Hahaha. Just writing for fun. There are similarities though.

Illustrating the irrationality of Mr. Market recently.
https://chua.finance.blog/2020/06/07/the-day-the-market-went-crazy-for-chicken-rice/

Illustrating the irrationality of Mr. Market recently.
https://chua.finance.blog/2020/06/07/the-day-the-market-went-crazy-for-chicken-rice/

Posted an update to the analysis, considering FINTEC shareholding in Focus Dynamics.
https://chua.finance.blog/2020/05/25/fintec-global-pe-0-27-is-it-super-undervalued/

FINTEC Global - PE 0.27. Is it super undervalued?
https://chua.finance.blog/2020/05/25/fintec-global-pe-0-27-is-it-super-undervalued/

One of the possible factor for re-rating of this company is the possible construction of a manufacturing plant in UAE to serve it's middle east markets. When that is announced, it means management sees growing demand for its product in that region.

Last quarter lower profit was a shock. This quarter result is more of a reassurance that the company is still doing well, especially with its increase in revenue, although margin have slipped.

I believe we should see the share price to slowly creep up in the coming weeks.

I know Creador has a strong reputation of investing into the right businesses in the past and made big returns. That's is also one of the reason why I looked into GHL System recently to understand more about the company and it's future direction. Well, I didn't say I'm smarter than Creador at any moment. Besides, the CEO is the CEO. He has got nothing to do with Creador.

What made me feel less confidence is the way the CEO answers to the questions posted to him. For example, when asked about "what makes you think your clients will select your products over your competitor's" or "what are you doing in your R&D efforts to win" and the CEO answers with "erm...." and sometimes come out with answers that do not answer directly or even firmly to the questions made me wonder if he is fully aware about the details of his company's strategy. Maybe i'm totally wrong but my expectation from a CEO is to have a very strong vision, very motivated and very confident in answering questions, sometimes talking too much until the interviewer has to cut him off.

Well, I might be totally wrong. Maybe it's just me and I know we shouldn't judge the company just by listening to a single interview. I just said it made me less confident. That's all.

I've looked briefly at the company's Annual Report, financial statements, Analyst reports, recent quarterly reports, news reports, company's website, forum comments and listened to the podcast of the interview. I've not invested yet and I'm still studying the company to see if it's worth today's market valuation or not.

By the way, I know they are the market leader in the mobile payment industry in Malaysia with about 30%-40% market share (if i remember correctly) but I do not think they will monopolise the market so easily. So to win, the management's ability to strategise and execute is specially important here.

I'm just sharing my views. That's all.

Credit Suisse initiates coverage on Mah Sing.

http://www.theedgemarkets.com/my/article/credit-suisse-initiates-coverage-mah-sing

FYI only.

The CEO sounded like he's not very sure how his company is going to win. He sounded less confident than I would have expected.

After hearing the interview, I feel less confident with the management's vision and it's ability to execute. I was considering investing into this company at first, but after hearing the interview I've decided to take a second look.

By the way, RM2 million of Profit After Tax out of RM32 million of sales is shit for a software company. What are your operating expenses that you need to spend so much until your margin gets so low? Software companies can easily get margin of 20% - 50%, if managed well. MyEG = 45% net profit margin, IFCAMSC = 20% net profit margin. CENSOF = 1.8% profit margin (in the last 2 quarters).

Sorry to be so cruel.

Look, you're investing into a company who has increased revenue but at the same time increased operating expenses too. So it will end up with negative, zero or peanut profits. So now, people are hoping for huge inflow of revenue/sales contributed by GST related business but don't forget, based on the latest quarterly report, looks like even when revenue is quadrupled, operating expenses increased at a much higher rate too, which is meaningless for shareholders because they should be worried about the bottom line (net profit).

So what are included into operating expenses? Director's pay, management fees, employee's wages & bonuses, customer relationship expenses, electricity bill, telephone bills, petrol, employee training, etc etc etc.

In a well managed company who cares about maximising shareholders wealth, the management will try their best to increase revenue and reduce operating expenses so that they increase their profit margin and therefore more money will flow into the bottom line (net profit). Look at some other companies (for example IFCAMSC), their net profit will only grow when sales increase but operating expenses is maintained or reduced. That's only good for investors. But don't get me wrong, I am in no way saying IFCAMSC is well-managed, but relative to CENSOF, yes. So far from the latest earnings report, IFCAMSC looks like a better managed company.

Sometimes, a company can report negative profit because they are investing a lot into the future, which will bring positive earnings in the future. This can be seen in their earnings report under the capital expenditure section of the Cash Flow Statement or even from depreciation & amortisation amount to understand what is the management doing with the company's money. These information can be found in the Cash Flow Statement again. But i'm sorry to say that I don't see these in the case of CENSOF.

So how will CENSOF make huge profit in the future? I don't think so unless they can somehow abruptly reduce their operating expenses which means operating more efficiently. Do you think the management is aware of this and is working very hard to increase their margin? Do you think the management is spending a lot into the future? Go find out yourself in their financial report?

Don't simply believe in other people's single line comment/reply to your question (eg. No earnings is good; not good today, good in future) Ask yourself, how will these people know earnings will be good in the future? Remember, nobody knows what will happen tomorrow and what we can do today is to predict the future based on historical result and management's capability.

Note: I am not a shareholder of CENSOF nor IFCAMSC.

I wonder why the loss is attributed to owners of the company while the profits are for non-controlling interest.

Besides, in the notes to future prospect, looks like the company didn't mention a lot about GST related projects/revenue/income anymore, just GST related marketing activities.

My advice: Stay away from this company.

Nobody will know what will happen tomorrow, neither do analysts. What they can do is to analyse the fundamentals of the business and the future earnings prospect of the company. Then they stamp in their target price. However, Mr. Market doesn't necessary follow the fundamentals and can sometimes be moody and thus the share price can go the other way without any reason.

I am more concerned if the analysts put a SELL purely because the stock price has gone down and then put a BUY purely because the stock price has went up. If that is the case, anyone can be an analyst.

As an investor, analyst reports should only be used as a guide for insights about the business and its future earnings prospect, which some of those information can be difficult to obtain by retail investors like myself. That's all.

ESOS. Employee Share Option Scheme. That means some employees exercised their right to purchase the share at RM0.6XX per share.

Yes. So don't worry too much. The business is still operating as usual and people are still drinking coffee everyday, regardless of how the market perform. I believe people who bought at this difficult time will smile in a big way one month later. Cheers!!

Sold all my Power Root at RM2.25 after they released the last quarterly report, about 3 months ago. Sold the stock because revenue didn't increase during that single quarter only and I foresee tough competition in the instant coffee market.

However, now it is trading at RM1.46, a drop of RM0.79 or equivalent to 35% drop from my last selling price of RM2.25 about 3 months ago!! The plunge in share price is not justified at this price level. It's so cheap now and offer investor a return of over 54% if the share price were to return to RM2.25 from the current price level. Huge upside potential with sustainable business (Ali Cafe and Ah Huat are already strong brand names with notable market share) and very little downside now. Not to mention, the stock pays dividend yield of above 6% at the current share price!!

Googled for news related to Power Root and here is the only one I get (small matter):
http://www.therakyatpost.com/news/2014/10/15/report-errant-employers-epf-tells-workers/

Then I also found this report from MoneyWeek.com that increases my confidence in the business: http://moneyweek.com/new-world-two-ways-to-play-asias-beverage-boom/

With the above said, I have just re-purchased the stock at RM1.49 per share earlier today.

Unless there is something really bad happening inside the business that are not known to the public at the moment, I see very little downside risk and tremendous upside potential for the company's stock price.

Looks like consumer spending in Malaysia is getting weaker these days, despite the surge in the latest GDP reported. Most consumer products based businesses such as OLDTOWN, PWROOT and PADINI are not doing well in the past 2 - 3 quarters.

The one thing that worries me in the latest quarterly report is the tremendous increase in inventories. This could signal that Padini has difficulty selling its products.

Here's another reason why I shouldn't sell my Scientex stocks. Looks like I'll have to hold the stock for another 5 years. Hehe.

http://www.theedgemalaysia.com/business-news/301938-scientex-inks-strategic-alliance-with-japanese-firm-to-build-plant-in-msia-.html

A good writeup about Scientex by kcchongnz a few days back.
http://klse.i3investor.com/blogs/kcchongnz/56316.jsp

Scientex company announcement today.
http://www.bursamalaysia.com/market/listed-companies/company-announcements/1705201

HuaYang has done well in Q4. Revenue up, profit up and margin up, which are good for the valuation of the stock price. The stock should perform well in the coming days based on the result.

As for the debt ratio, i've did a quick calculation and it stood at around 30% i.e. (Long Term Borrowings + Short Term Borrowings)/Total Assets. Although it's not the best time to hold debt now, I still think it is manageable. If management is able to reduce borrowings, that will also help bring up the stock price. However, I do not see any chances of that happening at HuaYang, at least for the next few years.

As for the reduced dividend per share from the previous 8.25cents/share to 7cents/share, i wasn't happy at the beginning, as reduced dividend payout signals the management's bearish outlook in a company's future earnings. However, after digging in further, I am relieved to find out that the dividend payout wasn't reduced as RM16.335 mil were paid in Q42013 compared to RM18.48 million in Q42014, which is actually an increase in dividend payout. As for the drop in amount dividend per share, that is due to the increased number of shares outstanding due to the last bonus share issuance.

I look forward to see the company continue to do well in the coming years (and hopefully with reduced debt).

It could be due to the company's share buyback programme which was approved in the last EGM.

Quarterly result should be released today.

Let's look at quarterly results for OLDTOWN in the past 4 quarters:
Revenue (in '000) Growth (q-q) Profit (in '000) Growth (q-q) Net Profit Margin
Q4FY13 87,921 N/A 9,649 N/A 10.97%
Q5FY13 88,380 0.52% 11,687 21.12% 13.22%
Q1FY14 91,239 3.23% 12,181 4.23% 13.35%
Q2FY14 95,299 4.45% 11,382 -6.55% 11.94%
Q3FY14 100,689 5.66% 13,429 17.98% 13.34%

Revenue growth from Q3FY14 vs Q4FY14 = 14.5%

I am comparing current quarter to previous quarter numbers as the business is not cyclical in nature.

Don't you think that the growth rate could be better (>20% annual growth rate since it is still a fairly small and young company)? I am not saying that the company is not growing. It is growing, but at a slower rate than investors are expecting. If the company can improve their Cafe business sales contribution, they can grow at a much faster rate, and then only will the stock price appreciate.

When one uses the discounted cash flow valuation model to find the value of a company, the revenue growth rate is essential in determining the stock price today. A change of growth rate from 14.5% to 20% makes a huge difference.

My quick valuation of OLDTOWN at 20% annual revenue growth for the next 5 years and then gradually slow down to 3% annual revenue growth rate at year 10 and thereafter, with pre-tax operating margin from 16% to 13% in year 10 and thereafter gave me a valuation of the stock price today at RM2.42 per share.

If i reduce the annual growth rate for the next 5 years from 20% to 14.5% while keeping other numbers the same, the stock price is only valued at RM1.98 per share.

Investors should look for the revenue growth rate in the coming quarters as well as profit margins. For the stock price to do better, revenue growth rate has to improve, while margin being kept at the current level or any improvement will be good for the stock price.

Also note that FY13 comprised of 5 quarters and therefore, FY13 numbers are much higher than 4 quarter FY11.

cheeseburger, i know it's not appropriate to compare OLDTOWN and PADINI although both operate in the consumer product industry. What i was trying to point out is why PADINI stock soared today while OLDTOWN stock price saw little changes when both reported quarterly earnings on the same day. I just wanted to point out that for a stock price to appreciate, a company has to show some kind of revenue growth, a growth rate that is above expectation.

Compare OLDTOWN quarterly report with PADINI's quarterly report. They're in different business, but just compare the revenue growth and you'll see what I mean and you'll see why PADINI stock price has soared while OLDTOWN is doing + and - 0.01 sen today.

The problem with OLDTOWN now is the underperformance of it's Cafe business. I am fairly disappointed. In their latest financial report, the company is lucky that their Beverage manufacturing business has picked up very well to offset the underperformance of their cafe division.

A stock price is based on the future cash flow that the company can generate, not it's historical performance. When the company reported below expectation growth rate, the stock price will not perform well. We're lucky that the stock price did not drop today.

I hope that the management can do something to improve the revenue and profit of their Cafe business.

Over the past couple of years, OLDTOWN has successfully built its brand equity in the market. Everybody knows OLDTOWN WHITE COFFEE these days. It was ranked 24th as Malaysia's most valuable brand 2012. This is a remarkable success as people has hardly heard about OLDTOWN WHITE COFFEE a few years before that.
(source: http://www.interbrand.com/Libraries/Branding_Studies/Malaysia_s_Most_Valuable_Brands_2012.sflb.ashx)

OLDTOWN restaurants have since mushroomed in Malaysia. You can almost see them everywhere. I still remember when I first stepped into an OLDTOWN restaurant back in 2007 - 2008 (if i remember correctly), the food offered wasn't that attractive and good. I wasn't impressed at all. But in my recent visits in the last couple of years, I can see tremendous improvements in the food quality (especially the nasi lemak and the steam rice).

Also, one should be able to notice that OLDTOWN used to be a 'Chinese restaurant' where most if not all customers are of Chinese etnic those days but that has change now. With the recent move by the management for Halal certification on its restaurants, you can see more and more muslim customers, enjoying true Malaysian foods.

Besides, the management has been able to creatively come out with set menus (set lunch, breakfast sets and dinner sets) to make their offering more attractive and looked more economical.

Furthermore, it is a very exciting news to hear that the company is now partnering with SHELL to open up OLDTOWN kiosks at Shell petrol stations in Malaysia. This will enable the company to quickly expand their footprint and contribute to the revenue stream. Imagine that you're driving along the North-South highway or going to work in the morning and now you can stop by a Shell Petrol Station to fill in petrol and at the same time to grab a quick cup of OLDTOWN White Coffee for RM3.90 a cup? Isn't that great? I see this as a huge opportunity for the company to expand their top line if this is executed successfully.

With the above observations, I believe the management is steering the ship into the right direction. OLDTOWN has successfully differentiated itself from the ordinary local coffee shop in Malaysia. It is now a trusted brand and has plenty of room to grow, both domestically and internationally.

Yes, I admit that there are still a lot of improvements needed to be done on their restaurant business segment, such as improving food quality and get rid of some not so tasty food from the menu. And also most importantly, improve their services quality (many complaint that their servants who are mostly foreigners have some hard time communicating with the customers). Investors should observe themselves if the company is doing that in the next 12 months, if foods and services are getting better. Not forgetting, investors should also pay attention to the company's venture into China. Oh yeah, the management plans to open another 20 - 30 restaurants in 2014, which I think is pretty conservative. I somehow think they should be more aggressive in terms of new restaurants opening, although I believe the management should know better than me as to how aggressive they should be in this with more internally available information.

The above are only about their restaurant business, which contributes to 60% of their revenue. What about the other 40% which is contributed by their fast moving consumer goods (instant coffee and other beverages manufacturing)?

If one goes to the hyper market such as Giant, Aeon Big, Jusco and Tesco today, one will notice that there are so many brands of White Coffee to choose from, with Ah Huat White Coffee being one of the biggest competitor. OLDTOWN has a strong brand name as it is one of the earliest White Coffee offering out there and therefore, the company has the advantage of not needing to spend as much on advertising and promotional as Ah Huat White Coffee does. However, the key to success is still the same - product differentiation. That's what Power Root has been doing (and doing it very well) with heavy spending on advertising and promotional activities, because they are working very hard to differentiate their product from others. So, as an investor, I am keeping an eye on how well the management of OLDTOWN is doing to differentiate their product too (in terms of the instant coffee and other beverages offering).

Lastly, investors should also pay attention to the growth in the exporting of OLDTOWN instant coffee and other beverages products. Should these things goes well, the company should do well in the coming years (and so will the value of the stock).

morivae, quarterly financial results have already been announced at the end of January. The next financial results will be by the end of April 2014.

arv18, you might be right. If the price of coffee surge, it will increase the cost of coffee beverage manufacturers like PWROOT and OLDTOWN, as well as NASDAQ: SBUX (Starbucks), and reduce margins.

Anyhow, based on the report I have shared earlier today, I am happy that the management's direction is on product differentiation, new product introduction as well as increase export market. Operating in this industry with intense competition, product differentiation is critical to the company's success, and i'm happy to see that the management is well aware of that and is willing to spend more and focus on advertising and promotional activities.

As a long term investor, I am not worried about the dip today. I will take this as an opportunity to add my position in this company should the stock price drop further in the coming days. Besides, the company pays good dividend too (more than 4% yield). (I tend to treat the dividend payout as free Ah Huat White Coffee).

Found an article about Power Root business outlook this morning on The Edge Malaysia website. For fellow investor's information.

Power Root Stays Aggressive Amid Challenging Times
http://www.theedgemalaysia.com/in-the-edge-financial-daily-today/276847-power-root-stays-aggressive-amid-challenging-times.html

Both RHB and Kenanga IB reports are out.
Here's the link: http://klse.i3investor.com/servlets/ptg/5062.jsp

Generally, things are on track. Like i said earlier, concern is mainly on its debt ratio and management has addressed that in the investor briefing session yesterday by stating that they will not buy more land banks in the near future and plans to reduce debt after converting some of its unbilled sales to earnings.

Management also stated that they have plan to payout good dividend, which will yield at around 6% p.a. Well, i'll just park some of my funds into this company for now since the return is better than 1 year FD.

Honestly, I do not see anything different when you reduce the Par Value from RM1 to RM0.50 per share. It's just the face value of the paper, that's all.

How can you generate cash for share buyback by simply reducing the Par Value of the stock? Magic? From thin air?

There is only 3 ways a company can raise additional fund:
1. Income generated from business operation
2. Raise debt (bank borrowings or issue corporate bonds)
3. Raise new equity (issue new shares, rights issue or options)

Reducing par value does not create value for shareholders.

Pay attention to what the management present in today's investor briefing. I am expecting reports from RHB and Kenanga after they have attended the briefing earlier today.

Yes, the sentiment for the property sector is weak at the moment. This applies to any property related stocks (even SCIENTEX with 50% involvement in property sector is not spared).

The pessimism with the property sector could be due to:
1. Fear that the cooling measures announced in the Budget 2014 - RPGT, DBIS & GST will slow down the demand for property.
2. New Bank Negara rules on housing debt to curb the rising household debt in the country (Malaysia has the highest household debt to GDP in the region).
3. The expectation of increase in interest rates in 2014 due to weakening ringgit and increased inflation in the country.

Keep in mind that the Property sector is very sensitive to interest rates movement (compared to other sectors) as increase in interest rates will affect property sales severely due to higher cost of borrowing.

Or if you have time, you can do a fraction of revenue contribution of its Manufacturing & Property business, and then apply that fraction to the total interest payment & tax charges to get the EBIT for comparison purposes.

Again, that is just rough estimation. An industry average might be a better approach.

Besides, you have to keep in mind that SCIENTX is a larger company compared to TGUAN (RM1.1bil vs RM230mil). One should compare companies with similar sizes too.

Cheers!!

Hi houseofordos,

You can always look at contribution from property and manufacturing of Scientex from the notes to each financial reports.

According to its Annual Report 2013, page 157:
Revenue from Manufacturing = RM918,846,809
Revenue from Property = RM310,197,804
Segment Profit from Manufacturing = RM57,267,927
Segment Profit from Property = RM98,340,370

The company did not state separately what is the PBT for individual business segment but is lumped together for the entire group. But from the information above, we can quickly see that its manufacturing business contributes to lower Segment Profit Margin than the property business (6.23% vs 31.7%).

These margins can be compared with its own 2012 result, which is 5.81% vs 29.49%.

A quick look at TGUAN EBIT based on data from Bloomberg:
FY2012 = 4.66%
Q3 FY2013 = 7.08%

However, we are not comparing Apple to Apple here simply because different sets of information are used and both companies do not produce exactly the same kind of products.

The information provided above can just be used as a quick reference only.

Hua Yang has an investor briefing session today. Let's see what RHB and Kenanga IB reports tomorrow.

Unless something terrible was announced in today's briefing, the sharp stock price drop today could be a good buying opportunity.

The only little concern I have with HuaYang is its debt level simply because a rising interest rates environment or drop in sales will have a more negative impact to a leveraged company like HuaYang and those with little debt. Nevertheless, at RM1.77 a share, the stock now has one of the lowest PE ratio in the property industry at 7.7X only.

I am not too worried about sales being impacted by the recent cooling measures by the federal government as the company focuses on the niche market of affordable housing. I really hope the management will gradually reduce its debt with the cash flow generated from its operation. Now and going forward in 2014/2015 might not be the best period of time to hold debt.

If you're holding this stock for the long term, you should not be too worried about today's dip.

I am expecting an exciting quarterly report from Power Root.

Unlike Spritzer, Power Root's product is coffee based and everyone knows coffee is addictive. People are less likely to give up coffee than bottled mineral water. As long as the company is able to differentiate itself from its competitors (more and more players entering the instant coffee market), the company should continue to do well. The product differentiation can be done through advertising to create brand awareness which I can see the management team has done well in this regard judging from the Huat Ah! Huat Ah! Huat! campaign which includes the introduction of a Chinese New Year movie starring local star Ah Niu (although I have a feeling the movie move is a little bit overdone. Well, we'll see how effective is this move as the movie will debut the local theatres starting 6 Feb 2014).

Another factor I like about Power Root is its global footprint. The company is exporting its products to more countries than Old Town White Coffee. With expanding global footprint, it is expected to contribute to continuous top line growth for the company. However, this will also depends on how well its product is accepted by foreign markets. I like its position as the top brand in the instant coffee business in UAE and with this, I believe the management is able to replicate its success to the other foreign markets as well. So, I will pay attention to oversea sales growth in the coming quarter earnings release.

Another thing to look for in companies like Power Root is its ability to continuously innovate. Operating in such low barrier to entry market (plenty of competitors), the company has to keep coming out with new product offerings (new taste and new product line). I pay attention to R&D spending and am looking for considerable amount being spent into this area.

So essentially, for the company to be more valuable (increasing stock price), Power Root has to:
1. Continuously expand its global foot print
2. Spend on product differentiation (advertising)
3. Keep innovating for new taste, new product offerings.
4. Maintain or even improve its profit margin while doing the above 3 items.

Looking at the past results, I am confident that the management team at Power Root is able to achieve these and continue to excel.

Oh, I forgot to mention, the company pays good dividend and has a strong balance sheet too.

I look forward to the coming quarterly earnings release.

Note: I have a position in the stock.

This company has an outstanding management team that is laser focused on growing its market share and top line, as well as continuously generates shareholder's wealth in the long term. The management has a target to double it's market cap (which also means share price) in the next 5 years. They payout good dividend too.

However, the stock price has been moving down trend in recent weeks from the high of RM5.70 to RM5.00 today. Is this a buying opportunity for investors?

Here are the few things that I will pay attention to for this company:
1. Debt level: The management team has chosen to increase its debt leverage following the acquisition of Great Wall Plastic at the end of 2012 to early 2013. Although the debt level is at manageable level and could provide tax benefit to the company, I expect the debt level to maintain at this level or even better if it is being reduced gradually using internally generated funds. This move will help reduce financial distress risk the company face when global interest rates gradually rise in 2014 (including Malaysia) as well as if sales of its property business does not perform as good as the company expected.

2. Profit margin: The venture into the food packaging business will provide higher profit margin for the company. The ability to maintain (or even increase) profit margin is crucial to the company's manufacturing business. Further improvement in this area is a good indicator of the management's ability (and hence management quality) in harvesting the synergy generated from the Great Wall Plastic acquisition.

3. Sales from Property Business: One of the thing that I like about Scientex is that the business itself is somewhat diversified - Manufacturing & Property. With the cooling measures to the property sector announced by the Malaysian federal government in Budget 2014, it is crucial to monitor the Revenue growth in the company's property business arm to see if it is affected by this measure.

With the LIM family recent acquisitions of the company's stock, it gives investors some confidence that the company is doing well and is still on track to meet its goal of doubling its share price in 5 years time. We'll see in the next quarterly financial report release.

Disclosure: I have a position in the stock.

The stock price shed another 5% this morning. I think investors are concerned with 'unknown' reasons for such as sudden drop in sales and profit. Will the coming quarters suffer similar lower sales and profit?

One of the thing the management can do in this kind of situation is to be as transparent as possible, disclosing all available information about how did the sales dropped so drastically in the past quarter. What exactly contributed to the drop and what is the future outlook? This way, it can clear some doubts of investors and at the same time show some quality of the management team in difficult times like this.

Hi calvintaneng,

I do agree with you on the basic necessities. But do remember that food and clothing are in monopolistic market, which means barrier to entry is low. Competitors can enter the market easily to share the profit in the market. Therefore, the pricing power of businesses operating in these industries are low and sometimes they have to offer sales to boost their sales but sacrifices on the profit margins.

Yes, clothing is a necessity. But if Padini is not doing well, people can easily buy from its competitors. All these said, it really depends on how Padini managed to differentiate itself from its competitors and thrive in the industry. That's how I look at this industry (as well as the food industry).

Thanks KC for doing the recalculation for 8% growth for the next 5 years & 3% growth indefinitely.

Looks like the current market price is still a good bargain even with lower intrinsic value of RM2.02 based on a lower growth rate.

So people, are you buying into Padini?

Thanks for doing the calculation!!

Yes, I agree with you that MOS is rather small for the estimation error and assumptions made (growth rate of 10% for the next 5 years, cost of equity & PE ratio for contribution from subsidiary).

After reading the article half way through, i was convinced to take a look at Kuchai's past performance and see if I can really invest some little money into the company. However, taking a quick look from this website (http://www.malaysiastock.biz/Corporate-Infomation.aspx?type=C&value=MINING&securityCode=2186), one can see that their revenue and net profit has been going through roller-coaster like swings in the past 5 years. That'll probably explain the lacklustre share performance in the past years.

Yes, the company's net asset might worth RM2.17 per share. But as long as the company does not liquidate their assets, the shareholder will not get their share of the money, regardless how much we think they are worth.

Besides, investors should look into investing in businesses that can generate wealth from their existing assets and grow, not from the view of how much they will get if the company liquidate their existing assets. Liquidating assets are often sign of poor asset management, poor management and lousy business. That is probably why the business gets very little interest from the market even though it is trading below it's Net Asset Backing (NAB) per share.

If you ask me, I would invest in a company with sound management, good future earnings growth prospect, and of course with a reasonable PE ratio, rather than a low PE ratio, poor management team. It excites me when I am part of a promising business with energetic and motivated management rather than being part of a sleeping business.

This is just me and I might be wrong as history has proven that cheap net net stocks do outperform the S&P500 in the past as quoted in the writing above. However, I still believe that these cheap net net stock has to go through some kind of business turnaround in order for the stock price to move closer to it's NAB. I am a strong believer that every stock price reflects all information available to the market (efficient market hypotheses). It is when these information change that changes the stock price.

Hi KC, I believe other reason that have contributed to Padini's stock price lacklustre which is not reflected on the financial reports is the opening of international brand outlets in Malaysia such as H&M and Uniqlo. I've been paying attention to traffic in Padini stores in the Klang Valley area myself in the past 1 year and have realised that the traffic has indeed reduced significantly, which is worrying to investors as well as potential investors (like myself).

I believe with the reason given above, the intrinsic value will be lower if you apply 8% growth rate for the next 5 years and 3% growth indefinitely (assumed Padini growth at the rate of the inflation rate in Malaysia). If you have time to make this small change to your excel sheet, do share with us what would the revised intrinsic value be. :)

And do you think Zhulian at RM3.73 undervalued now? Mr. Market has over-reacted to a single quarterly earnings report?

kcchongnz,

I was about to recommend reading Damodaran's writing about Market Risk premium.

There are 3 ways of getting the market risk premium according to this famous valuation professor at the Stern School of Business at NY University:
1. Based on Historical Equity Risk Premium
2. Based on surveys on the expectation of the future
3. Implied risk premium

One can read more about valuation and applied corporate finance from his website: http://pages.stern.nyu.edu/~adamodar/

On the website, he has also included a lot of his findings, data and excel spreadsheets that can be used for valuation. But one should note that these are US stock market data. To use some of these data for Malaysian equity market, one should also consider adding the country risk premium, which can also be found on his website.

"In the short term, the stock market behaves like a voting machine, but in the long term it acts like a weighing machine" - Benjamin Graham.

I think if you've included cash dividend payout, you've achieved a higher annual return on your portfolio. Congratulations!!

kcchongnz, beta does explain the relationship of a stock (or portfolio) return with the market risk (non-diversifiable risk). But when studying the beta, one should also consider the R-square, which measures how much the beta can be used to explain its relationship with the market risk.

I would use the beta as a simple guide or quick reference as to how risky (or volatile) the stock might be with reference to the historical return and that's all. Also note that the beta value changes as the historical time frame is used to run the regression. Furthermore, using a daily return, weekly return or monthly return for the regression will yield significant difference in the value of the beta. Daily return beta covers more information but is also affected by more noise. Maybe a monthly return beta is a better estimate.