KC, btw I must say this is a very good informative article... thank you...

Realistically, I think most investors who invested in unit trust will probably do worse than average because they may switch in and out often and try to time the market. Worse still they may not stick with the same fund and may move around year in year out trying to find the best performing fund. Personally, this is my experience and the money that I withdrew from EPF to invest in these Public Mutual fund is actually not earning much more than the EPF returns due my actions.

The statistics here are not as bad in the US I guess with 59% of the funds underperforming the benchmark whereas in US more than 80% underperform. But looking at the median and average return of the funds vs the KLCI which is so close, doesnt it make more sense for a person who doesnt want to invest directly in stocks on his own to just buy a KLCI ETF rather than risk underperformance by buying unit trust. After all, there is a 59% chance of him underperforming the market based on your results if he chose to buy a unit trust.

Actually the only selling point for public mutual these days are that they have the largest market share. Their funds have been underperforming their peers for the past few years.

Frankly speaking Public Mutual used to be good, but as their market share increase, they need to keep launching new funds to keep up with the inflow. They have so many Malaysian funds which frankly invest in almost the same thing. The only fund which I see may have some value are their small cap funds, but the fund has been closed for some time.

For me, if I m looking for outperformance, I will typically go for small cap funds as the investment universe of these funds are less efficient hence the long term returns have higher chance of outperformance. If you buy a big cap fund which buys mostly the stocks on the index and charges you a 2% annual management fee, how can you hope to outperform the index ?

Actually the acquisition is already a done deal.

http://www.bursamalaysia.com/market/listed-companies/company-announcements/4704201

In order for 50% of the fund managers to outperform the index, there must be 50% others who under-perform. A manager that outperforms this year may not continue outperforming the next 5 years. What are your chances of finding a fund manager that can beat the market year in year out for a long period or the next Warren Buffet or Joel Greenblatt ?

This phenomenon is more prevalent in more efficient markets like the US. In fact in US, ETFs are becoming increasingly popular due to the vast under-performance of active fund managers. An ETF (exchange traded fund) does not attempt to outperform an index but merely to mirror its performance. It is an ideal investment tool for an investor who has a long term investment horizon since these management fees charged by active funds are the one of the main reasons of under-performance in the long run.

For me, ETFs are a quick and easy way to get exposure to a certain market. They have low upfront cost (nothing more than brokerage you pay vs exorbitant service charges if you buy through agents) and low loading costs (low management fee - normally less than 1% of fund NAV).

I think really sudah mari....

Thanks for highlighting this stock... I m amazed at your ability to discover these hidden gems... i m sure these type of stocks will not appear on any fundamental or TA screeners...

short and informative. Thank you

http://klse.i3investor.com/blogs/stockpick/75180.jsp

Mr TanKW, pls add 230 dividend for LTKM. Thanks

This stock is starting to get noticed by the funds. At least 2-3 funds own it including Eastspring smallcap and KAF Vision fund. Only a matter of time I think before it moves up

Errr.. not sure how my post got anything to do at all with KC retired or not... pls keep the discussion purely on the topic here. No personal attacks

No doubt super quality company but seems a bit too expensive now... non-operating assets about RM 0.24 (investment properties+net cash+associate stake+other investments) per share but PE is already 17x TTM. Will do a follow up check on DCF but quite sure that high growth assumptions will need to be put in to justify current price.

can buy cimbc50 etf for exposure to h shares... listed on bursa

Icon, agree with you. Lousy stock when buy at a cheap enough price can do much better than a good stock bought at expensive price.

Icon, I am curious to know what you see in this company ? Are you looking at it from earnings momentum or asset play ?

Finally, they are doing something about the liquidity of this share...playing catchup with Teoseng now... still damn undervalued even at current prices

yea... was referring to 2014 results, normally they revalue at Q4. Excluding revaluation gain for last year, their PE is about 20x...

Low PE but a lot of the earnings are from revaluation gains from investment properties

Wow, KC you writing a book ? haha...

If SPAC expires after 3 years you will get your money back. You can choose to opt out during EGM if QA is annouced but you wont get the cash back unless the QA goes through. Cause if QA does not go through they will continue to hold the cash while looking for new QA. Go checjk the prospectus

nice1: If QA is not done, you wont get your cash back. You only get it back if QA is approved but you are a dissenting shareholder. Even in that case I m not sure on the timeline on when the cash will be returned. But logically, like you/Mililia said, if management wants warrant holders to convert to get the additional funds, they must push up the share price so I intend to sell out if that happens

I got this from an article from The Edge Malaysia dated Dec 15th 2014

Counter Expected cash value at expiry
CLIQ 0.728
SONA 0.485
REACH 0.766

assumptions are 3.2% p.a interest, 10% corporate tax and 1% other expenses.

n3lly, theoratically that makes sense. but if QA fails, you wont get your cash back and will need to wait till another one or till expiry so your returns will be somewhat reduced. So you need to calculate whether its worth the risk compare to the margin acc interest and brokerage etc.

mililia you are right, I didnt see that latest information. I was basing my calculation from the last published financial report and calculating the cash holding based 3% p.a interest.

I do not share your enthusiasm on the SPACS. Once the cash in the trust is gone, there will more and more cash calls to fund the operations etc. You can see Hibiscus as an example. The margin of safety is not there anymore once the QA is done.

My goal is to get my cash back and earn an arbitrage profit from the difference of the cash holding vs the current share price. I m doing the same for SONA and REACH as well.

Mililia, your assumption of 74 sen is at expiry. If QA goes through the cash tht will be returned to you today is about 69 sen only.

downside should be limited for mother share... cause you can get back your money by rejecting the QA. Cash per share should be about RM 0.69 based on latest accounts. I dont understand the reason for the sell down....

wow break all time high today..

can anyone tell me what is this non current asset held for trading on its balance sheet ? also I thought the groupmrecently disposed its property to Latitude Tree for Rm 19 mil. How come I dont see this being reflected in the cashflow statement or at least a classification of asset held for sale under the current assets portion of its balance sheet for 2014 ?

Haha... hold on tight...

Superb write up with many qualitative angles covered. Well done. This company management is quite conservative in my opinion. I believe that PE ratio may not be tht appropriate to use as comparison with other poultry players due difference in debt and cash holding. Using EV/EBIT looks more appropriate and LTKM is still undervalued with EV/EBIT of less than 5x.

best balance sheet and lowest P/E. If you exclude net cash and investments, even more undervalued. The only thing is management is more conservative... not really embarking on any expansion

Just buy to lock in the long term returns as it trading way below cash level. Annualized returns of 9.2% guaranteed at the expiry of the SPAC if no QA. Good low risk returns. Can even sell early if QA announced and price shoots up above cash level. Downside is protected.

miketyu, I think the semiconductor bull cycle still have some way to go based on how I see some tech stocks are moving... as KESM is mainly involved in burn in testing of automotive chips, I believe there is potential growth in this area.

Yes, the ROE and ROIC is not great as KESM has a large amount of PPE but this is compensated by its cheap valuations. I bought KESM mainly due to the strong turn around on its earnings.

Wah Azmi, bahaya... you mesti faham kalau pledge shares bahaya ialah bila bila masa bank boleh designate itu share.. makna kalau exposure bank too high on one particular share , nilai cagaran saham itu boleh dikosongkan begitu sahaja... Masa tu, kalau you leverage maximum, you mesti kena margin call... advise is kalau nak guna margin, pastikan faham betul betul risiko kerana kalau menang, menang besar, tapi kalau kalah pun kalah besar...

Azmi should be correct. But personally speaking 6.375 pct is not worth the risk of taking margin finance.

Azmi how you justify the REIT return is risk free ? The REIT cannot lower the dividend ? The REIT price cannot fall ?

KC, the best way to deal with these clowns is to just ignore them. One is a tin kosong who acts like an expert and another is a just a problem maker. Dont waste time writing long replies to them as they probably dont ynderstand even 10 pct of what you say. Their comments are not worth to respond to. I think 99pc of the i3 members appreciate what you hv contributed.

ks55, I kind of agree with you that REITs are more suitable for passive investors who need regular income as they are obliged to pay the dividends.

But the dividend is not guaranteed, what you see as 7% today is based on 90% of historical earnings. If their future earnings drop by 50%, the dividend yield will drop correspondingly as they have little or no excess cash to maintain dividend payout. So while it is compulsory for them to pay a dividend, the payment will be only based on a percentage of their earnings.

I do agree that beta for REITs is lower than other stocks. This is more related to the perception of the public that this type of asset class is more defensive (due to its dividends) despite the fundamentals suggesting otherwise.

This fact surprised me
"Performance of some Reits during the US Sublime Housing Crisis in 2008

During the US sublime housing crisis in 2007-2008, the broad market dropped by 40% in just 10 months from 1445 points to 864 points in 30th September 2008. Axis Reit dropped from the adjusted price of RM1.90 to RM1.01, or 47%. Hectar Reit performed even worse. It dropped by 52% from RM1.55 to just 74 sen during the crisis."


I always thought that dividend paying stocks were defensive and wouldn't drop as much in bear markets. I guess when market is irrational, there is no place to hide.

Posted by Kian Leong Lim > Mar 7, 2015 09:44 PM | Report Abuse
You have to see cost of the Insas-PA and dividend separately:
For the dividend of 4% or RM$40 per year for 5 years total is RM200, you cost is RM0.88 right now or you bought initially at RM1 with warrent compensation is the same. We use the lowest price, so we use RM0.725 (those that bought initially) or the total cost is RM725 for RM200 of dividend payments.
But the dividend payments also must be calculated by the time-value of money because of 5% inflation every year, so you are getting back only RM200*0.787=157.4 which is 157.4/5years=RM31.5 per year of today's money value.

But those who buy at RM0.80 or RM0.80+ they are not compensated by the warrant, and Mr. KCCHONGNZ is telling people the return is 9% (he forgot to subtract inflation of 5%), he didn't tell you whether need to pay tax or not on the dividend too?


WAH LIKE THIS ALSO CAN !! I M SPEECHLESS !! OK LA LIM, YOU WIN MAN !! DON'T BUY INSAS PA OK ?? IN FACT PLS CONVINCE EVERYONE TO KEEP THROWING INSAS PA OK ? I WILL SUPPORT YOU !!

Kian Leong, are u paying KC to gv his valuation ? He want to gv valuation of 35 sen ka, 45sen or 60 sen whats that to you ? At least the valuatuon was backed up with facts and figures. Why all this personal attack ? What valuation can you show us ? Your replies all damn long but the more I read the more stars I see !

Kian Leong Lim NOBY : You are confused by KCCHONGNZ time-value of money that says money becomes more valuable over time. This is not true: RM1.00 now is worth less than the RM1.00 in the future (5 years from now for sure) because of the time-value of money. How less we don't know because we don't know the inflation rate. But we already know for the past 50 years, the inflation rate average 3.7 percent per year. Most government right now is hardly raising interest rate, so future inflation rate is expected to become higher than the figure of the last 50 years because we haven't have such low interest rate like now in the past 50 years. Future inflation rate is expected to be higer than the 3.7 percent before. The Insas-PA is giving you 4% per annum based on face value of RM1.00. If the inflation rate is 3.7 percent higher and compounded every year, you are going to lose quite a lot of money. This is just an estimate see 1/(3.7)^5 or 1.44 or roughly 70 cents (now). To say it in a different way, you are now using RM1.00 to purchase the 70 cents you are going to get in the future (5 years from now). Even if the price hasn't drop by 20 cent, which is what is happening now,you know!

Noby: look at what you said "Obviously money you put in PA need to lock in for 5 years to enjoy the annualized returns calculated. But I can assure you that as the maturity date approaches, the price will go closer to the par value which is RM1 as long as Insas is solvent. It would not make sense for the price to drop to RM0.60 or RM0.4 lets say 1 year before expiry due to the time value of money unless Insas gets into deep shit."


ME: I AM ACTUALLY VERY CLEAR ON MY EXPECTATIONS WHEN I BOUGHT INSAS PA AT 80SEN BUT I THINK YOU ARE THE ONE GETTING CONFUSED AS I CAN SEE FROM EVER GROWING LENGTH OF REPLIES AND RAMBLINGS. SO I WILL DO YOU A FAVOR AND TRY ONE LAST TIME TO EXPLAIN TO YOU
1. NOBODY ASK YOU TO BUY INSAS PA AT RM 1 ISN'T IT ? THOSE WHO GOT IT AT RM 1 ARE THOSE WHO SUBSCRIBED TO INSAS PA. BUT THEY WERE ALREADY COMPENSATED WITH 2 FREE WARRANTS WHICH THEY COULD HAVE SOLD AND MADE A PROFIT RIGHT ?
2. PLEASE STOP TALKING BS ABOUT INFLATION ETC AND GO THIS LINK AND CALCULATE THE ANNUALIZED RETURN OF YOUR INVESTMENT FOR INSAS-PA WITH THE FOLLOWING ASSUMPTIONS
PV (PRESENT VALUE) = RM 0.8
FV (FUTURE VALUE) = RM 1.2 (KEEP IT SIMPLE ASSUME YOU GET 20 SEN IN COUPON PAYMENTS PLUS PAR VALUE OF RM1 TOTAL AT THE END OF 5 YEARS. I DONT WANT TO COMPLICATE IT FOR YOU BUT IF YOU ACTUALLY REINVESTED DIVIDENDS THAT RECEIVED EVERY 6 MONTHS, THE RETURNS WILL BE HIGHER)
LENGTH = 5 YEARS
ANNUALIZED RETURN = 8.45%
http://www.moneychimp.com/calculator/discount_rate_calculator.htm


NOW GO AND CHANGE THAT PV VALUE TO YOUR RM 0.6 AND RM 0.4 ACCORDING TO YOUR ASSUMPTIONS AND SEE WHAT YOU GET FOR ANNUALIZED RETURN. TELL ME IF THAT STILL NOT GOOD ENOUGH TO BEAT YOUR "INFLATION". REMEMBER INSAS PA IS NOT THE SAME AS A STOCK. IT IS SIMILAR TO BOND THAT IS INSAS MUST PAY YOU BACK RM1 AT THE END OF 5 YEARS. THE RISK IS IF THE COMPANY DEFAULTS BUT DO YOU SEE THAT RISK WITH THEIR STRONG BALANCE SHEET ?

Posted by Kian Leong Lim > Mar 6, 2015 04:24 PM | Report Abuse

If the PA list at RM1/= is selling to you at RM0.80+ so soon, are you going to question yourself someday, what happen if it drop to RM0.60 and you want to sell at that time before the 5 year deadline! You will not be able to sell without making a loss. The PA will keep on dropping because more people want to sell because they don't want to be stuck until 5 years later when the time value of money makes the money smaller. So RM1/= now is worth less than RM1/= in the future!!!!!!!!!!!!!! Maybe RM0.40 or so, who knows. Interest rate is so low, look at the prices of things 5 years from now, can you imagine?

Obviously money you put in PA need to lock in for 5 years to enjoy the annualized returns calculated. But I can assure you that as the maturity date approaches, the price will go closer to the par value which is RM1 as long as Insas is solvent. It would not make sense for the price to drop to RM0.60 or RM0.4 lets say 1 year before expiry due to the time value of money unless Insas gets into deep shit.

I share the author's feelings on management. Guidance that they give is overly optimistic and its better to discount some of it.

The problem is they are growing the topline aggressively but not maintaining the margins. The PBT margins for F&B division in the latest quarter is only 4% despite no more compensation claim and drastic drop in milk powder prices in Q4-2014. Gross margins also continue to compress at only 15% for the latest quarter. Also, not sure if anyone noticed that their short term debt balooned by 37mil to RM58 mil.

The margins need to start climbing back and they need to improve on their efficiency sooner or later or they will just end up taking more and more debt to support higher sales which is not desirable.

wow.... price jump up so much today. are they sole distributor of mipad or what ?

ok... i guess you are correct if you calculate that way. but that 10% a year is not annualized returns, its more of the average return per year. I think below is more accurate way. Either way its still a good low risk investment.

Blog: Valuation of Insas Preference Share and Warrant kcchongnz
Mar 3, 2015 01:37 PM | Report Abuse

Posted by Kris Wong > Mar 3, 2015 10:28 AM | Report Abuse

Mr. KC Chong based on your calculation and details, does this mean that the bond-like Insas-Pa I bought at RM0.80 this morning will give me a return of 6.42% pa if I hold it to maturity based on my simplified calculation ie. 0.935/0.80 multiply by 5.5% =6.42%. Please advise me if my calculation is not correct. TQ

Use a financial calculator, or a spreadsheet and put these values:

PV = 0.8
FV = 1.00
PMT = 0.02 for 2 sen dividend every 6 months
N = 10 There are 10 semi-annual payments

You will find that the yield-to-maturity equals to 4.53% per period, or 9.06% for a full year. That is the return you are concern of.

With RPS at 82 sen now, the yield to maturity will be 8.5%. It is still a decent return considering that it has little risk but twice return from FD.

The coupon payment is 2 sen per 6 months, 4 sen per year. How you get 10% p.a. ??

REITS dividend payments are only as good as their earnings power as the dividends are paid from earnings. Dividends can be cut if earnings go down. If I am given a choice of 8 pct annualized returns from a bond, i will take it as the returns are above average for the level of risk

Posted by donfollowblindly > Mar 3, 2015 09:13 AM | Report Abuse

I thought you are working in New Zealand. Why you can answer immediately?

KC, You got a new stalker... haha,... not only diligently harassing you around in your blogs.. even want to know your whereabouts...