Posted by keanpoh > 2014-01-23 11:29 | Report Abuse

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

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

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

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

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

Posted by kcchongnz > 2014-01-23 12:06 | Report Abuse

Net net and negative enterprise value investing is not suited for everybody. It is Ben Graham kind of investing, not the contemporary Philip Fisher, Warren Buffet, Charles Munger kind of investing in good and growth companies.

Moreover, the return stated is for a portfolio of net net stocks, not a single stock.

Something have to happen, such as privatization, hostile takeover, business restructuring, special dividends type of things to unlock value. And it can really test the patience of investors.

It is a very safe style of investing though which I think may be suitable for the present investing environment.

Posted by AyamTua > 2014-02-02 02:22 | Report Abuse

one of net net is hexza and pmcorp.. only time will tell

Posted by anbz > 2014-02-02 02:50 | Report Abuse

at the mercy of the majority shareholders?...just forget it...i believe the swings in the profit are well crafted by these scum directors...the swings are having too high amplitude..just can believe it...one moment made profit of 69m..and the year before loss 80m...hantu traps counter ma

Posted by AyamTua > 2014-02-02 02:53 | Report Abuse

anbz: kaunter mana satu yg ko sebut ni?

Posted by kcchongnz > 2014-03-02 18:55 | Report Abuse

This was what I wrote about Kuchai in this thread two months ago:

What is the investment thesis in Kuchai?
You can buy Kuchai from the open market at RM1.20 per share now. Below is what is owned by you as a shareholder of the company.

Assets Amount 000 Per share, RM
Cash 36065 0.30
Equity investment 153052 1.27
Market value of shares in Sg Bagan (26%) 50644 0.42
An investment property in Singapore 22201 0.18
Total assets 261962 2.17

You own hard cash, liquid shares mainly in Great Eastern listed in Singapore, 26% shares in Sg Bagan (Book value 122m) which itself is more than 50% undervalued, and a shop house at Emerald Hill Road, Singapore. The total market value of these assets is worth 262 million Ringgit, or RM2.17, 82% more than what you pay. Kuchai has no debt and negligible liabilities.

The above assets provide Kuchai with the stable incomes from interest income, dividend income and rental return. This amount to about 6 million Ringgit a year. Its annual expenses amounts to about one million a year. There is no other way of burning cash. How much downside is there investing in Kuchai?


Kuchai just released its quarterly result ended 31st December 2013. Sure, its profit dropped when compared to the previous quarter. But it is still making profit, and not burning any cash. Because Kuchai is an investment company with no significant ongoing business. Its net asset backing per share has in fact increases from RM2.66 to RM2.71 now.

Remember the investing thesis for Kuchai is its low price (RM1.20) compared to its quality asset backing of RM2.18 now. It is not about earnings. It is about investing in a Graham net net and negative enterprise value company.

This is the case of “Pay me RM1.20 and I give you RM2.18”.

Posted by calvintaneng > 2014-03-02 19:44 | Report Abuse

YES. I AM A GREAT LOVER OF NET NET VALUE INVESTING.

If you have the Dynaquest Monthly Digest from Year 2006 to 2010 you will find these Very Undervalued Counters Selling At Deep Discounts to NTA of 70% to 90%. Almost all overlooked, rejected & forsaken shares:

1) DKSH at 42 Cts (42 Cts? Terrible Circumstances Like Now On PM Corp.)
2) Prolexus at 35 cts
3) Hing Yiap 60 cts
4) SBC Corp 50 cts
5) GUH 35 cts
6) DXN 35 cts - taken private. These people worked till 12 midnight!!!
7) KFIMA also 35 cts
8) PM CORP 9 cts (Yes 9 cts closing for One Whole Year? Very Dull.)
9) PERAK CORP at 60 Cts (Totally Forsaken By ALL Then!)
10)WEIDA aslo 36 cts. (Don't know why people value most at 35 Cts?)
11)CHHB at 60 Cts
12)YEE LEE (35 cts after split)
13)HEVEA at 14 Cts
14)MP CORP (at 37 Cts. Never move yet?)
15)KAMDAR at 29 cents
16)POH HUAT at 43 Cts
17)OKA at 35 Cts (I Bought A BIG CHUNK At 35 Cts.)
18) MUDA at 35 Cts (Now Over RM1.50)
19)FACBIND at 58 Cts

And Some Went Bankrupt!
20)SAAG at 7 Cts
21)MaeMODE at 59 Cts
22)FBO at 12 Cts
23)FOUNTAIN VIEW at 35 Cts (This One I Kena Loss!)

According To Warren Buffet's Last Chapter in THE INTELLIGENT INVESTOR he said that there was a Fund Manager who bought hundreds of these UNDERVALUED SHARES (He doesn't bother with the prospects, nature or day to day operation of these Companies. He doesn't care whether it's monday or friday. January, June or December. He bought with the view that something good might come out of these Companies with HIGH NTA.) And according to Warren this guy did pretty well.

Peter Lynch is a Strong Believer of Diversification. He bought thousands of companies for his Magellen Fund. He believed that if he invested in 10 Companies with potential - even if 2 or 3 out of the 10 should underperform IF ONLY ONE IS A TEN BAGGER! The TEN BAGGER would outweight the risk of loss in others.

So I think it would be an interesting experiment- combining the approach of B. Grahan, Warren Buffet & Peter Lynch/

And of Course - The Vest Best Time to Buy Is After the Market Crash of 1997/8 and 2007/8 - if we still have the Money & Gut to Buy.

If Benjamin Graham is still alive today he will get some Kuchai - it's worth a puff or two.

Posted by houseofordos > 2014-03-02 22:08 | Report Abuse

KC, what is the likelihood that Kuchai will trade closer to its net asset value in the future ? For me, looking at these type of Graham net net there must be some catalyst that would unlock its value or else we could be stuck very long time holding them with significant opportunity cost. For example, is there any chance for hostile take over / activist shareholder to come in and make management change its ways ? What is likelihood of privatization/more dividends or is management just satisfied doing nothing ? Lets say the price will remain depressed for years, what can we fall back on, if there is a good dividend payment, at least shareholders will still get some return and feel some of the excess cash... With that said, holding a basket of graham net net reduces risk of under performance since some of these companies do get their values unlocked in the end... so diversification would help when dealing with Graham net net situations...

Posted by kcchongnz > 2014-03-03 13:57 | Report Abuse

Posted by houseofordos > Mar 2, 2014 10:08 PM | Report Abuse

KC, what is the likelihood that Kuchai will trade closer to its net asset value in the future ? For me, looking at these type of Graham net net there must be some catalyst that would unlock its value or else we could be stuck very long time holding them with significant opportunity cost. For example, is there any chance for hostile take over / activist shareholder to come in and make management change its ways ? What is likelihood of privatization/more dividends or is management just satisfied doing nothing ? Lets say the price will remain depressed for years, what can we fall back on, if there is a good dividend payment, at least shareholders will still get some return and feel some of the excess cash... With that said, holding a basket of graham net net reduces risk of under performance since some of these companies do get their values unlocked in the end... so diversification would help when dealing with Graham net net situations...

houseofordos,
You have answered most of your questions in your posting above.

I also won't know when the closing of the gap of the price and value. All I bet on is its huge gap and so "Heads I win, tails I won't lose much", the Dhandho Framework. Investing is not just looking at the upside, the downside is equally important to me. Market is unknowable and unpredictable, and hence the upside view may be wrong. if you pay too much for the upside hope, if the outcome is not as expected, you can also lose big.

The hostile takeover/activist shareholders will never materialized as the shareholdings of three companies are intertwined, unless a fair price closed to its value is offered.

Privatization I think is possible as there is a huge gap between value and price, especially the old guards are gone.

Dividends? Yes, this is what I am looking for while waiting for some corporate moves. Lat year there was dividend and special dividend which together amounts to about what you can get from bank fixed deposit. That will take care of the opportunity cost. Hopefully they continue with it.

Or may be as Kuchai has no significant business, SC may do something to force the management to do something to unlock value?

Posted by kcchongnz > 2014-03-03 17:47 | Report Abuse

Graham net net is the lowest form of valuation you could possibly do because it ignores everything about the business and just focuses on tangible assets.

But it Worked in the 1920's and Still Works Today

From 2000 to 2012, it's earned an annualized return of 18.28% vs 1.57% for the S&P500 and 5.31% for the Russell2000.

Please read the article at the top of this thread about this balance sheet investing.

The research of high positive alpha in investing in the Graham net net stocks were done in the US market though. At home I have through last year analyzed some net net companies in Bursa as shown in the table below. After the bashing of share price today, here are the returns of those net net stock analyzed:

3/03/2014 Ref price Now Dividend Gain/loss return
Daiman 2.63 2.88 0.12 0.37 14%
KSL 2.02 2.11 0 0.09 4%
Plenitude 2.10 2.5 0.06 0.46 22%
Insas 0.630 0.855 0.01 0.235 37%
PMCorp 0.150 0.210 0.000 0.06 40%
Hexza* 0.635 0.690 0.050 0.105 17%
Prkcorp 2.820 3.650 0.000 0.83 29%
Kuchai 1.200 1.210 0.000 0.01 1%

Average 1.52 1.76 0.03 0.27 21%

With less than a year, all the net net stocks made double digits return as shown above, with the exception of Kuchai (+1%), and KSL (+4%). The average return is 21%, easily double the return of the broad market. None of them had a negative return so far.

Are they riskier than the market? I do not think so as they all have quality assets; very little downside but plenty of upside if the price-value gap closes.

Did they have high growth? High revenue and profit growth? None of them.

Did they even have very good earnings? I don’t think so but they generally had positive earnings, albeit small.

So is it better to invest with the mind set of inverting, i.e. take care of the downside (pay low price) and let the upside takes care of itself? Or should we pay any amount for profit growth expectation, just an expectation, in the future?

Posted by miketyu > 2014-03-04 12:19 | Report Abuse

Mr Kcchongz,

Would you consider ULICORP undervalued?

Net PM 11%, ROIC 21%
EV/Ebit of 3.2 only.
Net cash company.
Please advise

Posted by calvintaneng > 2014-03-04 12:29 | Report Abuse

Ms Teh Hooi Ling CFA (Spore) once compiled 3 Groups of Shares Under An Experiment. I think a One Year Time Frame.

1) First Group - 30 Companies With The Lowest P/E in Spore SGX
2) Second Group - 30 Companies With The Highest Dividends
3) Third Group - 30 Companies With The Highest Net Net Assets.

Of the 3 - The Ones With The Highest Net Net Assets Came Out The Winner!

So B. Graham Theory of Buying Undervalue Counters Prove True Even In Well Informed & Efficient Market Like Singapore.

Posted by kcchongnz > 2014-03-04 13:32 | Report Abuse

Posted by miketyu > Mar 4, 2014 12:19 PM | Report Abuse

Mr Kcchongz,

Would you consider ULICORP undervalued?

Net PM 11%, ROIC 21%
EV/Ebit of 3.2 only.
Net cash company.
Please advise


Somebody asked me this before. I did buy some and made a little money after selling it at a higher price than now. Yes my decision to buy it was based on those metrics you have mentioned.

You did not simply say Ulicorp is undervalued like many people do without giving justification. Instead you provided the most important metric, in my opinion, why is it undervalued, that its enterprise value is only 3.2 times its ebit.

Not only it is cheap. it is also a good company as its ROIC is 21%, much higher than its costs of capital.

A classic Joe Greenblatt's Magic formula investing. Well done.

Posted by miketyu > 2014-03-04 13:39 | Report Abuse

Thanks Mr Kcchongz. I will consider to add in more during downfall for Ulicorp.

Posted by kcchongnz > 2014-03-04 15:10 | Report Abuse

Posted by calvintaneng > Mar 4, 2014 12:29 PM | Report Abuse

Ms Teh Hooi Ling CFA (Spore) once compiled 3 Groups of Shares Under An Experiment. I think a One Year Time Frame.

1) First Group - 30 Companies With The Lowest P/E in Spore SGX
2) Second Group - 30 Companies With The Highest Dividends
3) Third Group - 30 Companies With The Highest Net Net Assets.

Of the 3 - The Ones With The Highest Net Net Assets Came Out The Winner!

So B. Graham Theory of Buying Undervalue Counters Prove True Even In Well Informed & Efficient Market Like Singapore.

calvin, great information that you have. Could you share us any link regarding this?

You can see that I agree with you net net investing can yield extra-ordinary return from what I have been writing. I don't agree with you that the Singapore SGX is well informed and efficient though.

Posted by calvintaneng > 2014-03-04 15:18 | Report Abuse

Kcchongnz,

Teh Hooi Ling published her writings in the Singapore Business Times From Time To Time. Due to her popularity people requested her to compile her articles into Book Form. She had published a few excellent books. But they are out of print now. Hope to see a reprint someday.

You can try to access Business Times Sg and see her posts from time to time.

Posted by miketyu > 2014-03-07 16:05 | Report Abuse

Would the stock of ev/ebit more than 7 worth investing?
Example:Dsonic has about ev/ebit of 25 already at its current price and yet price still going up non stop. I am puzzled at the moment.

Posted by kcchongnz > 2014-03-09 05:46 | Report Abuse

Posted by miketyu > Mar 7, 2014 04:05 PM | Report Abuse

Would the stock of ev/ebit more than 7 worth investing?
Example:Dsonic has about ev/ebit of 25 already at its current price and yet price still going up non stop. I am puzzled at the moment.


In general, I would invest in a company with EV/Ebit of less than 7 which will provide an earnings yield of more than 14% from a business.

However, it depends on the industries; a light asset and fast growing business logically would be valued higher than a capital intensive and slow or no growth company. Try figure out why.

Another thing is the metric EV/Ebit, like any other metric such as P/E is a historical measurement based on past performance. Obviously the future expectation of Datasonic is much different from its recent past and hence the much higher valuation. But whether the price is already too high in respect to future outcome is another story.

One more thing is one has to be careful of using any comparative valuation metric for cyclical business such as commodity in Palm oil etc. One has to use a normalized ebit which involves some judgements.

Posted by miketyu > 2014-03-12 11:21 | Report Abuse

Mr kcchongz would you state why normalized ebit is used in cyclical business and state how is it done in evaluation? any examples?

Posted by miketyu > 2014-03-20 23:15 | Report Abuse

Mr Kcchongz,

Would you comment on CAP?
The stock has negative enterprise value and no borrowings.

FCF ridiculously high.

Assuming the FCF grows at 3% (g) forever in accordance to rate of inflation. Discount rate (r) as before at 10%

FCF 39485

PV FCF 580993.57
Add cash 210456
No borrowings, no minority interest.
No of shares: 600000
FCF per share rm1.31

Current share price RM0.285

Posted by sense maker > 2014-03-20 23:29 | Report Abuse

CAP is a red chip. So, the normal rules do not apply to it. :D

Posted by miketyu > 2014-03-20 23:35 | Report Abuse

Oic. So tempted to buy it. Seems ridiculously cheap but share price no movement.

Posted by sense maker > 2014-03-20 23:35 | Report Abuse

Value trap needs corporate moves to unlock. When did you last hear of any corporate schemes in say MUI Group's companies? The wait can be forever. In a bear market, these deep-value asset-play companies will also plunge with normal companies by the same %. So, buyers beware.

Posted by kcchongnz > 2014-03-21 06:37 | Report Abuse

Posted by sense maker > Mar 20, 2014 11:35 PM | Report Abuse
“Value trap needs corporate moves to unlock. When did you last hear of any corporate schemes in say MUI Group's companies? The wait can be forever. In a bear market, these deep-value asset-play companies will also plunge with normal companies by the same %. So, buyers beware. “

The above comment is good reminder for people investing in value traps, many of them are trading way below its asset value like some Graham net net stocks. Thanks.

My comment is that if one wants to follow this strategy, he has to invest in a portfolio of net net stocks to avoid the idiosyncratic risk of an individual stock. This strategy is proven to be a viable one as shown in the research in the US market that:

“ From 2000 to 2012, net–net stocks earned an annualized return of 18.28% vs 1.57% for the S&P500 and 5.31% for the Russell2000.”

Below is posted by calvin for the similar positive alpha from net net stocks in Singapore. This is not so credible proof though as it is not a rigorous research work.

“Posted by calvintaneng > Mar 4, 2014 12:29 PM | Report Abuse
Ms Teh Hooi Ling CFA (Spore) once compiled 3 Groups of Shares Under An Experiment. I think a One Year Time Frame.

1) First Group - 30 Companies With The Lowest P/E in Spore SGX
2) Second Group - 30 Companies With The Highest Dividends
3) Third Group - 30 Companies With The Highest Net Net Assets.

Of the 3 - The Ones With The Highest Net Net Assets Came Out The Winner! "


At home I have analyzed some net net companies in Bursa within the past one year as shown in the table below. Here are the returns of those net net stock analyzed as at to date:

21/03/2014 Ref price Now Dividend Gain/loss return
Daiman 2.63 2.89 0.12 0.38 14%
KSL 2.02 2.1 0 0.08 4%
Plenitude 2.10 2.54 0.06 0.5 24%
Insas 0.630 0.925 0.01 0.305 48%
PMCorp 0.150 0.225 0.000 0.075 50%
Hexza* 0.635 0.695 0.050 0.11 17%
Prkcorp 2.820 3.670 0.000 0.85 30%
Kuchai 1.200 1.190 0.000 -0.01 -1%

Average 1.52 1.78 0.03 0.29 23%
KLSE 1627 1818 191 12%

With less than a year, all the net net stocks made double digits return as shown above, with the exception of Kuchai (-1%), and KSL (+4%). The average return is 23%, easily double the return of the broad market.

Yes, Kuchai underperformed badly against the market, even though it is much under-valued than others because of its negative enterprise value, i.e. its net cash or cash equivalent of more than RM2 is even higher than its share price.

When will the price converge to its value? I have no idea.
Will you earn a multi-baggers investing in Kuchai? No way, not even a double bagger!

But will its price plunges as much as other companies when the market crashed? I highly doubt so.

What is my hope? Yeah it may just be hope for the time being.
1. Pay reasonable dividend or special dividend more than FD, like what they started to do last year. that is good enough for me.
2. Somebody else takes over the management of the company.
3. An eventual corporate exercise to unlock value, something like the SCR for Perak Corp.


Invert, always invert; do not always think of the upside when investing. Also must think of the downside, but let the upside takes care of itself.

Posted by sense maker > 2014-03-21 14:23 | Report Abuse

Kuchai, Sg Bagan and Kluang have cross-holding precisely to deter hostile take-over. So, 2 and 3 are remote. Dividend has improved a bit in the past year, but that is it. Their assets and investments are mainly tied with world economic cycle, which means when recession returns, their investment value will also decline in tandem.

Posted by kcchongnz > 2014-03-22 06:16 | Report Abuse

Posted by kcchongnz > Mar 21, 2014 06:37 AM
What is my hope? Yeah it may just be hope for the time being.
1. Pay reasonable dividend or special dividend more than FD, like what they started to do last year. that is good enough for me.
2. Somebody else takes over the management of the company.
3. An eventual corporate exercise to unlock value, something like the SCR for Perak Corp.

Posted by sense maker > Mar 21, 2014 02:23 PM | Report Abuse
Kuchai, Sg Bagan and Kluang have cross-holding precisely to deter hostile take-over. So, 2 and 3 are remote. Dividend has improved a bit in the past year, but that is it. Their assets and investments are mainly tied with world economic cycle, which means when recession returns, their investment value will also decline in tandem.

For (2), may be a new breed of management, the children of the controlling shareholders, like Selangor Dredging before?

For (3), How long the major shareholders will continue like that? Will one day the majority decides to just liquidate the company? Will SC force their liquidation one day because of the prolong inactivity?

Well, as I have said, we only hope. Anyway investing is a long journey, and sometimes safety of capital is more important than high expectations which may not come true.

Yes, Kuchai’s major assets are tied to world economic cycle because most of its assets are in equity investment as shown in the table below. But equity also goes up as well as goes down. Let assume a maximum up or down of 30% within the next few years. The table below depict the maximum and minimum intrinsic value of Kuchai.

My variation to the Squeezing Theorem in mathematics shows that the value of Kuchai should be between RM2.70 and RM1.67. (just a joke)

The minimum value of Kuchai, assuming 30% downside (it may also be upside) is RM1.67, still substantially higher than its present market price of RM1.20.

Maximum and minimum value of Kuchai
Asset class Amount 000 Per share, RM Up Down Max Min
Hard Cash 33962 0.281 0.000 0.000 0.281 0.281
Equity investment 156788 1.299 0.390 -0.390 1.689 0.909
Share in Sg Bagan 50644 0.420 0.126 -0.126 0.545 0.294
Investment property 22243 0.184 0.000 0.000 0.184 0.184
Total assets 263637 2.184 0.516 -0.516 2.70 1.67

Posted by houseofordos > 2014-03-22 07:20 | Report Abuse

KC, what is your opinion about A&M ? Looks very undervalued with lands and property not revalued for 20 over years...

Posted by sense maker > 2014-03-22 11:44 | Report Abuse

At 10% CAGR, an investment would take 11.5 years to triple. If a deep value takes 11.5 years to realise into cash for minority shareholders (note: many deep values have been trapped for far longer than 11.5 years), if RM3 takes 11.5 years to unlock, it is worth only RM1 in present value or fair value term.

Of course, some of the investment may also grow at 10% in the next 11.5 years, therefore possibly warranting a lower discount rate. But think of the possible yearly cash burned in some value traps and the fact that we are now not at the nadir of world economic cycle, and in the interest of margin of safety, a discount rate far below 10% may not be prudent.

Posted by kcchongnz > 2014-03-22 12:34 | Report Abuse

Below is the asset of Kuchai.

Assets Amount 000 Per share, RM
Cash 36065 0.30
Equity investment 153052 1.27
Market value of shares in Sg Bagan (26%) 50644 0.42
An investment property in Singapore 22201 0.18
Total assets 261962 2.17

The net asset value per share of RM2.17 is the present value of Kuchai, not the future value in 11.5 years time. All the assets are quality assets. The major portion of the asset is in the equity investment of about RM1.70 per share as shown, and it is about the market value, or likely even more now. Why would you discount it from 11.5 years ahead?

If $1000 in equity grows at a normal rate of 10% a year, and you discount it at 10%, what would be its present value? Isn’t that equal to $1000?
Of course you may argue equity value will not grow at that “normal” rate or may even contract? But how do you know?

Though one should view investing with caution, he shouldn't paint the worst picture.

Posted by sense maker > 2014-03-22 13:33 | Report Abuse

The market always discounts potential value trap at required rate of return on equity. You may invest in value play based on Balance Sheet but ultimately it is FCF that counts when determining fair value. Value-play has high value but low FCF. The key is to attend AGM and ask the management on their next 10-year corporate plan including major asset disposal and distribution policy. Their answers will determine how FCF will unfold in your DCF excel template.

If you look at the past 5 years, except towards the end of 2010 when it was rumored to be having corporate proposal soon, the share price of Kuchia has been moving up and down in tandem with world economic cycle from RM0.53 to RM1.45. Rightly so, in the absence of corporate development.

Posted by kcchongnz > 2014-03-22 13:57 | Report Abuse

Ben Graham's investing strategy has been mainly balance sheet investing. Seth Klarmen has only two major valuation techniques; ie earnings (or free cash flow) and the other non other than asset value. Earnings based valuation is exciting no doubt. But many proven good investors are asset based investors too.

Of course the market discount a value trap like Kuchai. That is why even though its cash or cash equivalent is RM2.17, it is only trading at RM1.20, or 45% discount. I will advise to buy Kuchai at RM2.17, not even RM1.80, or RM1.60 (less than 30% margin of safety).

It is about the fair value of discount. And also the risk reward relationship.

Posted by kcchongnz > 2014-03-22 16:35 | Report Abuse

Posted by houseofordos > Mar 22, 2014 07:20 AM | Report Abuse

KC, what is your opinion about A&M ? Looks very undervalued with lands and property not revalued for 20 over years...


Don't know anything about A&M. There are too many property companies seemingly under-valued. So which is more "under-valued" than the others?

Looking at the latest balance sheet of A&M, my Graham net net estimate is approximately its market price of RM1.10. I am just basing on its balance sheet number and not knowing the "true' value of the land it holds. However, the value of "Land held for property development" is only 62m, or just 17 sen per share. How much more do you think it is worth?

Its earnings is ok at 8 or 9 sen a share, but noting to shout about.

Posted by sense maker > 2014-03-22 20:30 | Report Abuse

A&M's piece of land in Carey Island is worth about RM5 a share (due to it being a large piece, hence priced at a discount), but it will take 15 to 20 years at least to develop all of them.

Despite expected rising cost of construction, its margin will be fat as the land was bought at extremely low prices. Property slow down will slow down the launch of new phases. And that is the main concern, along with people's appetite to live so far away from KL/ PJ in Hulu Langat.

A&M's results in third quarter 2014 will likely be good and the price may jump towards RM1.50 (which is my target price) due to recognition of sales of property. But the risk is what will happen thereafter when new launches slow. The value trap may reassert itself after a hot phase of good profit.

Its plantation is also an area potentially promising but the management of A&M has been characterised by prudence and slow-motion pursuit for profit and return of profit to shareholders. In this respect, GUH management is more aggressive and exciting.

From RM1.1 to RM1.5, it is worth taking a look provided there is no unexcepted construction cost when Q2 and Q3 results come in.

Posted by houseofordos > 2014-03-22 22:11 | Report Abuse

Thanks for your insights, both KC and sense maker... no joke... RM 5 per share just for Carey Island land... that is seriously undervalued.... the only thing about this company is family tightly owned so expect the usual issues with transparency and minority interests....

KC, I think some companies just don't bother to revalue their land as revaluation gains are subject to tax ? I think in this case, it is safe to assume that the asset value is going to be a lot higher than the books due to the absence of revaluation for over 20 years...

Posted by sense maker > 2014-03-22 22:27 | Report Abuse

Land (including land held for development under non-current assets) to developers like A&M is stock in trade one day when a particular piece within gets developed at which time it will be treated as current asset. In Malayisa, beginning 1.1.2004, revaluation of land held for development was no longer allowed. Revaluation surplus is not subject to any income tax. Land tax is levied on assessed value by local authorities, independent of carrying value in the accounts.

Posted by houseofordos > 2014-03-23 09:12 | Report Abuse

sense maker , thanks for the clarification.

Posted by miketyu > 2014-03-23 09:24 | Report Abuse

Mr Kcchongz,

May I know how u decide whether the company has certain moat in the market? Whether is it profit margin of 15% or more?

Posted by kcchongnz > 2014-03-23 10:02 | Report Abuse

Posted by miketyu > Mar 23, 2014 09:24 AM | Report Abuse

Mr Kcchongz,

May I know how u decide whether the company has certain moat in the market? Whether is it profit margin of 15% or more?

Qualitative analysis of economic moat.
http://www.morningstar.com/invglossary/economic_moat.aspx

I often determine if a company has moat based on quantitative numbers such as margins, return of capitals, and cash flow etc.

A business having a gross margin of >40%, net profit margin > 20%, and higher than its peers generally have moats.

If ROE and ROIC consistently more than 20%, say, and higher than its peers must have moat.

A company consistently produces free cash flow more than 10% of revenue, > 10% of invested capital must have some kind of economic moat.

Posted by miketyu > 2014-03-23 13:08 | Report Abuse

Fully understood. Thanks Mr Kcchongz

Posted by vinext > 2014-11-21 04:00 | Report Abuse

Mr KCChong, with all due respects, ur studies would have been more meaningful if they were for the period 2001-2004, when the mkt didnt go up as much. I m not surprised NET NET or other method beat the mkt. Buying kuchai or stocks p/b <0.4 wont make $. But of cuz NET NET is a different story cuz it is even much lower

Posted by kcchongnz > 2014-11-21 04:53 | Report Abuse

vinext,

In academic research which is very rigorous, they don't select periods to suit their hypothesis. That would be amounting to selection bias resulting research showing one period is true and the other not.

Academic research chooses the longest period available, and not selecting any particular period.

Anyway that research was done by someone else, not my studies as mentioned by you. I have done academic research before, but I don't think I have the patience to do any more. I even doubt I can do it anymore. So when I provide some statistics of my own, they are not based on rigorous academic research, but just some observations.

The research shows Graham net net had worked in the past with statistical significance, and was still working for the period 2000 to 2012, a long enough period, not just two three years.

Posted by vinext > 2014-11-21 06:54 | Report Abuse

wat i mean is,bursa,not SnP500. Even if for SnP,to the best possible,avoid picking a bull yr as ending for the period is crucial. I said so because i noticed that buffett and Walter schloss continued to outperform in bears and flattish year.
I nvr doubted graham value investing would outperform when there;s a tick in the period,no offense

Posted by paperplane2 > 2015-10-14 10:58 | Report Abuse

Why sold we invest in a company without major normal biz activity?