sunztzhe,

Good effort. at least you have done something here. Here are a few of my comments.

1)You were working out the enterprise value of VSIG, not EV of V.S. VSIG is just one of the subsidiary company of V.S.

2) The HK 1334m you get is the EV of VSIG. That is made up by equity shareholders and debt-holders, not sure if there are other stakeholders. The whole lot doesn't belong to the shareholders of VSIG, and hence not 44% of the EV belong to V.S. What belongs to the shareholder of V.S is just the market capitalization, the first term of your EV formula.

3) You don't just add the part market cap to V.S and get a value of RM5.5 for V.S shareholders. The value of VSIG is already reflected in the RM4.27 of V.S share price. VSIG's account has been consolidated in V.S account. V.S may have other subsidiary companies. But adding each individual price to V.S share price, Huat loh!

4) You add one price to another price and determine if the sum of price is over-valued is like putting the cart in front of the horse. You should determine what is the value of the company, and judge if the price is overvalued. You know the price of V.S. You need to estimate the value of the equity shareholders of V.S.

Posted by shinebright > May 21, 2015 12:07 PM | Report Abuse

And just so you know whn disposing based on EV, it also takes into consideration the stake you own in each subsidiary.


The market value of minority interest in the enterprise has taken into considerations of all subsidiary companies V.S may have. It is collectively taken care off, though it is an estimate.

Are you telling me you must value each and everyone of the subsidiary company? What if some of them are not public listed and have no public information?

Ok, you may have your way of doing. Then show us. We learn from you.

{Posted by shinebright > May 21, 2015 10:17 AM | Report Abuse

Again, I have pointed out, VS only owns 44% stake in VSIG and the high level of debt, and the depressed items in CF all comes from VSIG. VSIG is listed in HK and its financials are publicly available.

So the question is: Does it makes any difference if they own 44% and not wholly own VSIG? OF COURSE! The analysis thereafter is misleading because they are all consolidated. Well, if the VS Ind management wants everything to look pretty, they can as well dispose their stake in VSIG and not conso, making all your analysis and arguments void. And also, their VSIG China operation does not involve in Keurig production.

I am sure their Msia operations generate postive FCF. It is VSIG that drags the items in CF and BS down. Again you must bear in mind that VS only owns 44% in VSIG. If there is case of disposal, any items in balance sheet or whatsoever is split according to the stake owned. There are always reasoning and origins behind every figures.

Well, I will only do full-fledged valuations if paid.]



We are valuing V.S here, not VSIG. When a company like V.S which has equity, debts, minority interests, non-operating income, Enterprise value is a very common valuation method; what is the price to buy over the whole business.

TEV = Market Capitalization +Total Debts + Minority Interest - Cash and other non-operating assets. And that is how I did it as appended below.

Again, we are valuing V.S, and not VSIG.

If you have better way to value it, just show us. We all learn here. There is no limit to knowledge. We don't solicit payment for sharing of knowledge here.

"I Will only do full-fledged valuation if paid?"

Anyone willing to pay him to do that?

Please lah, you haven't even shared anything useful here and showed that you are that good yet except shouting here and there so far.




[Price 21/5/15 4.30
No of shares 186355
Market cap 801327
Total book value of debts 409791
Market value of Minority Interest 174881
Cash -123464
Other non-operating assets -11787
2014Enterprise value 1437103

EBIT2014 57963

EV/EBIT 24.8

By right I should use the trailing twelve months results which is much better. But as I am an amateur, I leave it to you, a professional, to show us.]

Posted by shinebright > May 20, 2015 02:43 PM | Report Abuse

I have no time to spend on amateur like you seriously.All along, I am a silent reader of the forum, coming in occasionally to check on the market rumours. But stumbling across your misleading info, I cannot help but to comment on your methods.


Hi professional, below is how I, as an amateur, value V.S as an enterprise. I hope you can show your professional way, not just talk.

Price 21/5/15 4.30
No of shares 186355
Market cap 801327
Total book value of debts 409791
Market value of Minority Interest 174881
Cash -123464
Other non-operating assets -11787
2014Enterprise value 1437103

EBIT2014 57963

EV/EBIT 24.8

By right I should use the trailing twelve months results which is much better. But as I am an amateur, I leave it to you, a professional, to show us.

Posted by NOBY > May 20, 2015 03:05 PM | Report Abuse

Nothing wrong with the simple valuation ratios done by KC, nothing misleading... its just a pre-screening to see if a stock warrants further analysis. Others who make a big deal out of this are just not getting the message of this article which is asking the question is VS a NBI ? Judging by the amount of qualitative and quantitative follow up analysis that is required, it really isnt a no brainer investment for me... haha


Thanks Noby for all your comments. That is exactly what the post is about; is V.S a NBI? I don't see the problem of valuing an enterprise like that. The comment is more apt.


Posted by Probability > May 20, 2015 02:59 PM | Report Abuse
"A NBI is something you don’t need to calculate so much, think so much. It just jumps out at you."
please spent some time to understand this..dont get carried away with emotions...its that simple ;)
....and we are trying to identify which is a NBI...
and which is requiring:
"enormous brain processing power + intelligence + foresight + insider information + etc"....+ help from god coz only we deserve it...
he he he..


That is what sharing in a public forum like i3investor is about; hoping to get constructive criticisms which we will learn more. A post without comments is no fun.

Sometimes I do use some strong words which some people may not like, but it is normally is because a strong comment requires a strong reply and corresponding strong words. This may make some people unhappy. Sorry about that but there is nothing personal.

Posted by shinebright > May 20, 2015 02:43 PM | Report Abuse
kcchongz>>>> Good that you talk about value. But did I value the company? Or was it RHB which value it?
“our TP is lifted to MYR4.50 (from MYR2.95), based on an unchanged recurring FY16 P/E of 10x”
Why based on 10X PE, why not 5, 15, 20, or 30? Is PE a good metric when V.S has so much debts?
At RM4.22, the present PE ratio is 14 and enterprise value is 21 times operating income. Is that cheap?

If those ratios are not valuation ratios, I do not know what to say really that you DID NOT TRY TO VALUE THE COMPANY?

So the question now is, how do you value the company. Please show us your valuation in details as you said others are wrong.

I have no time to spend on amateur like you seriously.All along, I am a silent reader of the forum, coming in occasionally to check on the market rumours. But stumbling across your misleading info, I cannot help but to comment on your methods.


Ok ok I did put some simple valuation there. Sorry forgot about it. So I can't value an enterprise like that, how do you professional value it?

Oh sorry professional, you have no time to waste on amateur! Professional checking on daily and hourly and minutely rumours? But no time to do valuation?

What is the job of professionals like you? Checking rumours?

Posted by shinebright > May 20, 2015 02:13 PM | Report Abuse

>>>kcchongnz

Nobody values a company like that as a whole, given that it has various subsidiaries attached to it.

To get to the value of equity in the company, you will have to subtract out the net debt of the combined companies and the estimated value of the portion of the equity in the subsidiary that does not belong to the parent company. Again, this estimate can be based upon the book value of minority interest or on the intrinsic value of the subsidiaries.


Good that you talk about value. But did I value the company? Or was it RHB which value it?

I am just saying it is not a NBI as it has no FCF from the last three years, basing just on this simple metric. As it doesn't have positive FCF, it doesn't jump out at me as a NBI.

From your last comment, I am not sure whether you know what I mean by a NBI.

So the question now is, how do you value the company. Please show us your valuation in details as you said others are wrong.

Posted by JT Yeo > May 20, 2015 11:27 AM | Report Abuse
FCF is definitely not the best measure, if consider like Amazon, they are plowing all the earnings back in capex to expand their market shares or competitive advantage.

For VS to justify that, you have to trust they have the capability to do the same in increasing their competitive advantage, because to me, manufacturing in the long term there is none.

As for ROE, 6-7% do sounds ok, but you do need to calculate the precise cost of capital to know that in the long term, it will grow itself to bankrupt.

FCF may not be the best measure, yes agree as there are many metrics around, all have their advantages and disadvantages.
The article is about if it is a no-brainer investment. If it is a NBI for somebody, well we have to accept it is only a matter of opinion and we can’t say he is wrong.

But for me it is not a NBI, as my criteria is FCF. I didn’t say it is definitely a bad investment. There may be others metrics to show that it is a good investment, but it is not a NBI.
A NBI is something you don’t need to calculate so much, think so much. It just jumps out at you. For example Maybank provides you with a FD rate of 10%.

Everyone has his own opinion. For example, I can’t agree with you to invest in V.S, I just have to trust the management that they have the ability to increase V.S competitive advantage, as they haven’t shown to me from the last few years’ performance as shown in the article.
I also don’t agree with you that V.S is like Amazon as I think they have totally different business models.

I don’t agree with you that 6% or 7% ROE is ok, because my, yes mine, not yours, required return is 12%. I don’t need to calculate further what the cost of capital is as cost of debt cannot be lower than say 5%. Combine that with cost of equity, the cost of capital cannot be less than say 8% to 9%.

Posted by shinebright > May 20, 2015 11:17 AM | Report Abuse
One must get certain facts right before starting on the calculations. VS Industry's financials are consolidated along with its 44%-owned subsidiary, VS International Group since FY13. VSIG has been loss making for quite a while and mind you, the high level of debt is actually at VSIG level. Hence, when consolidated, of course the cash flow and balance sheet are in depressed shape. It is NO ACCURATE to calculate the CF and items on Balance Sheet when it is consolidated judging from the fact that VS only owned 44% of VSIG. Please get the facts right before such posting.

“Please get the facts right before such posting.”

So who can post articles in i3investor then? All posting must be “Buy, buy, buy”?

And what is your view of balance sheet and cash flow on this consolidation of accounts? Your view please.

Posted by ipomember > May 19, 2015 11:45 PM | Report Abuse

You: PE of 10 is acceptable for me, if you do a calculation of PE throughout few year, PE of 10 is at the top of 5 years range. Having considered V.S fundamental has improved so much in compare to past year, 10 is conservative for me.

Me: What is the E in the P/E? For example last year result, what say you about V.S recognizing the 28.4m as “Effect of acquisition of a subsidiary” as part of the 46.6m of net earnings?


At RM4.22, the present PE ratio is 14 and enterprise value is 21 times operating income. Is that cheap?
reply:how you get pe 14, what year eps are you using?

Me: I am using the latest annual results of 2014. Anyway, can you show us your PE and EV/Ebit. You may use the ttm, forward, or analyst’s 2016 or whatever.


You: you said you train yourself to look at business at businessmen's point of view, but your analysis shows otherwise. What i see is only figures from financial report. How about other qualitative factors? The expertise of the management(one of the top EMS provider in the world)? The integrity of the management? The willingness to share company profit with shareholder and etc etc.

Me: Obviously your point of view about what businessmen think is different from me. My business friends always talk about cash, no cash no talk. Earnings is useless to them if they cannot be converted to cash. You may not like what the financial reports tell you, but I do. They communicate to me how the business is doing. I don’t know how you know the business is doing without looking at the financial reports.
You prefer to listen to what the management tell you? That is your prerogative. I don’t. Integrity of the management? I don’t know. You know more than me. But someone also say something different here:
[Posted by Avocado_C > May 20, 2015 10:50 AM | Report Abuse
The highest paid executive director of VS (not named in the annual report, which should be Datuk Gan, the MD) received about RM5 million during the year, whereas the CEO of Maybank, Datuk Abdul Farid received RM5.4 million of remuneration in year 2014.

For comparison, VS has a market capitalisation of RM850 million and Maybank is the largest bank in Malaysia with market cap of RM87,000 million. Errr ... no matter how "good" VS is managed, I personally don't see a good governance here judging by how the directors (owner) are being paid. Why are these directors getting the first "slice" before the rest of the shareholders? Why are they getting a remuneration of RM19 million vs. a dividend of RM9 million to all shareholders? ]

Top EMS provider in the world? Well I don’t give a damn if it is the top or bottom if it (the cash) is not pretty.
Willingness to share? Share what? The distributions of dividends from borrowed money of the company of which shareholder owns? And the major shareholders taking the big chunk of it?

You conclusion

I would think that V.S industry is involving in an unexciting industry as the CAPEX requirement is high, but somehow the management is capable enough to grow the company. The business will continue to remain tough based on various factors. It is a company that provides manufacturing services to big multinational companies like, Dyson, Sony, Panasonic, Keurig and etc, doing business in a tough industry but the managements able to grow the business. The company also showing record of share buy back throughout the years. Back to the time when i buy this company, it is only value at 280M, a stock traded lower than NTA with good future prospect is certainly a good buy for me. As for now, the private placement is diluting the existing shareholder's ownership, which is certainly not good in short term. But again,stock investment is always forward looking? What is the long term view then? V.S is a cyclical stock and the run up of USD is in favor of it. There are a lot of risks which is out of our control too. At the moment, it is a hold for me.

Me: Share buyback? Money from where?
Tough business? A lot of risk?
When a management with a reputation for brilliance tackles a business with a reputation for bad economics, it is the reputation of the business that remains intact. Warren Buffett

Posted by paperplane2 > May 20, 2015 09:13 AM | Report Abuse
but capex vary year by year, don't you think hard to determine a stable amount?


So look at the FCF for a number of years, for example 5 years. Take for example, if the average FCF for the last 5 years is 100m, and there is a clear trend of increasing FCF, and if the market cap is RM1b now. Then av FCF/MC = 10%

This sound like a NBI for me.

Posted by bintang21 > May 20, 2015 09:40 AM | Report Abuse

Mr Kcchong,

I appreciate you effort in making thing clear and simple for us to learn. thank you very much

regard the calculation free cash flow isn't it sufficient to reflect the company cash position by just subtracting the net cash from investment from the net cash from operation?

I also have the feeling Quick ratio is also a good metric to measure a company cash flow



Some people do that by subtracting CFFO from CFFI. It is not wrong. However, cash flow is about the ordinary or core business of the company, whereas CFFI often contains investment not in the core business. So may not be appropriate.

quick ratio measures the ability of the company to pay short-term debt, after ignoring inventories. It has nothing to do with the cash flow of the company.

Posted by coolio > May 19, 2015 10:15 PM | Report Abuse
My fried whatsapp me, buy VS now..now..!.My remiser told me " This year is VS year" You must buy this stock, buy big. That time the price was traded in the range of RM3.2. When i look at VS financial statement, nothing good really and i decided not to buy. yeah, the price went up to RM4.11 as of today.
Regret?? No I dont regret as I always hold to my value investing principle.


coolio, you have master the psychology of investing very well. Like what Seth Klarman said,


“In a rising market, everyone makes money and a value philosophy is unnecessary. But because there is no certain way to predict what the market will do, one must follow a value philosophy at all times. By controlling risk and limiting loss through extensive fundamental analysis, strict discipline, and endless patience, value investors can expect good results with limited downside. You may not get rich quick, but you will keep what you have, and if the future of value investing resembles its past, you’re likely to get rich slowly. As investment strategies go, this is the most that any reasonable investor can hope for.”

Posted by paperplane2 > May 20, 2015 06:49 AM | Report Abuse
Kc, I found it hard to determine fcf year by year. Simply capexhard to calculate. Can share how to calculate free cash flow, how capes calculated

FCF = Net CFFO - net capital expenses

Net CFFO is obtained as the last line in the "Cash flow from operating activities"

For capex, look at "purchase of property plant and equipment", and less off the disposal of PPE, that is the net capex. This can be obtained from the "Cash flow from investing activities"

For some companies, other stuff like biological assets for plantation companies are also capex, development costs for property companies are also their capex.

This comment is made by someone in the profession and in the industry. It is hard to anyone here to dispute it, in my opinion.

Posted by sense maker > May 19, 2015 10:08 PM | Report Abuse
Tax credit represents benefits that arose mainly from tax losses or other deductible temporary differences of certain subsidiaries which will likely be realized through future taxable income.
Effect of acquisition of a subsidiary refers to accretion (since it is an income) when the subsidiary is acquired in stages. The income is earned at the expense of non-controlling interest in the group.
Both the items are non-recurring.


So out of 58m operating income in 2014, 28.4 is this non-recurring “Effect of acquisition of a subsidiary” thingy. Interesting!

And forget to mention, out of 45m Cash flow from operations in 2014, 61.5m is depreciation write back. Also very interesting.

Again, this may not negate the investment opportunity in this stock. Its two quarters in 2015 appears to improve substantially.

It is just that it is not a NBI. It needs a lot of brain power to fathom it.

Posted by bintang21 > May 20, 2015 03:10 AM | Report Abuse

Mr Kcchong,
Can you please kindly do one on GADANG.it might be a super nbi.
Thank you

If you read the article, a NBI should be a company with consistent FCF and CY of double, triple or more than bank fixed deposit rate.

Gadang has negative FCF the most recent year, so it may appear that it is not a NBI.

But cash flow is volatile every year for most companies, you may like to see the average FCF for a few years.

Just looking at the last two years, Gadang may be good in terms of cash flow with CY of 10%, and you shouldn't rule it out as a good investment if other metrics are good.

xxxx 2015 2014 Average
CFFO -39140 116361 xxxxx
Capex -8380 -5472 xxxxx
FCF -47520 110889 31685


Price 1.63
shares 196691
MC 320606

CY 10%

This is the kind of constructive comments I like. The writer as I can see is a knowledgeable and experience investors. Appended is my response in CAPITAL letter for ease of reference. Please note that I am talking about a NBI, in my context. Also I am just a small time retail investor with limited knowledge and information. But that doesn't mean that I shouldn't express my opinion.

Posted by ipomember > May 19, 2015 11:41 PM | Report Abuse

With no offence, i provide my view on V.S. Please correct me if i am wrong.

First you talk about FCF, please be realistic that not every industry has the luxury to enjoy FCF. The business nature of V.S is capital intensive, they need to reinvest to keep up the pace of the world's growing technology. The owner of the company knew it, those experts knew it, even the analyst who studies in detail also knew it.However, it is proven that the business is generating positive operating cash flow each year, which is more important figure to focus for me in this case.

WE DO HAVE OPPOSING OPINIONS ON WHICH IS MORE IMPORTANT; CASH FLOWS FROM OPERATIONS OR FREE CASH FLOW. WELL, I HAVE ALREADY TALKED TOO MUCH ABOUT THE IMPORTANCE OF FCF IN ALL MY LAST FEW POSTS.

I AGREE WITH YOU FAST GROWING COMPANY REQUIRES A LOT OF REINVESTMENT AND HENCE POOR IN FCF. BUT THINK AS A BUSINESSMAN, DO YOU WANT TO INVOLVE IN A BUSINESS WHICH EVERY YEAR GOT TO BORROW MORE MONEY AND HE HAS TO FOOT IN MORE MONEY INSTEAD OF ENJOYING THE FRUITS OF "GROWTH" BY EXTRACTING OUT SOME MONEY FROM IT?


as for the profit growth, please be noted that the share price of V.S started to move on last year, which is where the profit growth started to accelerate. If you have a closer look on V.S, it is not hard to find that they have spent a lot of money to increase their stake on VSI, which is their subsidiary. The revenue growth is mainly due to the consolidation of its subsidiary, but the profit growth on FY14 is genuine, mostly contributed from malaysia segment due to improved sales mix.Their profit margin is increasing too year on year. If you look on the first half of FY15, you will be impressed. Well, you might be saying that the past year record of V.S is not good enough for you to click the buy button, but i think stock investment is more on forward looking, and if you follow the company closely you will understand why the price is moving up in tandem with good financial result.

TRUE TRUE INVESTING IS ABOUT THE FUTURE. I ALWAYS EMPHASIZE IT TOO. IF YOU CAN SEE THE FUTURE, IT DOES MAKE YOU A LOT OF MONEY.

PROFIT MARGIN IMPROVES YEAR-TO-YEAR? I AM NOT SURE. HERE IS WHAT I GOT.

Year 2014 2013 2012 2011 2010
Gross margin 11.5% 9.1% 12.2% 14.4% 15.2%
Operating margin 3.4% 5.1% 5.6% 6.6% 6.0%
Net profit margin 2.7% 3.4% 2.7% 3.5% 3.2%

PROFIT GROWTH FOR THE FIRST QUARTER FY15 (NOT 14) IS TRUE. IT WAS AN EXPLOSIVE GROWTH TOO. BUT I SELDOM RELY ON A QUARTERLY RESULT. I LOOK AT ANNUAL RESULTS. ITS 2ND QUARTER 15 WAS HALF THAT OF FIRST QUARTER. SO VERY DIFFICULT TO LOOK AT JUST A QUARTER RESULT.

WELL I COULD HAVE LOOKED AT THE TRAILING TWELVE MONTH RESULTS, WHICH THE PROFIT GROWTH IS ALSO EXPLOSIVE. BUT AS I WAS NOT INTERESTED, I DIDN'T WANT TO SPEND TIME ON THAT. BUT YOU COULD BE RIGHT, AS IT WAS SHOWN THAT YOU MADE MONEY BY DOING SO. CONGRATS.

As for the return of equity & capital, of course i would prefer a company with higher return. However, that range of ROE/ROIC is not that bad actually, especially when it shows good prospect in other aspects.

HISTORICALLY RETURN ON CAPITAL OF 6% OR 7% IS FAR FROM SATISFACTORY FOR ME. SO IT IS A MATTER OF DIFFERENT OPINION AGAIN. AGAIN IT IS THE FUTURE WHICH IS IMPORTANT. FUTURE ROC WILL IMPROVED WITH MORE SALES, PROVIDED SALES GROWTH WILL CONTINUE IN THE FUTURE.

As for the debt issue, i have mentioned before. The company is borrowing to increase their stake in VSI, that's why the borrowing amount ballooned. Borrowing money in investment got nothing wrong, especially when it is manageable. If you follow the net gearing ratio closely, it is in decreasing trend. The excellent result posted on FY15 even drive down the ratio a lot. (if you dont mind can compare FY15 with FY 14 net gearing ratio)

BORROWING MONEY FOR INVESTMENT GOT NOTHING WRONG? OF COURSE, THAT IS WHY COMPANIES GO PUBLIC LISTING, TO TAP ON PUBLIC FUNDS. I AGREE IT IS NOTHING WRONG, PROVIDED THAT YOU EARN A RETURN HIGHER THAN YOUR COSTS, AND HAVE THE CASH TO PAY INTEREST PAYMENTS.

GEARING RATIO DECREASING TREND? I DON'T SEE IT AS SHOWN FROM WHAT I HAVE COMPUTED BELOW.

Year 2014 2013 2012 2011 2010
D/E 64% 61% 34% 33% 43%

YOU ARE RIGHT FOR THE SECOND QUARTER 2015. D/E HAS BEEN LOWERED SUBSTANTIALLY TO JUST 45%. WELL DONE.

BUT THAT DOESN'T MAKE IN A NBI IN MY CONTEXT.

coolio,

MFCB was one of the stocks in my portfolio set up on 1st August 2013, less than 2 years ago.
http://klse.i3investor.com/servlets/pfs/19386.jsp
At RM1.71, or market cap of RM414.5m then, and FCF of 2012 at 103m, the CY was 25%. With that CY, how could it go wrong? How can it not be a NBI?

MFCB's share price has risen to RM2.42, or a gain of 42% in less than 2 years, against the rise of KLCI of about 10% during the same period.

Now although its share price has risen, its FCF has dropped to RM55m. At the present price CY is 12.8% as computed by you is still very high.

Yes, I think it is still a NBI.

Posted by coolio > May 18, 2015 11:50 PM | Report Abuse
How about Magni-Tech?
Below shows the FCF for the last 3 years
Year ended 31/3/11 2014 2013 2012 2011 2010
CFFO 43169 29235 36197
Capex -6408 -4322 -4273
FCF 36761 24913 31924
FCF/Revenue 5.6% 4.4% 6.0%
CFFO/NI 103% 82% 118%
The average FCF for the last three years is 31.2m with the last year FCF at 36.76m. We take the average of last three years' FCF.
At RM3.40 closed today, and no. of shares 108.5m, CY = 31.2/108.5*3.40=8.46%. This CY is twice you can get from bank FD. Moreover, it has clean balance sheet with a lot of cash in the balance sheet and with zero debt. Looks like a NBI to me.
Price 3.40
No. of shares 108488
Market cap 368859
Av FCF 31199
CY 8.46%


coolio,

Remember we talked about Magni-tech here a year ago:

http://klse.i3investor.com/blogs/kcchongnz/51356.jsp

Magni's share price was just RM2.69. Its FCF in 2013 was 23m. With the no. of shares at 108m, its CY was 12.3%! At that time, it was a NBI. One year later now, it is RM3.41, or a gain of 27% against almost a flat KLCI.

Now although its share price has risen its FCF also has improved a lot to RM36.8m. At the present price and the average 3-years FCF, your computation of CY of 8.5% is still very high.

Yes, I think it is still a NBI.

Nobody wishes to share any NBI here?

Let me start with one, Homeritz.

Below shows the FCf for the last 5 years

Year ended 31/3/11 2014 2013 2012 2011 2010
CFFO 29637 18647 20071 4395 16785
Capex -1766 -982 -1146 -8090 -1953
FCF 27871 17665 18925 -3695 14832
FCF/Revenue 21.9% 15.6% 18.3% -4% 13%
CFFO/NI 122% 104% 120% 40% 84%

The average FCF for the last three years is 21.5m, with the last year FCF at 27.9m. We take the average of last three years' FCF.

At RM1.21 closed last week, and no. of shares 200m, CY = 21.5/200=8.9%. This CY is twice you can get from bank FD. Moreover, it has clean balance sheet with a lot of cash in the balance sheet and with zero debt. It also has high cash return on invested capital CROIC of 50% lat year. Looks like a NBI to me.


Price 1.21
No. of shares 200000
Market cap 242000
Av FCF 21487
CY 8.9%

Posted by NOBY > May 17, 2015 04:07 PM | Report Abuse
KC, would fcf/ev be a better metric ? Since free cashflow is derived from cashflow from operations, we should deduct the excess cash as it doesnt earn anything.


If you look at most cash flow statements to obtain net CFFO, interest earned has been taken off from it (a few may not), and hence the net CFFO and hence FCF belongs to common shareholder only. So the denominator in the cash yield formula must be consistent, i.e. it should be market cap, rather than EV.

You can of course convert that net CFFO belonged to common shareholders to the CFFO for the firm, then you use EV as the denominator to be consistent. But conversion of net CFFO to CFFO for the firm involves some tricks as you know, it would be a little complex for normal investor. Do not forget that EV calculation can also confuse them.

So keep it simple, CY as computed in the article, in my opinion, is good enough, and it is easy to compute. That is more important.

For us, of course we can do it both ways.

Posted by apini > May 17, 2015 02:51 PM | Report Abuse
Mr KCChong,

I will add CY> 4% into my selection criteria.

thank a lot



Apini, Good judgment

Posted by anticonman > May 17, 2015 10:06 AM | Report Abuse
kcchong please read below article. Do you have the qualification for people to follow you? This forum does not belong to you only.
http://klse.i3investor.com/blogs/kianweiaritcles/76689.jsp

Are you from Bank Negara or SC wanting to check my FAR or CMSRL licenses? Or from the education department who wants to check my CFP, postgraduate degree in business administration, and Master in Finance Certificate?

Well I can tell you the above are not much use in real life investing.

Or do you want to find out the above so that you can consult me? Well I don't think you can afford it.

Do I ask people to follow me? Or I ask people to give me tips instead as in the post so that I can follow them?

This forum doesn't belong to me? Of course not! When did I say it belongs to me? Or does it belong to you?

Well do you have anything wrong to point out from my posts? I would love that as I learn a lot in that way along the years.

Posted by bluefun > May 17, 2015 12:41 PM | Report Abuse

Hi Mr. KC, thanks for your good article. May i know how to calculate the net capex? Please share with us your formula.

Net capex = purchase of PPE - disposal of PPE

Posted by The One > May 15, 2015 01:12 AM | Report Abuse

l|[•]|l Excerpts from many sites and also my own views: Malaysian bourse used to be an exciting place to invest but that was in the past and not anymore. Bursa failed to curb predetermined fates of counters.. corrupted analysts.. published rumours that later faded away or denied.. mainly controlled by syndicates and and their heaven for money laundering and squeeze money from our coffers.. thus.. exit while you can and dont fall trap to them and your egos •

l|[•]|l Farewell Bursa Malaysia •


I have shown again and again that value investing works, and it continues to work, and it works very well, extremely well I would say, despite of all what you have mentioned.

The trick is do not fall into their tricks. Play your own game, in your own field.

Learn some fundamentals of value investing. Learn how to fish. Don't eat rotten fish thrown to you.

There ain't no fairy in Bursa.

Posted by 爱丽丝 梦幻世界 > May 14, 2015 11:30 PM | Report Abuse
kcchong, u are right. i agree "business important"! Appreciate ur post & i learn a lot from u. still remember last time: Stocks less than 50 sen but not too bad as investment?

Alice, you brought back my memory here.
http://klse.i3investor.com/servlets/discuss/167643.jsp

Congrats Alice. Your portfolio return 162% from 1/1/13 to 14/5/15, amazing. Better than the KLCI of 13.5% during the same period. You did it your way. Below is your result, fantastic. It is better to discuss and share isn't it? Rather than throwing shit around like these three guys below, or one guy?

1/1/2013 14/5/2015
Stock Name Ref Price Adj Price Price now Change %change
NTPM 5066 0.450 0.410 0.720 0.310 68.9%
Inari *0166 0.395 0.360 3.360 3.000 759.5%
Keladi 6769 0.215 0.210 0.290 0.080 37.2%
PWRoot 7237 1.170 1.110 1.720 0.610 52.1%
SKPRes 7155 0.350 0.330 1.010 0.680 194.3%
Cheetah 7209 0.490 0.460 0.490 0.030 6.1%
Pantech 5125 0.675 0.610 0.730 0.120 17.8%

Average 162.3%
Median 52.1%
KLCI 1675 1579 1805 226 13.5%





Posted by iafx > Jul 31, 2013 11:27 AM | Report Abuse
si-tipu-roti-canai, don't copied and modified other's comment again, ok?! enjoy your 38%.... hahahahahaaaaaaaa....


Posted by donfollowblindly > May 12, 2015 09:21 AM | Report Abuse
Newbie a lemon pick from kcchong which is total gone case in just 9 months ago. Stocks indicated in the above blogs is not totally gone case some may take longer time to recover.
http://klse.i3investor.com/blogs/kcchongnz/58905.jsp


Posted by truthseeker1 > Oct 18, 2014 08:53 PM | Report Abuse
Maybank C6. Recommendation time 10.5sen. Now 4.5sen Loss 6sen. If follow KCChong advise to invest 960,000shares at 10.5sen, Maybank C6 value will drop to RM43,200 a loss of RM57,600 in less than 2 months. Stock market is not a place for fun(last paragraph), genting casino or gambling is. KC why so quiet on this blog?

Posted by truthseeker1 > May 14, 2015 08:45 PM | Report Abuse
As usual bias is prevalent in his blogs. Why only his counters got cash?

Oh, that is the way you digest an article. Strange.

Never mind, can share with us your counters with goo cash flows from operations and free cash flows ah?

Posted by YiStock > May 15, 2015 12:25 PM | Report Abuse

Mr KC, "High return of capital" different from " high return on marginal capital"?

Marginal capital is earnings retained for the next year. If that retained earnings can made return higher than the cost of capital in the following year, then it is good as it is a wealth maximizing action by the management.

The easy way to look at it is to see if the return on capital is increasing year after year. This is not an easy feat. Moreover, the past may not represent the future.

Posted by YiStock > May 15, 2015 10:33 AM | Report Abuse
Mr KC, any general guide on "Cash per share" a company should reasonably retained/maintained in order to optimize the opportunity and risk? Thank you

My rule is if a company has high return on marginal capital and has good opportunity for reinvestment opportunity for growth, it should retain as much as possible its earnings for growth.

On the other hand, if a company has no opportunity for growth, whatever it earns should distribute all to its shareholders, even if it has high return on capital.

Posted by NOBY > May 15, 2015 08:46 AM | Report Abuse
Very true... very seldom you see analysts talking about cashflow or measuring a company from the health of its cashflow...

Perhaps one of the reasons why analyst don't talk about cash flow is probably they think the message won't be properly disseminated anyway. Just read the posts below. Despite a lengthy writeup by me on what cash flows are, they talk about completely different thing.

But if one wants to invest successfully in the stock market, investing in a piece of any business, I think you must think like what businessmen think. Don't you agree?



Posted by sephiroth > May 14, 2015 08:49 PM | Report Abuse
Mmode = CASH IS KING co.
Total shares 162.7095m
Total cash 27.6 sen per share (44.907m/162.7095m)
Total borrowings puny 1.07 sen(1.747m/162.7095m)

Posted by chrisyap > May 14, 2015 10:21 PM | Report Abuse
yes yes mmode is cash rich ! kiki

Posted by CCCL > May 14, 2015 10:51 PM | Report Abuse
Eksons have more than 70cts cash per share, sadly directors too stingy :(

Posted by truthseeker1 > May 14, 2015 10:53 PM | Report Abuse
Perhaps stingy people likely to have a lot of cash. What are Bursa stingy counters?

Posted by YiStock > May 14, 2015 09:26 PM | Report Abuse
1) which figures is more reliable to use? certain company has high portion of forex gain/loss against NOPAT, year in year out, making the comprehensive income especially high.

Me: I always view foreign exchange gain/loss as a one-off item and it is not representative of the performance of a company. Foreign exchange rate goes up and down every year at random and unpredictable. I would ignore that, including other one-off items such as revaluation of land, gain/loss of disposal of an investment etc.

2) do u consider to use comprehensive income if forex play big role on company 's day to day biz..or strictly to look on NOPAT still.

I only use NOPAT or net profit.

Posted by donfollowblindly > May 12, 2015 09:21 AM | Report Abuse
Newbie a lemon pick from kcchong which is total gone case in just 9 months ago. Stocks indicated in the above blogs is not totally gone case some may take longer time to recover.

http://klse.i3investor.com/blogs/kcchongnz/58905.jsp


I really pity this donfollowblindly but he followedblindly on Maybank C6 which I was educating people to beware about the doubled edged sword of leverage in call warrants above.

I really think it is good to read my post above to learn about the peril of punting in call warrants and how one should use it as financial risk management, rather than punting, but don't follow this donfollowblindly and punted and lost his underwear.

Look at all these posts here:

http://klse.i3investor.com/servlets/cube/post/donfollowblindly.jsp


Half of those comments are followblindly on those stocks which were written by me for sharing of knowledge, not recommending for buy or sell. And you know what, these are probably just a few percent of those stocks I wrote. He didn't manage to folowmeblindly to buy any of over 90% of those stocks which were written by me and made money, many of them big big money.

This is really a six sigma event. Poor soul donfollowblindly.

Posted by donfollowblindly > May 12, 2015 08:59 AM | Report Abuse

What is the purpose of this blog? Don't follow Cold Eye(for free) and follow KC Chong(for a small fee)?


Great question.

If you followed blindly the portfolio dated three years ago put up by someone here for free:

http://klse.i3investor.com/servlets/pfs/6736.jsp

You lost 8.8% compared to the gain of 26% of KLCI.

If you follow what we discussed in i3 two years ago, harnessing the wisdom of ColdEye, you got a return of 186% compared to 18.5% of KLCI

http://klse.i3investor.com/blogs/kcchongnz/75946.jsp

So donfollowblindly, which was a better option on hindsight? To think that there is this free thingys in Bursa and underperformed badly, or to pay a small fees to learn the art of investing and build long-term wealth confidently?

Posted by comingsoon > May 11, 2015 07:43 PM | Report Abuse
If you think many of what you posted are irrelevant, why spend so much time to include them in your title and article?
Maybe a better title for this article is "Musing on the WRONG ColdEye Stocks Portfolio (but it doesn't matter because it is not relevant) kcchongnz"
Unfortunately, it matters. You are showing us the wrong data for your "illustration". It is like showing us an elephant and try to illustrate how a giraffe looks like.


Well, we certainly have different purpose in this topic here: This is what I have said.


" You can see the degree of respect I have for Mr. Fong. I even used his principles successfully in investing as shown. So there is no reason for me to ridicule him. In fact, Mr. Fong is one of the very rare local investors with logical and fundamentally sound reasoning I have great respect on.

http://klse.i3investor.com/blogs/kcchongnz/75946.jsp

Rather I am putting forward my constructive criticisms, may be on hindsight, on the stocks in his portfolio for discussions purpose. Anyone is welcomed to criticize me too on my comments, of course preferably with some logics, facts and figures, rather than personal attack without any substantiations."


You can see the purpose is to discuss on the stocks in his portfolio, just for discussion purpose. A discussions of whether each of those stocks are good companies and at good price, and whether they are good investments, albeit at hindsight. In another words, a learning experience. Most of my articles in i3investors are of this nature.

Read the conclusion of the article again on "Lessons for investors". I really thought there were some good lessons learned.

Yes, what price he bought and sold, I do not have interest, but merely based on a date when the portfolio was posted by someone else. Ok ok it is relevant to you. That is fine with me.

Your interest seems to be to know what price he bought and sold, how much he made etc. Like "The story of a successful investors". How good he is buying cheap at x price and sold high at y price. Well it is a different interest. May be you can write another article to show us those data. Be my guest.

Posted by NOBY > May 10, 2015 11:44 PM | Report Abuse
bsngpg, perhaps what KC is trying to illustrate is the perils of someone buying blindly into the cold eye portfolio from the reference date in 2012. As you said no one will know what is his cost until he announces it or it appears in the annual report. Nobody will also know when he takes profit or cuts loss. The purpose of this article is to analyze the lessons that can be learnt from those stocks that were winners and losers in the time period mentioned.

Posted by ks55 > May 11, 2015 09:27 AM | Report Abuse
Give due respect to senior especially the one who has proven track record, but don't follow blindly. Don't worship a human as if he is god. Nevertheless, he has good investment principles that we can learn from.
kcchongnz rightly pointed out having different opinion does not amount to slander on a super investor in Malaysia.


Some see the trees only, but the two people above can see the forest.

Posted by sense maker > May 10, 2015 10:24 PM | Report Abuse
Lesson: past success does not guarantee future achievement- on shares, investors and many other things in life.

Great comment from sense maker.

That is one of the various messages the article intends to pass on, not what price ColdEye bought which shares, when he bought and when he sold, and how much he made or lost. Are these stuff relevant to us?

Posted by Tan KW > May 10, 2015 07:04 PM | Report Abuse
"In Bursa, there ain’t no tooth fairy" - why there is two negative there - "ain't" and "no".... wouldn't 2 negative offset each other and become positive?


The saying came from the movie show "A million ways to die in the West". The actual saying is ""There ain’t no tooth fairy, idiot!"

Unfortunately this is not asthmatics; two negatives make a positive.

What it means, it is a jungle out there in Bursa. Trading in Bursa is a zero sum game. If I find a stock is so good and I want to buy it, and buy more of it, I won't tell you to buy it before I have bought enough and am ready to sell it. There is no such thing as I am so noble that i want you to make money from the stock market, by telling you to buy it. It is noble act if I donate money to the poor, but making other to make money by speculating in the stock market a noble act?

For God sake, stop telling newbies to use margin finance to buy stock. Imagine if they have listen to your others stocks which have gone down by 50% or even more before, what would happen to them if they have use margin financing?

Posted by Tan KW > May 10, 2015 06:47 PM | Report Abuse
hi kc, i have not update cold eyed holding for a period of times....
you can refer to boonlee77's Portfolio http://klse.i3investor.com/servlets/pfs/31055.jsp for latest cold eyed holding.


Posted by kcchongnz > May 10, 2015 06:55 PM | Report Abuse X
TAn KW,

Thanks. But it doesn't matter. The portfolio dated 12th March 2012 is used just as illustration the uncertainties and unpredictability in investing and for learning and discussions purpose.

“A cynic is a man who knows the price of everything, and the value of nothing.” ― Oscar Wilde


A smart man makes a mistake, learns from it, and never makes that mistake again. But a wise man finds a smart man and learns from him how to avoid the mistake altogether.
Roy H. Williams

Posted by bsngpg > May 10, 2015 11:05 PM | Report Abuse

"In the very first place you have used wrong data of his entry prices. In fact no one know what were his actual entry prices. At least I knew he asked me(indeed everybody thru newspaper) to buy Zhulian when it was somewhere <0.90. And his Zhulian was indeed almost zero cost if you adjusted it with div and bonus. If I remember correctly, he recommended cepat at somewhere 0.70, Plenitude(~1.5), MBSB(~1.2) etc all at much lower prices than your data. Yet all of them were original prices before adjustment for div, bonus or right."


Me: Please read what I wrote about in the article. I was referring to a portfolio set up by someone using the stock prices "arbitrary" fixed on 12th March 2012. Did I say that is ColdEye's portfolio with the entry prices as shown? Is the article talking about ColdEye lose or made money the last three years? What is the purpose of this article. to show you that ColdEye lost money in his investment,or is it about what one should care about when investing?


"The best you may say is that the value of that portfolio shrinks by 8.8% from 2012 to 8May15, but then another fault is that how do you know he did not take profit along the years."


Me: Again does the article meant to track ColdEye's wealth, or
"Rather I am putting forward my constructive criticisms, may be on hindsight, on the stocks in his portfolio for discussions purpose."

"How do I know if he did not take profit?"

Obviously I don't know. Who tracked him and knew about them? But is the article about that?


"Selective and with what criteria ?
How about his other counters with return in multiple folds such as GTronic, Tambun and apple PIE etc? The pertinent question here is how good your quoted portfolio represents his actual performance. Therefore another fault here is the setting up of the above portfolio which is neither inclusive nor representative.

Therefore I am sorry to have an opinion that this time your discussion and lessons cannot hold water because they are based on inaccurate data."


ME: Please read carefully again what the article is about. I didn't set up the portfolio. I don't think it is considered "selective" either as I just used that portfolio set up by someone with the arbitrary prices in total. I didn't set up his portfolio.

His other counters? Sorry I didn't track his shares investments.

As an individual, I do make mistake such as using wrong data, wrong analysis, plenty of them, I believe.

No need to be sorry to have a different opinion. This you must have if you want to be successful in investing. This article also shows that all investors should have their own opinion, otherwise investing in the stock market is a very hazardous thing to do.

TAn KW,

Thanks. But it doesn't matter. The portfolio dated 12th March 2012 is used just as illustration the uncertainties and unpredictability in investing and for learning and discussions purpose.

Posted by Kai Yee Tan > May 10, 2015 10:23 AM | Report Abuse
Hi, KC...May I know how u find the value for the Reinvestments? Thanks.


Reinvestment rate is estimated from sustainable growth and return on capital as shown in the article.

Another good article explaining what value investing is, and why it should work in the link below.

http://klse.i3investor.com/blogs/kianweiaritcles/76070.jsp

Posted by Ny036 > May 6, 2015 09:49 AM | Report Abuse
DJ seem no direction up or down. Maybe waiting clue of interst rate hike.beurope down. China bull market over? Malaysia politic problem? Will there market crash soon? All this factor also will the determine entry time n price beside company performance n foundation.



“As an investor you want to spend very little time on forecasting the weather (that is, what the Fed will do with interest rates next month or the rate of growth of the economy),” Katsenelson

Posted by truthseeker1 > May 6, 2015 04:51 AM | Report Abuse
Base on this blog one should buy Prestariang? No wonder someone trap buying Plenitude.


Yeah, shouldn't you buy when the portfolio was put up on 21st January 2013 when its adjusted price was 48 sen? You would have made 421% in just two years like I did.

As whether you should buy now, may be you can advise the people here, why buy, and why not. After all you are a truthseeker, and someone seeking the truth and nothing but the truth all the time, aren't you. no.1 truthseeker some more. No, your advice is not for me.

As for Plenitude. Not bad return what. The return was 36.3% in two years, as compared to the 16.4% of the broad market. What is the problem? Can tell us your reasoning ah?

Yeah, really good article, and worthy of thinking over it.

Posted by tc88 > May 3, 2015 11:48 PM | Report Abuse
Thanks for sharing KC. MBL fundamentally is strong but wondering why its net profit dropping from year to year, hope to get your view KC? Thanks.
Salary for Exe.Director
2011= 3.2Million
2012= 4.1 Million
2013= 6.2 Million
Is this the reason higher expenses and reduce in net profit?


MBL's business reached its peak in 2012 and has seen deteriorating, very fast. This results in its ROIC deteriorated to 7%, even below its cost of capital. Revenue dropped from RM79m to less RM46m. Net profit reduced by a big amount from RM17m in 2012 to less than RM4m last year.

Small company subject to economic change, lower palm oil prices, cyclical business etc.

The amount the directors take is more than what that is due to all shareholders. Not credible management.

A lesson here, cyclic business cannot grow forever and the power of mean reversion is real. So never overpay for anything hoping the business will keep on growing at fast pace forever.

I have long ago given up hope for this type of company

Posted by donfollowblindly > May 3, 2015 10:38 PM | Report Abuse

His latest stock pick Elsoft not included above.
http://klse.i3investor.com/servlets/forum/600075038.jsp


My article above discussed about those stocks asked about by i3 forumers in May 25 2013, and their performance two years later which is now. The article on Discount cash flow analysis on Elsoft mentioned by you was shared by me on April 17 2015, two years later.

So what is your point you are trying to convey here, donfollowblindly? Please elaborate.

Posted by donfollowblindly > May 3, 2015 09:35 PM | Report Abuse
RM1.91 now RM1.79 lose 12sen or 6.3% loss in 2weeks.


The article seems to be discussion how to estimate free cash flow, how to estimate discount rate, and do a discount cash flow analysis and reversed discount cash flow analysis, using Elsoft as an example.

Why do you talk about Elsoft's price two weeks ago and now? Anything interesting in investing in a two weeks period? What is your point?

Btw, do you have anything to comment on the estimation of discount rate, future free cash flow etc in the article, I mean constructive criticisms which you would like to share with everyone here?

Or the only thing you can mutter is price, price one hour ago, one day ago, or two weeks ago? So superficial knowledge you have ah?

Posted by donfollowblindly > May 3, 2015 10:38 PM | Report Abuse
His latest stock pick Elsoft not included above.
http://klse.i3investor.com/servlets/forum/600075038.jsp


My article discussed about those stocks asked about by i3 forumers in May 25 2013, and their performance two years later which is now. The article on Discount cash flow analysis on Elsoft was shared by me on April 17 2015, two years later.

So what is your point, donfollowblindly? Please elaborate.

On 25th May 2013, if there is anybody who asked me about Elsoft, I would have asked him to buy buy buy.

Its adjusted price then was 44 sen. At Rm1.78 now, the return is 305% in two years. RM100000 investd in it would become RM400000! What say you, donfollowblindly?