hockhuat, NTA=0.15 cents ? do you know how to interpret balance sheet ? Real joker...

Icon888, good write up but I think you miscalculated the ROIC. The current assets for Imaspro should be RM 108.6 mil (I think you accidentally minus out the cash twice causing higher ROIC numbers). The ROIC I got is only 10% when I did the study on this company.

No catalyst is OK. But buy the stock with sufficient margin of safety. If my target return is 20% p.a and my margin of safety is 100%, I can wait 4-5 years for the value to surface. But if Margin of safety is only 30%, I can at most wait 1-2 years whereby beyond that time frame my annualized returns starts eroding... so in this scenario, catalyst may matter.... or I can only hope that I had been too conservative in my valuation...

very strong today... whats up ?

dennis, you can use the IRR method to calculate the annualized return if there are frequent contributions to the plan.

http://www.oldschoolvalue.com/blog/investment-tools/calculate-xirr-annualized-returns/

Definitely a solid stock. My valuation is a sum-of parts valuation based on the following

1. Dividend Discount Model for its main business. Its dividends has been very consistent over the years and is supported by strong free cashflows
Assume Dividend Growth,g = 3%, Cost of equity,r = 10%, DPS = 4 sen

PV1 = DPS / (r-g) = RM0.57

2. Present Value of its Myanmar venture (here I used the method of present value of a bond to calculate)
Assume discount rate = 15% (due to geo-political risks), duration = 10 years, Monthly income = RM 487.5k

PV2 = RM0.175

3. Net cash position (After Myanmar asset acquisition) = RM 0.47

SOP valuation = RM 1.21 per share

Tracking the dividend portfolio as reported by The Edge Weekly

Historically, newly listed 5-y warrants will trade about 40-50% premium based on previous Insas-WB listing same thing

good chance to buy in now... next few quarters will be good due to recognition of property sales... Net cash per share already makes up 63% of market cap

Hi Tan KW, pls add johotin 3.5 sen dividend and bonus shares for LTKM 4600 shares

I think there is nothing wrong with asset based valuation. Just that adequate diversification is required. Sample size of 3 is too small to judge. I also think chances of success in this method is to get the companies that have an ongoing business that may be undergoing a rough patch or just about to turn around. This increases chance of getting it at the right price while at the same time having a safety net.

Icon, based on this article, they havent launched the Picasso Residence yet.

http://www.thestar.com.my/Business/Business-News/2015/06/23/PRG-Holdings-cautious-on-Picasso-Residences-launch-date/?style=biz

Perhaps the surge in earnings may only be visible next year ? Normally, when is the peak earnings recognition period in a property development project ?

LTKM, truly a no-brainer investment

Net Cash per Share = RM 0.51
Investment properties = RM 1.22
Investment securities = RM 0.83

Total liquid non opearting assets = RM2.92 per share

Cashflow situation ? Superb with free cashflow yields 13%.

Buying a profitable business excluding cash and investments at only P/E of 3.75x. Ridiculously cheap...

I disagree. How does analyzing a balance sheet in Graham net net method of investing complicated ? Buffett changed to a Munger type approach because as his returns compounded and fund size grew, he could no longer invest large sums of money into net nets which were typically in the micro cap space. As a small time investors, we do not have such limitation and should not limit ourselves to buy only good companies at fair prices. Buffett himself famously remarked that if he was working with small sums of capital he could easily achieve compound at 50% p.a. and this would not be achieved by buying franchises.

Tvmen, nothing against KYY, he may be very successful yes, but dont you think its useful to learn from some of his mistakes which is what this article is about ? On the flip side, is it also fair to say that just because someone made big money on 1 or 2 stocks, that makes him a super investor ?

KC, aiya.. dont waste time responding to these type of comments, just flag them and let admin handle... you dont need to justify to these clowns...

The amount of articles and knowledge you have shared in this forum itself is worth more than all these braggers who come here flaunting their wealth like tin kosong... or telling people they bought at the lowest and sell at the highest... who cares how much money one has ? Forum is a place to exchange information and share knowledge...

Thanks. Looks like you are more of a scuttle butt type of investor like Phil Fisher. Yes, sometimes the best time to buy is when the company is undergoing a rough patch or investors sell down due to some one-off negative event.

kiasutrader,

1. Using TA to buy speculative stocks.... how successful is this approach. Can you show consistent above average performance every year for stocks in this bucket ? I am curious.

2. Why not write up about some stocks that meet your criteria in terms of TA,FA and Entrepreneurial to share in i3. At least we can see some examples of your criteria put in practice and how they perform over time.

Thanks for the article.

Posted by cpo_ > Jun 17, 2015 08:56 PM | Report Abuse

No chance for KFima to reach RM 2.50? At least FGV has gone up to RM 4 last year or even RM 5 2 years ago. Buying FGV now(RM 1.68) can make 138% gain if climb to RM 4 or 198% gain if reach RM 5.

This is called anchoring a common pitfall in behavioral finance. Your mind is anchored on the previous price of FGV thinking that it will rebound to the high and that current price is a great bargain. In the first place, you must understand if the drop in FGV price is actually justified or supported by weakening fundamentals.

http://www.investopedia.com/university/behavioral_finance/behavioral4.asp

The 75% stake in MAA Takaful Bhd is valued at about RM0.38 per share at 1x book value based on 2014 annual report. This is already about 50% of its market cap today.

Yes. Agreed on that.

I agree that a company with higher debts deserves a higher Ke due to the risk. In that case, if the private placements is used to par down debts, wouldnt the Ke at least stay the same as before the PP if not be better ?

Posted by kcchongnz > Jun 11, 2015 11:49 AM | Report Abuse

Posted by NOBY > Jun 11, 2015 11:42 AM | Report Abuse

Posted by kcchongnz > Jun 11, 2015 11:34 AM | Report Abuse

The higher the ebit,the better it is to use leverage as that amplifies return, if you still can get more loan. If the ebit is very low, interest cost burdens you, and even can go into losses. But wonder if it make sense to expand your business with low ebit.

Yes agree. My point was that private placement proceeds was being used to par down debts for a highly indebted company, not to expand the business.


I still wonder the company needs to get private placement to pay down debt if the company has stable earnings and cash flows to meet its interest payment obligations, unless the debt is so high that there are some covenants on their debts, or the risk of bankruptcy is high,or they sense that they may face some headwinds in the future.

Private placement dilute the interest of the existing shareholders.

well,maybe it is good also not to have so much debt.


Me: I think that s the whole idea of getting listed. To tap the equity market for funds. You may view it negatively due the dilution impact, but for me as long as the cashflow improvement outweights the dilution impact, isnt it a plus ? In some cases a company which is turning around or holding a high debt interest with respect to EBIT, a private placement to reduce finance costs makes perfect sense based on my calculations due to the interest savings which translates to higher free cashflows per share. Yes you mentioned about cost of equity being higher but what does that translate to in terms of DCF valuation ? WACC equation penalizes companies with low debt since cost of equity is higher than cost of debt anyway.

Posted by kcchongnz > Jun 11, 2015 11:34 AM | Report Abuse

The higher the ebit,the better it is to use leverage as that amplifies return, if you still can get more loan. If the ebit is very low, interest cost burdens you, and even can go into losses. But wonder if it make sense to expand your business with low ebit.

Yes agree. My point was that private placement proceeds was being used to par down debts for a highly indebted company, not to expand the business.

KC, in your example above, I would go for the bank loan because my ROE is way above my cost of capitals. But not all companies generate 30% a year. If you do the math, you will find that the bigger the proportion of finance costs to EBIT, the more sensible approach is to go with private placements rather than debt.

in mils With PP Without PP
EBIT 30 30
Interest 5.46 6
Tax rate 0.25 0.25
Net Income 18.405 18
No shares 110 100
EPS 0.167318182 0.18

As you can see from above calculations with the same earlier assumption, when the EBIT is high, it doesnt make much sense to do a PP.

Posted by kcchongnz > Jun 11, 2015 11:10 AM | Report Abuse

FCF is higher, yes, but discount rate is higher because equity investor demand higher rate than cost of debt.

After that you divide by a larger no. of shares. thus gives a lower intrinsic value per share.

I don't have numbers with me right now. But I guess that will be the result.

This is the basic essence of corporate finance for capital structure.


The above is only true if you assigned a lower discount rate to a highly indebted company compared to a net cash company purely based on theoretical WACC . If you assumed the same discount rate in your analysis (ie 10% with or without PP) and CFFO=EPS, even with the increased shareholdings, you will come up with the same conclusion as me I think.

OK. Maybe you are saying that the WACC will get higher with the private placement. Agree on that. But on the flip side, if you have zero debts, the theoratical WACC is 10%. So in the end, if you wouldnt assign a lower WACC to a highly indebted company anyway. So the WACC makes no sense to me.

WACC = D/(D+E) * Kd (1-Tax rate) + E / (D+E) * Ke 


in RM mil No PP With PP No debts
Debt 100 91 0
Equity 100 110 100
Tax rate 0.25 0.25 0.25
Cost of debt 0.06 0.06 0.06
Cost of equity 0.1 0.1 0.1

WACC 7.25% 7.51% 10.00%

Or do you consider the value of a company is like what John Burr Williams in his “The theory of investment value” that the value of a stock is worth all of the future cash flows expected to be generated by the firm, discounted by an appropriate risk-adjusted rate.

KC, can you elaborate with some numbers ? Wont the interest savings boil down to higher free cashflow as well ? Interest expense is a real cash expense. Unless what you are suggesting is that by reducing debt and diluting shareholdings, the discount rate is higher ?

YiStock, one good case study on this PP may be RGB, a company you wrote up before. RGB also proposing private placement to reduce its finance costs. I think in RGB case, the private placement will greatly benefit its bottom line due to the high interest cost of its debts (10%)

Posted by YiStock > Jun 11, 2015 10:14 AM | Report Abuse

Noby,
Net Income 4.52865 3.99

Can you show your calculation to derive above figures. Thank you

Its a mistake. Have corrected it. But conclusion remains the same

I did some calculations on this. Please correct me if I m wrong. Lets assume the following about Company A

in RM Mils
Market Cap 100
Total debts 100
Debt interest 6%
Finance costs 6
No. shares 100

Lets say the company does a private placement to institutional investors for up 10% of share capital at 10% discount from above market cap. Lets then assume that it uses this private placement proceeds to pare down its debts and reduce finance costs.

After private placement
in RM mils
PP proceeds 9
No.shares 110
Total debts 91
Finance costs 5.46


Then lets project the impact on its bottom line from this exercise assuming we start from the same EBIT base.

in mils With PP Without PP
EBIT 10 10
Interest 5.46 6
Tax rate 25% 25%
Net Income 3.405 3
No shares 110 100
EPS 0.030955 0.03

My calculations show that EPS with PP actually increase by about 3% despite the dilution thanks to the savings from interest payments. The EPS improvement is even higher if the company was servicing higher interest debt or coupon payments. Maybe I m making an incorrect assumption somewhere, but cost of equity of 10% is what shareholders demand but in actual fact, cost of debt is the actual tangible cost to the company that affects its bottom line.. any comment ?

KC, when a company needs cash. Is it better to go for private placements or take on new debt assumimg tht it doesnt yet hv the free cashflows to fund a capex etc.

Are the funds you are recommending any different than what is already readily available in www.fundsupermart.com ? It sounds very similar to that platform.

If you look at OTB's portfolio, the main reason for its high return every year is his ability to build the portfolio from top down and bottom up approaches. At the beginning of the year, he predicted the indexes that were bullish like technology and put more focus on export oriented stocks. Once the correct uptrending sector is determined, adopt a bottom-up approach within the sector to pick the highest growth stocks with good fundamentals. Although a rising tide lifts all boats, picking the right sector in its right business cycle will enhance the returns...

It depends on the time horizon. FA alone can work but maybe not in the short term. Sound fundamental investing techniques will work out in the long term. We have so many examples of successful fund managers using FA methods. I have not heard about Seth Klarman, Joel Greeblatt or Warren Buffett looking at charts before they make their purchase.

Personally, when I first started embarking on investment, I tried learning TA and it just wasn't right for someone like me who cant be staring at the screen all day to cut loss, buy on break -out, bullish divergence etc. Frankly speaking it was damn stressful.

And then I learnt the FA method and it just rang all the right bells in my head. It was simple to understand, intuitive and logical way of investing, looking at companies as bussiness with intrinsic values attached to it. It was a method I could apply without having to spend too much time and too much stress.

I m not saying that TA is not good, but it was just my personal experience. I know that my performance may not be as good as those who use TA or buy only up trending stocks, but at least I believe that in the long run, things will work out for me.

Thank you Mr Ooi. Actually I admire your ability in finding long term uptrend stocks. This is where most returns can be made when combined with sound FA knowledge. Most TA practitioners I know are just hit and run types, buy and sell for quick 5-10% gain. Seeing from your portfolio, it can be seen that you have read the trend well and picked up the stocks with good mid to long term uptrend. Hope to learn from you !

Hi Mr Tan,

Please help to add PRKCORP dividend ex today.
Thanks

kiasutrader1, very sensible advice. I think most business schools today teach efficient market theory which is quite useless in the investing world today. I agree that one does not need to embark on an MBA or get a CFP to be good at investing. I think KC himself share the same experience as you. However, understanding a business does require understanding the language of accounting. Coming from a non-accounting background, I ve learnt these skills through my own study and with KC;s help and my investment results have improved greatly since I started using this approach. There is nothing high finance about the things KC talks about, for me most of these things are common sense.

what just hapenned ?

"NOTE: All my wealth is from my share investment. Unfortunately there are a few critics like murali, KC Chong and a few stupid critics do not believe me. They should examine their own track record to see how well they have performed.

As you know, KC Chong has written a few articles to discourage people from buying VS Industry. He uses all his accounting jargons to impress you. But the price of VS is shooting up like a rocket.

He should realize his mistake after he posted his 1st article on VS. He posted another and another while the price keeps going up while I am laughing all the way to my bank."

I dont think KC ever criticize you. I m not sure why you feel that when someone writes opposite views on the stocks you own, you consider them your critics.

panic buying now

yeongsheng, how do I get your book ?

YeongSheng, do you see any problem of realizing NCAV value when there is a lack of activist investors especially in Asia. This kind of NCAV discounts would have been pounced upon by arbitrageurs if the stock was listed in more developed markets like US.

While I dislike the use of discounted cashflow valuation due to the myriad of assumptions that have to be made, I do not dispute the importance of free cashflow. A company with low ROE and with huge capital reinvestment needs is unlikely to be cash cow in the long term.

I think this s a company better dead than alive. This kind of NCAV stocks are not for long term holdings and definitely do not buy them for management qualities. Once the discount to NCAV is narrowed, it is time to move on, and the author is merely suggesting ways to narrow that discount.

Mimority interest consolidation will boost eps by about 20pc based on 2014 annual result. The acquisition cost of 12m is cheap based on 2014 minority interest earnings of 4 mil thos works out to PE of 3x only. Good shareholder enhancing action

To expect profit to go up linearly every quarter may not be realistic. But such is the market's expectation and that is what create the volatility in the share price.

The market is over-reacting over 1 quarter of dismal results... the company has a good track record of positive free cashflows. Its cashflow yield (free cash flow/market cap) is still impressive at 10% and it will be able to sustain the dividend payments

Finally got my chance to enter

2nd qr will be more impressive as Polyplas transaction was completed in q2 15 only. But 1st qtr results already showing the positive effects from earlier disposal of loss making subsidiaries...