Made a few hundred for LBS too(Unfortunately not LBS Wb). Good for a Angus steak meal for my family.

Made a few hundred ringgit from GOB. Enough for a nice Japanese marakase meal for my family.

Posted by bsngpg > Aug 6, 2013 08:15 PM | Report Abuse
大佬：I am really a non financial guy. Frankly speaking, I hv this stock in my database since months ago, but it is not in an active list. I have a reason to keep it in cold storage. Then how, do u want me to throw spanner into KC's each recommendation and become a two faces bad guy who pours cold water while on the other hand benefiting from his hard work? This time I choose to be silence. Thks

If I only want praises I might as well join a cult. Once I joined a forum. I read about people there all praising about a couple of stocks which in my opinion (which could be wrong) that those are rubbish stocks. So I placed my genuine personal comments that those stocks are not as good as they think. I provided them with my financial statement analysis, the doubts I had about their business models, and the suspect I had in their financial statement, and my negative comments about those stocks. Guess what I got in return? Some of them scolded me of "pouring cold water" and angry fight with me. Guess what? those stocks are still in doldrums while the KLSE and other good stocks have gone up handsomely.

Nobody there is interested in what I wrote about fundamentals of investing. All are interested which stock is going to be fried, to go high etc, which i know nothing at all. Everybody is so nice to each other. No opposite views. And see what is the consequence.

Pathew, somebody just asked my opinion about Keck Seng yesterday.

Posted by kcchongnz > Aug 6, 2013 04:34 AM | Report Abuse X

Posted by choolooi > Aug 5, 2013 10:11 PM | Report Abuse
Kcchongnz , could you please check Keck Seng ?

Keck Seng is a deeply undervalued stock. However, the major shareholders don't treat minority like partners. they don't have the record of sharing with others.

Posted by kcchongnz > Mar 6, 2013 03:37 PM | Report Abuse X
Keck Seng is an asset play. It's NTA is RM5.10 made out by RM3.46 of hard cash. Besides other valuable assets which book values of 65 sen per share is much lower than the current value such as land held under development and investment properties. Hey, I have not talked about its property, plant and equipment, Property development costs, inventories, receivables etc of about 800m yet. Whereas its total liabilities is only 108m. It is definitely a Graham net-net counter. Besides it has a profitable palm oil manufacturing work and plantation, property development, hotels etc and other business which are doing quite ok with positive free cash flows. It has about RM1.00 per share dividend which is tax imputable and has to be given out by this year. It seems it won't go wrong investing in this stock at current price now (RM4.22). You don't have to follow me.

Posted by plumberii > Aug 6, 2013 07:06 PM | Report Abuse
Informative and interesting. Thanks.
AA
Interested to know whether the sales and EPS growths in the past 5 years have been on steady increase. Bingo if they are.
BB.
I got different CAGR (12, 14 & 17), maybe something wrong with my formula (Xlast/Xfirst)^(1/no of years) -1. Please help.

Below is the seven-year revenue and profits of CIBP posted by me earlier on.

6-yr 5-yr
Year 2012 2011 2010 2009 2008 2007 2006 CAGR CAGR
Revenue 520351 322611 270893 331468 409903 289819 228811 15% 12%
Profit from operation, EBIT 88878 49910 40363 60422 68146 50462 35829 16% 12%
Net Income 91775 69515 50237 42304 62933 46710 31474 20% 14%


If you take my data, the 6-year CAGR were correct at 15%, 16% and 20%. 6-yr CAGR you have to compute using 2012 and 2006 data. for 5-yr CAGR, you have to take the 2012 and 2007 data, and mine are 12%, 12% and 14%.

If you look at my data, the growth is not steady each year. There was a drop from 2006 to 2009 before the US sublime crisis. but the interesting thing is it is recovering since then.

For for computation of growth, it is good to take a complete economic cycle, and the 7-year data I posted may be a good representative. And the 6-year CAGR is as what I have posted, which is good enough for me. In fact I have been saying out of the 4 factors, growth consideration ranks the lowest for me.

TAnKW. I have posted my sixth stock in the regular thread. thanks.

bsngpg,
I just went to read the profile of directors in annual report. As you did not specific your concerns, I couldn't guess what you meant. So can't put forward any more opinion.

As for your second message of would I want to invest in Fibon's business as it is located in far away from Kluang. Not a concern for me. All companies i have invested are thousands of miles away.

Regarding your second post regarding 5 stars counters to invest, yeah they are good. But my strategy may be different. In order to strive to earn extra-ordinary return, I have to try to find some good companies which have not been followed by everybody yet, and fund managers have not put them into their portfolio yet, and hence their share prices have not fully or overvalued yet.

Every investor is different. But anyway, as we have said before, there are thousands of other stocks in bursa to invest.

CBIP
I just went through some announcements in Bursa regarding CBIP. It has recently secured a number of contracts for supplying of equipment and engineering works for a number of palm oil mills, supply, deliver, install, test and commission of Prime Mover vehicles, manufacturing of transportation and construction equipment, concrete moulds and general engineering fabrication for a number of clients at home and abroad in Columbia, Guatemala. Is CBIP going to make a lot of profit from these projects? Is CBIP a good company to invest in? If so is the present price right to enter?

For me to determine if I want to invest in a company, I look at four important aspects; durability, quality, value and growth, their importance roughly follow that order.

Durability
A durable business is likely to exist still and still be doing the same thing many years in the future. Palm oil and palm kernel oil are among the world’s most versatile raw materials for a variety of consumer products such as margarine, cereals, crisps, sweets and baked goods, to soaps, washing powders, cosmetics and also in animal feedstuffs and as a bio fuel. As CBIP is mainly tied to the palm oil industry, we would expect the business of CBIP will last for many years to come.

Quality
There are a lot of ways to measure business quality. I tend to look at the margins of the business, the return of capitals, and cash flows, all are of equal importance to me.

The margins of CBIP have been reasonably high and most of all considerable consistent throughout the last cycle of 5 years. Average gross margins is good at 22%, and operating and net profit margins great at the mid to high teens (See Table 1).

The ROE is great, averaging about 21% and achieved through the high net profit margin and little leverage. With more contracts in hand now and hence a higher asset turnover, its ROE will likely improve further. Its ROIC is fantastic, averaging 20% for the last 5 years, 29% for last year. this is more than twice the costs of capitals.

The quality of CBIP’s earnings is good too with cash flow from operations about that of net profit. Free cash flow were abundant at double digit percentage of revenue and invested capital. There is plenty of free cash flows each year for it to distribute annual dividends, and carry out some other investments to enhance shareholder value. CBIP has been enhancing shareholder value for all these years as shown in Table 2 below:

Table 2: Change in book value plus dividend
Year 2012 2011 2010 2009 2008 2007
Change in book value 0.892 0.675 0.289 0.222 0.297 0.252
Dividend 0.55 0 0.048 0.048 0.048 0.017
Change in BV+dividend,RM 1.442 0.675 0.337 0.270 0.345 0.269


Last year, dividend distributed plus the change in book value amount to a whooping RM1.44, more than half its present share price of RM2.84. Other years were consistent and bad at all when comparing with the share price.

Growth
I normally do not pay too much emphasis on growth. I hope to buy a stock which comes with growth potential for free. This is because rosy growth projections often do not come true. Looking at Table 3 in the appendix, it does show that there were good growth for CBIP for the last 6 years. Weren’t there?

CBIP’s revenue and earnings grew steadily in the last 6 years. Revenue of continuous operations grew at a compounded annual growth rate (CAGR) of 15%, from 229m in 2006 to 520m last year. Earnings before interest and tax (EBIT) grew in tandem from 35.8m in 2006 to 88.9m last year. Net income grew even at a faster rate of CAGR of 20%. Though this is history, with the recent contracts secured, it is likely that this growth will continue for some time.

Value
With such good performance of CBIP and the proof of shareholder enhancement for the past 5 years, one would expect CBIP to trade at a reasonably good market valuation. But is it?

At the present price of RM2.84, CBIP is selling at a PE ratio of 7.7. The enterprise value is just 5 times Ebit, way below my 8 times maximum. This is equivalent to an earnings yield of 20% (>>10%), Hence the price of RM2.84 is not expensive at all.

I have added more CBIP shares into my portfolio. This is the 6th stock in my portfolio.

Table 1: Quality business of CBIP
Year 2012 2011 2010 2009 2008 Average
Gross margin 20% 22% 23% 24% 21% 22%
Operating margin 17% 15% 15% 18% 17% 16%
Net margin 18% 22% 19% 13% 15% 17%
ROE 19.5% 20.4% 18.2% 17.3% 27.8% 21%
ROIC 28.9% 28.4% 9.8% 14.7% 17.4% 20%
CFFO/NI 42% 98% 133% 153% 73% 100%
FCF/Revenue 7% 18% 10% 14% 3% 11%
FCF/IC 14% 34% 7% 13% 4% 14%

Table 3: Growth in revenue and earnings for CBIP
Year 2012 2011 2010 2009 2008 2007 2006 CAGR
Revenue 520351 322611 270893 331468 409903 289819 228811 15%
EBIT 88878 49910 40363 60422 68146 50462 35829 16%
Net Income 91775 69515 50237 42304 62933 46710 31474 20%

Tan KW, yeah I have read your posting on this. Thank you for the good article.

I wrote my piece on Haio just based on my own thought without reading any articles about Haio from any analysts. Reading the above posting by you, it appears that my thought was very similar to that analyst. I didn't have information about that part on potential higher dividend payout though.

有一句福建话“莺莺美黛子”就是“闲闲无事做”的意思

Based on the above, my interpretation is 莺莺美黛子 is a kind of stock which after you invested in it, you don't have to do anything; nothing to do. It means that you just wait for the ugly duckling to become a beautiful swan. It needs time though.

No need to look at its stock price everyday. Worry about stock price going down. Worry about it going bankrupt and apa macham worries.

“众里寻他千百度，蓦然回首，那人却在灯火阑珊处。”

Will this little known Fibon our

“莺莺美黛子”?

tonywong, borrow from OTB,

FA+TA=investment success. Hopefully.

I hope bsngpg shares with us his concerns about Fibon.

This is my personal assessment of Malaysian unit trust funds. To my surprise, they did pretty good as a whole.

Is it a good idea to invest through unit trusts? Which local equity fund is the best?

Once I asked a forumer who has been posting unit trust funds in i3investor what is the average and median CAR of the unit trust funds in Malaysia. He came back and asked me what CAR is. So I have no choice but to go to the Fundsupermart website myself and compiled and tabulate the compounded annual return (CAR) of the equity funds invested in KLSE for the 1, 3 and 5 years.

From the website, there are a total of 68 local equity funds investing in the KLSE. The average 1-year average and median return is both about 15%, 3 years 12.2% and the 5 years 11.6% as shown below:

Table 1: Fund performance in %
Years 1 3 5
Average 15.2 12.1 11.7
Median 14.9 12.3 11.6
Stdev 5.2 3.8 3.5
No.>KLSE 55 51 49
81% 75% 72%
Max 28.5 22.0 20.8
Min 3.6 3.6 4.0
KLSE 10.80 9.90 9.30

How is the past performance of the funds as a whole? My opinion is they did pretty well. The average returns of the unit trusts outperformed KLSE for all holding periods of 1-year, 3-year and 5-year by 4.4%, 2.2% and 2.4% respectively. 81% of the unit trusts outperformed KLSE for 1-year, and 72% for the 5-year. Even if one invested in the worst performer, he still earns more than the fixed deposit, assumed to be about 3.5%. Wonderful! I think I should make some observations as below:

1. The stock market, especially Bursa Malaysia, is far from efficient.
2. The fund managers in Malaysia are better than those from the US as research has shown that US fund managers under-perform the broad market as a whole. But it could also be due to the inefficiency of KLSE that enable them to out-perform.
3. The performance of the good fund manager are pretty consistent too. For example, Philip Capital Master Growth Fund is the No. 1 for the 1-year return of 28.5%. It also did pretty well for the 3-year and 5-year return of 18.4% and 20% respectively. Similar consistency is shown by the top fund for the 3-year, Kenanga Growth Fund at 22%, and MAAKL-HDBS Flexi fund for the 5-year as shown in Table 2 below.

Table 2: Top fund managers, % CAR
Year 1 3 5
1-year PC Master growth fund 28.5 18.4 20.0
3-year Kenanga Growth Fund 22.3 22.0 20.0
5-year MAAKL-HDBS Flexi Fund 20.9 20.5 20.8

My conclusion is that it may be a good idea for ordinary people who have not much knowledge and wish to invest in the equity market to invest in the local unit trust funds.

For individual investor, how is your return compared with the market? How is it compared to unit trusts funds?

Please note this article is just for sharing purpose. I am not a unit trust agent, neither am I a financial advisor.

kcchongnz

kcchongnz, Is it still profitable to hang on to this share until bonus time?
Posted by AhPek > Aug 6, 2013 12:03 AM | Report Abuse

Ah Pek, how nice if I have that psychic ability to know whether investors and traders will sell and take profit, or chase up the share price to another level.

As I am not bestowed with that ability, I tend to do the hard way; try to estimate and have a feel of what the business is worth and compare to its market price now to see if it is worth holding.

The other way is to consult those experts in technical analysis, something i don't know much about.

Sorry, I am not able to give you a straight answer.

bsngpg, the main reason i post all this posts here is hopefully to get some constructive feedback from people like you. This will curb my over-confidence in my analysis and selection and improve the outcome of my investment. So it is not a "challenge" for me to see whose picks are better.

You know there is a limit of what one can do. And I am also just a small time retail investor, unlike the professional who are working in the industry and having vast resources and information to rely on.

Hence I appreciate your comments. I have glanced through the profiles of the directors. I didn't get into too much detail except the business seems to be a closed family business. So could you share with us what are your concerns? Thanks first.

Posted by choolooi > Aug 5, 2013 10:11 PM | Report Abuse
Kcchongnz , could you please check Keck Seng ?

Keck Seng is a deeply undervalued stock. However, the major shareholders don't treat minority like partners. they don't have the record of sharing with others.

Posted by kcchongnz > Mar 6, 2013 03:37 PM | Report Abuse X
Keck Seng is an asset play. It's NTA is RM5.10 made out by RM3.46 of hard cash. Besides other valuable assets which book values of 65 sen per share is much lower than the current value such as land held under development and investment properties. Hey, I have not talked about its property, plant and equipment, Property development costs, inventories, receivables etc of about 800m yet. Whereas its total liabilities is only 108m. It is definitely a Graham net-net counter. Besides it has a profitable palm oil manufacturing work and plantation, property development, hotels etc and other business which are doing quite ok with positive free cash flows. It has about RM1.00 per share dividend which is tax imputable and has to be given out by this year. It seems it won't go wrong investing in this stock at current price now (RM4.22). You don't have to follow me.

That depends on how is the "turnaround". Is it rally turn around after a temporary set back of a fallen angel, a new and credible management; or is it just a temporary "turnaround, some financial shenanigan of the old ineffective, self-interest management? Really have to look closely at the business and behind the numbers. Can't generalize just like that. Some turnaround can really provide excess return for savvy investors.

I got this stock from a regular forumer here and wish to add it into my new portfolio.

Share price performance
Fibon was listed in Bursa in 2008 at an IPO price of 84.5 sen. Its share price went up to RM1.10 in early 2010 due to the initial good financial performance. However, due to a drop in its net profit by more than 50% for the year ended March 2012, its share price plummeted by more than 40%. Since then it never seems to be able to recover and remained as a fallen angel for a long time. On 2 August 2013, its share price stayed at its low level at 32.5 sen. Figure 1 below shows its historical share price from 18 December 2008 to 2 August 2013.

Figure 1: Historical share price of Fibon

The business
Fibon is a technology company that formulates and produces advanced polymer matrix fibre composites and manufacturing and sales of electrical insulators, electrical enclosures and meter boards. It recently launched a new product called Fibon LogicCube (switchboard) which is expected to yield high margins. Main markets are in Malaysia, Singapore and Australia. It is currently applying for pioneer status from MIDA which will give them further tax benefits.

Quality and durability of business
Fibon does have a durable business albeit a small one which derives its income mainly from the export market. Did the business of Fibon deteriorated so badly since 2011 when its share price plunged? It doesn’t appear to me so. Its revenue stays quite constant at about 16m for the last 6 years (See Table 1 below). Gross profits also steady at 8-10m a year and gross margin quite constant between 8m to 10 m for the last 6 years. The deterioration is in its net profit margin due to the increase in administration and tax expenses. Net profit margin however is still good at 29% last year, which is 10% above the previous year.

Figure 2: Revenue and profits

Balance sheet
Fibon has a healthy balance sheet since listing. It never had to borrow any money as there is adequate amount of free cash flow every year. Total equity attributed to shareholders has been increasing every year as shown in Table 2 below. Its cash holding also increases every year. last year, the cash holding per share amount to 20 sen, or 65% of its NTA.

DuPont Analysis
Does Fibon’s business has economic moat? The return of equity of fibon is a good number of 17.1%, higher than the minimum requirement of 15% for most ardent fundamental investors. A DuPont analysis of Fibon is carried out to dissect its ROE.

ROE = NI/E = NI/S * S/TA * TA/E = 29.4% * 0.56 * 1.0 = 17.1%
Where NI is net income, E is equity, S is sales/revenue, TA is total assets
NI/S is the net profit, S/TA is the asset turnover, TA/E is financial leverage

The main driver of Fibon’s high ROE is hence the high net profit of 29.4%. The asset turnover of 0.56 (<1) and the financial leverage of 1.0 (<1.5) are relatively low. Hence there is plenty of room for Fibon to improve its ROE such as improving its marketing and scouting for more business, or increases its leverage. The return of invested capital of Fibon is particular great at 45.6%, much higher than its costs of capitals.

Fibon also produces excellent cash flow with free cash flow 18% and 26% of revenue and invested capital respectively.

Market Valuation
As Fibon has a business which is durable and of quality, one would expect it should be accorded with reasonable good valuation from the market, but does it?

At the price of 32.5 sen, the PE ratio is 6.6 and enterprise value less than two times its Ebit. This may be due to its small market capitalization and hence not a liquid stock. There are only a couple of analysts covering this company. Besides that, one hardly hear anything about this company. However, this could be a good opportunity to invest in a hidden gem at a cheap price. Hopefully when it is slowly discovered in the future, a ugly duckling may turn into a beautiful swan.

So Fibon at 32.5 sen, is the fifth stock in my new portfolio.


Table1: Financial performance of Fibon
Year 2013 2012 2011 2010 2009 2008
Revenue 16674 16901 14498 12891 16474 14305
Gross profit 9820 9040 8246 8007 10163 9146
EBIT 6566 6226 5945 5010 8693 8007
Net Income 4901 4499 4389 4014 8304 7847
Gross Margin 59% 53% 57% 62% 62% 64%
Operating Margin 39% 37% 41% 39% 53% 56%
Net Profit Margin 29% 27% 30% 31% 50% 55%

Table 2: Equity and cash
Year 2013 2012 2011 2010 2009 2008
Total common equity, E 31828 28081 24696 21095 18778 2667
Net cash backing per share 0.20 0.18 0.14 0.16 0.12 0.09

tonylim, your fault, made me lose the chance of making money.

CAPEX are used by a company to acquire or upgrade physical assets such as equipment, property, or industrial buildings in order to increase the future capacity or efficiency of a company.

Generally it is the purchase of property, plant and equipment. In Kfima's case, as palm oil is also part of its core business, the increase in biological assets also constitutes part of the capex. They are under the "cash flow in investing" under the cash flow statement. add those two figures up and that is the total capex.

yeowyc, it certainly looks like the weaker Ringgit has a positive effect on Supermax and other export oriented companies. Market participants often refer to exchange rate to trade on a export orientated company's stocks. Normally i don't pay attention to the exchange rate because currency goes up and down and it is really hard to predict the direction. For long term investing, I concentrate on the company's business more.

tonylim, my opinion on APM has not changed since my last posting on March 14 above.

Posted by minshome > Aug 5, 2013 10:58 AM | Report Abuse
Hi kc,
RM1.91 per share as special dividend!-this is not confirm news, right?

It will only be confirmed if Pintaras employs me as their finance director.

Dissecting the return of equity (ROE) of Pintaras

DuPont equation provides a broader picture of the return on equity of a company. It tells where a company's strength lies and where there is room for improvement. It is the epic of financial statement analysis of a company. Investopedia has a very good explanation on why is it important to carry our DuPont analysis on a company’s business as shown in the link below:

http://www.investopedia.com/articles/fundamental-analysis/08/dupont-analysis.asp

Du Pont Analysis
For the trailing twelve months 2013, Pintaras has a good ROE of 18.7% which is considerably higher than 15%, a number generally acceptable to most ardent fundamental investors. Dissecting its ROE as follow reveals the strength and weakness of Pintaras.

ROE = NI/E = NI/S * S/TA * TA/E = 29.2% * 0.55 * 1.16 = 18.7%
Where NI is net income, E is equity, S is sales/revenue, TA is total assets
NI/S is the net profit, S/TA is the asset turnover, TA/E is financial leverage

The main driver of Pintaras’s high ROE is hence the high net profit of 29.2%. Few construction companies have their net profit margin in double digits, not to say anywhere close to Pintaras’s net profit margin of almost 30%. The asset turnover of 0.55 (<1) and the financial leverage of 1.16 (<1.5) are relatively low. Can Pintaras’s ROE be improved further?

Pintaras can improve its asset turnover by securing more jobs which is not a problem for them as a specialist contractor in the niche market of deep foundation for building works. It has established its name in the market and has good relationship with many developers. However, Pintaras is not keen to simply grab any job, but more careful in picking and choosing good clients and jobs of less problems. Foundation contracting works are always littered with problems of difficult soil condition, shortage of skill labour and material, short construction period etc. However, they could easily get more jobs in order to increase its asset turnover if they want, and hence its ROE.

Pintaras is a debt free company. In fact it has too much cash in its balance sheet. Hence it hardly leverages itself to do business. In order to leverage itself and improves its ROE, one thing Pintaras can do is to distribute all its cash and cash equivalent to the shareholders, RM1.91 per share as special dividend! This will increase its financial leverage as the equity is reduced and improves its ROE further without having any impact on its healthy balance sheet as it is still a debt free company, though without any excess cash now. It can even borrow some money from the bank if requires.

Dissecting the ROE of Pintaras shows that its ROE comes from a great profit margin. It has plenty of room to improve its ROE by securing more jobs, and increases its leverage without affecting the riskiness of the company.

apprentice, agree with you in many aspects. I also wonder why the analysts still recommending that stock (hope that is the one you refer to) you mentioned despite the recent Bank Negara ruling.

That membership fees you are talking about of Haio, 33k, still the same thing? and selling expensive but useless stuff through MLM? Or was it the case in 2009-2010 before the new rules of direct selling which adversely affected Haio's MLM and now it is not the case any more? You definitely know better than many people here since you have friends there. Could you verify and confirm that?

Your statement "Though I study financial statements of companies, its just a history, and not necessary of what things to come. I prefer the feeling on the ground, talking to people directly involved or affected and have some idea where the product or company is heading to."

Yeah, talking to people etc is what Philip Fisher called scuttle-butting. It is a must if you want to be a very successful investor. But few people have that kind of luxury, don't you think so? So for people who don't have that luxury, how should they invest? Or how would they know the company they are interested is worth investing?

Ok everybody on the street say this company is good. The company products are good but how do you know they make good profit? And how much are you willing to pay? How do you decide?

Yeah those financial statements are history but what else can we rely on to decide and answer those questions above? What do you think about this guy Joel Greenblatt's investing strategy of investing in good companies at reasonable and cheap price from the link below?

http://klse.i3investor.com/blogs/kianweiaritcles/34313.jsp

That is why when anybody asks me to recommend a finance blog, without fail I always Ze Moolah's blog first. If stock punters bother to go there and read, they will find that they are holding other hot potatoes too.

Posted by tonywong > Aug 3, 2013 02:23 PM | Report Abuse
Dear kcchongnz, a very good piece of advice. As this is my first investment in KLSE, i feel more confident now . THANKS KCCHONGNZ !!!

tonywong, if you know mandarin, you must listen to the video appended below.

http://klse.i3investor.com/blogs/kianweiaritcles/34315.jsp

bsngpg, just read some of your posts in Maybank thread. You are a good investors. Hope you can join in more of our discussions.

TanKW, use the Kfima spreadsheet, tab DCFM2 and plug in the numbers. My other assumptions are ROC at high growth 25%, stable growth 15%.

By plugging in the numbers, you will find the market price is about the intrinsic value with 5-year growth of -14%.

bsngpg, I share your view on Zhulian as below:

Posted by kcchongnz > Oct 19, 2012 01:45 PM | Report Abuse X
NZ,Is Zhulain a great company? Absolutely.
Zhulian's financial performance, balance sheet and cash flows are absolutely awesome. I did a detail analysis and made a valuation of Zhulian on 27/7/12 when it was 2.17. It has now gone up 27% to 2.75 now. Is it still a good investment at this price? Absolutely in my opinion. My discount free cash flows of owner's earnings using conservative assumption of 8% growth for the next 5 years and 3% thereafter with a discount rate of 10% shows the intrinsic value of Zhulian at 3.40, still another 24% upside. Well done NZ.


Also see my post from link below to see my comparison of Haio and Zhulian.

http://klse.i3investor.com/servlets/forum/900312629.jsp

Posted by bsngpg > Aug 4, 2013 12:47 PM | Report Abuse
Hi KC : to me, a non financial guy, you are very professional as you know how to use financial analysis tools and very kind and generous to share your homework. THANK YOU. I am following your posting and tracking your recommendation.
I like KFima as you and have accumulated since early 2011. My cost is low and thus yield is high and I will keep it for longer term. However I do not buy more as I have concern on its relatively small market cap and the pure color in Board of Directors. To me, a competitive company should be meritocracy oriented which should “generally” not a single color in BOD.
Thanks

I understand your concern. Every person is different. Anyway, there are thousands of companies to invest in Bursa, invest in one you are comfortable with.

Reversed engineering in discount cash flow analysis.

Pintaras Jaya’s share price has risen by 74%, from RM3.12 to RM5.43 at the close on 2/8/2013 since my portfolio was posted on 21/1/2013 just 6 months ago. The question is after such a good run, is its share price already overvalued? I don’t think so.

We can carry out a discount cash flow analysis using financial theory postulated by John Burr Williams in his “The theory of investment value” to estimate the intrinsic value of Pintaras Jaya and compare with its present market price. The theory says the value of a stock is worth all of the future cash flows expected to be generated by the firm, discounted by an appropriate risk-adjusted rate.

As we have discussed before in my previous estimation of intrinsic value of Kumpulan Fima and Mega First Corporation Berhad, the determination of the discount rate is easier. We just apply a reasonable risk premium over the risk-free rate. The risk premium depends on the stability and visibility of earnings of the company, and the health of its balance sheet. For a company like Pintaras Jaya, I can safety use a discount rate of 10%. What about the estimation of the future cash flows.

One way is we assume the earnings or cash flow will grow at a certain rate for the next 5 or 10 years and then a terminal rate about the same of inflation or growth in GDP. But still whatever rate of growth used is subjective. So why not we do a reversed engineering.
Reverse-Engineering DCF for Pintaras Jaya

[Discounted cash flow, however, can be put to use in another way that gets around the tricky problem of accurately estimating future cash flows. Rather than starting your analysis with an unknown, a company's future cash flows, and trying to arrive at a target stock valuation, start instead with what you do know with certainty about the stock: its current market valuation. By working backwards, or reverse-engineering the DCF from its stock price, we can work out the amount of cash that the company will have to produce to justify that price. If the current price assumes more cash flows than what the company can realistically produce, then we can conclude that the stock is overvalued; if the opposite is the case, and the market's expectations fall short of what the company can deliver, then we should conclude that it's undervalued.]

The followings are the data used for the reversed engineering DCF for Pintaras Jaya

Price on 2/8/13: RM5.43
Discount rate: 10%
Trailing twelve months EPS: 62.5 sen
Tax rate: 24%
Excess cash: 153m
No. of shares: 80.064m

From the reversed engineering DCF, it is shown that the market is expecting Pintaras Jaya’s business to shrink at a compounded annual rate of 14% per annum for the rest of its economic life. That means its earnings will be less each year by 14% forever.

So do you think this market expectation of a contraction of 14% is reasonable for Pintaras? Or put it in another way, do you expect Pintaras business will grow, stagnant, or shrink? If grow of shrink, at what rate?

par value is normally in RM1.00, 50 sen, 10 sen etc. So the no. of shares you have computed is close to share capital/0.5. so the no. of shares is share capital (101m)/0.5=202m. There is a small discrepancy because of the treasury shares. So for a normal case, no of shares outstanding=share capital/par value, or par value=share capital/no. of shares

Tan KW, you can deduce the par value by looking at the earnings or the equity attributed to common shareholders and the share capital.

EPS=net income attributed to shareholders/No of shares, or NAB=Equity/No of shares.

Capital expenses are stuff like purchase of property, plant and equipment; increase in biological assets for plantation business, land development, buying of land for property development companies, research and development, software development for technology companies etc.

Investment in subsidiary is an investment operation. when a company has free cash flow from its ordinary operations after capex, part of it can be used to invest in a subsidiary, of a jv, buy some short-term investment like money market fund, fixed deposit, pay dividend, buy back shares.

Posted by Tan KW > Aug 3, 2013 08:17 PM | Report Abuse

Ok, I make the modifications
and i get Earnings Yield = 58,716,000/455,231,000 = 12.90%
instead of EY=58716/407967=14.4%

my EV - 455,231 is different with yours - 407967....

NOSH 202,000,000
Stock Price 2.72
Market Cap 549,440,000
Debt 13,417,000
Minority Interest 11,090,000
Preferred Shares 0
Cash 118,716,000

EV = 549,440,000 + 13,417,000 + 11,090,000 + 0 - 118,716,000 = 455,231,000

IN THE NON-CURRENT ASSETS, THERE IS THIS 'FINANCIAL ASSETS" WHICH I BELIEVE IS A CASH EQUIVALENT ASSETS,PROBABLY A DERIVATIVE CONTRACTS WHICH HAS A CASH VALUE IF LIQUIDATED. AGAIN THIS IS JUST MY GUESS. THERE IS ALSO THIS "INVESTMENT PROPERTIES" WHICH I NORMALLY LESS IT OFF FROM THE EV BECAUSE THIS IS NOT THE ORDINARY BUSINESS OF MANY NON-PROPERTY COMPANIES. HOWEVER, LOOKING AT ITS FINANCIAL STATEMENTS AND NOTES TO IT, HAIO HAS TAKEN THIS AS PART OF ITS "ORDINARY" BUSINESS. HENCE IT WOULD BE WRONG FOR ME TO LESS THIS ITEM OFF FROM THE EV. SO IN MY OPINION, IF YOU REALLY WANT TO BE PRECISE, THEN THE EV SHOULD BE 549,440 + 13417 + 11090 - 1478 - 118716 = 454270.

by the way, how you get No. of shares now is 202m ??

based on Financial note B11, Weighted average number of shares = 197,658,000 - i believe HAIO have some treasury shares and treasury shares have been excluded on B11...

THE PAR VALUE OF HAIO IS 50 SEN, SO THE NUMBER OF SHARES IS SHARE CAPITAL/0.5=101095/0.5=202M. YOU ARE RIGHT ALSO AS THERE ARE SOME TREASURY SHARES, AND HENCE THE ADJUSTED NUMBER OF SHARES. BUT THIS DOESN'T REALLY MAKE MUCH DIFFERENCE TOO. MOREOVER THE TREASURY SHARES ARE NOT CANCELLED AND THEY STILL REMAIN THERE IN THE TREASURY. HOWEVER, YOU ARE RIGHT.

SO YOU SEE I TOO MADE SOME MISTAKES. I HAVE CORRECTED SOME OF MY MAJOR MISTAKES. GOOD THAT SOMEONE LIKE YOU CAN CORRECT ME.

Posted by apprentice > Aug 3, 2013 10:10 PM | Report Abuse
I am telling from my experience with friends and survey.
Zhulian is direct sales, not MLM like HAIO where you need to deposit 33K to be a member and given 20 water dispensers.
That was what the downlines were getting. In order to recoup, they have to recruit new members and be reimburse 6K per member. Need I say more.
Suggest you all go down to the ground and mix with 'normal' people to know the truth.

Anybody can verify this facts? deposit 33k to become member and given 20 water dispensers? If so are they still doing it? I don't think this model can sustain. That is the main reason why Haio failed in 2010-11.

On the other hand, MLM model is a good model in doing business if they are selling people on something useful and people need, such as health and wellness products. AS the population becomes more affluent, and aging, they become more conscious about health.

Yes, Amway, Zhulian etc are doing extremely well in their MLM business. MLM marketing also involves some moral issues, such as pushing people to buy expensive but not-much-use stuff. It is not everybody's meat.

It is late here now. Just post your other questions you may have. I will reply you tomorrow.

My roic is also 29%. Yeah i know the values you used to compute is different from mine. There are some arbitrary opinions of which constitute fixed assets, and working capital, and also ebit. But don't need to be very precise. Again to reiterate that it is an art to interpret financial statement, Important it must make sense.

capex is the purchase of plant and equipment under the "net cash used in investing activities"

Your EV is different from my computation.
No. of shares now is 202m
Excess cash includes "financial assets at fair value" as this is I think quoted securities.
Debt is not total liabilities. Debts is short-term and long-term borrowings.

Posted by Tan KW > Aug 3, 2013 07:11 PM | Report Abuse

@kcchongnz

i am not sure whether i am looking on the correct statements because i get a different numbers with you.. i am looking at http://klse.i3investor.com/servlets/staticfile/221258.jsp

Data
2013 Revenue 268 m
2013 net profit 43.5 m (based on CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME --> net profit = 48,291 while profit to owner = 47,432)

I HAVE ANSWERED THIS IN PREVIOUS POST.

Capex 10.5 m (based on CONDENSED CONSOLIDATED CASH FLOW STATEMENTS, Net cash used in investing activities = 4,350 or you get the number from somewhere else instead?)

THIS IS ARBITRARY. CAPEX 10.5M IS TRUE LAST YEAR.

Depreciation 5.3 m (based on CONDENSED CONSOLIDATED CASH FLOW STATEMENTS, Depreciation = 2,940)

YOUR VALUE OF D&A LAST YEAR OF 2940M IS CORRECT. I MADE ADJUSTMENT BECAUSE WE SHOULD LOOK AT THE AVERAGE CAPEX AND D&A FOR A FEW YEARS AND GET A FEEL OF WHAT SHOULD BE THE REASONABLE NET CAPEX, IE CAPEX LESS D&A. SO IF YOU JUST USE LAST YEAR'S, THE NET CAPEX IS TOO HIGH AT 7.5M. THE AVERAGE NET CAPEX IS ABOUT 5-6 M. SO I MADE A ARBITRARY ADJUSTMENT ASSUMING D&A IS 50% OF CAPEX. IT IS ARBITRARY I AGREE.

Working capital 35 m (where you get this??? is working capital same with Changes in working capital?)

WORKING CAPITAL IS OBTAINED FROM LAST YEAR, RECEIVABLES + INVENTORIES LESS PAYABLE

NO, WORKING CAPITAL IS NOT CHANGE OF WC, IT IS THE CHANGE OF WORKING CAPITAL FROM THE NEXT YEAR FROM THIS YEAR.

YOU NOTICE A LOT OF THING IS ARBITRARY. JUST THAT IT SHOULD BE REASONABLE AND MOST OF ALL MUST MAKE SENSE.

Tan KW,
Here are the differences in ROIC and EY.

For Ebit, I notice that Haio has including 4.8 m in gain of disposal of land. Read the appendix to the financial statements. This is a one-off item. So I deducted it from its EBIT.

In IC, I included the investment properties as part of the fixed asset because if you read the financial statement, rental income is part of the EBIT.

In your enterprise value computation, you should less off the excess cash, not adding to it.

What is the intrinsic value of Haio?

“If we think through these questions, we can gain some insights about what may be called “owner earnings.” These represent (a) reported earnings plus (b) depreciation, depletion, amortization, and certain other non-cash charges less ( c) the average annual amount of capitalized expenditures for plant and equipment, etc. that the business requires to fully maintain its long-term competitive position and its unit volume. (If the business requires additional working capital to maintain its competitive position and unit volume, the increment also should be included in ( c) . – 1986 Berkshire letter

Warren Buffet stated that the value of a company is simply the total of the net cash flows attributed to the common shareholders (owner earnings) expected to occur over the life of the business, discounted by an appropriate interest rate.

To compute the intrinsic value of Haio, first we will need to estimate the current owner earnings based on Buffet’s interpretation. Next we need to assume a growth rate for the next 5 years. Then a terminal growth rate of 3% is used to assume that Haio will grow at that rate forever after that which is about the growth in GDP. These future earnings will be discounted to present value to obtain the intrinsic value of Haio.

The discount rate is related to what is the required return by the equity holders; i.e. how much risk premium above the risk-free rate would be required. For most practical purpose, in contrast with the academic approach in capital asset pricing model, a risk premium applied is related to how stable the earnings and cash flow of the company and its financial health. Haio’s earnings and cash flows have been positive for the last 6 years as shown in the Table 1 below. It has a healthy balance sheet. So it would be conservative to apply a risk premium of 6% above the MGS rate (currently about 4%), or a required return of 10% (4%+6%).

Next is the assumption of growth rate which is crucial for the determination of the intrinsic value. Last year, the revenue and profit of Haio grew by 12% and 21% respectively. Thanks to the growth in its multi-level marketing in the higher sale of food and beverage consumer products, personal care and wellness products. I will use a growth in profit of 15% for the next 5 years. Other data and assumptions are shown as below:

Data
2013 Revenue 268 m
2013 net profit 43.5 m
Capex 10.5 m
Depreciation 5.3 m
Working capital 35 m

Assumptions
Growth for the next 5 years 15%
Terminal growth rate 3%
Required return 10%
ROE in stable growth 12%

The discount cash flow analysis of the owner earnings yield an intrinsic value of 775m, or RM3.83 per share. At the close of its share price at 2.72 on 2nd August 2013, the margin of safety is 29%, or an upside potential of 41%. The question is what if the growth of the owner earnings is a different value? Table 2 below shows the theoretical intrinsic value of Haio at different growth rates.

Table 2; Scenario analysis
Growth rate 0% 5% 10% 15% 20% 25% 30%
Intrinsic value 2.15 2.61 3.17 3.83 4.62 5.53 6.59
Upside -21.0% -4.0% 16.5% 40.8% 69.9% 103.3% 142.3%
Haio at RM2.72 on 2/8/13

If the growth rate of Haio’s owner earnings is 5% instead of 15%, the intrinsic value is RM2.61. There is a downside potential of 4% if you buy Haio now at RM2.72. However, if the growth rate is higher than expected 15%, say at 25% for the next 5 years, its intrinsic value is RM5.53, or an upside potential of 103.3%.

So what do you think is the growth rate of Haio for the next 5 years?


Table 1: Earnings and cash flows of Haio
Year 2013 2012 2011 2010 2009 2008
Revenue 267920 239533 223254 511064 435216 373823
Net Income 43491 35702 29710 71863 53010 49118
CFFO 36359 50062 13870 69196 53427 53765
FCF 25834 47121 1582 65541 33721 51938

Go Bursa to see the "financial results". the "annual report" won't be out so soon.

tonywong,
For fundamental investors, unlike technical followers, there is no such thing as stop loss. Both have different approach in buying and selling stock.

Fundamental investors buy a good company at reasonable price. Best is cheap price with big margin of safety. They only sell if the stock price has gone up closed to or above the intrinsic value. They do sell even they are at a loss if the fundamentals of a company deteriorates.

Many great fundamental investors do not bother much about macro economy or historical stock prices. They think it is extremely hard to predict macro-economic stuff.

It is the value of a stock the fundamental investors are concerned of, not the broad stock market. Again, it is hard to predict if the broad market will go up more or retreat.

Jaack, yeah saw that announcement last night. I don't know if it is a good development for MFCB or not. On one hand, all companies strive to grow their business. It would be best if they can grow in the power and limestone products business which they have the experience. But I guess it is good to go regional too. They do not have the experience in plantation, but I guess they can employ expertise. Skill and unskilled labour there is cheap too. I think rubber plantation which they intend to do would be a good business as this natural rubber has been getting less and less in supply but there is always demand for it.

I remember 4-5 years ago this company Kfima ventured into palm oil plantation which they totally did not have any expertise at all. But now the plantation division has been providing them with steady 30% of their revenue and profit. So many critics "dropped their spectacles".

I think there is a good way of capital allocation for growth.

Just looked at the prices, Maybank 10.32, CW 0.235. theoritically still 1.4% discount. But watch out what alibiii said above. There is a dividend which will be ex-dated just before expiry of CW at end of September. So if Maybank share price stays at it is, and the share price adjusted to the dividend of 32 sen (assume same as last year), to 10.00, you will lose money, 15% to be exact.

So the risk-reward is not good. Further you really have to watch the prices all the time. Remember how Maybank share dropped by a lot two days ago?

No more. all sold and not looking it right now. Why? anything interesting? Btw, if you see anything interesting, let me know.

yf, I should have revised the 2012 financial statements with the latest audited account. Kfima Fima may not have the habit of serious changes in their audited account compared to some companies which habitually have big deviations of their audited account from the originally unaudited account, but many companies do. One recent one is MTDACPI.

Feel free to ask me anything. It is a joy teaching the enthusiastic learners. There are a few from i3 asking me questions too. I prefer to do it in the i3 forum so that we can learn from others too.