaful = RM 335.5 mil
No. shares outstanding = 301.7 mil
Based on P/B = 1x, Value of remaining business = RM 1.11

Sum of parts value for MAA if takeover materializes will range between RM 1.41 (P/B 1x) to RM 1.7 (P/B=2x)

Haha... Icon888, I really enjoyed reading your different versions of investors.. I must say I m probably a driftwood and comfortable being that.,,,

Markus See The million dollar question is at what PRICE Zurich is buying MAA Takaful. Any rumours? Just have to wait for the announcement. BNM approved. Now wait for MOF approval. It's all for the banking law (Islamic financial service act 2013) . No reason for Najib admin to say no. Beside it's Royal family's company .
I can't wait to know at what PRICE they selling . *drumroll* ..
Good luck to all of us !
01/12/2015 19:50


TAKAFUL bhd is selling at 4.87x book value. I dont think MAA will let go of the TAKAFUL arm cheaply/

I did not study Nihsin but just for discussion purposes. I believe ROIC is a good metric but there are many ways to skin a cat. There are few conditions in where I would buy a low ROIC company, not necessarily hold it forever.
1. It is a net net stock. Meaning solid balance sheet, trading at big discount to NTA or some balance sheet metric. It must also be somewhere near the all time low in terms of P/B or P/NCAV with improving fundamentals.
2. It is a turn-around stock. It could be a cyclical business on the cusp of a turn-around where ROIC may eventually revert to the mean.
3. It recently went through major expansion thus incurring high depreciation charges which depress the EBIT or EPS. Hevea is one good example. In this way, I will look at P/FCF as a metric
3. No red flags in terms of insider actions, share dilution, debts increase.

Realistically, I think 2014 will be hard to beat as the SSM segment's revenue depends on the timing of new casino launches. 2014 was a bumper year due to the launches of casinos in Philippines. Now moving forward, they are looking more towards the frontier markets.
However, based on CIMB initiation report, management claimed that the orders for the 1500 machines were already secured and just a matter of timing of delivery. Hopefully these orders were not cancelled/delayed and will appear in Q4. Nevertheless, the strategy of growing the TSM segment is good one as it has higher margins and more recurring in nature.

What do you think its worth ?

Despite its raw material being denominated in USD, crude oil and corn both raw materials used to produce formaldehyde and ethanol,are also at all time low. HEXZA's investments which are denominated in USD are also a form of hedging against its raw material cost.

KC, why is minority interest 0 ?

Consider using time weighted returns and XIRR to calculate annualized returns.
http://www.oldschoolvalue.com/blog/investment-tools/calculate-xirr-annualized-returns/

Nice sharing KC. i think for net nets, a few more qualitative screens may eliminate the potential value traps. One critical factor I look at is past price vs the net net value and attitude of management. This may filter out some of the perennial net nets vs some of the good companies just going through a rough patch

Latitud price is starting to look attractive again.... I dont see deterioration in its margins or sales... they also stand to gain from forex in this coming quarter... Q1 and Q2 is normally the best quarters...I accumulated some today... lets see...

Looks like FongSiling increased his stake in Gadang from 1.5mil shares to 4.6 mil shares based on AR2015

paperplane... chk this out... such a study bas been done before...
http://klse.i3investor.com/blogs/kcchongnz/62033.jsp

OTB, is KYY buying KESM ?

"We want excess cash to be a positive number. Therefore, we guard against this by putting a maximum of 0 on the value to subtract from cash."

The maximum of 0 is not to guarantee excess cash >0. It actually ensures that Excess cash never exceeds total cash. It is a way to conservatively estimate excess cash since it will not consider any the residual value of net working capital and add it back to cash.

The enterprise value calculation should be based total cash and equivalents instead of excess cash. I realized this now because in the excess cash calculation, short term debt is included in the computation hence you are double counting if you also include short term debt in the enterprise value equation.

KC, thank you. This example is very clear and makes sense.

In a net net working capital valuation, Graham tends to discount receivables and inventories by a certain percentage. Hence by assuming excess cash = Net working capital, you might be too liberal. It might be technically correct, but I would rather consider excess cash maximum value as just the cash and cash equivalents on the balance sheet while possibly adjusting it downwards if current assets excluding cash is not sufficient to service current liabilities

I think you are not calculTing excess cash correctly. You are adding receivables to come up with excess cash...

Newbhere,

You should know that KC style is bottom up and numbers driven. He places great emphasis on understanding what the numbers in the financial statements tell us before looking at the qualitative aspects. What he shares in the articles can easily be applied to most of the 1000 over companies on bursa to know if they are gems or germs. Dont expect him to understand every industry and its cycles, what you should do is take that knowledge and apply it yourself into businesses that you are familiar with as what KC has done with Pintaras.

There is a wealth of information if you take a look at all the articles posted before in his blog. There are even long term portfolios set up with the rational of owning the stocks in those portfolios. I suggest you start looking there.

"Enterprise value is the measure of a company’s total value. Yi-Lai with absolutely no debt has a negative enterprise value. This is obtained because its market capitalization (as affected by share price) has fallen below its excess cash value."

How did you compute excess cash ? Did you include inventories and receivables? I use this formula instead
Excess Cash = Total Cash - MAX(0,Current Liabilities-Current Assets)

Excess Cash = Net Cash = RM 70.2 million

nice one

Hi TanKW, please add

FLBHD - 0.05 sen dividend
LTKM - 0.025 sen dividend

Thank you

value88, if you recall Walter Schloss invested in hundreds of companies. This is because his method was more quantitative drive with not much regard for management...
I think for net nets, it is important to diversify broadly to achieve the desired results over the long term. I dont know of any studies done in Malaysia, but this link shows that Low Price to book and high dividend yield strategy works well in Singapore.

https://www.youtube.com/watch?v=LLOJna7EUK0

Value investment works as a diversified portfolio... its unavoidable tht some picks do not work out.. the important thing is that the portfolio as a whole generates market beating returns....

Check this out
www.youtube.com/watch?v=ojYxpbalawA

I favor the bucket method of retirement planning popularized by Morningstar. With current inflation rate, it doesnt make sense to hold too much cash even in retirement. I would divide the retirement funds into 2 buckets. First bucket I ll put aside 5 years of expenses in mostly low risk liquid investments like FD or bonds. The rest of the money can be placed in higher risk investments such as equities. With the 5 years emergency fund in place I can afford to take more risk and need not stress about my equities underperforming in the short run or focus too much on income strategies. Now at the end of every year, I will rebalance my portfolio to replenish the first bucket while reinvesting the rest. I reckon that with this method, the retirement funds would not deplete but even have a lttle growth and even leave some behind at death.

Did you ask management what is time frame of the delivery for those awarded contracts ? What is their plant current utilization rate ?

nicholas1184, eventually what is in the income statement must convert to balance sheet items. For example revenue becomes trade receivables and cost of goods translates to payables etc... if the net exposure of Tong Her in USD is -ve means its USD short term liabilities is more than USD short term assets, then strengthening USD will not benefit it.

Nice one. I think KCChong has written extensive warnings about this co. A few things:-
1. Retained earnings cannot be used to clear borrowings. Only cold hard cash can do that.
2. Receivables increasing is problematic, but it needs to be looked at with the context of sales since some companies may report increasing receivables but with increase in sales as well.
Use this metric instead to judge if the company is taking longer to collect its receivables

Days sales outstanding = 365 / (Current Revenue / Avg receivables from current year and prev year)

Victor, the reason CanOne takes USD debt is because it acts as a natural hedge against currency fluctuations. It has to deal with payables and receivables in USD due to the export exposure. On the bright side, if you look at the note 7 on the Q2-2015 report, the USD borrowings has been reduced from RM192 mil to RM 152 mil since end of 2014, so I would say, the impact of USD strengthening on interest payments may be less this year compared to last year.

One thing is to avoid falling into dividend traps. Some companies show high yields because their share price has been falling perhaps due to some fundamental problem. Its also important to look at the cash holding of the company and the dibidend payout ratio. If cash holding is low and company is paying out more than earnings, it will likely cut its dividend in future. Look for companies with stable earnings and stable payout ratios. Also look for companies that grow their dividend payments.

Icon8888, valid points about canone.. i m aware of the corporate governance issue.... thanks for your views

I find CanOne more attractive valuation wise because of their higher profit margins for dairy division and also their stake in KianJoo which worth more than their maeket cap. The plus for Johotin is their expansion plans for the dairy division.

The volatile earnings is caused by their environment division.. they had a few major contracts last year including a big one for aKLIA. Absence of tht dragged down earnings this quarter...

The language used in the record high Q1 results which actually made a lot of ppl excited was very deceiving :-

From Q1 :- Prospects for Current Financial Year
The group performance for the second quarter of year 2015 is projected to be slightly lower than the first quarter of year 2015. The group anticipates reduced logging activities in the next quarter due to
stringent conditions imposed by the authorities in the issuance of logging licenses. As for the Manufacturing and Trading segments, it is anticipated that demand for timber products will continue to improve. The percentage billing for the property development project is expected to improve as the project progresses.


Reduced logging activities = actually no logging activities / revenue for Q2

Slightly lower performance:- If you look back to a few quarters back, such language is used many times and suffice to say the word 'slightly' is very subjective...

If you refer to the annual report, Tong Her has high amount of USD borrowings. Also their losses this quarter I think was caused by heavy losses of the associate in Vietnam.

KC, as one of your earlier followers, I must say a big thank you. All those articles and discussions with you has really benefited me over the past 3 years.... it has really speed up my learning curve and built up my confidence in investing in the stock market. Keep it up !

I view a value trap can also be buying a cyclical companny at the peak of its business cycle. Historical numbers look good... but the fact is the profitabiliry is declining...

You can still get your money back by voting against the QA when they announce one.

How about the undergraduate O&G SPACS trading below cash right now ? With expected annualized returns ranging from 10% to 14% to the expiry date, I would say they are close to risk free at current prices... just for discussion purpose....

I asked KC's opinion on this arbitrage when paperplane first wrote about it. His opinion was that mother share was loss making and that this was a pure punt. Also, warrant conversion could take 2-3 weeks depending on individual company based on my broker... Based on this , I did not go in. Thankfully.