Posted by kcchongnz > 2013-08-17 14:41 | Report Abuse

Posted by faberlicious > Aug 17, 2013 12:44 PM | Report Abuse
Hi KC,I refer to Homeritz
How did u get the 203% in CFFO 20071 203% and 45% in "The quality of the business comes from its pricing power as shown by its high gross margin of 45%.

Don't get your question on CFFO. Can you check and see what is your question again?

Regarding gross profit margin, not very sure if it is right as there is no item on "cost of goods sold" as a line in the income statement. I took the gross profit as the revenue less "change in inventories" and "raw materials used".

So gross margin is gross profit/revenue.

Posted by faberlicious > 2013-08-17 21:05 | Report Abuse

Ok.I paste here your posting

I have already described the great business Homeritz has. Can we use the 5 rules of cold Eye to evaluate if Homeritz is a good buy.

Homeriz 0.460 16/08/2013
1 ROE 20.2% >12% Yes
Net profit 14698
Equity 72785
2 Cash flows
(CFFO 20071 203% Yes)
FCF 18925 >NP Yes
3 PE ratio 6.3 <8 Yes
Price 0.460
EPS 0.07349
4 Dividend yield
Dividend , sen 0.030
Dividend yield 6.5% >3% Yes
5 Price/NTA 1.3 <1.5 ok
NTA 0.36

My question refers to that(in brackets).Macam mana u dapat itu 203%?

Posted by ladzatz > 2013-08-18 00:09 | Report Abuse

5 Price/NTA 1.3 <1.5 ok?

so
Price/NTA
= 0.46/0.38
= 1.21 ...which < 1.5 so ...ok?

so max price should be 0.38 x 1.5 = RM 0.57
so that
Price/NTA
= 0.57 / 0.38
(latest nta=0.38...not 0.36...based on quarterly)
so that
= 1.5...max ratio

kcchong u stated that :
The intrinsic value of Homeritz using the EPV is 64 sen per share

---however the 5 rules doesn't stated that...isn't it?

so the max price based on the 5th rules is now being maxed again???

=> 0.38 => 0.46 => 0.57 => 0.64
the 4th price doesn't follow the rules...

whatever it is called, if price = 0.64
...
Price/NTA

= now, Price/NTA NTA which is now still 38 cents
= 0.64/0.38
= 1.684 which is >1.5 which is not OK?

but if u simply change that NTA to NTA' where NTA'= 64 cents, then

Price/NTA
= New Price / NTA'
= New Price / 0.64

so to fullfill the 5th rules with max ratio = 1.5
we'll get this equation

New Price / 0.64 = 1.5
New Price = 1.5 x 0.64
= RM 0.96
New Price which is = max price = RM 0.96 ?

by the way 0.96/0.38 = 2.53


this means the 5th rule has changed from

Price/NTA < 1.5 is OK

into new rule which is

Price/NTA < 2.53 is OK ??????????????

this is too much kcchong...or should the nta in accounting be diminished and change into "net intrinsic value"

Posted by Ooi Teik Bee > 2013-08-18 00:12 | Report Abuse

Dear Mr Tan KW,

The chart for Homeriz is very good, the price is breaking new high if 0.46 is broken. There is a good chance the price can hit 0.68. I like this type of chart.

Thank you.
Ooi

Posted by ladzatz > 2013-08-18 00:34 | Report Abuse

2nd question kcchong is...fr your chart, what made it jump down from jan 2010 at about 65 cents to about 22 cents just few months before jan 2012?

Posted by ladzatz > 2013-08-18 00:51 | Report Abuse

well i think i answer mysel the 2nd question. After ichecked the no.of shares has increase 3 times which is from 67m to 193m (then few months latter into 200m)..may be that's why...
----
now this give rise to 3rd question...why it doesn't depreciate just after the increase in no of share 'immediately'???...why fr 65 to 22 cents in 2 years?
----
is it because the directors/major shareholders sell slowly? within 2 years with most approximately "uniformly" downward?
Doesn't this shows that the directors/majority shareholders are manipulative?
----
within 2 years falls almost uniformly...this is what u called

"slow torture" + "acute torment"
-----
buy but take profit not too much or u'll be tortured for long period
purposefully deliberately.

Posted by ladzatz > 2013-08-18 00:54 | Report Abuse

or just may be the price increases because promoted by kcchong and agreed by ooi??? if that's the case...no need to ask any knowledge fr them...just follow-lah...

Posted by ladzatz > 2013-08-18 01:02 | Report Abuse

by the way the daily volume is very thin for a penny stock with no of shares 200m...the major shareholder/directors may be waiting to repeat what they have done ...yes may be at 68 cents...then someone will suffer like before
----
buy buy but careful don't play2

Posted by kcchongnz > 2013-08-18 02:39 | Report Abuse

Posted by faberlicious > Aug 17, 2013 09:05 PM | Report Abuse
Ok.I paste here your posting

2 Cash flows
(CFFO 20071 203% Yes)
FCF 18925 >NP Yes

My question refers to that(in brackets).Macam mana u dapat itu 203%?


I also don't know how I got that. It should read:
CFFO/NI= 20071/16750=120%. Typing error in that percentage.

The conclusion remains as CFFO/NI>100%.

Posted by kcchongnz > 2013-08-18 02:55 | Report Abuse

Posted by ladzatz > Aug 18, 2013 12:34 AM | Report Abuse
2nd question kcchong is...fr your chart, what made it jump down from jan 2010 at about 65 cents to about 22 cents just few months before jan 2012?


DIDN'T I SAY A DROP OF ABOUT 50% OF ITS NET PROFIT?


Posted by ladzatz > Aug 18, 2013 12:51 AM | Report Abuse
well i think i answer mysel the 2nd question. After ichecked the no.of shares has increase 3 times which is from 67m to 193m (then few months latter into 200m)..may be that's why...

THE PRICE CHART FROM YAHOO FINANCE HAS ADJUSTED FOR BONUS, RIGHTS DIVIDEND ETC, I BELIEVE. DO YOU SEE ANY SUDDEN DROP IN PRICE FROM 65 SEN TO 22 SEN?
----
now this give rise to 3rd question...why it doesn't depreciate just after the increase in no of share 'immediately'???...why fr 65 to 22 cents in 2 years?

YOU ARE CONTRADICTING YOURSELF HERE, AREN'T YOU?
----
is it because the directors/major shareholders sell slowly? within 2 years with most approximately "uniformly" downward?
Doesn't this shows that the directors/majority shareholders are manipulative?

GOOD TO QUESTION YOURSELF BEFORE BUYING BUT DO YOU SEE THE CHANGE IN THEIR SHAREHOLDINGS?
----
within 2 years falls almost uniformly...this is what u called

"slow torture" + "acute torment"

YEAH BE CAREFUL OF GETTING YOURSELF INTO THIS SITUATION. BUT HAVE I ASKED YOU TO BUY HOMERITZ TO GET YOU INTO THIS SITUATION?
-----
buy but take profit not too much or u'll be tortured for long period
purposefully deliberately.


REGARDING YOUR OTHER QUESTIONS, OBVIOUSLY YOU ARE CONFUSED WITH WHAT "INTRINSIC VALUE" IS AND WHAT THE 5-YARDSTICKS OF COLDEYE TRYING TO MEASURE. GO GOOGLE WHAT IS "INTRINSIC VALUE" IS AND WHAT ARE THE WAYS OF TRYING TO GET THIS VALUE.

Posted by inwest88 > 2013-08-18 07:08 | Report Abuse

kc, i f you take a look at the Muhibbah thread, it seems that the price will jump following the announcement by the PM on a big job. What do you think ? Just to get your opinion. Normally I do not subscribe tot he herd mentality.

Posted by faberlicious > 2013-08-18 07:51 | Report Abuse

Ah,now the equation and percentage baru betul. KC,terima kasih.Btw,got another question, does 'purchase of intangible assets' included in capex calculation?

Posted by Robert123 > 2013-08-18 08:16 | Report Abuse

OTB, there is a strong resistance at 46.5 sen, expect to pull back before resume uptrend....

Posted by Robert123 > 2013-08-18 08:38 | Report Abuse

KCCHONGNZ,been following ur postings for few months, amaze at ur stock picks, will ask ur FA comments on SCGM and Kheesan.... No hurry, just to learn ....

Posted by kcchongnz > 2013-08-18 10:01 | Report Abuse

TanKW,
You are damn great!

Btw, TanKW posted so many good articles on FA. To me they are better than what we wrote about in our stock picks. Just wonder anybody interested in learning FA read them.

Posted by kcchongnz > 2013-08-18 10:04 | Report Abuse

Posted by inwest88 > Aug 18, 2013 07:08 AM | Report Abuse
kc, i f you take a look at the Muhibbah thread, it seems that the price will jump following the announcement by the PM on a big job. What do you think ? Just to get your opinion. Normally I do not subscribe tot he herd mentality.

inwest88, by now you should know about my investment philosophy, haven't you?

Tell you what, I would normally pay attention if just one of the forumer talks about it and nobody else pay attention. When everybody talks about it, I normally don't bother. It is just me.

Posted by bsngpg > 2013-08-18 10:08 | Report Abuse

Hi Tan KW and KC Chong: where did you read that Cold Eye mentions about the 5 yardsticks. Please post that article as I am very interested to read in detail. Thank you very much.

Posted by Ooi Teik Bee > 2013-08-18 11:05 | Report Abuse

Posted by Robert123 > Aug 18, 2013 08:16 AM | Report Abuse

OTB, there is a strong resistance at 46.5 sen, expect to pull back before resume uptrend....

Ans : I think your chart is not adjusted for dividend, please perform price adjustment settings. I just adjusted my chart, the major resistance is at 0.495. This is also a pivot line to form a Cup. Normally, it is difficult to cross unless there is a big volume.

Thank you.
Ooi

Posted by ladzatz > 2013-08-18 15:36 | Report Abuse

inwest...that 3 links articles on muhibah are all fakes and contradict each other with poor english, the reports preceded bursa/the company/sc...the report is made by china and and taiwan media...what the hell, the report is in biz times..u cannot find any...completely fake with one person using 7 or 8 (still counting) different accounts writing the links over and over again in many rooms...after being reported as abuse and deleted...then came again someone with different names repeating the links hundred times...now your money your choice

Posted by inwest88 > 2013-08-18 15:41 | Report Abuse

Dont worry, I will not go into Muhibah. Was just gettign kc's opinion, that's all. Like kc says, if everyone talk about something, better avoid it.

Posted by penunggu > 2013-08-18 15:47 | Report Abuse

maybe he is trying to blend internet marketing strategies into stock market perhaps...

hahaha, copywriting failed badly....

Posted by xyxy8 > 2013-08-18 17:35 | Report Abuse

Hi kcchong. Is it good that drbhicom is selling uni asia life ass. to reduce its debts? If it good, then I will jump in tomorrow. Thanks.

Posted by kcchongnz > 2013-08-18 17:49 | Report Abuse

Posted by xyxy8 > Aug 18, 2013 05:35 PM | Report Abuse
Hi kcchong. Is it good that drbhicom is selling uni asia life ass. to reduce its debts? If it good, then I will jump in tomorrow. Thanks.

I don't know much about this. but since you asked, I give it a try.

Selling off a non core business to me is good so that management can concentrate to do well in its core business. The best thing is to spin it off as another listed company (is Uni Asia life insurance a public listed company itself?). It is even better for the spin off company, ie Uni Asia.

But does that justify you "jumping in"? I have no idea.

Posted by kcchongnz > 2013-08-18 18:14 | Report Abuse

SCGM?
Posted by Robert123 > Aug 18, 2013 08:38 AM | Report Abuse
KCCHONGNZ,been following ur postings for few months, amaze at ur stock picks, will ask ur FA comments on SCGM and Kheesan.... No hurry, just to learn ....

Someone wrote to me before asking about SCGM. So I just do this one here.

KC,
Nothing spectacular about SCGM's business. This is another one of those companies making plastic products and packaging. But I m looking at it more in terms of value stock. Based on their latest numbers, it does seem like they are turning around their business with some good numbers in 2013 especially growth in cashflows. They are almost debt free with a strong balance sheet.

Growth rate
Revenue 18%
Operating income 32%
Net profit 28%
Equity 9%
Cash flows 178%

ROIC 12.2%
EV/Ebit, 7.5
EV/Ebitda 5.4
FCF/Sales 9%
　
I know you dont use TA much, but I see some sign of strength from technical standpoint as director was accumulating when stock dipped to around RM 0.955, so this would be a good support level.
Rgds


And the following was my reply:

Looking at your numbers, SCGM appears to be great in term of its last growth in revenue and earnings. Its operating efficiencies in terms of ROE, ROIC are ok lah for last year, but there were very poor before that. Cash flows was excellent but that was only for last year. So it has not shown the consistency yet. Valuation wise is also ok lah but not screaming buy, buy, buy. Those are the past. May be you know more about its near future.

Of course having the information that insiders are buying, and technical buy signals do help. May be you should also compare with its peers such as Daibochi, Tommypack, Cenbond etc to see which plastic packaging company is most efficient and which offer the best value for money in terms of PE ratio, earnings yield etc.

Posted by Robert123 > 2013-08-18 19:17 | Report Abuse

Thanks, KCChongnz for the great help, really appreciate for ur comment.

Posted by inwest88 > 2013-08-18 20:11 | Report Abuse

Both kcchong and otb when giving their views on any particular share, they always support with facts and figures (be it TA pt FA), unlike others who just tell people buy buy buy or sell sell sell. It is indeed a blessing to this forum to have both of them here. Having said that just bear in mind that the ultimate decision lies with each individual.

Posted by inwest88 > 2013-08-18 20:21 | Report Abuse

Some even go the extent of stating a target price with substantiating.

Posted by inwest88 > 2013-08-18 20:22 | Report Abuse

I mean "without" substantiating.

Posted by KINGV > 2013-08-24 23:05 | Report Abuse

I like this counter Homeriz based on her fundamentals/policies and prospects.
She has good fundamentals/policies which among others are 1)low P/E 2)negligible borrowings (less than RM3 million based on 3thQ,fye2013) 3)high cash position (approximately RM32 million based on 3thQ,fye2013) 4)good earnings sharing policy (minimum payout of at least 40% of earnings as dividends and 5)reputable auditors of Crowe Horwath.
As regards her prospects,I think Homeriz should perform well these coming
two or three years based on the following reasons among others.1)The western
economies are picking up.As an export-orientated company exporting to these economies,Homeriz should perform well if the pickup continues, all things remaining the same. 2)The weakening ringgit is a plus for Homeriz as her exports are largely quoted in U.S$.The weakening ringgit is like being able
to sell your products at higher prices with your costs largely remaining the same.3)The Malaysian government may implement policies favorable to export-orientated companies to improve her current account/foreign exchange position.
I think the company should perform fairly well for fye2013 with a substantial increase in her cash position (as there are no new capital expenditures,I think)as well as a decent dividend payout of at least 3.25 sen per share.
Hopefully I am right since I have money riding on this horse and intend to
commit more money provided our Malaysian economy don't go down the drain(ha.ha....).

Posted by kcchongnz > 2013-11-04 12:14 | Report Abuse

Furniture design and making companies

The secret to successful investing is to figure out the value of something and then-pay a lot less.
Joel Greenblatt

[2000 years ago, there were not at many choices for professions as there are today. Sure there were farmers, politicians, merchants, artists, and guards. But you can bet back then, carpentry was a key profession. And when you look around your home or office today, what do you see? The results of carpentry: tables and cabinets everywhere.]

Think about it, furniture making business should be a viable business. Every household needs furniture, doesn’t it? Hence the business of furniture design, and making companies like Homeritz, Lii Hen and Latitude should be able to last a long time. Don’t you think so? The earnings of these furniture export companies have been doing very well recently with their stock prices moving northwards in tandem. But which of these three companies offers the most attractive investment for investors?

We will first look at the operational efficiencies of the three companies and see which is the best company.

Profitability and operation efficiencies
In terms of net profit margin (NPM), Homeritz excels by a wide margin of 15.9%, followed by Latitude and Lii Hen at approximately the same margin of 6.5% and 6.2% respectively.

The high profit margin of Homeritz in turn boasts up the return of equity (ROE) and return on invested capital (ROIC) of 20.6% and 29.9% respectively which are the highest among the companies as shown in Figure 1 and Table 1 below. Homeritz’s high ROE is also achieved with little financial leverage of just 1.2. These returns are way above its costs of capitals. Its cash return (Free Cash Flow/Invested Capital) is also remarkable at 29% (>>10%). FCF is also high at 16% of revenue (>>5%). Homeritz obviously beats the other two hands down. It must have been enhancing its shareholders value greatly with these operating numbers.

Figure 1: Profit Margin, Return of equity and invested capital


Table 1: Operating efficiencies Homeriz Lii Hen Latitude
Net profit margin 15.9% 6.2% 6.5%
Asset turnover 1.1 1.8 1.1
ROA 17.3% 10.8% 7.1%
Leverage 1.2 1.5 1.6
ROE 20.6% 15.9% 11.6%
ROIC 29.9% 18.0% 13.3%

Lii Hen follows with respectable ROE and ROIC at 15.9% and 18% respectively (Table 1). Latitude comes in last with ROE and ROIC of 11.6% and 13.3% respectively, which are still good as they are above the costs of capital.

Latitude’s cash flow is however, much better than that of Lii Hen with FCF 10% and 18% compared to Lii Hen’s 2% and 6% of its revenue and invested capital respectively.

Ranking in operation efficiencies
With the past year profitability, efficiencies and cash flow of the companies, I who is one emphasize cash flow very much would rank the companies from the best to the worst as follows:

1. Homeritz
2. Latitude
3. Lii Hen

I would expect the market to give the highest valuation for Homeritz, followed by Latitude and the last Lii Hen. But does the market do so? Let’s look at Table 2 below.

Market Valuation
Homeritz is indeed given the highest valuation with a PE ratio of 7.0, followed by Latitude and Lii Hen at 5.3 and 4.2 respectively. This appears to be as expected from their performance.

Table 2: Market Valuation
xxxxxxx Homeriz Lii Hen Latitude
PE 7.0 4.2 5.3
EV/Ebit 3.9 2.9 5.1
EV/FCF 4.6 11.6 4.3

However a better market valuation should be based on enterprise value of the whole firm, rather than just the equity. This is because some firms have relatively lower debt, or larger amount of excess cash such as Homeritz with 40% of its net asset in hard cash.

Referring back to Table 2 above, It appears that Lii Hen has the lowest enterprise value in relation to its Ebit of just 2.9 times. However due to Lii Hen’s poorer cash flow, its EV in relation to FCF is the highest at 11.6 times. Hence in my opinion, Homeritz has the most attractive valuation as its enterprise values are low at 3.9 and 4.6 times respectively of its Ebit and FCF.

Taken all into considerations, my personal ranking of the market valuations is as follow:
1. Homeritz
2. Latitude
3. Lii Hen

So which furniture company do you favour as an investment?

KC Chong (3/11/13)

Posted by sense maker > 2013-11-04 13:42 | Report Abuse

KCChong, Liihen has no issue with receivables and its profit approximates free cash flow, with capex approximating depreciation and movement in working capital constant over time.

PE and EV/FCF cannot be so far apart.

:D

Posted by kcchongnz > 2013-11-04 14:10 | Report Abuse

sense maker,
What I did was just based on the latest audited annual report of each company as below. You must understand that I can't spend too much time looking and analysing the average of earnings, CFFO and FCF etc over a number of years, which should be the right thing to do.

Last financial year Lii Hen spend quite a lot of money in Purchase of PPE of 12.2m. Two years ago, it even spend more at 15.3m. That explains the low FCF and hence high EV/FCF.

Market statistics Homeriz Lii Hen Latitude
Price 0.535 1.50 1.32
No of shares 200000 60000 97208
Market capitalization 107000 90000 128315
Minority interest 5855 119 44297
Total debts 2672 27283 98533
Excess cash -34710 -37434 -68447
Enterprise value, EV 80817 79968 202698

xxxxxxxxxxx Homeriz Lii Hen Latitude
CFFO 18647 19063 52879
Capex -982 -12164 -5285
FCF 17665 6899 47594
FCF/Revenue 15.6% 2.0% 10%
CFFO/NI 104% 89% 165%

Earnings per share 0.076 0.357 0.251
Company Homeriz Lii Hen Latitude
PE 7.0 4.2 5.3
EV/Ebit 3.9 2.9 5.1
EV/FCF 4.6 11.6 4.3
EV/Sales 0.7 0.2 0.4

Posted by sense maker > 2013-11-04 16:34 | Report Abuse

Thanks for the clarification, KCChong. 2 quarters can make a lot of difference, haha. Liihen's EV should be RM67.6m based on financials @ 30.6.13.

Posted by sense maker > 2013-11-04 16:50 | Report Abuse

In 2012, Liihen paid Rm4.8m for right of use of a piece of land under a shared development plan for upstream project which is now stuck- pending regulatory approval.

Maybe, the capex used should be around RM8m to RM10m a year in calculation of FCF.

Just sharing. Thanks for your sharing too.

Posted by kcchongnz > 2013-11-04 16:54 | Report Abuse

sense maker, you sure know more about Lii Hen than anybody here, including all the accounting stuff. Thanks for all the information you have posted here.

Posted by kcchongnz > 2013-11-06 18:21 | Report Abuse

Homeritz 2013 financial results

Homeritz released its annual result ended 31st August 2013 on 28th October 2013. Its revenue and operating profit increased by 9% and 18% respectively to 113m and 20.7 m respectively. Net profit per share is 7.56 sen. NTA increases from 36 sen to 40 sen, or 12%. Cash flow is good with plenty of FCF of 17.7m, or 16% of revenue. ROE and ROIC are still very good at 21% and 30% respectively.

Based on earnings power valuation with the conservative assumption of no growth for the rest of its economic life, Homeritz is worth 68 sen per share, or a 20% margin of safety above its present price of 54.5 sen.

Posted by kcchongnz > 2013-12-09 15:37 | Report Abuse

Valuation of Homeritz using free cash flow (9/12/13)

Here I attempt to find the intrinsic value of Homeritz using discount free cash flow method.

First I need to explain what are the few important data and assumptions I would use for the discount free cash flow (FCF) analysis as shown in Table 1 below.

Table 1: Data and assumptions
Current stock price $0.600
Share outstanding (thousand) 200000
This year FCF $11,932
Next year's FCF (thousand) $12,648
Growth for the next 5 and 10 years 6.0%
Terminal growth rate, g 3.00%
Discount rate, R 10.0%

The average FCF of 11.9m is taken from the average of the last four years since Homeritz was listed. It is assumed that FCF will grow by 6% for the next 5 years, and subsequently reduced to 3% forever. The growth rate of 6% taken is the CAGR for the last four years since listed as shown in the appendix below which in my opinion is reasonably conservative.

For the next assumption of a discount rate, I will use 10%. This is with a risk premium of 6% above the long term MGS rate of 4%. This is reasonable as the company has steady earnings and cash flows and a very healthy balance sheet. Hence the risk of investing in Homeritz is low.

The following shows the intrinsic value of Homeritz based on the discount free cash flow analysis:

PV of FCFF of core operations $199,000
Non-operating cash $34,710
Investment properties $0
Debts ($2,672)
PV of FCFE $231,038
Less minority interest ($15,503)
FCFE $215,535
Number of shares 200000
FCF per share $1.08
Margin of safety 44%

The above discount cash flow analysis shows that the intrinsic value of Homeritz is RM1.08. This represents 44% margin of safety investing in Homeritz at RM0.60 now. However, if FCF grows at a faster rate at 10% for the next 5 years, Homeritz is worth RM1.25. At the present price of RM0.60, the market is expecting its FCF to contract at 2% forever from now which is unlikely.

So what do you think is the fair rate of growth for Homeritz’s FCF and hence its intrinsic value?

Appendix
Year 2013 2012 2011 2010 Average CAGR
FCF 17665 18925 -3695 14832 11932 6.0%

Posted by bsngpg > 2013-12-09 15:39 | Report Abuse

Thank you. This is another example for me to analyze the method. I am half way thru now.

Posted by houseofordos > 2013-12-09 16:38 | Report Abuse

kc, have you do a back testing before to see if stocks valued using these DCF assumption eventually reach their intrinsic value ? For example lets say you look back at some of the blue chips today that are already mature and paying out steady dividends like BJTOTO or Dutch Lady, lets say you go back 5-10 years ago and apply the DCF based on the results back then, would you get close to the intrinsic value ?

Posted by kcchongnz > 2013-12-09 16:58 | Report Abuse

houseorordos, you have done a lot of discount cash flow analysis yourself and you should know it is an art. There are many assumptions used based on the prevailing condition then; eg its business then, the interest rate environment, etc. All these things change as the company business changes, and home and world economy is a dynamic one. No, I don't think the back testing will prove the analysis right, not at all. It is just an estimation. I would think the outcome will be off by a wide margin. Hence the concept of margin of safety must always be applied.

One thing I am quite sure is when you use conservative assumptions, the outcome should generally be positive, and likewise if too optimistic assumptions are used, and inadequate margin of safety is applied, investor will generally have negative outcome.

Posted by houseofordos > 2013-12-09 17:25 | Report Abuse

KC, what you say is very practical. Considering the inaccuracies of this intrinsic value then how do you generally decide when to sell a stock ?

Posted by sense maker > 2013-12-09 19:50 | Report Abuse

Margin of safety is akin to the pillow that let you sleep soundly. When it gets too thin because market prices approaches intrinsic value, it does not make for good sleep. When you wake up at night, you know it is time to sell.

Spotting a share to buy is more difficult than deciding on when to sell, personally speaking.

Posted by kcchongnz > 2013-12-10 08:33 | Report Abuse

What a good and original analogy from sense maker. Never heard before. But I will cite this analogy the next time people ask me when to sell. I also sell when the following situations occur:

1. When I realize I am wrong in my appraisal
a. I can’t be right all the time
2. When my evaluation of the stock has been realized
a. Price reaches my appraised intrinsic value
b. When too many people agree with my appraisal
3. Fundamentals significantly change
a. Change of management or deterioration of management decision.
b. Competitions creep in.
c. Significant deteriorating operating numbers
4. When we identify better uses of our capital

Often talk is easier than done. But it pays to be discipline.

Posted by houseofordos > 2013-12-10 09:00 | Report Abuse

thanks.... words of wisdom... haha

Posted by thwalim > 2013-12-21 23:20 | Report Abuse

KC,thanks for sharing so many ideas. May i ask you some calculation in Earning Power Valuation for Homeritz which you post on 16 August;

The intrinsic value of Homeritz using the EPV is 64 sen per share as shown below.

Revenue 2012 103246
Adjusted Ebit 17292
less income tax -2594
Net operating profit after tax 14699
Add average D&A 1389
Less average capex -3730
Normalized Ebit 12358
Cost of capital, R 9.8%
Capitalized earnings=Ad Ebit/R 125497
Add cash 24471
Other investments 0
Less debts -3054
EPV 146914
Less minority interest -17983
EPV to common shareholders 128931
Number of shares 200000
EPV/share 0.64

I just wondering how to get this figure : minority interest 17983. Could you share with me? Thanks a lot.

Posted by kcchongnz > 2013-12-22 06:32 | Report Abuse

thwalim,

You compute the percentage of net profit attributed to minority shareholders from the income statement. For 2012 results (note that Homeritz's 2013 results already out), the percentage is 2050/16750. Then multiply the EPV(146914) by this percentage.

This is what I have been doing. Hope others can comment.

Posted by yungshen1 > 2013-12-22 10:10 | Report Abuse

kcchongnz how about bjcorp .y the share price from 1.200 drop until now 0.500.
is it bad fundamental or TA downtrand mode.what is ROE , PE RATIO, NTA,DEBT RATIO .CASH AT BANK.PROFIT MARGIN.

Posted by thwalim > 2013-12-22 12:33 | Report Abuse

KC,thanks so much!need to trouble again, how you compute the income tax 2594,D&A 1389,Capex 3730 and also debts 3054. All my figures are wrong as compare with you.Really appreciated your reply. Thanks.

Posted by kcchongnz > 2013-12-22 15:09 | Report Abuse

thwalim,
I have said many times valuation, whatever method one uses, is an art and not a science. It just gives a guide. Everybody has different value but generally they should be approximately close to each other.

For example, what is "adjusted ebit"? I may use the average ebit margin of 3 years, 5 years etc and get the adjusted ebit for next year. Somebody may use last year's ebit to start with. Income tax, I may use the tax/Ebit rate for last year, or tax/NI. For D&A and capex, I may have again use the average over a number of years. The important thing is a net maintenance capex, ie capex less D&A. Sometimes i use D&A as 50% of average capex of last few years because this capex and D&A bounces up and down each year. Cost of capital, again it depends on the cost of debts and cost of equity you assume. Debts are total debts in the balance sheet. Cash is the excess cash, plus investment assets not consolidated into the ordinary business of the company.

So there is no right or wrong, more of if those numbers you use make sense or not. I believe if you use sensible data and assumptions, your EPV should not be very far from mine.

Revenue 2012 103246
Adjusted Ebit 17292
less income tax -2594
Net operating profit after tax 14699
Add average D&A 1389
Less average capex -3730
Normalized Ebit 12358
Cost of capital, R 9.8%
Capitalized earnings=Ad Ebit/R 125497
Add cash 24471
Other investments 0
Less debts -3054
EPV 146914
Less minority interest -17983
EPV to common shareholders 128931
Number of shares 200000
EPV/share 0.64

Posted by thwalim > 2013-12-22 22:17 | Report Abuse

KC,
Thanks a lots. I got what you mean now.Finally i got the number near to your number.Really is the art. :-)