Posted by kcchongnz > 2013-02-05 12:05 | Report Abuse

Reverse-Engineering DCF for SKP Resources
[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.]

Using the above method, the market is estimating that SKP Resources business will be stagnant and will not be growing at all for the rest of its economic life.

Posted by Junglestock > 2013-02-05 12:36 | Report Abuse

Thank you mr. Kcchongnz. I learnt a lot reading your explanation.

Posted by necro > 2013-02-05 13:27 | Report Abuse

Wow...

Posted by keanpoh > 2013-02-05 18:45 | Report Abuse

Hi kcchongnz,

Have you look at Hartalega before? This is also one good company with good management and healthy growth prospect.

Thanks for sharing your knowledge in this forum. I believe many have benefited from your write-ups, including myself.

Cheers!!

Posted by kcchongnz > 2013-02-05 21:39 | Report Abuse

keanpoh, someone else asked me about this stock before, here was my response:
Posted by kcchongnz > Dec 22, 2012 08:10 PM | Report Abuse X
I looked at harta some time ago. it has the advantage of its nitrite glove which is not subject to the rise in natural rubber price, which at certain time adversely affects the profitability of other glove makers. Hence its margins have been very high relative to others for all these times. Its net profit margin of 26% was three times that of other glove makers. This resulted in its high operating efficiencies. ROA, ROE and ROIC are all very high in the region of 2 to 3 times of others. And yet it is trading at valuation not much different from other glove makers. Top Glove is no doubt the market leader, but its operating efficiencies is far behind Harta's. Moreover its valuation is much higher than Harta and the rest. Remember what I said about a better company (if really TopGlove is, which in my opinion, i don't think so) is not necessary a better investment if it is selling at an expensive price? Now everybody is trying to produce nitrite gloves, but at present, I think Harta is still the leader.

Posted by kcchongnz > 2013-02-07 16:53 | Report Abuse

Plenitude, a deeply undervalued stock?
The net asset backing (NAB) of Plenitude, a property development company is RM3.11 per share while its share is trading at the close of RM1.79 on 6th February 2013. Is Plenitude really undervalued as judged from the price-to-book value of just 0.57? We would have to look at what constitutes its net asset value from its balance sheet.
Plenitude has RM367m cash and cash equivalent and zero debt in its balance sheet as at 30/6/2012. This cash is equivalent to RM1.36 per share, or a huge 76% of its present share price of RM1.79. It has RM214m worth of property development projects, RM251m worth of land held for future property development, and RM47m worth of investment properties. A check in its 2012 annual report shows that a lot of the land and properties were acquired some years ago and many of them have not been revaluated to its market value. Hence it is conservative enough to assume that the total value of these assets is as what it is stated in the latest annual report on 30 June 2012 with a total value of RM512m, or RM1.90 per share. It has a total of RM63.4 m as receivables and inventories in the balance sheet. Taking 50% of these as liquidation value, it is worth 18 sen per share. As for other assets such as plant and equipment, goodwill, tax recoverable etc in the amount of RM57m, it is assumed that the liquidation value is zero to be on the conservative side. Plenitude has total liabilities of RM154m, which amounts to 57 sen per share. Hence a modified Benjamin Graham net-net valuation will give a fair value of RM2.86 per share (1.36+1.90+0.18-0.57) for Plenitude, as opposed to its market price of RM1.79.
It would be silly to assume that Plenitude is going to liquidate its assets and ceases to be an on-going concern. Plenitude has a lot of valuable land in Penang, Petaling Jaya, Kuala Lumpur, and Johore, if developed, would provide a lot of future income for its shareholders. Most of this land was acquired at low costs many years ago. One can see that the gross and net margin of its property development is well above 50% and 30% respectively. However, return of equity (ROE) is not satisfactory at just 8.6% last financial year, down from 11.4% the previous year, mainly because of its low volume of development, and high cash holding. Plenitude produces huge amount of free cash flows in tenths of million consistently every year. Last year, FCF was RM25.7m, amounting to a great 12% of revenue. However, this FCF is way below its average of RM80m for the last 5 years. Will development accelerates; earnings and FCF improve further after the GE when all uncertainties are removed?
Plenitude, at RM1.79, is trading at an undemanding PE ratio of 6.7, not much different from its 10-year historical PE ratio though. But as Plenitude holds huge amount of excess cash, cash not needed for its ordinary operations, a more appropriate method of valuation is its enterprise value which less out its excess cash. In this aspect, the enterprise value is trading at an extreme low of about 2 times its earnings before interest and tax. Is it then a good investment?
A simple valuation of Plenitude using ROE of 8.6%, a required return of 10%, its NAB of RM3.11 will yield a fair value of RM2.66 (8.6%/10%*RM3.11), still about 50% above its present price of RM1.79.

Posted by necro > 2013-02-07 19:08 | Report Abuse

Bro kcchong...

Wat about Glomac and HuaYang(as One South is almost siap,at the entrance of Sungai Besi Plus Toll plaza i think this project shall rewarding a lot to Hua Yang)...

Posted by kcchongnz > 2013-02-08 22:51 | Report Abuse

necro, my opinion on your Hua Yang
Hua Yang is one of the fastest growth property companies in the last three years. Its main project is the One South Sri Kembangan development which has a GDV of RM920m, with other minor projects spread over in Johore, NS and Selangor. Revenue rose by a compounded annual rate of 82% and 62% respectively in the last two years to 306m for year ended 31/3/2012 and profit ballooned by almost 5 times to 53m. Net profit margin has expanded every year to a respectable 17.3% last year and ROE to 20%. A dissection of its ROE below shows that the high ROE is achieved with the high net profit margin, NI (17.3%) and skillful use manageable debts and good financial leverage of 1.7.
ROE=NI*AT*FL=17.3%*0.7*1.7=20%
With more projects expected to come on-stream, it is expected that asset turnover will increase and so is the ROE. Earnings per share increases every year, despite the issuance of bonus share each year to its shareholders. In the year ending 31 March 2012, EPS is 37 sen. For the three quarters ending 31 December 2012, net profit increased further to RM53.5m, or 28 sen per share with a another increase shares outstanding to 198m due to the 1 for 4 bonus issues. EPS is estimated to be about 40 sen for the full year. Its balance sheet is healthy with a debt-to-equity ratio of just 0.36 (<1), and low solvency risks with current ratio high at 3.0. However, there is no free cash flow yet as Hua Yang uses all its CFFO to buy up more land for development and other capital expenses. FCF will come soon. Hua Yang gave a dividend of 15 sen for the last few years, despite the increase in outstanding shares. If this dividend persists, this will translate to a dividend yield of 9.3%, with today’s closing price of RM1.61. Meanwhile the PE ratio is incredibly low at just 4.4. Using the simple valuation with ROE of 20%, a 12% required return,and a net tangible asset per share of RM1.69, Hua Yang should worth RM2.80 (20%/12%*1.69). Don’t you think it is a good investment?

Posted by lynncly > 2013-02-09 00:30 | Report Abuse

Hi kcchongnz and all friends here... wishing u all a happy & properous
chinese new year ! :)

Posted by kcfan > 2013-02-09 08:26 | Report Abuse

Thanks kcchongnz on the increase in words of fundamental and valuation coverage on good investment stock's.
Wishing all my investment strategic alliance have a happy and prosperous Chinese new year.

Posted by kcchongnz > 2013-02-09 10:26 | Report Abuse

Wishing everyone here a happy chinese new year.

Posted by Steve Jub > 2013-02-09 10:55 | Report Abuse

Kcchong, been started to read almost all ur post here today. Thx for sharing your fa investment technique which is really awesome. Thx for cal fair value fro some stock too. Just wondering how come some fundamental growing stock like CSL, the price is going holland? And what do u think of Ben Alec as well? Thx a lot:-)

Posted by kcchongnz > 2013-02-09 21:21 | Report Abuse

Steve, glad that you read my posts. There are all meant for sharing of knowledge, a two way endeavor. trying to get the intrinsic value of a stock is a very subjective matter. That is because the are just too many variables. But I still think that it is an essential guide before investing.
Cal and many other Chinese based companies are way undervalued if you do analysis on them and getting their intrinsic value. But how come their prices are so low? It is because they are just lack of credibility, huge issues in US, Singapore and everywhere. Are their accounts credible? I won't bet on them. Benalec I don't like the modus operadi. I value cash flows more than anything, and Benalec is not one which can provide that.

Posted by necro > 2013-02-10 02:55 | Report Abuse

Kcchong marvelous explaination...
This year could be another trend for Hua Yang to issue bonus perhaps 1 for 6...
Hurmmm....i would to ask bout Pos Malaysia...
With its 5year TRANSFORMATION PROGRAM UNDER DRB HICOM...
Is Pos now categorized "GROWTH COMPANY" since 2012 is only 1year of this transformation program...
What Intrisic value of Pos do you think Pos is if pos can maintain its ROE for another 4years?
Thanks

Posted by Steve Jub > 2013-02-10 13:34 | Report Abuse

@kcchong, i see. thanks for your thoughts and feedback. ya some of my friend also said local market more stable than oversea market. ie, in public mutual those china fund has been beaten down much also for many years while local fund (those old timer funds) has been performing pretty well overall.

just wondering, will you invest on some government link company like presbhd as GE is approaching? not risky?

Posted by Steve Jub > 2013-02-10 15:36 | Report Abuse

also wondering by presbhd roe only can see for 2011. what about 2012?

Posted by Ooi Teik Bee > 2013-02-10 22:37 | Report Abuse

Table 1: CFFO and FCF of Kfima
Year ended 31/3/2012
CFFO 132346
Capex -26434
FCF 105912
FCF/Revenue 22%
CFFO/NI 114%

Dear Kcchongnz,

I try to look into the Annual report of Kfima for 2012, I cannot find FCF. Please advise the calculation how you get it.

I got CFFO which is not the same as your figure, my CFFO is 131,051.

Please advise what is capet, its function and application.

Still try to learn from you.

Please enlighten me.

Thank you.

Ooi

Posted by kcchongnz > 2013-02-10 23:51 | Report Abuse

necro, again I don't know much about POS. Nevertheless I will try to give my opiion here.

If one looks at POS’s historical performance for the past 5 years as shown in the table 1 below, it doesn’t appear to be promising.
Table 1: Revenue and net income of POS in thousands
Year 2012 2011 2010 2009 2008
Revenue 205959 317886 349713 282756 347838
Net Income 72346 89598 84191 79782 78634

Revenue and earnings deteriorated quite obviously from year ending June 30, 2008 and 2012. It is understandable as less business and people are using the traditional postage services with the explosive usage of internet for the last few years. Dissecting its ROE for 2012, the less than satisfactory ROE of 8.1% was achieved with a very high net income margin of 35% (good) but a very low asset turnover of just 0.14 (not good).
ROE=NI*AT*FL=35%*0.14*1.67=8.1%.
I won’t be satisfied if the equity I put in a company just earns 8.1% considering the risk involved. I want at least 10%. The only thing attractive about POS is its healthy balance sheet with 544m, or RM1 per share of cash.
I think the attractiveness of POS is its future prospect with the acquisition by the DRB group, the synergy created as a member of the group. There will be a lot business it will get from the group, eg the distribution of Proton car parts. POS also commenced on other businesses such as the Islamic pawn broking business, its new initiatives of the OnDemand service and pre-paid boxes which seem to be very lucrative businesses. These new businesses will certain increase POS revenue to a great extent and hence improve its asset turnover, in turn the ROE in the future.
It is the growth stories which may make POS appear to be an attractive investment. However, with my estimate of its prospective EPS of about 25 sen per share for year ending 30 June 2013, its PE ratio is about 14, which is not that dirt cheap to me. However I believe this is another stock which won’t bring you to Holland.

Posted by kcchongnz > 2013-02-11 00:12 | Report Abuse

steve, the reason why Bursa is more "stable" is because it has been marginalized by foreign investors for decades. There is just not much participation from foreign funds. (This is just what I think as I have no figures to show here. Hey, I am just an individual investor, and I don't know everything and have no time to find out everything). You shouldn't just single out China market to compare with local market. China market is beaten down last year but the rest of the Asian markets, the US market etc out-performed the Bursa (I think). I hope others can correct me if I am wrong.
Regarding Prestariang, I don't think a change in government should affect a Bumi-controlled company which has real capability in carring out its works like Prestariang. It is not a alibaba company. I am not worried.
I can't "see" or predict Prestariang's ROE next year and the future. That is beyond what I can do, again as a small time investor living far away from home. An analyst or investment banker may be able to do so. One way is to interview the management, evaluate their future plans and try to forcast their future. But again it may not be accurate as management can tell you everything they think is good for the future of the company, but do you think they will tell them anything not good about the company? After those information provided by the management, they still have to forecast its performance, which to me is not an easy thing to do.

Posted by kcchongnz > 2013-02-11 00:39 | Report Abuse

OTB,
If you look at the cash flows statement, it does show that the last number from CFFO is 131052 thousands as stated by you. But if you study carefully on the entire statements of CFFO, it has deducted a figure of 1.294 m of "interest paid" from it. However, I was using the CFFO of the firm, not just the equity holder's cash flow for my computation of the intrinsic value of the firm (then deduce the intrinsic value of the equity, after lessing the value of the debt holder and minority interest). Hence I have to add back this "interest paid" which made the number to 132346 thousands. But the point is trying to find the IV of a firm or the equity is not a precise thing. What is the difference between 131052 and 132346? It is even less than 1%. It is no difference whichever figure you use.
Note that the CFFO is obtained from adding back to the non-cash items to the earnings (together with change in working capital etc). A company, in order to maintain its growth and competitive edge, also need to spend money to buy new plants and equipment, plus buy more land for planting of oil palm in Kfima's case. These money spend is the capital expenses (capex). So from the CFFO lss the capex, the money left behind is the free cash flow (FCF). This FCF is the money the company can distribute to sharholders as dividends; or invest in other projects, buy shares in other company, pay down debts. Without FCF, he company just can't do all these things unless borrow more money and resulting the company more risky. So can you visualize the importance of FCF?

Posted by necro > 2013-02-11 00:48 | Report Abuse

Generous bro kcchong...
Thanks... in this CNY still can give us info on Bursa...
Bro i hardly can sense another growth company in Malaysia...
I dont know if Opcom is GROWTH COMPANY cause its in ACE COMPANY and relying on TM like Redtone relying on Maxis...
Perhaps you can help me suggest few robust GROWTH COMPANY in your radar...

Psst...looking for company in the emerging of Bull...

Posted by htyeap125 > 2013-02-11 09:25 | Report Abuse

Mr KC Chong, happy new year to u........ wonder can u advise me on wat are the counters (below RM10) with good dividend yields. I think lots of newbies like me will be interested to know this, thanking u in advance........

Posted by Ooi Teik Bee > 2013-02-11 11:06 | Report Abuse

Dear Kcchongnz,

I am sorry, I still cannot get the figures correct like yours.

Please help to show me the details of the followings :-

1,294 of 'interest paid'
Capex = 26,434

Please breakdown items by items, to be added up to tally yours figures.

Thank you.

Ooi

Posted by kai8994 > 2013-02-11 11:31 | Report Abuse

Since Im loking at the FS, would like to contribute a little on the breakdown.

Capital expenditure(Capex) = Purchase of PPE + biological assets expenditure
=12,302 + 14,132

But I found the int paid is only 733. Have to wait Kc to explain further. TQ

Posted by Steve Jub > 2013-02-11 12:50 | Report Abuse

thanks kcchong. btw, if want to know a stock's year to year growth, got place or website to find out?

Posted by kcchongnz > 2013-02-11 14:24 | Report Abuse

kai8994, thanks for helping me out in this one. You are right in capex and interest paid. These are shown in the Annual Report 2012. I got the RM1294 thousands for "interest paid" in my own spreadsheet from the financial results when they first published in May 2012 and have not been audited yet. The latest one in annual report as stated by kai8994 of 733 thousands is the updated one. So the CFFO is RM131785 (131052+733) thousands instead. But it really doesn't make any difference at all in this case as th difference is negligible and valuation is not an exact science in the first place. I am very glad I now have somebody like kai8994 who can correct me. I am sure I have other mistakes too somewhere.
OTB, it was my fault for not explaining in details how I obtain the figures as it is not easy for others who have no accounting background to understand since the explanations and workout are not shown clearly. For capital expenses, you can get it from the "cash flow from investment" in the cash flow statement. Normal I use the "purchase of plant and equipment" as the only capex. But for Kfima which involves in palm oil plantation, I add the "biological assets expenditure" as explained by kai8994 before getting the FCF.
Normally one would take the CFFO as it is because this value normally includes the interest charges for the debt holders but somehow I found that in Kfima's "cash flows from operations" deducted the interest charged to obtain its final figure of CFFO. As I said I was working out the CFFO of the firm which includes both equity and debt holders and then evaluate the value of the whole firm; then only deduct the value of debt and minority interest to get the value attributed to common shareholders of the firm. I hope this helps.

Posted by Ooi Teik Bee > 2013-02-11 14:33 | Report Abuse

Dear Kai8994 and Kcchongnz,

Thank you. I just want to do this exercise myself so that I know how to apply for other stocks. I make full use of this CNY to catch up.

Best regards always,

Ooi

Posted by kcchongnz > 2013-02-11 14:36 | Report Abuse

htyeap125, I don't know much about which counters give the good dividend yields. This maybe because my most important criterion in investment is not dividend yield. Hope others can help. I remember I bought a monthly published book which you can find the tabulations of stocks which have lowest PE ratio, highest ROE, highest growth, highest dividend yields etc. I can't remember what is the title of the book but I know it is still in circulation. There are many resources in the internet which you may be able to find out also. One of them is right here in i3investor from the link below:

http://klse.i3investor.com/servlets/pfs/13154pub.jsp

Posted by kcchongnz > 2013-02-11 14:44 | Report Abuse

Steve, one way to find out the year-to-year growth of a company is through its annual report. Another one is the book I was talking about above. The other is the "stock performance guide, Malaysia" by Dynaquest. I am sure you can find out from other internet resources such as Yahoo finance and Bloomberg etc. You may have to work out the year-to-year rate of growth from the annual revenue and Net profit given yourself. For me if I analysis the company, I would have its past few years financial statements in my spreadsheet, from which I can get their growth rate in whatever form. Hope others can help here.

Posted by Steve Jub > 2013-02-11 15:08 | Report Abuse

@kcchong, thanks for that info. :)
btw, i did some fa research from your list. my short list for now is huayang, presbhd, skpres. 90% of my bullets is one the way to go in very soon. :D

Posted by necro > 2013-02-11 15:23 | Report Abuse

Waaa....
GASMY DONT WANT INCLUDE STEVE JOB?

Posted by kcchongnz > 2013-02-11 15:29 | Report Abuse

Steve Jub, I think your "short list" stocks are good investment. Btw, I got these from other forumers like tptan45, necro, kcfan, kc loh., shrek etc. I look at them in more details and I think they are good investments. Thank them for those.

Posted by Ooi Teik Bee > 2013-02-11 15:39 | Report Abuse

Dear Kcchongnz,

Net income for Kfima FY2012, your figure is profit for the year i.e. 116,543. Why you did not take the "Total comprehensive income for the year" which is 124,799 ?

Please check and advise.

Thank you.

Ooi

Posted by Steve Jub > 2013-02-11 15:41 | Report Abuse

necro, gas malaysia your list? i have look at it, it looks normal only to me. but thanks.

Posted by necro > 2013-02-11 15:45 | Report Abuse

Dividend player...
Hehe
8 March should release 4th 2012 quater..
And expected to give 6sen balance out of 11sen promises...
Number of company will release its quater results in Feb and March which should rallying the counter if dividend is announced..

Posted by Ooi Teik Bee > 2013-02-11 15:49 |

Post removed.Why?

Posted by necro > 2013-02-11 16:21 | Report Abuse

Bro kcchong thanks for analysis on POS..
hopefully new management in Pos under DRB will able to transform Pos into money making MACHINE for DRB and me...
Plus they working on Saturday now...

Bro kcchong one of the company i cant see its performance reflected in its share price is QL RESOURCES...
With its JV into Renewable Energy starting last year this should utilise usage of chicken shit from its farm..
One the problem is its chicken egg is not achieveable to low and mid income group as the packaging in 10's egg per package..but each year this company able to generate profit although its peer like Huat Lai,Lay Hong and LKTM suffer lost due to hi price for chicken food and low celing price of egg..
What is your opinion on QL bro kcchong...
Thanks

Posted by kcchongnz > 2013-02-11 16:24 | Report Abuse

OTB, often we have to look at the financial statements in more details and adjust accordingly to get a real picture of its ordinary business. For Kfima, I ignored the one-time gain foreign currency gain of 8m+ because exchange rate fluctuates every now and then and it has nothing to do with the ordinary business of Kfima. The rate can go up or down each year and nobody knows which direction for the following year. In Pintaras case I also adjusted it by taking out the "interest income" of RM3.825m from its cash in banks and the "loss" of RM4.764m from its marked-to-market value loss of its funds in the equity market. Both of these have nothing to do with its ordinary business in construction and tin metal manufacturing. I did this for the purpose of evaluating the intrinsic value of the firm, and add back the excess cash to the intrinsic value (hence I shouldn't double count the interest income from it). The gain/loss in the equity investment is not part of the ordinary business also and besides it varies up or down according to the stock market, not according to the profitability of its business. I hope this answer your question.

Posted by kcchongnz > 2013-02-11 17:11 | Report Abuse

OTB, I have a relook at what I did for Pintaras and I found that it was messy and it would be very difficult for you to figure out what i have done, because I find it difficult myself to figure out what I did before. Please don't waste your time to try to figure out. If you want to practice yourself, use the more straightforward case of Kfima. But basically the purpose is what I have described in the previous post; to separate the one-time gain/loss for those not classified as the company's ordinary business. In Pintaras case, these gain/loss in interest from banks, gain/loss in fair value in equity investments, gain/loss in foreign exchange etc. My computations were messy because the income statement is not cleared on which is the gain/loss of a particular non-ordinary business and the expense involved. Basically I had to try to figure out from the cash flow statements which can make it very subjective. Maybe not a good way to do so. Actually if I want to evaluate the intrinsic value of Pintaras, I rather use the discount cash flow for owner's earnings which I straightaway use the published net earnings of 35.8m to get the intrinsic value for the equity holder, rather than using the DCF for the firm excluding non-ordinary business gain/loss. Very messy. So now you should see valuation is so so subjective and more an art than science.

Posted by kcchongnz > 2013-02-11 17:46 | Report Abuse

necro, i really not one who knows all. I did look at QL before and that was quite some time ago (3 years). All I could deduce was the QL management is a good one. They constantly increase shareholder value and often distribute bonus issues. Growth has been very good for the last few years. Since then its share price has gone up by three times, a fantastic performance. They are the leaders of the industry. I just look at its past year performance ended 31st March 2012. It has high ROE of 16.3% (>15%) but achieved mostly with a high financial leverage of closed to 2. Net profit margin lah at 7.2% for its industry. Total borrowing is 0.7 times of equity, quite high but still manageable. However it has reasonable high cash flow coverage of 7.5 and hence should not be a big issue.
At 3.03, PE ratio is not low at 19. A good company (won't go to Holland) but I think not a good investment because of its high price. This is just my personal opinion.

Posted by necro > 2013-02-11 19:30 | Report Abuse

Yeahh...at PE 19 is quite high..
But at 13.2.2013 is exercise date of QL-WA what is implication on its share price?

Posted by Ooi Teik Bee > 2013-02-11 20:31 | Report Abuse

Dear Kcchongnz,

Thank you for your reply. Will take note and practice more often to get use to your method.

Best regards always,

Ooi

Posted by tptan45 > 2013-02-11 23:36 | Report Abuse

Kcchongnz, what do you think of online intrinsic value calculators? (Eg money chimp)
I use them quite a lot but I apply a huge discount to the growth rate of the companies as well as the value they calculated.

Posted by kai8994 > 2013-02-12 01:42 | Report Abuse

The magazine that kc mentioned may be 'Share Investment' which can be found at Popular Bookstore, RM15 each. It looks like this:

http://majalah.co/index.php?route=product/product&product_id=63

Posted by kcchongnz > 2013-02-12 09:35 | Report Abuse

tptan45, good recommendation on the money chimp site for its excellent explanation on the discount cash flows, intrinsic value (IV), margin of safety etc, and provisiion of a calculator simplistic and yet useful valuation method, good enough for use of most people. I didn't know about this before. Yes, if one intend to use the calculator, in fact any model to find the IV of a stock, it pays to be conservative, especially the growth assumptions as what you have mentioned. It has been proven again and again by statistical model that the actual growths have been way below optismistic assumptions. If you get the IV with conservative assumptions, the value should be mathematically correct because maths is precise though data and assumptions inputs aren't. Hence I don't discount the IV obtained. I do apply a reasonable high margin of safety when I buy the stock because my assumptions, though conservative, may still be wrong on the high side. My other comment is one must understand the assumptions used in the calculator, like that of money chim. For one the calculator appear to me to be assumimg all dividends are reinvested at the same rate of return as the business which you know is not. Most companies pay dividends. Another one is the discount rate, which appear to me to be using the return of the market. I normally use different discount rates. For example I may use 10% if the visibility of earnings is clear, balance sheet is healthy, cash flow is good. For more risky company, such as high volatility in earnings, huge borrowings, little cash flow etc, I may use a discount rate of 15% or more. One more comment is the calculator appear to assume the return of capital remain constant. We should realize that ROC cannot stay high for very long time because competition will erode ROC eventually. These are just my personal opinion.

Posted by iska > 2013-02-12 09:38 | Report Abuse

Hi kcchongnz, I am new to this website. Found it when I wanted to find out more info about propety companies exposed to Iskandar. Noticed u have Kimlun in your portfolio. how do u like the co at the moment? Its one of the stocks i am looking at. Hope u can provide me a quick guide on this one. Thanks.

Posted by kcchongnz > 2013-02-12 09:45 | Report Abuse

ncro, I just check the profie of QL warrant. The strike price is RM3.30. Hence at RM3.03 of QL share price now, I don't think anybody will exeercise the option. If one is bullish on QL, he might buy QL in the market and let his warrants expire. Hence there should be no effect on QL's earnings.

Posted by kcchongnz > 2013-02-12 09:55 | Report Abuse

iska, actually kimlun is not really a wonderful stock in my category. I bought Kimlun because the major shareholder Pang Tin was buying at that time because I always believe if the major shareholders buy, there is only one reason he does so; that is he believes the share is undervalued, and who knows better than him? Of course unless he fools us. The following was posted by me on Kimlun some time ago.

Posted by kcchongnz > Jan 26, 2013 01:07 PM | Report Abuse X
How is the operating efficiency of Kimlun?

ROE=Net income/Equity
=net income/sales*sales/total assets*total assets/equity
=net margin*assets turnover*financial leverage

ROE=6.5%*1.27*2.38=19.7%

ROE is high at 19.5% (>15%) achieved with reasonable asset turnover of 1.27 and a relatively high leverage of 2.4. However net profit margin, like most construction firm, is low at 6.5%. The most recent debt-to-equity ratio has increased to 0.6, which is still manageable as it is still below 1. EBIT is 20 times interest payment and hence still ok. The main problem with Kimlun is its cash flows. Due to its recent expansion and award of many jobs, much cash is tied up to its property development, receivables and other current assets, coupled with heay capital expenses. Kimlun must exercise great effort to improve its cash flows.

Posted by kcchongnz > 2013-02-12 10:01 | Report Abuse

kai8994, thanks again. That is a useful monthly magazine.

Posted by iska > 2013-02-12 11:14 | Report Abuse

kcchongnz, thanks very much for your quick reply. I am new to M'sian shares and this site. But i have read some of your postings and am very impressed. is it ok if i PM u, or perhaps u can email me at teak29@live.com? Thanks.