The main business focus for HLI should be in Malaysia. The motorcycle business is doing very well here. Contribution from Vietnam is at best a. bonus. Management here has totally no control over the operation there.
If ever Yamaha motorcycle market share improves in Vietnam it will be windfall to HLI. I believe Yamaha will recover and do better in next few years. If so, HLI shares will be worth a lot more.

Honda bikes occupy 75% of market share while Yamaha occupy only 15%. Other models together only 10%. But Honda has an earlier start than all others and hard to be toppled. This was the situation in Malaysia 10 years ago. But today Yamaha overtaken them as market leader

As I am holding a substantial block in the company I am following the company performance closely. Yes. I did talk to a few motorcycle dealers and they say the 2 new models of Yamaha are selling well. I cannot speak vietnamese but through a interpreter.

That was what I raised up in the AGM recently.

I am in Vietnam right now on a holiday. Found out that Yamaha motorcycle sales took a hit last 12 months because they are slow in introducing new models. However 2 new models have just been launched and very well received. You can expect sales to pick up next few months.

Overall dividend expected for 2020 is between 55 sens to 60 sens. I.e. 17 sens plus 38 sens. or 17sens plus 43 sens.. The company policy is to increase dividend pay out every year. It is only the quantum increase that excite us.

No. This is not a typo. Company has a vast land bank in both freehold and leasehold industrial land in good localities. They were bought some 20 to 30 years ago. The book value per sq ft is only a few ringgit. Check this out from the Annual Report and you will understand..I believe industrial land should be worth 50 to 200 ringgit pet as ft.

Common sense and a simple calculation will tell us that Hong Leong Ind is attractive for a privatization exercise. Almost all new IPO coming to market will ask for a PE of at least 15.. Average PE of listed companies in Bursa is 15.8. Some are even over 50.
The question is simple. Why should the controlling shareholder do nothing when the company is so much undervalued. There are actually only about 60 million shares in hands of minority shareholders.. Assuming the controlling shareholder is offering to buy over the 60 million shares st PE of 15 or 15.00 per share he need not put up a single sen for the exercise. The 1 billion ringgit in the company will set off any money put up to buy..

If I am the controlling shareholder I will do exactly that because the company is so profitable and the future of the motorcycle business in Malaysia and Vietnam look very promising. The company is a cash cow at the rate it is churning out cash..There is no reason the company is trading at PE of 9 or 10. The share is worth at least 15.00. Furthermore the land bank is valued at cost in the accounts. In reality, the market value is worth 50 to 100 times more.

Hence, to me this company is a best buy in the market at current price. Merry Christmas to all smart investors.

It's all a matter of price. If they want to dump the shares for a song it will be taken up.

Hong Leong Ind has been delisted from the MSCI small Cap component index effective end of November 2019. There is nothing wrong with company performance or financials. It is considered illiquid by MSCI as the daily volume is too thin. Nestle Malaysia was never included in the MSCI index until 2 years ago for the same reason. Nestled fundamentals have not changed despite the inclusion.

I believe that there are 2 to 3 millions shares held by funds linked to the MSCI and hence these funds must sell their holdings irrespective whether the company is doing well or not. Hence there will be some selling pressure for the rest of the year. However it involves only 1% of company shares and impact on share price not significant

On the other hand if the share price do fall below 10.00 it is a very good buy as the PE will be around 9 or possibly 8 if profit for 2020 continues to improve. This share is not for speculators but true investors. One can have huge gains if held for long term

MNI is a company doing recycling of old newspapers into usable newsprint. It was not doing well and the company had to be closed down. Since Hong Leong Ind has a 30% investment in the company it has to provide for its share of the total loss for 2017. However some party decided to take over MNI in 2018 and Hong Leong Ind managed to recover RM 60 million from this takeover. Hence in 2018 RM 60 million was written back as extraordinary profit. This resulted in 2018 profit of Hong Leong Ind inflated by RM 60 million.

If in near future Yamaha sales in Vietnam picks up again then the profit of Hong Leong Ind will jump to new record high year after year. The prospect is indeed very bright.

There was a write back of RM 60 million in 2018 for MNI loss provision. Hence, the actual profit for 2018 should read RM 274 million and not RM 334 million. The actual profit in 2019 is 19% increase over that of 2018. The shortfall in Vietnam contribution is more than compensated by substantial increase in Yamaha sales in Malaysia.

To me Hong Leong Ind is still a very good buy at current price. PE is only 10 while some shares are trading at over 50.

No no no. Don't forget that net profit last quarter in 2018 was boosted by write back from provision in MNI. Adjusting for the write back the EPS of 104 sens for 2019 is in fact higher than the EPS of 2018. The drop in contribution from Vietnam' is more than compensated by the boom in Yamaha sales in Malaysia. EPS has actually improved by 8% for 2019.

It is really tempting for the controlling shareholders to privatize the company as the traded price of 11.40 is way below the average reasonable PE of 15 to 18. The projected earning of 1.10 give Hong Leong Ind a PE of only 10.2. As the share is not traded actively, it is easy for anyone to push pricre down on negative news such as delisting from Shariah compliance index. In fact price went down to as low as 8.40 few months ago. I am glad to read in the paper today that BURSA may follow the new rule of Singapore Exchange whereby the offeror must offer a reasonable price in order to privatize a good company especially when the company is flushed with cash. Hong Leong Ind has over a billion in cash and a EPS of 1.10. To me it should be trading at least at a PE of 16. I wonder why the fund managers cannot see that.

I mean less than 4 years. Typo error.

Actually, Hong Leong Ind is one of the best share I have invested in other than Nestle. On July 24th 2015 I bought a block of Hong Leong Ind at 4.50 per share. As of today I have received total dividends of RM 1.84 per share. Hence my net cost is only 2.66 per share. As of this morning the share is traded at 11.26. Hence I have a profit of 8.60 per share. There is therefore a return of 323% in slightly less than a year. If I had put my money in the bank I would have got a miserable return of 16% for 4 years. Share investment can we very profitable if you invest in the right share after much effort in research by yourself. Don't follow blindly what so called experts tell you. They are wrong most of the time.

When I start accumulating Nestle in 2009 from 28.00 everyone was laughing at me. All the stock broking firms were recommending either hold or sell. None say buy. Some say I was stupid because there were so many cheaper good stocks to buy. No counters traded above 10.00 at that time. But somehow, after all my studies and research on Nestle I saw the potential upside. Hardly any retail investors saw it.. Similarly when I started accumulating Hong Leong Ind at 4.44 4 years ago many say I made a silly decision because at that time Yamaha bikes were not doing that well. Somehow I saw the potential in Yamaha bikes when many do not. I don't think I am smart but I must say I put in a lot of effort to study and analyse the market and the financial statements. I do not follow what the so called experts recommend. They are wrong most of the time. On top of it don't listen to rumours. Do your own research. Money don't come easy. Then you can see when others don't.

In many way, Hong Leong Ind is far better than Oriental Holdings. Hong Leong Ind owns the brand Yamaha through partnership with Yamaha Japan in both Malaysia and Vietnam. It is not a franchise.Oriental is not even a sole franchise holder of Honda bikes and cars but one of many distributors. The balance sheet and cash holding of Hong Leong Ind is far stronger than Oriental.The overall business of Hong Leong Ind is more focus. Either bikes or building materials. Oriental is more scattered into many areas..The money comes mainly from Honda cars sales.The others are not doing that well. Perhaps Hong Leong Ind is one of best and cheapest buy in Bursa and a fair valuation is 16.00 based on current earnings. It can be more if the Vietnam market for Yamaha bikes booms in near future.

You can consider Oriental Holding.

I will keep it until it is fairly valued.

From my 40 years of investing in stocks and shares I have been making consistent profit. As the market is imperfect, there will always be shares that are undervalued in the short term. However, in the long run, the market will revalue it to a fair price. My ability to make good money in the stock market is my effort to spot undervalued counters. I will buy the counter and keep it for sometime until it is fairly devalued. I never trade nor speculate. That is how Warren Buffett made his money too. In the long run Hong Leong Ind has to trade at a PE of no less than 15 in order to reflect its fair price. Otherwise, the controlling shareholders might as well privatize the company for a song.

If Leong Hup can command a PE of 15 in its IPO then the minimum price of Hong Leong Ind should be 15.00. I don't understand why it is trading at 10.80 now. Very interesting when some listed company is trading at PE of over 50. This is why we can make good money in long term investment as market is so imperfect in the short run.

Based on all my 40 years of investment experience I can safely say that Hong Leong Ind is about the best buy in the market based of its financials and business outlook. Trading at a PE of 10 at current market price is ridiculous when the new IPOs are offering at a PE of 15. I can't find any medium size listed company in Bursa with a cash pile of 1 billion ringgit. This is about 46% of its total balance sheet asset. Can you beat that.

if one is to observe the closing price of the counter carefully, one will see that there is a deliberate attempt to push down the price at the very last minute. Two weeks ago when price was well above 9.00 they pushed down price to close at 8.88 at the very last minute. Yesterday at last minute they pushed down the price to 8.90. It is not done for fun but with a purpose. Some parties want the price to remain very low. Why? Your guess is as good as mine.

I am wondering why company is not buying back its shares from the open market at this low price. The PE is now at around 8 to 8.5. Most companies will buy back its shares from the market if the price dropped too fast while its fundamentals remain strong. This is more so when the company is loaded with cash. Can some smart guy give an explanation to that.

Everyone has been asking the same question. Why was QLC selling aggressively in May and June this year. I think it is nothing serious or bad about it. QLC and family own over 75% of company directly and indirect;y. He is merely tidying up the loose ends here and there, Don.t read too deep into it.
The share price will continue to be depressed as Islamic funds unload their shares in the open market. However, the amount of shares they owned is not substantial. It is between 1% to 1.5% of the Paid Up shares. Once selling is over the share price should go back to 12.00 or more based on the fundamentals. Now is really a buying opportunity.

life is very very strange . So is the financial standing of a company in the eye of the financial regulatory authority. Hong Leong Industries is a classic example. A few days ago, it has been dropped from the list of Shariah Compliance companies. As a result the share price has plunged substantially as Islamic funds are required to dispose of the counter in order to comply with the new list

A lot of ignorant small shareholders started to dump their holdings as well fearing that the company is in very bad shape e.g financial insolvency or plunging profitability. A lot of small shareholders may not even read the financials of the company

However, if one is to study the latest financials of the company ( quarter ending 30th June 2016 ) one will realize how very strong the company is financially. The company has a small overdraft of only RM 50 million but a bank balance of RM 911 million. Capital reserves is many times the paid up capital. Prospective earning per share is between 90 sens to 1.10. Their local Yamaha motorcycle business is doing very well while their Vietnam side is doing well. So at the closing price of 9,36 today the share is trading at a PE of less than 10 and a prospective dividend yield of over 5%p.a.

The thing that got the company to be dropped from the Shariah Compliance list is simply because it has too much cash deposited in conventional banking institutions. According to one of the rules cash holdings in banks must not exceed 33% of company's total assets. As of 30/06/2018 total assets of company is RM 2,122 million. Cash deposited in Bank is RM 911 million. Hence the percentage ratio is 43%.

On the other hand, in 30/06/2017, total assets was RM 1,981 million but cash holdings in banks was only RM 609 million. Hence the percentage ratio was only 31% which is still below the 33% limit.

Hence, the company has a problem but it is a happy problem. There are two alternatives to bring it back to the Shariah compliance list in the next review. Firstly, they can put their cash holdings in Islamic banking or Islamic financial instruments. ( these deposits are exempted from calculation of the 33% limit ). Secondly, they can pay out a special bonus dividend soon and thereafter maintain a higher dividend payout ratio. This is the most logical alternative as it rewards and encourage minority shareholders, This policy will also boost the price of the share as potential investors are all going after high dividend shares.

Having a healthy cash balance for all companies is good management. However, having a very substantial cash balance becomes bad management. If there is no immediate need for massive capital expenditure why not reward the shareholders. To be honest, having 43% of total company assets in cash is way over prudent financial management.

At current price, the company is a very good buy based on current financial and business fundamentals.

Well said. In a way what you are saying basically endorsed what I have said in all my previous write ups. Anyone buying into this company is buying the business prospect of Yamaha motorcycles in Vietnam and Malaysia. One can forget the building material business as it contributes peanut to the company's net profit.(ie 3%) In fact, the motorcycle business is doing so well that the company is on an auto pilot mode. It is the only company in Bursa that does not have a full time CEO for many years now. The chairman is a non executive chairman and earns a directors fee only. Hence total directors remuneration is very low in relation to total revenue and profits.This is indeed very kind to the minority shareholders as company expenses are minimized.

If only the company can improve on two areas the stock can really fly and reach a PE of 15 to 18.

Firstly. in its annual reports and quarterly announcement the management need to be far more transparent. For example, one can never find out its actual motorcycle sales and their market share in both the Malaysian and Vietnam markets. In the annual report motorcycle sales and profit are lumped with those of the ceramic tiles business disguised as contribution from Consumer Products.
Obviously, this not fair to the minority shareholder reading the reports. When the company has to write off its investment in Malaysia Newsprint in 2017, no warnings were given in previous reports that the newsprint business was doing so badly. Hence, future annual reports need substantial improvement in transparency.

Secondly, the dividend payout rate can be much higher as the cash pile is building up too fast. The return on shareholders fund is in fact declining as shareholders fund is growing faster than profits. Since the company has no need of immediate capital expenditure or acquisitions the cash can be returned to shareholders by means of a more generous dividend policy. Based on an EPS of 1.00 a dividend of 75 sens or more is not unreasonable.

I hope the board will take note of what we say here and respond accordingly.

So far no one has ever taken the trouble to examine and study the market value versus the book value of the land bank held by Hong Leong Industries. The land bank totaling 18.64 million sq ft of industrial land acquired by the group more than 15 to 25 years ago has never been revalued. If one is to study the acquisition cost of the various plots of land from the annual reports one will find that the book value as reported to be extremely low in relation to current market valuation. Furthermore, most of the plots are located within or nearby urban settings.

The following can be found from the latest annual reports;

6.14 million sq ft freehold industrial land with total book value of RM 45.3 million.
Hence, book value per sq ft is RM 7.38

10.5 million sq ft leasehold industrial land with book value of RM 24.0 million
Hence, book value per sq ft is RM 2.30

If the company is to revalue or dispose of the land today it is likely to fetch at least RM 150.00 per sq ft for freehold land and RM 80.00 for leasehold land. (This is just a very conservative assumption) If this be the case the revaluation is as follows;

6.14 million sq ft freehold land @ RM 150 per sq ft is valued at RM 921 million
10.5 million sq ft leasehold land @ RM 80 per sq ft is valued at RM 840 million

Total current market value is RM 1,761 million
Total book value at cost is RM 69.3 million
Total revaluation surplus is RM 1,692 million

The total shareholders fund as of 31st March is RM 1,563 million. With the revaluation surplus, the shareholders fund would increased by more than 100% to RM 3,255 million. The Net Asset backing per share would be more than RM 9.00.

As a company is always treated as a on going concern, the intrinsic value of its assets is not of immediate importance. It is only important in the event of the takeover party liquidating the assets for extraordinary capital gain. Hence, Hong Leong Industries is very attractive for privatization both for its under valued land bank and the huge pile of cash holdings. As a minority shareholder I hope privatization would never happened as this is truly a very strong and profitable company.

With zero rated GST effective from June 2018, sales of motorcycles will spike in the next 12 months or more. One can expect the company to report very good financial results for the next few quarters. This company is under rated and there is much room for its share price to reflect its true potential value.

Review of company,s performance based on 3rd quarter results.

(1) sales
9 months 2018 RM 1.9 billion (+11% )
9 months 2017 RM 1.7 billion (+6% )
9 months 2016 RM 1.6 billion (0 % )
9 months 2015 RM 1.6 billion

(2) Net profit due to HLI shareholers
9 months 2018 RM 228 million (+10%)
9 months 2017 RM 207 million (+16%)
9 months 2016 RM 178 million (+37%)
9 months 2015 RM 130 million (+ 5%)
9 months 2014 RM 124 million (+28%)
9 months 2014 RM 97 million

The profit to shareholders have been increasing every year The only exception was in 2017 when company has to write off RM 176 million due to its investment loss in a newsprint company in the final quarter of 2017. Hence, the final profit results for 2018 will show an increase of about 200% over that of 2017.
Projected net profit to shareholders for 2018 RM 310 million ( EPS $1.00)
Actual net profit to shareholders for 2017 RM 103 million ( EPS $0.33)

The company's shares is currently trading at a PE of around 11. A fairer PE should be around 15. Hence there is still a lot of room for the share price to increase given the current low valuation and fantastic profit growth potential.

(3) Motorcycle business profit contrbution

Although HLI is better known as a building material manufacturer and supplier, the fact is that the building material business contributes to only about 4% of total net profit. 96% of total group profit actually comes from the motorcycle business. That is why the profit potential for future profit growth is tremendous given the fact that its Yamaha brand is doing very well both locally and in Vietnam.
Perhaps, the company should be renamed as Hong Leong Yamaha Industries to reflect the importance of its motorcycle business.
9 months total 2018 9 months total 2017 9 months total 2016
Motorcycle profit (Local) RM 171.9 million RM 119.5 million RM 97 million
Motorcycle profit (Vietnam) RM 97 million RM 108 million RM 79 million
Total motorcycle profit RM 268.9 million RM 227.5 million RM 176 million
HLI Group profit RM 279 million RM 243 million RM 207 million
Overall motorcycle share 96.3% 93.6% 85%

The profit contribution from Yamaha Vietnam varies quite a bit from quarter to quarter. There should not be undue alarm that the 3rd quarter 2018 profits dropped quite a fair bit Just look at the following,
Q1 2017 RM 30.7 million
Q2 2017 RM 37,3 million
Q3 2017 RM 40.6 million
Q4 2017 RM 25.0 million
Q1 2018 RM 32.8 million
Q2 2018 RM 38.4 million
Q3 2018 RM 26.0 million
Q4 2018 RM 32.4 million (projected)

The motorcycle business is very secured and profitable as there is always a demand irrespective of the state of the economy. With a strong and well accepted brand like Yamaha, competition is limited. The only real competitor is Honda. In recent years Yamaha is eating into Honda's market share in the local market as well as in Vietnam. Other brands are not as successful in gaining market share. Demand in the coming months in Malaysia would even be better with the 0 rated GST.

(4) Group cash position

One of the strongest item in the balance sheet is the speed and quantum of cash accumulation over the last few years. There are not many listed companies that can build up their cash holdings so consistently and so rapidly. Net cash position ( Cash in bank less bank borrowings) is as follows

As of june 2015 RM 170 million
As of june 2016 RM 271 million
As of june 2017 RM 425 million
1st Q 2018 RM 512 million
2nd Q 2018 RM 568 million
3rd Q 2018 RM 645 million
As of june 2018 RM 720 million (projected)

In 2018 financial year cash holding is increasing at average of RM 73.3 million per quarter. The net cash backing per share is about RM 2.00. Actually, accumulating so much cash without any plan for immediate capital expenditure is poor cash management. The excessive cash pile should be returned to shareholders in the form of more generous dividends. The current dividend payout ratio is far too conservative. Management should consider rewarding shareholders and maximizing their share values through a high dividend payout. A generous dividend payout always lead to higher PE awarded.

I may never know in person who 3iii is, but the message you posted on 29th April 2018 is simply fantastic. There is so much wisdom in what you said. Very often, we take profit on a good company like Nestle by selling too soon. Then, with the sales proceeds, we ended up buying a lousy stock and lose money. On the other hand, the good stock that we sold, its share price keep going up. Normally, we are unlikely to buy back the stock which we have sold at a much lower price. I have known so many people who bought Nestle at 60.00 to 70.00 and then sold their shares when Nestle hit 90.00. To them, not in their wildest dream would they expect Nestle to cross the 100.00 mark so soon. Certainly, they will not buy back the stock at current price no matter how good the share is going to be.

As an easy way out, they will start blaming their stock brokering firm's write up which recommended 'sell' as the PE even at 90.00 was considered far too high. Their target price then was much lower. One must decide the value of the stock instead of following blindly what the professionals recommended. They are not always right. In this case almost all of them are wrong.

If one happens to own some Nestle shares now and want to take some profit, it may be a better strategy just to sell a small amount of the shares and just hold on to the rest for long term. It is wise to keep a very good share like Nestle for long term investment. Yes, it is relatively very expensive in terms of its very high PE but this a price one has to pay for very high quality stock. To say that Nestle should trade at the average market PE of 18 or 20 is nothing but a dream.

Nestle has finally taken root at a price range between 149.00 and 151.00.This price is unlikely to go up or down very much for the rest of the year if Nestle keeps up with its steady profit performance and stays put as a component stock in the MSCI World index. All the talk that it is over priced and hence should have a major price correction downwards will not happened.

The reason is very simple to understand although most stock analysts failed to see it or refuse to accept it. This is the simple supply and demand economic theory. The demand for Nestle shares will continue to increase as foreign funds (especially ETFs linked to the MSCI World Index) slowly but surely keep accumulating the shares. They are required to include Nestle as part of their fund's portfolio no matter how expensive Nestle shares are. Similarly, if Nestle is dropped from the Index they will have no alternative but to dumped the stock.

The portfolio value( AUM ) of oversea Exchange Traded Funds ( ETF ) come up to a few trillion US dollars. Even comprising as a very small % of the amount in their portfolio can translate to millions of Nestle shares. These purchase of theirs will not be for speculation or trading and they are likely to hold on to their shares even if the price of Nestle goes up further.

On the other hand, the availability of Nestle shares is very limited. All who wanted to take profit on Nestle have taken it long time ago especially around the 100.00 level. The remaining shareholders are quite committed to hold on to their shares for whatever reasons.
That is why Nestle share price is relatively expensive and will remain so for a long time to come.

thank you ranger2410. I may never know who you are but you are certainly a very smart and experienced investor. After what you mentioned about Amazon stock price I made a detailed analysis on it. You know something. Over a ten year period, the price trend is almost identical to that of Nestle Malaysia. Amazon share price was stuck at around US$ 250 level for many years before it moves up to the US$ 1,500 recently. However the move upwards is fast and sharp in 2017 and early 2018.

Nestle Malaysia share price over a ten years period is something like this. The price was stuck at about RM 25.00 for most part of the early years. The move upward to the current RM 145.00 level is very fast and sharp. It mainly happened in late 2017 and early 2018.

When institutional investors have a very high expectation on the future profitability and growth of a company the historical PE ratio is totally irrelevant. That is why Amazon can trade at a PE of 340.
As Nestle Malaysia is now trading at a PE above the 40 level all our local professionals and lay analysts are making a big fuss over the high PE over and over again. In fact some brokerage houses are still insisting that the target price for Nestle should be between 85.00 to 95.00. These analysts are in a world of their own and refuse to face the reality that the price is now well over 100.00.

Believe it or not. Nestle Malaysia share price can still go up further especially in 2018. The company is still very under rated. Its growth and profit potential in the near future have not been appreciated by Malaysian investors. The overseas fund managers can see the company's potential and hence the sudden rush to accumulate this share especially since Nestle Malaysia is now listed on the MSCI worldwide index.

EPF members will end up as the biggest losers if the their fund managers continue to sell Nestle shares as they have over the last five months. Every time they sell the shares the price goes up the following trading day and this has been happening over the last five months. At this rate of selling EPF will very soon ceased to be a substantial shareholder or maybe not as a shareholder at all. I really hope EPF will stop selling but accumulate more shares instead. This however is just my personal honest opinion and I can still be wrong.

Actually there is nothing unusual for Nestle going up the way it is going. It is simply the dynamics of supply and demand forces. I believe that there is a lot of demand from oversea sovereign and pension funds for the stock. The demand is unlikely to come from local funds or retail investors. This demand if not fulfilled will continue to exert a pull factor for the price to go up further.

On the other hand, there is hardly any shares or sellers in the market. Since the IPO in 1989 the number of shares remains at 234.5 million units. No bonus or rights or special placement were made since then. Nestle SA (the holding company ) holds 73% and about 23% are held by funds, corporations and GLCs. The free float in the public hands is maybe 2% to 4%. The weak holders of the shares have more or less unloaded all their position.

The only good news to the buyers is that EPF is still selling bit by bit everyday in the open market. In fact EPF has sold almost 5 million Nestle shares since October last year. If EPF stops selling one cannot easily get more than 50,000 shares a day in the open market. EPF's loss is the gain to the oversea buyers.

All the talk of high PEs and overvaluation are not relevant at this point of time. One can talk about it over and over again and the price will still go up. It is unlikely that the price of Nestle will collapse in the near future due to (1) there is no syndicate manipulating the price. The counter is far far too expensive for syndicates to fool around with it. (2) If one is to observe the buying trend over the past 5 months one can see that the stock is actually being accumulated by some very powerful buyers. There has been hardly any profit taking. The price goes up, consolidate for a while and goes up again. (3) Nestle is basically a super blue chip counter. For such a counter to command a very high PE rating is not unusual. There is hardly any huge multi national firms having a public listed subsidiary in our country. Nestle is special and unique to Malaysians.

For those still holding on to their Nestle shares I would advise you to hold on to the shares for long term investment. It may be the best thing you would have ever done with your hard earned money.

Believe it or not. Nestle has still a long way from its full potential target price. It will just go up and up for 2018 at least. This is not due to speculation. It is because the fundamentals and potential of the company is still underrated. (Forget all the talk of high historical PEs) Secondly, there is hardly any share for sale in the open market.( If you buy 100,000 shares, the price will shoot up to the sky.) All weak holders have been eliminated by now. Those holding the shares now are very staunch supporters. Thirdly, I suspect some big overseas pension funds have bought substantial blocks of Nestle and they intend to hold on to the shares for a long time to come. Thanks to the stock being added to the MSCI Global index.

Some people have suggested that Nestle is trading at a PE of 42 and hence is too high to hold on to the share. They should follow the example of EPF and sell as soon as possible to lock in their profits. Indeed it is true that EPF has been actively selling Nestle shares since the share started its meteoric rise 5 months ago. On 9th October 2017 EPF had 20.38 million shares or 8.7% of the company. By 29th January it was left with 16.33 million shares or 6.9% of the company. Hence they have disposed 4 million shares within the 4 months period. Needless to say their average selling price is much lower than the current market price of 117.30. The opportunity cost to EPF is fairly substantial.
This goes to show that professional fund managers and stock analyses are not always right and the lay investors need not follow their advice all the time. In fact almost all the stock brokerage houses set the target price for Nestle at around 85.00 late last year. This shows how off the mark they are. And they are the experts in forecasting stock prices.
In the last few sessions EPF has turn buyer of Nestle shares. I think they are now taking the right step by accumulating the shares again but it is a painful one as the share price has gone up a lot.
The lesson we can learn from Nestle share price is not to rely solely on historical PE alone. Look ahead and see what the prospective PE is if the company continues to grow in profitability. Some foreign investors can see that in Nestle Malaysia and I believe that they have been aggressively accumulating the stock.

Nestle has a very special relationship with Malaysia and Malaysians The relationship is a win win one as well as mutually beneficial. Unlike some foreign investors, actions by Nestle speak better than words. Just consider the following;(1) The Nestle subsidiary in Malaysia has the privilege of being one of only four oversea subsidiaries that are listed in their respective countries stock markets. This means that Malaysians can benefit in the local company'business by being its shareholders. The other oversea subsidiaries( more than 180 of them ) are 100% owned by Nestle SA. (2) Nestle has chosen Malaysia as its worldwide center of excellence for production of halal food products. Hence, Nestle Malaysia can easily export to all Islamic countries around the world especially Middle East countries. This helps to bring in more than 1 billion ringgit of valuable foreign exchange to Malaysia every year (3) Malaysia has been recently chosen as one of three worldwide raw material procurement centers. Hence Nestle Malaysia can be guaranteed the easy availability and best prices of its raw materials. (4) Nestle has been in the country for than 100 years, much longer than many other oversea subsidiaries. (5) Nestle has been actively helping local farmers to produce crops like chili and paddy so as to ensure a steady supply and demand for both parties at fair market prices (6) Nestle has also been helping reforestation by tree planting in many parts of the country.
On the other hand, Malaysia has contributed in many ways to the success of Nestle in Malaysia. (1) Malaysia provides good infrastructure and political stability for all companies to do business. (2) Malaysia economic growth has been steady since independence and people's purchasing power has been increasing. Hence the growing demand for Nestle's products. Sales has already gone over RM 5 billion a year Incidentally, Malaysians drink the most cups of Milo per capita in the world. (3) Malaysia also provides generous tax incentives in the form of capital reinvestment allowances to companies that expand or build new production facilities. Nestle has benefited from this. (4) Malaysia has a young and skillful labor force which Nestle has further trained. There are more than 5,500 people employed by Nestle Malaysia.
Hence when Malaysians invest in the shares of Nestle Malaysia one must take a long term view. Do not be bothered too much with high historical PEs but rather on increasing profits in future years. What is important is prospective PEs in coming years.I have known people who have been allotted shares from Nestle IPO at 5.60 in 1989 and are still keeping them. Why not sell to take profit since it has gone pass 100.00. One simple answer. " I believe in Nestle and in Malaysia. "

The sales and profit figures that just came out from the second quarter is very impressive but widely expected. For the second quarter, sales grow by 12.6% while net profit up by 26%. EPS is up 20% (after netting out minority interest)For the half year results, sales is up 12% and net profit up 28%. EPS is up 23%. Based on first half year performance the EPS for financial year ending 2018 should be at least 1.10. At current market price the company is trading at a prospective PE of around 8.5 or so. We can expect dividend to increase accordingly to 55 sens per share (that is we are assuming the board is reasonable to minority shareholders and not hoard cash in the kitty) Looking at the profit contribution from the motorcycle business the local sales and profit are very impressive. Profit from local motorcycle business for half year increased by 50% while the Vietnam profit increased by 4.7%. All in all the motorcycle profit contributes more than 90% of overall group profit.The motorcycle business will be the money spinner and cash cow for the group for many years to come. The building materials business will continue to decline in terms of contribution despite high sales volume. What is even more fantastic about the balance sheet of the company is its net cash position (cash in bank less bank borrowing). It has now increased from RM 425 million from 6 months ago to RM 568 million. If the Board is really generous it can even declare a special dividend of 50 sens or so without any problem because by June 2018 the cash will go up even further.( I am hopeful they will look into this) I can say with confidence that Hong Leong Industries is one of the best buy in the market at the current price.

While PE ratio and Dividend yield are good general guidelines for determining which share to buy. in reality it may not always be the case. You take Nestle and BAT and compare them. BAT has a much lower PE ratio and higher Dividend yield at current price and yet is is trading at a much lower price than Nestle. In fact while Nestle price is on the increase BAT share price is on the decline since 2016. Why? It is simply that investors are not looking at historical figures but the future prospect of the company's business and profitability. For Nestle, if future profit can grow by double digits every year, then its PE ratio at current price will steadily decline and dividend payout will increase thus pushing up its dividend yield. On the other hand, investors may not see any future prospect for the tobacco business and hence they will sell off their BAT shares no matter what the historical PE may be. The other things investors are paying a heavy premium on Nestle share price are as follows; (1) a track record of ever increasing revenue and profit every year since its IPO (2) A wide range of products that have become household names and almost impossible for competitors to penetrate their market share. (3) Solid backing from a large and reputable parent company not only in areas of financing and technology but also in raw material procurement at best prices. (4) Excellent and competent management at all levels of operation in the company.
The recent run up in Nestle share prices is not due to syndicates speculating on the counter but rather accumulation of shares from overseas managed funds. In such case the share price will not collapse overnight as predicted by some people but will maintain at a certain price level before the next round of run up. There is no reason to sell Nestle for quick profit if one is taking a long term view on the company.