Posted by houseofordos > 2013-12-06 14:23 | Report Abuse

sense maker, you talk a lot of sense. may I know what counters you are invested in or feel are good companies ? Would sure like take a look at them.

Posted by sense maker > 2013-12-06 14:31 | Report Abuse

Companies that I have bought in in the past 3 years till now as I wrote earlier: ILB, Prolexus, Wellcall, Liihen, Latitude, etc. I have sold some since then and held on to some.

ILB is an asset play when I bought it back in 2011 as I like their Chinese assets value, but not Dubai operation.

I normally assign a score for all companies and will buy with conviction if it exceeds 90 points. 80 to 85 points are borderline buy which means I will buy but in smaller amounts. I sell when the points drop below 80 points.

Posted by sanchez > 2013-12-06 14:48 | Report Abuse

thank you for sharing us the knowledge. i am just a newbie who want to earn some money. dont want to take any money from parents any more. so,can i get extra information on The Absolute PE Method and DCF method. when should we use these 3 methods in value a stock. can e-mail me the template as well? thanks a lot. waihau93@hotmail.com

Posted by sense maker > 2013-12-06 16:39 | Report Abuse

Thanks for inviting, TAN KW.

As a practice, I recommend only companies with 20 to 50% upside (ie rated 80 to 85 points by me) or with more than 50% upside (i.e. 90 points or above).

I am currently awaiting some catalysts for certain shares under my radar and will recommend only after they have come and I have bought in.

I am comfortable still holding some of those shares I mentioned above for now.

Posted by kcchongnz > 2013-12-06 17:53 | Report Abuse

Posted by sanchez > Dec 6, 2013 02:48 PM | Report Abuse

thank you for sharing us the knowledge. i am just a newbie who want to earn some money. dont want to take any money from parents any more. so,can i get extra information on The Absolute PE Method and DCF method. when should we use these 3 methods in value a stock. can e-mail me the template as well? thanks a lot. waihau93@hotmail.com

Absolute PE method by Vitaliy Katsenelson

http://klse.i3investor.com/blogs/kianweiaritcles/36512.jsp

DCF Method, one of them

http://klse.i3investor.com/blogs/kianweiaritcles/32308.jsp

Graham net net valuation

http://klse.i3investor.com/blogs/kianweiaritcles/24112.jsp

Don't forget about this private market comparison method using enterprise value over Ebit which I find very useful:

http://klse.i3investor.com/blogs/kianweiaritcles/37729.jsp


You see you can get all kind of fundamental valuation method resources from i3 website, all by the courtesy of Tan KW. What a pity if you don't read them if you are interesting in fundamental investing.

I have used all of the methods mentioned above in my stock picks. Read them if you are interested. Very boring ones.

http://klse.i3investor.com/blogs/stock_pick_challenge_2013_2h/blidx.jsp

Posted by jennylee1382 > 2013-12-07 23:02 | Report Abuse

Kcchongnz Thank you for yr help of Gmutual and Pmcorp. Yr analysis are very details and clear.
can you look at PW(7134) current share px 0.86 Pe 5.04 and "Nta 3.53"?

Posted by kcchongnz > 2013-12-08 15:09 | Report Abuse

Posted by jennylee1382 > Dec 7, 2013 11:02 PM | Report Abuse

Kcchongnz Thank you for yr help of Gmutual and Pmcorp. Yr analysis are very details and clear.
can you look at PW(7134) current share px 0.86 Pe 5.04 and "Nta 3.53"?

I have looked into PW con financial statements a few months ago and my conclusion is for me to stay far far away from this stock. I mean for me.

Just looked at it again and my opinion has not changed a bit. The quality of its assets is very poor. So I don't pay attention to its low price-to-book. Earnings wise it has been very poor, mostly losing money. Not sure about its recent huge improvement in earnings. I didn't want to waste time to study it.

I know i know i know, its price seems to be flying now. I better stop here before people say i am wrong again. Yes, I always wrong about the future share price of stocks. I am poor in predicting stock prices.

Posted by sklyte > 2013-12-08 18:36 | Report Abuse

Kcchongnz, what u think of Epmb stock? Low volume, making money most quarters. Price about 70cts. Dividend 2cts per year. A similar co, Ingress was privatized this year. Thanks.

Posted by jennylee1382 > 2013-12-08 23:26 | Report Abuse

Kcchongnz Thank you for yr speedy reply. I'm agree with you. I also will stay far far away fm this stock. TQVM.

Posted by sanchez > 2013-12-08 23:40 | Report Abuse

kcchongz thank you again. i will try to understand it once i finish my exam.

Posted by kcchongnz > 2013-12-15 17:57 | Report Abuse

Is Graham net-net valuation infallible?

Graham net-net is an estimation of the liquidation value of a company as shown below.

Net Net Working Capital = Cash and short-term investments + (0.75 * accounts receivable) + (0.5 * inventory) – total liabilities

It's the lowest form of valuation you could possibly do because it ignores everything about the business and just focuses on tangible assets. The formula states that;
• cash and short term investments are worth 100% of its value
• accounts receivables should be taken at 75% of its stated value because some might not be collectible
• take 50% off inventories, due to discounting if close outs occur.

So if one buys the stock with market capitalization below the Graham net-net value, he would very sure make money eventually. Is that so? I don’t think so.

For one thing, Graham net-net valuation still bases a heavy weighting on account receivables, 75% of the book value. For example if the company is in contracting business which I have personally involved with before, very often this “receivables” can very well vanish into the thin air, or worse still, turned out to be “payables”. There are a lot of construction disputes, endless especially if you are involved in big and complicated projects, which eventually end up in endless arbitration and court cases. The company can end up instead of receiving those “receivables”, pays liquidated damages for delay. Often settlement is made with the “receivables” evaporated. Take particular attention to the aging schedule of the receivables.

For “inventories”, think about a fashion or technology company which inventories can end up worthless, instead of selling at 50% of book value at liquidation.

What about the “cash”? Surely this is worth 100% of the value. Not necessary. Some may end up in some other people’s pocket instead of the shareholders; or burned away due to improper allocation of resources, poor business ending with persistent losses etc.

So Graham net-net valuation for sure has its shortcomings. Ever heard of another more “sure” way of asset based valuation; the negative enterprise value?

Posted by sephiroth > 2013-12-15 18:19 | Report Abuse

kcchongnz, graham net net should better reflect co like hexza with only 25.7m receivable out of total assets 240.6m and homeritz receivable of only 11.8m out of total assets 13.8m. both co. have strong quality asset like hard cash

Posted by kcchongnz > 2013-12-15 18:41 | Report Abuse

Negative Enterprise Value Stocks

Recall the following formulae for enterprise value and the intuitive definition of excess cash.

Enterprise Value = Market Capitalization + Total Debt - Excess Cash
Excess Cash = Total Cash - MAX(0,Current Liabilities-Current Assets)

If the excess cash in cash and marketable securities exceed the cumulated market values of debt and equity, it gives you a negative enterprise value. In theory, at least, this seems to be an easy arbitrage opportunity, where you can buy all of the debt and equity in a firm and use its cash balance to cover your investment costs and keep the difference.

Like Graham net nets, typical negative EV stocks are ugly balance sheet plays often associated with pre-bankruptcy cases. They lose money; they burn cash; in other words, where the cash may or may not be there tomorrow. Frankly, that’s why normally they’re cheap. But do all negative enterprise value companies in Bursa cash burners?

Let us look at a research done in US on the return in investing in negative EV for forty years from 1972-2012 by the CFA Institute in the link below:

http://blogs.cfainstitute.org/insideinvesting/2013/07/10/returns-on-negative-enterprise-value-stocks-money-for-nothing/

The author's research showed that the average return of 26569 opportunities in 2613 stocks was 50.4% for all negative EV stocks, and 60.5% for micro stocks with limited liquidity of market caps under $50m after holding the investment for one year, not including trading costs, taxes, and so on. Not bad!.

Hence it may be a great strategy to invest in negative enterprise value stocks for some extra-ordinary return. Do you have one?

KC Chong in Auckland (15/12/13)

Posted by houseofordos > 2013-12-15 18:44 | Report Abuse

Negative enterprise value means that net cash per share of the company exceeds the market cap of the share + minority interests + debts payable. The company could basically be privatized for free with extra change.

Yes a company with a -ve enterprise value is a safer bet than a company which share price is lower than graham net net IV. However, the same problem and questions arise is whether management is willing to share the cash with shareholders and if the company is burning up the cash ?

Hexza is an example of a graham net net that I am comfortable to stay invested. Its net cash per share is RM0.65 vs its share price of RM0.675. It is obvious that with this kind of net cash, its valuation is extremely undemanding at only EV 3.1 times EBIT. Even in a climate of reducing revenue, it has consistently able to generate good free cashflows and most importantly it shares the cash with shareholders through dividend payouts every year.

Posted by houseofordos > 2013-12-15 18:54 | Report Abuse

SBAGAN and FACBIND should be -ve enterprise value stocks since their net cash & investments exceed their share price (did not actually go and calculate). However, management for these 2 companies are too stingy to share the profit with shareholders which is why I avoid investing in them.

Posted by sense maker > 2013-12-15 20:35 | Report Abuse

The situation of Nta or net cash or net current assets being higher than market capitalisation is only part of our consideration in determining t fair value of the company unless profit distribution is imminent. It represents the safety net of a company, not its fair value. The more important consideration is projected earnings in next 5 years.

Posted by calvintaneng > 2013-12-15 20:41 |

Post removed.Why?

Posted by houseofordos > 2013-12-15 22:06 | Report Abuse

sense maker, nice to see you here commenting. Yes looking for future growth is one way to determine fair value. But buying a stock based on the quality of its assets is also a good way to limit the downside in investing... as you know the famous saying limit the downside and let the upside take care of itself. I keep a mix of asset plays and growth plays in my portfolio for some diversification

Posted by tsurukame > 2013-12-15 22:08 | Report Abuse

kcchongnz,
I am rather lukewarm towards property companies in ISKANDAR Region in view of the recent Budgetary measures (more of an overkill) to curb property speculation and the re-introduction of Sunday as a work day in Johor state. Johore will not be so hot going into the future unless changes are made to address to real business needs. Meanwhile there is time (not in hurry)to focus on property companies that has sizeable land banks in Greater Klang Valley area who are potential beneficiaries of more MRT projects coming on-stream in the future and later on the High Speed Railway to Singapore(which maybe a bit far off in the future).

For 2014 I am scouting for TURNAROUND companies in WATER INDUSTRY for Investment in 2014 and beyond. I have identified YLI as a potential turnaround stock. Its financials is nothing to shout about but it has just turned the corner and its is one of the beneficiaries of the WATER INDUSTRY . The TA of YLI is very good and it is on UPTREND. Its FA is nothing much to shout about now but will turnaround when the WATER INDUSTRY Project kicks off in 2014. What is your take on YLI?

Posted by iWarrants > 2013-12-15 23:45 | Report Abuse

kkchongz, may i know what do you use for short tern investmens for the companies you analysed? can you give an example?

Posted by kcchongnz > 2013-12-16 09:57 | Report Abuse

Short term investments are short term placement in money market fund, bank fixed deposit (normally less than a year), or even equity market investment etc as funds can be withdrawn any time.

Posted by Fabien Wong > 2014-03-04 11:06 | Report Abuse

There are some decent net net stocks out there. But most of the time they have a lazy balance sheet. Stocks like Oriental and Keck Seng springs to mind. Often these stocks are shuned by the market due to lack of value creation. They need catalyst like corporate exercise to unlock the value but then again not all are favourable to the minority shareholders recent case of Perakcorp as an example.