Posted by Icon8888 > 2015-05-19 21:37 | Report Abuse

I also didn't buy this stock because of its high loans and high capex, no regret. But congratulation to those who profit from it

Posted by sense maker > 2015-05-19 22:08 | Report Abuse

Tax credit represents benefits that arose mainly from tax losses or other deductible temporary differences of certain subsidiaries which will likely be realized through future taxable income.

Effect of acquisition of a subsidiary refers to accretion (since it is an income) when the subsidiary is acquired in stages. The income is earned at the expense of non-controlling interest in the group.

Both the items are non-recurring.

Posted by coolio > 2015-05-19 22:15 | Report Abuse

My fried whatsapp me, buy VS now..now..!.My remiser told me " This year is VS year" You must buy this stock, buy big. That time the price was traded in the range of RM3.2. When i look at VS financial statement, nothing good really and i decided not to buy. yeah, the price went up to RM4.11 as of today.
Regret?? No I dont regret as I always hold to my value investing principle.

Posted by twoplus > 2015-05-19 22:30 | Report Abuse

VS just a goring stock , don't hold long term u'll regret

Posted by Altec15 > 2015-05-19 22:31 | Report Abuse

It's so sarcastic that good companies to value investors are always stagnant in price for a period of time( in fact value investors just do not know what is the time its price will meet the intrinsic value that they believe), yet other fair or even lemon companies out there are gaining spotlights by fund houses, retail investors etc and prices skyrocketed in months. It really takes a lot of EQ for value investors to behold their beliefs and wait patiently.

Posted by bintang21 > 2015-05-19 22:31 | Report Abuse

I bought but I ran fast, because i am lucky and do not like high debt company

Posted by ipomember > 2015-05-19 23:41 | Report Abuse

With no offence, i provide my view on V.S. Please correct me if i am wrong.

First you talk about FCF, please be realistic that not every industry has the luxury to enjoy FCF. The business nature of V.S is capital intensive, they need to reinvest to keep up the pace of the world's growing technology. The owner of the company knew it, those experts knew it, even the analyst who studies in detail also knew it.However, it is proven that the business is generating positive operating cash flow each year, which is more important figure to focus for me in this case.

as for the profit growth, please be noted that the share price of V.S started to move on last year, which is where the profit growth started to accelerate. If you have a closer look on V.S, it is not hard to find that they have spent a lot of money to increase their stake on VSI, which is their subsidiary. The revenue growth is mainly due to the consolidation of its subsidiary, but the profit growth on FY14 is genuine, mostly contributed from malaysia segment due to improved sales mix.Their profit margin is increasing too year on year. If you look on the first half of FY15, you will be impressed. Well, you might be saying that the past year record of V.S is not good enough for you to click the buy button, but i think stock investment is more on forward looking, and if you follow the company closely you will understand why the price is moving up in tandem with good financial result.

As for the return of equity & capital, of course i would prefer a company with higher return. However, that range of ROE/ROIC is not that bad actually, especially when it shows good prospect in other aspects.


As for the debt issue, i have mentioned before. The company is borrowing to increase their stake in VSI, that's why the borrowing amount ballooned. Borrowing money in investment got nothing wrong, especially when it is manageable. If you follow the net gearing ratio closely, it is in decreasing trend. The excellent result posted on FY15 even drive down the ratio a lot. (if you dont mind can compare FY15 with FY 14 net gearing ratio)

Posted by ipomember > 2015-05-19 23:45 | Report Abuse

As for the comment posted by Imenwe
"Einhorn had cut his position in Keurig but it is still way too early to judge whether Keurig is a fraud. Do you know how many years Einhorn took to prove he is right in the past? Try to read books and articles related to Einhorn. I know Keurig had been performing for years but please remember price doesn't equivalent to value. Remember John Paulson? Before subprime he also lost his pant but once subprime happen he made tonnes of money. "


reply:of this is what i am worry more, but no one could tell the impacts.


As for sense maker comment "No sooner had I written about my concern over VS's rather big net debt position than it announced a cash call."

reply:I have no idea why the figure we got is so much different. Don't mind to show the calculation?



But putting cash aside, does V.S that compelling an investment as suggested by the investment bank?
“our TP is lifted to MYR4.50 (from MYR2.95), based on an unchanged recurring FY16 P/E of 10x”
Why based on 10X PE, why not 5, 15, 20, or 30? Is PE a good metric when V.S has so much debts?

reply: PE of 10 is acceptable for me, if you do a calculation of PE throughout few year, PE of 10 is at the top of 5 years range. Having considered V.S fundamental has improved so much in compare to past year, 10 is conservative for me.

At RM4.22, the present PE ratio is 14 and enterprise value is 21 times operating income. Is that cheap?

reply:how you get pe 14, what year eps are you using?


I try to train myself to look at business at the businessmen’s point of view, i.e. Cash is King, and No Cash No talk. So V.S obviously doesn’t fit into my category by miles. Yeah I know, I have missed it. But again I always try to console myself, “When everybody makes money and I don’t, it is ok”.

reply: you said you train yourself to look at business at businessmen's point of view, but your analysis shows otherwise. What i see is only figures from financial report. How about other qualitative factors? The expertise of the management(one of the top EMS provider in the world)? The integrity of the management? The willingness to share company profit with shareholder and etc etc.


my conclusion

I would think that V.S industry is involving in an unexciting industry as the CAPEX requirement is high, but somehow the management is capable enough to grow the company. The business will continue to remain tough based on various factors. It is a company that provides manufacturing services to big multinational companies like, Dyson, Sony, Panasonic, Keurig and etc, doing business in a tough industry but the managements able to grow the business. The company also showing record of share buy back throughout the years. Back to the time when i buy this company, it is only value at 280M, a stock traded lower than NTA with good future prospect is certainly a good buy for me. As for now, the private placement is diluting the existing shareholder's ownership, which is certainly not good in short term. But again,stock investment is always forward looking? What is the long term view then? V.S is a cyclical stock and the run up of USD is in favor of it. There are a lot of risks which is out of our control too. At the moment, it is a hold for me.

Posted by ipomember > 2015-05-19 23:56 | Report Abuse

futhermore, with current market cap, you might think it is expensive. However, if you are the expert and you have the vision to look beyond this, how much would you pay if you have the money to purchase the whole company? I am not saying that V.S worth morein future, but isn't it one of the factors of successful stock investment is be able to identify a value of a company while others cannot see at the moment? Cheers

Posted by NOBY > 2015-05-20 00:07 | Report Abuse

Posted by ipomember > May 19, 2015 11:41 PM | Report Abuse
First you talk about FCF, please be realistic that not every industry has the luxury to enjoy FCF. The business nature of V.S is capital intensive, they need to reinvest to keep up the pace of the world's growing technology. The owner of the company knew it, those experts knew it, even the analyst who studies in detail also knew it.However, it is proven that the business is generating positive operating cash flow each year, which is more important figure to focus for me in this case.

I believe we can tolerate a few years of -ve FCF if the investment in capex would yield better returns in the future. But the business must eventually generate FCF. Otherwise it would just be a vicious cycle where the debts keep piling up and the company keeps making cash calls.



Posted by ipomember > May 19, 2015 11:56 PM | Report Abuse

futhermore, with current market cap, you might think it is expensive. However, if you are the expert and you have the vision to look beyond this, how much would you pay if you have the money to purchase the whole company? I am not saying that V.S worth morein future, but isn't it one of the factors of successful stock investment is be able to identify a value of a company while others cannot see at the moment? Cheers

Interesting you brought this up. FYI, when talking about take-overs, people seldom use the PE ratio or market cap. Someone who take over the company will need to take over the debts and minority interests in the company as well. Try calculating the EV/EBITDA or EV/EBIT for VS and compare it to its peers. You will see a whole different picture compared to PE ratio as what KC has mentioned.

Posted by coffeecup > 2015-05-20 00:21 | Report Abuse

You missed this stock because you only look at the books. No doubt kcchongnz is great in analysis.

Investing in stock is not only examining the accounting but the potential of the business. Many great companies such as amazon have to suffer lost for nearly a decade before the start making profit.
If you think it is only one coffee machine for one country, then obviously you don't even bother to look at what the company does.
I can list a few for you. It's making the PCB for dyson and there are few new models
It has solar panel business though a bit small.
It is OEM for zordiac pool cleaner.
What's the potential of VS? Have you done your research?
It will manufacture the keurig cool machine? If you have not heard about this, then I think you better investigate further before writing any comments. Just my two cents.

Posted by RonnieKimLondon > 2015-05-20 00:23 | Report Abuse

This is the best research report that I have read for a long, long time.

Posted by ipomember > 2015-05-20 00:24 | Report Abuse

hi NOBY,

I have to admit that V.S do not have FCF quite frequent. If i am not wrong, this is the first time they doing cash call(if i am wrong kindly prove to me. thanks) Btw, i am not trying to discuss about take-over methods. For me PE is a good norm even though it has its limitation. Same goes to Ev and others valuation method. I dont apply PE on every stock when it comes to analysis.

Posted by ipomember > 2015-05-20 00:27 | Report Abuse

coffee cup, thanks for bringing up Amazon as example. For those who studies on Amazon, you will know how impressive Jeff Bezos is even though the company are making losses. His kind of business philosophy is just too outstanding from others. Cheers

Posted by Kai Yee Tan > 2015-05-20 01:42 | Report Abuse

Is is the Enron committed accounting fraud before?

Posted by bintang21 > 2015-05-20 02:38 | Report Abuse

coffeec cup and ipomember,
all your points are on the future earning potential of VS, who can know the future for sure.
but KCChong present the financial analysis which is more reliable and trustworthy.
moreover a company with so many year of negative free cash flow and unmatched earning growth is definitely not a safe buy.

I am a rubber tapper, how come I can see this , you can not.

very very funny?

VS a good buy , my foot. fast buy buy fast run is more appropriate.

Posted by Frank Soweto > 2015-05-20 03:08 | Report Abuse

I don't think he (kc) missed anything la - even if he had spotted this when the price was 1 bucks + in 2014 but those consistent neg numbers of the FCF n ballooning debts will not pass his investment criteria nor any value investors for that matter.

from my observation (I could be wrong LOL) based on his many writings Part of his investment criteria will be mostly on good consistent numbers of the past years n the integrity of the management for him to consider.

yes stock investment is forward looking but who can really predict the future - maybe only our i3 residential fung shui master fortunebullz* :) but the past numbers n the mgmt. does tell some at least to where the co heading in the future.

of course sometimes if you take some risk when u saw the explosive growth you can make tons but can it last especially with those growing neg #s :) can they survive if the economy go into a tail spin or even just a slowdown ? but still cannot deny the fact that the price now at all time high n has gone up LOTS and some who saw it early n made good $$$ - congrats :)

anyway, KC to me has been proven time n again that his method of investment is less risky n in the longer term always give good above ave consistent + returns if not spectacular :) A look at his many portfolios will show that unless of course if you're the really out of luck (completely OUT LOL ) like the fella named donfollowblindly who managed to ONLY pick a meager few of his temp paper loss companies then u're really Suwei to the core LOL then not even the mandi bunga can save u - better put money in FD LOL

for me I think I better stick to the investment style of these Value gurus - better be safe than sorry - should know better coz I've been there - the sorry part LOL

Posted by Frank Soweto > 2015-05-20 03:22 | Report Abuse

*
fortunebullz Many should know by now CP Teh is pure TA! He has little FA to back his selections if any! I have no idea how he filter and select his stocks! He must be a full time analyst to monitor each and every stocks in bursa! I am not as smart as he is! I already pre select all my stocks and filter down to max 30! I don't jump from one stock to another pointing out how i made profit from thousand of stocks in bursa!
CP Teh also detach real world from pure TA analysis! You shouldn't do that! You must know the reason why bursa dip today! It dip because of no other than overaction on 1mdb news again! Tomorrow things will get to normal and should recoup 13 points and then some!
I leak you guys a little secret! Like today i mark on my table calendar the reason for 13 points dip! I put a note that it's due to overaction on RM3 billion news which was wrongly presented! If you continue to mark on table calender, you should be able to understand Mr. Market clearly!
20/05/2015 01:22

I'm not interested in him criticizing CP but his 'forecast' for today (later)-
You shouldn't do that! You must know the reason why bursa dip today! It dip because of no other than overaction on 1mdb news again! Tomorrow things will get to normal and should recoup 13 points and then some!

see how he can tell wat is going to happen today - now that was powerful :) n also grateful that he is willing to share his 'little' secret :)

Thanks for sharing Master fortunebullz :) I will now go look for a table calendar :)

Posted by bintang21 > 2015-05-20 03:34 | Report Abuse

What earning picking up? One moment 35m next moment drop to 18m . So inconsistent. It is better avoid to get heart attack.

Posted by Frank Soweto > 2015-05-20 03:54 | Report Abuse

Posted by fortunebullz > May 20, 2015 03:32 AM | Report Abuse

Frank! I am not 100% correct! Take for instance my 10 picks for 2015! You may notice Bimb warrant not moving at all! You can do a SWAT analysis and part S and A full of positive remarks! So i am out of answer as to why the only 2 syariah compliance banks in Malaysia which are Takaful trading at 16.00 and subsidiary of Bimb yet the mother company market price is so undervalue! I don't disclosure all my secrets or else like kungfu fighters, your opponents will know all your moves! Well, get your table calendar! Just make sure it's not full of sexy ladies photos

ok ok u got me - the last part LOL - Just make sure it's not full of sexy ladies photos :)

but wat am I marking now? u said the drop today was becoz of IMDumBo but the Star said foreigners selling becoz global economic uncertainties

http://www.thestar.com.my/Business/Business-News/2015/05/19/KLCI-falls-nearly-14-points/?style=biz

but2 I hope u're right - in tat our Bolihland can recoup 13 points or more today :)
I need a Mastersifu Guidance after my previous one yungshen1 retired :) so am looking at u now :)

Posted by kcchongnz > 2015-05-20 05:21 | Report Abuse

This is the kind of constructive comments I like. The writer as I can see is a knowledgeable and experience investors. Appended is my response in CAPITAL letter for ease of reference. Please note that I am talking about a NBI, in my context. Also I am just a small time retail investor with limited knowledge and information. But that doesn't mean that I shouldn't express my opinion.

Posted by ipomember > May 19, 2015 11:41 PM | Report Abuse

With no offence, i provide my view on V.S. Please correct me if i am wrong.

First you talk about FCF, please be realistic that not every industry has the luxury to enjoy FCF. The business nature of V.S is capital intensive, they need to reinvest to keep up the pace of the world's growing technology. The owner of the company knew it, those experts knew it, even the analyst who studies in detail also knew it.However, it is proven that the business is generating positive operating cash flow each year, which is more important figure to focus for me in this case.

WE DO HAVE OPPOSING OPINIONS ON WHICH IS MORE IMPORTANT; CASH FLOWS FROM OPERATIONS OR FREE CASH FLOW. WELL, I HAVE ALREADY TALKED TOO MUCH ABOUT THE IMPORTANCE OF FCF IN ALL MY LAST FEW POSTS.

I AGREE WITH YOU FAST GROWING COMPANY REQUIRES A LOT OF REINVESTMENT AND HENCE POOR IN FCF. BUT THINK AS A BUSINESSMAN, DO YOU WANT TO INVOLVE IN A BUSINESS WHICH EVERY YEAR GOT TO BORROW MORE MONEY AND HE HAS TO FOOT IN MORE MONEY INSTEAD OF ENJOYING THE FRUITS OF "GROWTH" BY EXTRACTING OUT SOME MONEY FROM IT?


as for the profit growth, please be noted that the share price of V.S started to move on last year, which is where the profit growth started to accelerate. If you have a closer look on V.S, it is not hard to find that they have spent a lot of money to increase their stake on VSI, which is their subsidiary. The revenue growth is mainly due to the consolidation of its subsidiary, but the profit growth on FY14 is genuine, mostly contributed from malaysia segment due to improved sales mix.Their profit margin is increasing too year on year. If you look on the first half of FY15, you will be impressed. Well, you might be saying that the past year record of V.S is not good enough for you to click the buy button, but i think stock investment is more on forward looking, and if you follow the company closely you will understand why the price is moving up in tandem with good financial result.

TRUE TRUE INVESTING IS ABOUT THE FUTURE. I ALWAYS EMPHASIZE IT TOO. IF YOU CAN SEE THE FUTURE, IT DOES MAKE YOU A LOT OF MONEY.

PROFIT MARGIN IMPROVES YEAR-TO-YEAR? I AM NOT SURE. HERE IS WHAT I GOT.

Year 2014 2013 2012 2011 2010
Gross margin 11.5% 9.1% 12.2% 14.4% 15.2%
Operating margin 3.4% 5.1% 5.6% 6.6% 6.0%
Net profit margin 2.7% 3.4% 2.7% 3.5% 3.2%

PROFIT GROWTH FOR THE FIRST QUARTER FY15 (NOT 14) IS TRUE. IT WAS AN EXPLOSIVE GROWTH TOO. BUT I SELDOM RELY ON A QUARTERLY RESULT. I LOOK AT ANNUAL RESULTS. ITS 2ND QUARTER 15 WAS HALF THAT OF FIRST QUARTER. SO VERY DIFFICULT TO LOOK AT JUST A QUARTER RESULT.

WELL I COULD HAVE LOOKED AT THE TRAILING TWELVE MONTH RESULTS, WHICH THE PROFIT GROWTH IS ALSO EXPLOSIVE. BUT AS I WAS NOT INTERESTED, I DIDN'T WANT TO SPEND TIME ON THAT. BUT YOU COULD BE RIGHT, AS IT WAS SHOWN THAT YOU MADE MONEY BY DOING SO. CONGRATS.

As for the return of equity & capital, of course i would prefer a company with higher return. However, that range of ROE/ROIC is not that bad actually, especially when it shows good prospect in other aspects.

HISTORICALLY RETURN ON CAPITAL OF 6% OR 7% IS FAR FROM SATISFACTORY FOR ME. SO IT IS A MATTER OF DIFFERENT OPINION AGAIN. AGAIN IT IS THE FUTURE WHICH IS IMPORTANT. FUTURE ROC WILL IMPROVED WITH MORE SALES, PROVIDED SALES GROWTH WILL CONTINUE IN THE FUTURE.

As for the debt issue, i have mentioned before. The company is borrowing to increase their stake in VSI, that's why the borrowing amount ballooned. Borrowing money in investment got nothing wrong, especially when it is manageable. If you follow the net gearing ratio closely, it is in decreasing trend. The excellent result posted on FY15 even drive down the ratio a lot. (if you dont mind can compare FY15 with FY 14 net gearing ratio)

BORROWING MONEY FOR INVESTMENT GOT NOTHING WRONG? OF COURSE, THAT IS WHY COMPANIES GO PUBLIC LISTING, TO TAP ON PUBLIC FUNDS. I AGREE IT IS NOTHING WRONG, PROVIDED THAT YOU EARN A RETURN HIGHER THAN YOUR COSTS, AND HAVE THE CASH TO PAY INTEREST PAYMENTS.

GEARING RATIO DECREASING TREND? I DON'T SEE IT AS SHOWN FROM WHAT I HAVE COMPUTED BELOW.

Year 2014 2013 2012 2011 2010
D/E 64% 61% 34% 33% 43%

YOU ARE RIGHT FOR THE SECOND QUARTER 2015. D/E HAS BEEN LOWERED SUBSTANTIALLY TO JUST 45%. WELL DONE.

BUT THAT DOESN'T MAKE IN A NBI IN MY CONTEXT.

Posted by coffeecup > 2015-05-20 05:34 | Report Abuse

bintang21

I bought VS nearly rm2. If you see what I saw, then you would have earn more than 100% by now:-)
I also invested in ifcamsc since it was below 60c and myeg end of last year when not many looked at it. Both gave another 100%.

If I only looked at the past of ifcamsc and myeg, I would have missed these two outperforming stock that everyone is talking about.
For example ifcamsc has made lost for a number of years and in software business, the majority of time is put in R&D. Once it is completed, it start printing money. These companies all have excellent management. This is intangible asset that no matter how hard you try will not show you the value and potential. Bill Gates, Steve Jobs and etc all had visions. Do you know apple was nearly bankrupt? Who would buy such shares by looking at the past?

There is no doubt kcchongnz method will give you sound and safe investment but you have to live with the fact that you will occasionally miss some big fish and he is happy that he miss it while everyone else making money. Nothing's wrong about that, but I find it challenging and rewarding to find something ahead of others and making money while other is still in doubt.

Fortunebull used to be very good finding profit RM1 counter. How come he missed VS?

Posted by kcchongnz > 2015-05-20 07:53 | Report Abuse

This comment is made by someone in the profession and in the industry. It is hard to anyone here to dispute it, in my opinion.

Posted by sense maker > May 19, 2015 10:08 PM | Report Abuse
Tax credit represents benefits that arose mainly from tax losses or other deductible temporary differences of certain subsidiaries which will likely be realized through future taxable income.
Effect of acquisition of a subsidiary refers to accretion (since it is an income) when the subsidiary is acquired in stages. The income is earned at the expense of non-controlling interest in the group.
Both the items are non-recurring.


So out of 58m operating income in 2014, 28.4 is this non-recurring “Effect of acquisition of a subsidiary” thingy. Interesting!

And forget to mention, out of 45m Cash flow from operations in 2014, 61.5m is depreciation write back. Also very interesting.

Again, this may not negate the investment opportunity in this stock. Its two quarters in 2015 appears to improve substantially.

It is just that it is not a NBI. It needs a lot of brain power to fathom it.

Posted by Frank Soweto > 2015-05-20 08:18 | Report Abuse

@coffeecup - good for u for making 100% on VS - have to admit not very familiar with this Co and Hopefully Keurig is not the MAIN reason this share surged the past year.

Keurig Green mountain share price has taken a beating since flat sales n some problems with their 2.0 machine - infact it's almost at 52 week low of $90 way off the high of $158 - see below

http://www.marketwatch.com/story/keurig-earnings-hurt-by-low-demand-for-new-k-cups-2015-05-06

As for the keurig cold machine - hope it's not another expensive version of Soda stream - if that's the case I rather go buy a pack of 12 for 3.50 when it's on sale :)

http://247wallst.com/consumer-products/2015/05/15/keurig-kold-stumble-could-bring-a-big-accidental-victory-for-sodastream/

I think I better not investigate further otherwise I will come out with another article like below

http://www.fool.com/investing/general/2014/04/12/is-keurig-cold-overhyped.aspx

Anyway, since Coke is a major shareholder n with their backing who knows if this cold machine might turn out to be the next big thing since slice bread but i'm not holding my breath LOL. Perhaps Fortunebullz can share his prediction :) Anyway good luck - juz sharing :)

Posted by bintang21 > 2015-05-20 08:44 | Report Abuse

Thank you for responding to my comment
Different people have different mode of
Investing. You want something challenging but I rather
choose high margin of safty.

Posted by kcchongnz > 2015-05-20 08:46 | Report Abuse

Posted by coolio > May 19, 2015 10:15 PM | Report Abuse
My fried whatsapp me, buy VS now..now..!.My remiser told me " This year is VS year" You must buy this stock, buy big. That time the price was traded in the range of RM3.2. When i look at VS financial statement, nothing good really and i decided not to buy. yeah, the price went up to RM4.11 as of today.
Regret?? No I dont regret as I always hold to my value investing principle.


coolio, you have master the psychology of investing very well. Like what Seth Klarman said,


“In a rising market, everyone makes money and a value philosophy is unnecessary. But because there is no certain way to predict what the market will do, one must follow a value philosophy at all times. By controlling risk and limiting loss through extensive fundamental analysis, strict discipline, and endless patience, value investors can expect good results with limited downside. You may not get rich quick, but you will keep what you have, and if the future of value investing resembles its past, you’re likely to get rich slowly. As investment strategies go, this is the most that any reasonable investor can hope for.”

Posted by bintang21 > 2015-05-20 08:49 | Report Abuse

Look at gadang and frontkn
I am sure you can sleep well
Please correct me if you think
otherwise

Posted by bintang21 > 2015-05-20 08:53 | Report Abuse

This is what we call potential with positive cash flow

Posted by soojinhou > 2015-05-20 10:23 | Report Abuse

I felt I need to write something for those who criticise KC Chong's investment philosophy. Those who ridicule him for missing out on IFCAMSC or VS should understand anyone can make money from punting stocks. In fact, chartists or punters can outperform value investors by taking on higher risks. Does that mean KC Chong's investment philosophy is inferior or defective?

Hardly. Before the subprime crisis exploded, US banks were making extraordinary profits. But those profits come at heightened risks, i.e. lending money to folks with poor credit rating. Similarly, those who buy into talked-up stocks like IFCAMSC are also taking on heightened risks, i.e. IFCAMSC's Chinese venture will succeed despite the real estate slowdown.

Avoiding stocks whose valuation cannot be convincingly deduced, is a risk mitigation strategy. Sure maybe he will miss out on some great bulls, and he may even lose to punters in terms of return. But I am sure in the event of a market crash, KC Chong will sleep more soundly than those who buy "hot stocks".

Don't forget, Lynas, which is currently trading at less than 5 cents, was once the darling of ASX and nearly hit AUD 3 at its peak. Sure disciplined fundamentalists will probably not enjoy the exhilarating bull runs of the many great fashionable stocks, but neither will they suffer from the debilitating loss of wealth should things go wrong, as they invariably will.

As for me. I'm inclined to KC's philosophy. Investment is a marathon, not a sprint, I'm in for the long haul. I choose lower risks, even if it means drooling at other people's profit.

Posted by skyz > 2015-05-20 10:40 | Report Abuse

Thanks KC. I very agree much with your point of view. Really out of the box. Not like certain ANALyst which has ulterior motives behind. VS and Latitud are "darling" stock picks of a famous controversial writer in this forum. Do not wish to name him here but most ppl here will know who I am mentioning after banging heads after following his BUY calls on Mudajaya and Jayatiasa. That's why I prefer to pay more attention to KC's writeups and justification. Keep it up!

Posted by Avocado_C > 2015-05-20 10:50 | Report Abuse

A friend highlighted this stock to me early this year, I took a look at the annual report (31/7/2014), apart from what have been analysed and mentioned by KCChong above, I remembered I had a shock when I saw the total directors' remuneration for the year was RM19.5 million. This represents about 10% of its gross profit in 2014.

Excluding the 3 non-executive directors of VS, the 6 executive directors (who are also major shareholders, namely Gan & Beh who controls about 30% of the shares) earned total remuneration of RM19.1 million, that is an average of RM3.1 million per person.

The highest paid executive director of VS (not named in the annual report, which should be Datuk Gan, the MD) received about RM5 million during the year, whereas the CEO of Maybank, Datuk Abdul Farid received RM5.4 million of remuneration in year 2014.

For comparison, VS has a market capitalisation of RM850 million and Maybank is the largest bank in Malaysia with market cap of RM87,000 million. Errr ... no matter how "good" VS is managed, I personally don't see a good governance here judging by how the directors (owner) are being paid. Why are these directors getting the first "slice" before the rest of the shareholders? Why are they getting a remuneration of RM19 million vs. a dividend of RM9 million to all shareholders?

Posted by soojinhou > 2015-05-20 11:06 | Report Abuse

No matter how good VS is, they are ultimately just a contract manufacturer. The biggest of them all, hon hai, is valued at pe slightly more than 10. Using that as a benchmark, VS is more or less fully valued at the current price.

Posted by NOBY > 2015-05-20 11:11 | Report Abuse

soojinhou, very well said... very well said...

Posted by shinebright > 2015-05-20 11:17 | Report Abuse

One must get certain facts right before starting on the calculations. VS Industry's financials are consolidated along with its 44%-owned subsidiary, VS International Group since FY13. VSIG has been loss making for quite a while and mind you, the high level of debt is actually at VSIG level. Hence, when consolidated, of course the cash flow and balance sheet are in depressed shape. It is NO ACCURATE to calculate the CF and items on Balance Sheet when it is consolidated judging from the fact that VS only owned 44% of VSIG. Please get the facts right before such posting.

Posted by ipomember > 2015-05-20 11:20 | Report Abuse

great to read all the comments. I will think that it could be different view or different angle that we overlooked when it comes to analysis..

However, there is something i think we should really ponder

comment from frank soweto
"anyway, KC to me has been proven time n again that his method of investment is less risky n in the longer term always give good above ave consistent + returns if not spectacular "

Is that true?really?Analyse all the past figures really provide you a safer investment?Making decision based on past figures is a better decision? Like KC, i did a thorough research on financial report, at the same time i also study current business condition, study the management, the industry and etc. Well, i do not come across to any foolproof method but certainly this is something we need to ponder while we are looking for less risky investment.

Posted by JT Yeo > 2015-05-20 11:27 | Report Abuse

FCF is definitely not the best measure, if consider like Amazon, they are plowing all the earnings back in capex to expand their market shares or competitive advantage.

For VS to justify that, you have to trust they have the capability to do the same in increasing their competitive advantage, because to me, manufacturing in the long term there is none.

As for ROE, 6-7% do sounds ok, but you do need to calculate the precise cost of capital to know that in the long term, it will grow itself to bankrupt.

Posted by kcchongnz > 2015-05-20 11:56 | Report Abuse

Posted by ipomember > May 19, 2015 11:45 PM | Report Abuse

You: PE of 10 is acceptable for me, if you do a calculation of PE throughout few year, PE of 10 is at the top of 5 years range. Having considered V.S fundamental has improved so much in compare to past year, 10 is conservative for me.

Me: What is the E in the P/E? For example last year result, what say you about V.S recognizing the 28.4m as “Effect of acquisition of a subsidiary” as part of the 46.6m of net earnings?


At RM4.22, the present PE ratio is 14 and enterprise value is 21 times operating income. Is that cheap?
reply:how you get pe 14, what year eps are you using?

Me: I am using the latest annual results of 2014. Anyway, can you show us your PE and EV/Ebit. You may use the ttm, forward, or analyst’s 2016 or whatever.


You: you said you train yourself to look at business at businessmen's point of view, but your analysis shows otherwise. What i see is only figures from financial report. How about other qualitative factors? The expertise of the management(one of the top EMS provider in the world)? The integrity of the management? The willingness to share company profit with shareholder and etc etc.

Me: Obviously your point of view about what businessmen think is different from me. My business friends always talk about cash, no cash no talk. Earnings is useless to them if they cannot be converted to cash. You may not like what the financial reports tell you, but I do. They communicate to me how the business is doing. I don’t know how you know the business is doing without looking at the financial reports.
You prefer to listen to what the management tell you? That is your prerogative. I don’t. Integrity of the management? I don’t know. You know more than me. But someone also say something different here:
[Posted by Avocado_C > May 20, 2015 10:50 AM | Report Abuse
The highest paid executive director of VS (not named in the annual report, which should be Datuk Gan, the MD) received about RM5 million during the year, whereas the CEO of Maybank, Datuk Abdul Farid received RM5.4 million of remuneration in year 2014.

For comparison, VS has a market capitalisation of RM850 million and Maybank is the largest bank in Malaysia with market cap of RM87,000 million. Errr ... no matter how "good" VS is managed, I personally don't see a good governance here judging by how the directors (owner) are being paid. Why are these directors getting the first "slice" before the rest of the shareholders? Why are they getting a remuneration of RM19 million vs. a dividend of RM9 million to all shareholders? ]

Top EMS provider in the world? Well I don’t give a damn if it is the top or bottom if it (the cash) is not pretty.
Willingness to share? Share what? The distributions of dividends from borrowed money of the company of which shareholder owns? And the major shareholders taking the big chunk of it?

You conclusion

I would think that V.S industry is involving in an unexciting industry as the CAPEX requirement is high, but somehow the management is capable enough to grow the company. The business will continue to remain tough based on various factors. It is a company that provides manufacturing services to big multinational companies like, Dyson, Sony, Panasonic, Keurig and etc, doing business in a tough industry but the managements able to grow the business. The company also showing record of share buy back throughout the years. Back to the time when i buy this company, it is only value at 280M, a stock traded lower than NTA with good future prospect is certainly a good buy for me. As for now, the private placement is diluting the existing shareholder's ownership, which is certainly not good in short term. But again,stock investment is always forward looking? What is the long term view then? V.S is a cyclical stock and the run up of USD is in favor of it. There are a lot of risks which is out of our control too. At the moment, it is a hold for me.

Me: Share buyback? Money from where?
Tough business? A lot of risk?
When a management with a reputation for brilliance tackles a business with a reputation for bad economics, it is the reputation of the business that remains intact. Warren Buffett

Posted by paperplane2 > 2015-05-20 12:13 | Report Abuse

KC, I am confused. The EY and ROC of VS seems ok above 10%, then....

Posted by kcchongnz > 2015-05-20 12:18 | Report Abuse

Posted by shinebright > May 20, 2015 11:17 AM | Report Abuse
One must get certain facts right before starting on the calculations. VS Industry's financials are consolidated along with its 44%-owned subsidiary, VS International Group since FY13. VSIG has been loss making for quite a while and mind you, the high level of debt is actually at VSIG level. Hence, when consolidated, of course the cash flow and balance sheet are in depressed shape. It is NO ACCURATE to calculate the CF and items on Balance Sheet when it is consolidated judging from the fact that VS only owned 44% of VSIG. Please get the facts right before such posting.

“Please get the facts right before such posting.”

So who can post articles in i3investor then? All posting must be “Buy, buy, buy”?

And what is your view of balance sheet and cash flow on this consolidation of accounts? Your view please.

Posted by NOBY > 2015-05-20 12:33 | Report Abuse

Posted by shinebright > May 20, 2015 11:17 AM | Report Abuse

One must get certain facts right before starting on the calculations. VS Industry's financials are consolidated along with its 44%-owned subsidiary, VS International Group since FY13. VSIG has been loss making for quite a while and mind you, the high level of debt is actually at VSIG level. Hence, when consolidated, of course the cash flow and balance sheet are in depressed shape. It is NO ACCURATE to calculate the CF and items on Balance Sheet when it is consolidated judging from the fact that VS only owned 44% of VSIG. Please get the facts right before such posting.

Correction. VS owns >50% of VSIG (if less than 50% it wont be consolidated). Use enterprise valuations to evaluate to take into account the minority interest stake... I doubt it will be much more compelling

Posted by kcchongnz > 2015-05-20 12:44 | Report Abuse

Posted by JT Yeo > May 20, 2015 11:27 AM | Report Abuse
FCF is definitely not the best measure, if consider like Amazon, they are plowing all the earnings back in capex to expand their market shares or competitive advantage.

For VS to justify that, you have to trust they have the capability to do the same in increasing their competitive advantage, because to me, manufacturing in the long term there is none.

As for ROE, 6-7% do sounds ok, but you do need to calculate the precise cost of capital to know that in the long term, it will grow itself to bankrupt.

FCF may not be the best measure, yes agree as there are many metrics around, all have their advantages and disadvantages.
The article is about if it is a no-brainer investment. If it is a NBI for somebody, well we have to accept it is only a matter of opinion and we can’t say he is wrong.

But for me it is not a NBI, as my criteria is FCF. I didn’t say it is definitely a bad investment. There may be others metrics to show that it is a good investment, but it is not a NBI.
A NBI is something you don’t need to calculate so much, think so much. It just jumps out at you. For example Maybank provides you with a FD rate of 10%.

Everyone has his own opinion. For example, I can’t agree with you to invest in V.S, I just have to trust the management that they have the ability to increase V.S competitive advantage, as they haven’t shown to me from the last few years’ performance as shown in the article.
I also don’t agree with you that V.S is like Amazon as I think they have totally different business models.

I don’t agree with you that 6% or 7% ROE is ok, because my, yes mine, not yours, required return is 12%. I don’t need to calculate further what the cost of capital is as cost of debt cannot be lower than say 5%. Combine that with cost of equity, the cost of capital cannot be less than say 8% to 9%.

Posted by shinebright > 2015-05-20 12:56 | Report Abuse

>>>> NOBY

Uncle, http://www.bursamalaysia.com/market/listed-companies/company-announcements/1087293

This is the latest filing in Bursa on the shareholding which shows they hold 44% in VSIG.

Also the updated accounting rules is that one can conso even though with less than 50% stake due to management control it has. Please do check ur facts properly before this.

Posted by NOBY > 2015-05-20 13:02 | Report Abuse

OK... but bottom line is how much is the difference in your valuation of VS with or without the minority interest consolidated...

Posted by paperplane2 > 2015-05-20 13:32 | Report Abuse

but if consolidated also means they get part of the debts, so must be view together

Posted by shinebright > 2015-05-20 13:44 | Report Abuse

>>>>paperplane2

What do u mean by view together? The fact is that they own 44% stake. If you say view together, there is no such thing as minority interest and no such thing as segmental breakdown. A fair valuation assuming disposal of the 44% stake will be taking into account the 44% Net Assets they own in there. not altogether.

Posted by sunztzhe > 2015-05-20 14:12 | Report Abuse

Quite an interesting discussion above based on VS past Financial Accounts. I would however primarily focus on VS biz model, its biz strategy, execution of its biz strategy as this is forward looking.

VS main strategy is to partner global leaders for its future growth. It has achieved that and will continue to do it better.

It had successfully made into the list of top 50 EMS (Electronic Manufacturing Services) producers globally from 2007 to 2013 as per 2014 AR and in that process had invested in advanced manufacturing facilities strategically located in Asia manufacturing hubs in Qingdao, Zhuhai, Hanoi, Senai and Jakarta.

VS employed a 3 pronged strategy to grow its future biz:
-Customer focused strategy in managing its resources to becoming a more pivotal partner to its customers
-Market focused strategy with continued focus on higher value added products in growth industries
-People focused strategy in nurturing talents for sustainable growth and innovation

Based on its rolling 4Q EPS of 45.1 cents, its PE based on market price of 4.17 is only 9.25.

To Fundamental investors or value Investors, I will like to leave a question for all of you to think and ponder through...The question is as follows:
- Is VS undervalued, fair valued or overvalued at current market price
- If VS in future managed to achieve an EPS above 45.1 cents, how will you value VS in terms of undervaluation, fair value or over valuation??

To TA investors, VS had underperformed the KLCI since 30/3/2015. However since 18/5/2015 it had started to outperform the KLCI as it had upward penetrated yesterday the upper Bollinger band with 10 days MA. When a stock starts to outperform the KLCI, what is the decision to take?? The 10 days MA Bollinger band on VS widens with upper line and middle line turning UPWARDS... Today VS price went even higher...Is this a technical signal to accumulate VS on any future weakness or to take a position at current price levels???

Posted by shinebright > 2015-05-20 14:13 | Report Abuse

>>>kcchongnz

Nobody values a company like that as a whole, given that it has various subsidiaries attached to it.

To get to the value of equity in the company, you will have to subtract out the net debt of the combined companies and the estimated value of the portion of the equity in the subsidiary that does not belong to the parent company. Again, this estimate can be based upon the book value of minority interest or on the intrinsic value of the subsidiaries.

kcchongz:
PROFIT GROWTH FOR THE FIRST QUARTER FY15 (NOT 14) IS TRUE. IT WAS AN EXPLOSIVE GROWTH TOO. BUT I SELDOM RELY ON A QUARTERLY RESULT. I LOOK AT ANNUAL RESULTS. ITS 2ND QUARTER 15 WAS HALF THAT OF FIRST QUARTER. SO VERY DIFFICULT TO LOOK AT JUST A QUARTER RESULT.

It is a known fact that 1Q and 4Q of their fiscal year are the strongest quarter. 2Q and 3Q quarters are typically the weaker quarters due to seasonality of the orders. If you want a fair comparison, please analyse that quarter to the same quarter of the preceding year to get a better view.

Posted by shinebright > 2015-05-20 14:15 | Report Abuse

But I have to say at current price, it is rather fully valued. I am at the stand where I disagree with your fact that it is a no-brainer investment at the beginning.

Posted by kcchongnz > 2015-05-20 14:35 | Report Abuse

Posted by shinebright > May 20, 2015 02:13 PM | Report Abuse

>>>kcchongnz

Nobody values a company like that as a whole, given that it has various subsidiaries attached to it.

To get to the value of equity in the company, you will have to subtract out the net debt of the combined companies and the estimated value of the portion of the equity in the subsidiary that does not belong to the parent company. Again, this estimate can be based upon the book value of minority interest or on the intrinsic value of the subsidiaries.


Good that you talk about value. But did I value the company? Or was it RHB which value it?

I am just saying it is not a NBI as it has no FCF from the last three years, basing just on this simple metric. As it doesn't have positive FCF, it doesn't jump out at me as a NBI.

From your last comment, I am not sure whether you know what I mean by a NBI.

So the question now is, how do you value the company. Please show us your valuation in details as you said others are wrong.

Posted by shinebright > 2015-05-20 14:43 | Report Abuse

kcchongz>>>> Good that you talk about value. But did I value the company? Or was it RHB which value it?

“our TP is lifted to MYR4.50 (from MYR2.95), based on an unchanged recurring FY16 P/E of 10x”

Why based on 10X PE, why not 5, 15, 20, or 30? Is PE a good metric when V.S has so much debts?

At RM4.22, the present PE ratio is 14 and enterprise value is 21 times operating income. Is that cheap?


If those ratios are not valuation ratios, I do not know what to say really that you DID NOT TRY TO VALUE THE COMPANY?


So the question now is, how do you value the company. Please show us your valuation in details as you said others are wrong.


I have no time to spend on amateur like you seriously.All along, I am a silent reader of the forum, coming in occasionally to check on the market rumours. But stumbling across your misleading info, I cannot help but to comment on your methods.