The company is making normalized (adjusted for one-off items) net profit of RM33m every year

Assuming the above, the company is earning ROIC of 40%, what this means is that for every RM100 the mgmt has put in the company, they are getting net profit of RM40, similar to the concept of ROI. Do u make 40% every yr on ur investments? FD only giving 4%?

Over the 4 years of 2016 ~ 2019, the company has not reinvested any capital (after adjusting for the amounts due from related companies which they paid out as dividends before going IPO) , but is able to record increased revenue and net profit. Do u dislike increased profit without additional capital investment? (in fact, they recorded reduced capital requirement.... less capital, more profit, in such highly competitive industry, hello????)

Skincare products inherently possess a strength common to most consumer products, customers' loyalty / stickiness. Once u try a product that suits ur needs, u r highly unlikely to switch to its competitors. I guess most ppl wouldn't want to risk ruining their face and skin by "trying out" other brands. So revenue is pretty much stable every yr, with disciplined cost control, stable profits of RM33m every yr should be easy.

The fact that they have the widest presence in Malaysia (in terms of no. of stores) and also having the most likes on social media, supports that many ppl have accepted the brand and this in turn complement the point earlier.

Btw the mgmt is focusing on the right measure of growth, same store sales growth; and is clear on their brand identity (morally, environmentally etc.) of remaining as a 100% natural and ethical producer.

The company has minimal borrowings.

However, with all amazing things come a lil bit of evil, the IPO price. The IPO price no doubt is quite high at PE of 15 (using my normalized profit, their figure is inflated by one-off fair value gain, hence giving them a lower PE). But assuming they are able to expand successfully in Vietnam, where they are going to open 18 stores in 3 yrs' time (i think they can, Vietnam sales has been growing nicely and their FB likes show that they are pretty well received), the profit should be able to catch up to the high PE.

Assuming:
1. ROIC remains at 40% (which is highly probable, Vietnam is a growing nation)
2. Reinvestment rate at 50% (refers to the amount of net profit retained and reinvested into the company, they have no additional capital requirement over the last 4 yrs, so they paid some out as dividends, averagely 50% of profits were paid out every yr, so the remaining 50% is retained in the company for future growth)
3. Sufficient reinvestment opportunities in Vietnam

The 3 factors above will deduce that the company's net profit will grow at 20% every yr. But...... 3. is not prevalent... yet, until they manage to get Vietnam going.

Anyway, if u have absolutely no faith in the mgmt for growing Vietnam operation, buying its RM33m net profit at RM452m (RM0.64 x 705881 no. of shares) is still giving u 7% return.

Disclaimer: i own INNATURE, i might be biased.

https://www.businessinsider.in/a-new-rule-that-warren-buffett-calls-a-nightmare-led-to-berkshire-hathaways-first-loss-in-9-years/articleshow/64044001.cms

Buffett has called the new rule a "nightmare" that would produce "truly wild and capricious swings" in bottom-line results that could, depending on the direction, unnecessarily scare or embolden investors.

The same thing we going through now, unrealised losses on equities = expected default rate on loans.

https://klse.i3investor.com/blogs/Ironcrowz/2018-08-23-story-h1455107537-XDL_Ironcrowz.jsp

Realised loss and unrealised loss will be shown as separate item in the income statement, so it's not like some realised losses will be hidden inside the unrealised losses.

If there's any realised loss, it will be shown as a separate item; if u dun see it in the income statement, that means no losses has been realised yet, which is the case for 2018 and 2019.

Hey btw, i found sth new, the unrealised loss in 2018 is mainly on unquoted securities which amounts to RM229,549, most likely 2019 also the same.

Anyone knows wat r these unquoted securities? Could be private investment, derivatives etc.?

@hopetobecorrect

1 - There is no such thing as actual realised loss from the unrealised portion, the 4 items (realised gain, unrealised gain, realised loss, unrealised loss) will always be shown separately in the income statement.

2 - Their main biz is hotel mgmt, which makes up the majority of their revenue and profits; not investment holding, so it's understandable they do not go into much details since it's not the core biz. But of course since the unrealised losses is creating some concern recently, those who managed to attend the AGM may question the mgmt on their investment approach, i unfortunately couldn't attend due to my full time job. If u asked their approach and they didn't answer, only then it shows that they are not being transparent; if no one asked, they probably think that it's unnecessary.

@hopetobecorrect

Just re-read my comment earlier and make urself clear on "realised" and "unrealised"

Hmm i don't see anyone mention RM155m REALISED gain was made, everyone's focusing so much on the RM183m UNREALISED loss. Pretty sure everyone's aware that the current market is under pressure, so what's wrong with these unrealised (hopefully temporary) losses?

As long as TA's investment philosophy is sound, these investments shall prove their worth in time to come (Seeing the performance of hotel investments made, so far so good). As we probably will never find out what they invests in (even if we do, we can never obtain such detailed info and analyse each and every of them), the best we can do is make sure TA invests based on a sound principle.

How do we make sure that? Just ask TT their investment principle, strategy etc., if he can speak some substance of that question, we are pretty safe then.

Bonus issue is a waste of money. Don't know why they listened to the brokers blindly, paying them millions of fees to do something useless.

Rationale 1:
"serves to reward the existing shareholders of REVENUE for their support by enabling
them to have greater participation in the equity of the Company in terms of the number
of REVENUE Shares held, while maintaining their percentage of equity interest; and"

Bonus issue = share split, u holds more shares after the split, but the overall share base also increased proportionally, percentage-wise ur shareholding remains unchanged. 1 share over 100 share gives u 1% shareholding, after bonus issue say 1 : 1, u now holds 2 shares over 200 shares, still 1% shareholding, where is the "reward"?

Rationale 2:
"enhance the marketability and trading liquidity of the REVENUE Shares on Bursa
Securities."

Unless ur share price is so high that u think investors can't afford RM3,000 for 1 lot, what is the issue of liquidity now if ur 1 lot only costs RM170?

Hmm I think i simplified things a little too much, i should make it clear..

Dividend does affect valuation. It affects the compounding rate of the company's value. If no dividend is paid (100% earnings is retained), and if the company can reinvest them for growth, then the company's value will compound faster than another company that pays 60% earnings out as dividends, since it only left with 40% earnings to be reinvested for future growth.

Not sure how time value of money will effected in this case. If received dividend now, the money received worth more now, if don't receive dividend now, the money reinvested will compound the company's value. Maybe the TVOM effect will offset? Maybe the compounding rate will surpass the discounting effect?

High dividend payout ratio stocks usually are large and stable companies (if otherwise, most likely they have established consistent dividend record), hence usually they attract investors looking for dividend. Now, if u r investing for dividend, u look at the dividend yield right? So if 6% dividend yield is good enough for u, you will happily buy at PE 16.67, some may even think 5% is good enough, higher than FD already, so again happily buy at PE 20. So a higher PE is not unusual.

@StockStalker

I agree with u that during period of uncertainties, buying assets (PBV) is safer than buying earnings (PER).

However, since AEONCR mainly finances some daily necessities like smartphones, motorcycles, and automobiles, i am quite confident in their stability (provided the defaults are controlled)

Its PBV will always (mayb 90% of the time?) be higher than that of bigger banks, simply because it has higher ROA.

Dividends to me are always irrelevant, imagine this, if u 100% own a company, does it matter whether the company pay u dividend or not? If yes, the money is in ur pocket; if not, the money is also in ur pocket since the company is 100% urs.

A dividend paying co is prone to share price being tied closely to DY, limiting share price growth; a non dividend paying co will have its "dividend" reflected in its share price, yet still allow for more speculation gain in share price.

Nice that we all can discuss our investment thoughts here. Have fun investing :)

@ StockStalker

Why use BV? Also why use 2 times BV?

Good companies i always buy based on earnings

@StockStalker

How to get 4%? My calculation up to FY2019 is only another 1.8% to be diluted, which is 4,468,311 shares.

How to get RM12? A 1.8% or even 4% dilution only affect the PE ratio minimally, so how do u justify?

Share by @Ricky Yeo https://www.pwc.com/my/en/assets/publications/alert123-mfrs9.pdf

"One of the main criticism on the MFRS 139's impairment model is the delay in recognition of credit losses due to the need for a loss event to occur. Understandably, the biggest change under MFRS 9 would be, impairment based on expected credit losses even if a loss event has not occurred. This would result in entities needing to book in day 1 credit losses."

Old MFRS 139, recognise credit loss when it happens
New MFRS 9, recognise credit loss when it is "expected" to happen (it is subjective to management judgement, everything's kinda like a guessing game here)

In AEONCR case, we all know they do consumer and motor financing, which usually have a higher interest rate but also a higher default rate, hence a higher "expectation" in credit losses, so they recognise these losses early.

They'll know if they over- or under- provided for these provisions when they collect more (or less) repayment than they initially expected. If more, they'll reverse out these provisions eventually, if less they'll provide even more.

Assuming no major changes in business model, AEONCR's cashflow will remain unnchanged.

So now, do you want them to "expect" low credit losses eventhough they are in a high interest high default business, just to make you feel good with high short-term profit or; do you want them to "expect" high credit losses, prudently reflecting the business nature but it'll lead to lower short-term profit?

Strong buy?

Business growing slow, own brand loses in competition, can only take up commodity ODM orders which has low margin, all they can do is manage costs properly, now we can see their effort, margin's coming back. Anyway, we don't buy for their profit (they won't make much anyway), we buy for their cash and other current assets, they must worth at least their working capital.

Eksons' timber business facing downturn, ample cash in it no where to use, so they invest in shares, so far making insignificant gain. But i'm not worry even if they lost all money investing in shares, their other liquid assets are more than enough, but do u think they will lose all without cutting loss?

QR result is as expected, hence priced in, no lao sai required.

But notice this year their profit trend is different, previous years usually Q2 is the strongest, Q1 and Q3 weakest, this year Q3 and Q4 about the same

Did they finally manage to smoothen the quarterly fluctuation in earnings? Anyone with info can share?

@Shines
Correction, 2017 is extraordinary, 2018 is normal, not so so

2018 Q4 most likely will be lower than Q2 and Q3 (as usual), but most likely higher than 2016 Q4 and maybe, just maybe able to top 2017 Q4

Stock price of mother share will always drop after the issuance of warrants, due to dilution of intrinsic value

Since last year the management has already mentioned 2017 results are exceptional and unlikely to happen again (read annual report and news), why make fuss when 2018 results look worse than 2017 when u alrd expected it?

2017 is one-off special event, 2018 is normal. If compare to 2016 and earlier, u will see there's improvement in every aspects.

My fellow value investors, i recommend looking at XDL, appreciate if u could share some thoughts.

@Jackkin

U will continue to own ur share.

I have yet to receive any offer letter, i was expecting the independent advisor's comment to come before that, seems like they will only publish the comment after the first offer.

@jacky loh

Yes u r right, NTA is RM0.56 (RMB0.94), diluted NTA is RM0.425 (RMB 0.72).

My net-net value RM0.23 is stated in RM though.

-Net-net value RM0.22~0.24
-If take into account fixed assets should trade at RM0.94, which is the NAPS
-However, considering many ppl not looking good at their profit prospect, it may not trade at NAPS, at least take into account their unimpressive profits, it should worth RM0.26

I guess this counter, or rather all chinese counters are all about the trust considering there are so many fraud/scandals uncovered, if trust is not an issue, i believe everyone would agree with me that it should trade at least above its net-net value RM0.23, even though they are making losses.

So let's just focus on why i trust the management.

1. All promises thus far since IPO has been fulfilled

2. Audited by BDO since IPO, but recently changed to Afrizan Tarmili Khairul Azhar (Parker Randall), which is also the newly appointed auditor for 1MDB, they are here to discover frauds in 1MDB and by auditing XDL should give it a boost in confidence in accounting.

3. Both OSK and HwangDBS Research visited their manufacturing plant, so they are not operating some non-existent factories.

4. No change in management

5. No dilution in shareholding

6. Adequate director fee at less than 5% of gross profits

7. Insider keep accumulating, even exercised tonnes of warrants at RM0.16

8. Some ppl recall they made a rights issue in 2014 (their most difficult year) to finance the construction of another building even though they have huge balance of cash in hand, if u look closer, the remaining proceeds from the rights issue is merely sufficient to cover their annual working capital, without it, they would've constructed the building but left with insufficient cash to finance daily operations.

9. Another hiccup is during 2012, they mentioned that they are in talk with Navis Capital Partners for an investment deal at 1.2 times NAV. I can see the management's intention in influencing the share price here, but i can understands that, as the management has always been frustrated by the weak share price performance, they even done all sorts of things to improve it to no avail, bonus issues, giving warrants etc., recently they even need to reduce the par value of their shares to keep it below the share price. So everyone should be able to see the management also wants the share price to perform good.

10. Some concerns on it being registered in Bermuda, i would understand it as a multi national company, it'll be a easier to manage finances and taxes and to facilitate listing in another countries i supposed.

On a side note to the trust issues, the management has been actively throughout the years to improve the biz (although they dun really work), they went big for marketing during 2014 while controlling the costs at par with the competitors', now they reducing it since it didn't help much (still on par with competitors tho). They have also been talking bout e-commerce, recently they finally incorporated a company for that purposes, another promise fulfilled.

All in all, i gave my trust, appreciate if anyone been to their AGM can share.

@Jon Choivo

I took a quick look at Plenitude, profitability is flat and slow, also currently already trading at net-net value, not really undervalued or cheap, the price will probably will stay stagnant for yrs.

OSK profits i supposed is ok, shot up certain yrs i guess is one-off gain, seeing ROE averages below 10% every yr i dun feel the need to dig further down bout its ROIC. Not a net-net either, so not undervalued.

Not sure which Orient u refers to.

My 2c hope u dun mind.

@shpg22

Note that impairment losses are non-cash in nature, there's is no loss of shareholder's fortune even with those losses. After adjusting for them, they show smaller losses.

I'm not expecting them to sell the whole company and distributes all their cash to get my hand on them, I'm just waiting patiently for the environment to get better for Eksons and for others to realise this co. is undervalued, then i sell.

Dividend wise, good to have, not a must.

@Villa1668

I strongly agree, i expect the independent advice circular will give an "offer too low" comment.
If based on PE 0.66 might be OK, but the true value of TA is in their assets, not their profitability (their profits grow slow).

I just wonder how "independent" they could be since they are appointed by TA. Hmmm....

@Revenue

Good
-Industry leading gross and net profit margins
-No dividend payout, profits retained for future growth
-Negative and even decreasing working capital requirement!
-Supports widest range of card scheme
-The only partner of Alibaba in Malaysia
-Booming industry
-Good liquidity
-Experienced management
-Competitive product pricing
-Internal R&D
-Forex, receive MYR, pay CNY (MYR/CNY has been appreciating, only recently in consolidation mode)

Bad
-Expensive director remuneration (yet i think worth it since net profit margin can remain at such high level even after paying them expensively, now i learn how to appreciates good management)
-High reliance on Alibaba (up to personal taste, good for further partnering in the future, bad for overly relying on Alibaba, to me i prefer a more diversified revenue base)

Holding for long term, could turn into a classic buffett stock, only thing missing is they need to build their moat (their name) in Malaysia.

I apply for the IPO but didn't get allocated, apparently bumi quota has 90% approval rate, while public quota only has 40%, anyway, i bought when it opens

Maybe doing a little research is good for ur investment, here's a little help

http://www.theedgemarkets.com/article/debunking-misconceptions-about-noparvalue-regime

Eksons 10 yrs analysis

-Dividend yield at 6.7%, possibility of payment every yr with pressure from a few famous individual investors

-Net-net value at RM1.46 even after discounting CA by 70%

-Cash per share at RM0.96

-Average cost for all shares bought back to-date at RM1.29

-Adequate and consistent director remuneration, only looks high in FY '16 and '17 due to low profits

-No insider selling

-After normalising profits for one-off items, only not profitable from 2016 onwards, mainly due to shutting down of Sarawak mill which in turn is due to shortage of raw materials (external factor), not weak management (internal factor)

-Diversifying into Taiwan and Korean market shows management's commitment for turn around

-Considering the above 3 items, i have faith in the management

-Unlikely lower profits from further impairment as only RM4.7m goodwill left, other impairments are insignificant

-No dilution of shareholdings

-After disposal of land in 2014/15, cash balance shot up, hence net-net value shot up, however share price remains stagnant due to bad profits outlook, a classic net-net

@shareinvestment7

Mind sharing how share premium can go expire?

MMSV
-High and consistent gross and net profit margins
-High ROIC
-Increasing working capital leading to higher ROIC
-Outsourced productions keeping fixed overheads low
-Large portion of profits retained and reinvested after accounting both dividends and buybacks
-Share buybacks increases EPS (insignificant but at least management's intention is good)
-Good cashflows
-Good liquidity
-Booming industry
-Management's effort in diversifying into other industries to reduce profits volatility
-Adequate forex risk
-Priced fairly low

I bought in.

@RosAng

Thanks for sharing. If TT really pressing down the prices, I will keep buying, then sell back to him at 0.66. Might not be a big profit, but still a profit.

In the end, there's nth for us to lose, and TT will get his offer accepted at 0.66, kinda win-win.

@luckypunting

20 Jul 2018

Anyone understands 3rd paragraph of item 4.1 of the MGO notice?

They mentioned there will be no adjustment to the offer price pursuant to the 4.1c dividend declared (cuz if adjusted the offer price will be lower than the highest price paid by TT previously), but didn't mention whether still entitle to the dividend if offer taken...

@zepan

no need to be harsh... market is full of ppl, some with knowledge, some without..

If get down to 0.61 or even just 0.65999999 i will sailang my net worth and sell to TT at 0.66 hahaha

buy at 0.65 then sell to TT at 0.66, only sorchai will sell them

my TP was first RM1.50, then i revised it to RM2.12, now i'm happy that everyone decided to ignore his offer of RM0.66 :)

@RosAng

u r working with TAE?
Wat u telling above is going to happen?

things getting real fun :)

Big thanks to all who update us after the AGM!

1. I'm new to MGO and is still trying to understand the significance of an MGO. Why would TT want to trigger an MGO? What could be his motive?

2. @sslee mentioned the BOD considers to sell off some land and properties to unlock their values, again, what is the reasoning? Simply to unlock value? Or to reduce borrowings? Did they mention about how to repay those loans due this yr?

3. @villa1668 mentioned in item 3, TA can grow too fast otherwise it could burn faster, may i know wat is meant by "burn faster"? As i see, their hotel operation has very good margin, with the cash pile they have they should be able to grow by acquiring more hotels which probably will produce around the same margin.

4. @villa1668 item 5, according to previous bursa announcement, the collaterals on the top 5 loans actually worth RM1b more than the loan itself, my darker side wishes them to default instead (forgive me)

better to, their project all high end not many ppl can afford at this time..

any discussion on debt reduction?

diff ppl, diff style, do wat u comfortable with :)

I think u r refering to TA's price instead of TAGB's, TA is the holding, TAGB is their hotel and property dev arm, both are listed tho.

As i said, with the new accounting standard called IFRS 9, all fluctuation in prices of investments made by TA must be reflected in the income statement, hence the erratic profits, this is worsen by forex losses.

Warren Buffett actually called this accounting change a "nightmare" cuz he's a long term investor, short term fluctuations due to irrational market behaviour if recorded in income statement will severely distort profits.

they'll need to act now since most of the debts are due this yr

for their return on capital invested is around 6%, if the interest rates they r paying is higher than than, the company will do better by repaying all the loans.

if anyone going to the AGM can pls ask what is their plan to reduce borrowings? Since interest rate is rising globally and RM is strengthening

I won't be going to the AGM although I'd like to ask some questions in addition to urs. I'll just lay them down here if u have time to help me out, it's ok if u don't don't worry :)

1. How is the allocation of quoted and unquoted investment in terms of geographical location? Just name those significant positions is sufficient.
2. What is the purpose of using geared equity accumulator?
3. Pg 14 of Q1 2018, since all lendings are made in Malaysia, why is there a huge forex loss?
4. Most importantly, what are the plans to reduce gearing? Huge amount of borrowings r due this yr. Pls consider reduce borrowing considering rising interest rate globally and strengthening RM (which makes repaying loans cheaper), this could in turn improve earnings too.