Posted by chonghai > 2015-06-03 18:41 | Report Abuse

Kcchongnz, I own VS share.I believe I never attack or insult your analysis, partly because I am still trying to comprehend your analysis. I bought VS for the recently surge in revenue due to keurig. No matter what is your analysis, I will be holding on my VS for 6 more months, because I believe the jump in revenue could be different from before. However, I still really appreciate your analysis because that allow me to have a good understanding of VS. Thank you very much.

Posted by Icon8888 > 2015-06-03 19:49 | Report Abuse

"3. PE do not differentiate a company with net cash of 300mil or net debt of 300mil. Therefore using 'PE' and '11' the number to derive your fair value price will end up very wrong.”"

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Why do people say that PE does not reflect borrowings ? If the company has a lot of borrowings and incur high interest expenses, it's net profit will decline and valuation based on PE will be reduced accordingly.

As such, PE does differentiate a company with borrowing from one with cash.

Feedback welcomed

Posted by kcchongnz > 2015-06-03 20:04 | Report Abuse

Two companies, A and B in exactly the same industry have the same number of shares with the same share price, and hence the same market capitalization of 100m.

A has a total debt of 50 million and an excess cash of 10m, whereas B has a total debt of 10m but an excess cash of 20m.

Both companies make a net income of 10m. Hence both A and B is selling at a price-earnings ratio of 10 (100m/10m). But are they having the same value? If not, which company would you prefer to invest in?

Please view their simplified income statement in the link below:

http://klse.i3investor.com/blogs/kcchongnz/49016.jsp

Posted by Probability > 2015-06-03 20:13 | Report Abuse

'what a contribution to i3'...
I am also truly amazed by your writing skills KC!
How nice if we can have a few more like you in i3.

Posted by Icon8888 > 2015-06-03 20:26 | Report Abuse

Ah hah, thank you....

Posted by chinesetea > 2015-06-03 21:06 | Report Abuse

Keep up the good work. Sometimes analysis work sometimes don't. There are too many factors that can affect the price ie intangible assets, brand name that no calculation can be used.

Keep writing and that will make people think more. I am sure the recent articles comparing GTRONICS and VS has created publicity that affect of the share price. Publicity is a great factor and that's why advertising business is so huge. Whether you're right or wrong, one thing for sure is now more people know about these two shares.

Have you not realised that stock that's issued with UMA may sometimes continue to rise after clarifications? Rumours is also a factor that cannot be priced :-)

Posted by kcchongnz > 2015-06-03 21:06 | Report Abuse

This is the first time someone owning a stock which I didn't write good about it, thank me. Umm.


Posted by chonghai > Jun 3, 2015 06:41 PM | Report Abuse

Kcchongnz, I own VS share.I believe I never attack or insult your analysis, partly because I am still trying to comprehend your analysis. I bought VS for the recently surge in revenue due to keurig. No matter what is your analysis, I will be holding on my VS for 6 more months, because I believe the jump in revenue could be different from before. However, I still really appreciate your analysis because that allow me to have a good understanding of VS. Thank you very much.

Posted by kiasutrader1 > 2015-06-03 22:11 | Report Abuse

One must learn to Agree to Disagree. Some who write on this,website write absolute nonsense. Alternative views are the source of learning. It polishes your debating skills and makes you think more.

I personally do not use DCF to tell me whether to buy or not. If you do, then you are,at liberty to.

I stick to simplier stuff especially "looking behind the numbers" i.e. understanding why certain numbers presented in the financials are what they are. Should we buy when great numbers are presented and sell when it is the reverse? A skillful investor will know where to look.

So, I am not put off by high gearing or low ROE & ROA. What is most important is having an understanding of business processes which certainly works for me, including an understanding and application of FA & IA.

As I said, anyone who agree or disagree with me can write to me at kiasutrader@gmail.com or visit my website at www.kiasutrader.com

Good discussion

Posted by kl foong > 2015-06-03 22:17 | Report Abuse

Guys, keep it up.

Posted by vinext > 2015-06-04 06:02 | Report Abuse

i believe i met kiasutrader once when he visited koon yew yin in ipoh. both Ks and KC r legends in their own right

Posted by Chan KS > 2015-06-04 08:35 | Report Abuse

well, i dont own VS but i learn great lots from kiasu comment.

Posted by JT Yeo > 2015-06-04 09:30 | Report Abuse

An investment can be attractive at certain price but absurd at another price. Means even low ROE can be attractive investment if price is cheap enough. And this is for the investors.

As for management, the only tools that measures how well they run their company, create value for shareholders, create profitability in the long term is ROE/ROIC, nothing else. Too many managements engage in mindlessly following their competitors, acquisition at any price in the name of 'synergy cost-savings' purpose when the trend comes. And few years later, engage in spin-off in the name of 'unlocking' value.

Ask CEOs in airlines and auto carmakers, how many are willing to admit they never really create value for shareholders for the past decade because ROE is constantly below cost of capital. Not many would admit except recently Fiat/Chrysler CEO.

Business processes is absolutely important to figure out the competitive advantage of a company (i.e economies of scale) but the essence is still in ROE. Unless you are convinced the company has done something different that can increase the ROE.

Posted by kiasutrader1 > 2015-06-04 10:09 | Report Abuse

By the way, there is another kiasutrader on this forum. I am not the one, so I use kiasutrader1. Just to clarify.

Posted by tkt66 > 2015-06-04 17:32 | Report Abuse

Mr. Chong, thank you very much! I ready learned a lot about quality stocks selection after reading your articles. best regards

Posted by contemplator > 2015-06-04 18:08 | Report Abuse

Mr KC, thanks for your sharing. Please don't be discouraged by certain people that attacked you.

The comment below does not refer to VS but to stock as general.

Those who focus on the stock price of tomorrow or next week are not value investor. They view the risk in a different way. They probably think that profit is proportionate to risk (linear graph relationship) which is wrong as suggested by Howard Marks.

Trying to use different valuation methods with more liberal criteria in order to justify the entry price will fall into a Psychological Misjudgment-- Confirmation Bias as suggested by Charlie Munger.

Using more liberal criteria like higher growth rate forecast or lower discount factor in DCF model will also reduce or abolish the margin of safety that favored by value investor. Ignoring the business valuation (cash flow, profit margin capex etc) will make any valuation method useless.


I found this sentence in The Intelligent Investor present the theme very eloquently:

"The development of the stock market in recent decades has
made the typical investor more dependent on the course of price
quotations and less free than formerly to consider himself merely a
business owner. The reason is that the successful enterprises in
which he is likely to concentrate his holdings sell almost constantly
at prices well above their net asset value (or book value, or
“balance-sheet value”). In paying these market premiums the
investor gives precious hostages to fortune, for he must depend on
the stock market itself to validate his commitments."


Buying high PE company and expect PE it(not earning) to grow higher is greedy. Paying hostages will not make you rich


"Be greedy when others are fearful and be fearful when others are greedy"

Stock market will never be efficient because of human psychology.


PS: no wrong with speculator, just make sure you are intelligent and astute enough as told by Benjamin Graham.
Avoid the man with one hammer syndrome as suggested by Charlie Munger

Posted by thteh > 2015-06-04 18:59 | Report Abuse

I think you are doing a good job by your sharing of your FA knowledge. It's up to people to decide from reading both side of story of what Is the risk and return of VS share.

Posted by nokenzo > 2015-06-04 19:25 | Report Abuse

KC's FA of VS is excellent, he has the qualification and knowledge for financial analysis, I have no doubt about his analysis.Those who want to learn about FA, I strongly recommend him to follow KC's course, you will have no regret. This is my personal experience.