Dear Philip, I quote your explanation on 50PE, “Imagine if you have a condo in klcc that you bought for 1 million. Currently you are renting it out for 3,000 a month. Your earnings per year is 36,000 a year. If you were to offer 50pe, you would saying that you want to buy that condo for rm1.8 million. Would you sell your condo in klcc for 1.8 million knowing that a few years down the road you would be renting it out for rm 5,000 a month? If you think about it very carefully, 10-20 years down the road do you think condos in klcc will ever be sold at 1.8 million?”
I totally disagree with your above explanation hence I just want to highlight if QL EPS is 12.71 cents financial year end 31/3/2018. Apply the growth rate of 10% and discount rate 3.5% then how many years you need to get a DCF of RM 6.79 (Closing market price on 8/3/2019)
Note: Unlike the condos in KL many of QL assets “Farm building, Boat, Plant, Machinery, Vehicle, Fitting, Work in progress, Biological assets, leases hold land, Plantation development expenditure and etc” will have zero value at end of life. Moreover QL still need to repay their increasing borrowing.
So you are trying to tell me pt murni plantation lands will have zero value when you evaluate its business value(lease hold lands cannot be renewed?). Or the 2 refineries that it has once you fully amortise it's cost after 7 years it suddenly is worth nothing( fully depreciated in financial report suddenly cannot still be productive)? Or the specialist workers and management that is working to make PT murni a success is not an intangible asset when you buy the business. The wonderful organisation you helped set up, the highly trained workers and bylaws and business practise you have brought down are amortized to zero with no further value in making of murni a well run company?
Simple question for you, sslee. Malaysia depreciation for plant and equipment can be expenses out by 14% each year for tax purposes. But in reality, do you scrap and replace new palm oil refineries every 7 years? Do you just scrap your 10 ton lorries after 7 years? It do you replaced parts, upgrade machinery and keep it chugging along far beyond its assumed end of life cycle?
I think you would need to convince me further on your concept of useful life of an intangible asset (like sslee PT muni organization costs)and tangible assets (like your refinery)
In the end you need to explain to me the concept of fair value, willing buyer and willing seller. If you tell me that when I buy PT murni I need throw away refineries after 7 years ( fully depreciated) and scrap lorries after 5 years for me it doesn't really make sense.
Most refineries and plantations I know have equipment running and maintained far beyond that.
Or am I making the wrong assumptions all this while? Appreciate if you can elucidate on real life valuations versus tax accounting.
Zero accounting value at end of life does not mean I cannot have a gain on disposal of asset, especially if it is a well run, well maintained asset in a difficult location and is still productive, no?
And without knowing the future SSLee and using your current assumptions, If you applied DCF for ql in 2009 you would have been wrong. If you applied it to TOPGLOV in 2010 based on your past data you would still be wrong. Heck, you can try to calculate your INSAS DCF in 2014, and you would have been horribly wrong. the problem with DCF is that your projections are all based on past historical data as your assumptions for the future. Investing is about making a risky bet on the future. DCF tells you nothing about risk or growth triggers.
I wonder what your DCF calculation told you about xingquan?
Don't forget when you apply DCF calculation you need to put in a terminal growth factor ( when growth stagnates), otherwise you will hit infinity and your DCF model falls apart. Not a very smart way to invest in a stock. Ql has grown for the last 20 years, how many more years of 10% growth do you foresee in your crystal ball?
Dear Philip, Let examine: 1. Palm oil mill: How many equipment after a certain useful years of operation you need to replace with the new one because the old one keep breaking down (production interruption) and high maintenance cost. (Boiler, Steam turbine, fruit cage, sterilizer, stripper, digester, screw press, separator, cyclone, nut cracker, vacuum dryer and etc? 2. Plantation: How many years your biological assets of palm tree remain productive before you do replanting? How long your vehicles use in plantation can last? After lease hold plantation land expired how much you need to pay to renew the lease? 3. Fishing: Fishing net/gear/motor how often you replace them? Fishing boat how many years can it last before it is no more sea worthy? Refrigerator units what is the life span before it break down too often? 4. Layer poultry farming: What you do with the biological assets of egg producing chickens when they are old and unable to lay egg anymore? 5. General transportation vehicle, how many years before it become no more road worthy or incur high breakdown and maintenance cost? 6. How often the supplier of control system will tell you they no more produce/keep obsolete spare parts or maintain their old system and you have no choice but to upgrade the whole system? 7. How often your high wear and tear moving part/equipment or vessel subjected to high corrosion, erosion and pressure swing needed to be replaced during MTA?
So instead of getting mad at me and keep harping on INSAS or Xingquan, why not you tell us what is your projection of EPS growth rate and from where to justify Present Value or DCF of RM 6.79 in 10 year time.
By the way your article is top class no argument about that. (Million time better than quack quack quack’s article)I do learn something new from your article.
Thank you P/S: This is what we do when we present project flexibility study to our boss with discount rate of 7% (interest rate is high in Indonesia) the capital payback period should not be more than 10 year otherwise it is not worth investing. (And of cause you do not stop production after 10 year and the plant shall still be productive for another 20 years)
If I were to pick up figures from the sky ( which is what DCF is all about), and use past historical figures only, my DCF calculated value for ql currently ( if no further growth triggers apply), I would be giving ql a dcf intrinsic value of rm18.65. if ql gets over the bump into the second growth challenge ( which I am confident they will do), I have an intrinsic value of rm26.47. if they perform beyond my wildest expectations and become the next Nestlé, my DCF is rm53.6. your guess is as good as mine.
I would need to earn at least 6% above( more than EPF rate), otherwise it would be unwise to invest in the future.
But SSLee you are buying a business. Not an asset. If you buy a lousy business with 1 refineries, it would not grow beyond that. But if you are buying pt murni which is one of the biggest privately owned plantations, your business will definitely grow beyond your original calculations 10 or 15 years ago.
Imagine rabbits breeding. When you first only paid for 2 pairs of rabbits, in 10 years you would have many many many pairs of rabbits, far beyond your wildest projections.
The challenge is to buy a male and female pair. After that you wait.
In either case, DCF also does not take into account many things.
>>>>> Limitations of DCF Model
A DCF model is powerful but there are limitations when applied too broadly or with bad assumptions. For example, the risk-free rate changes over time and may change over the course of a project. Changing cost of capital or expected salvage values at the end of a project can also invalidate the analysis once a project or investment has already started.
Applying DCF models to complicated projects or investments that the investor cannot control is also difficult or nearly impossible. For example, imagine an investor who wants to purchase shares in Apple Inc. (AAPL) in late 2018 and decides to use DCF to decide whether the current share price is a fair value.
This investor must make several assumptions to complete this analysis. If she uses Free Cash Flow (FCF) for the model, should she add an expected growth rate? What is the right discount rate? Are there alternatives available or should she just rely on the estimated market risk premium? How long will she hold AAPL’s stock and what will its value be at the end of that period? Unfortunately, there's a lack of consistent answers to these questions, and since she cannot access AAPL’s cash flow as a minority shareholder, the model is not helpful.
Uncle S=QR, I got some extra pocket money, and I read every single annual report of QL Resources, Chairman is Chia Song Kun, can buy already lah. CEO is Mr Chia also, very confident. I will punt in QL only from now onwards, God Bless My Soul and my pocket money. Amen!
I will buy Family Mart ice cream every week at least once, and eat QL eggs from today onwards, hopefully can contribute a bit more to my investment / punting (whatever you call it).
Personally, I think PCHEM would be a better buy for retirees and elders, if they are looking for a safe long term investment. It has the lowest risk Vs reward ratio in my stock portfolio.
Knowledge and information will not bring riches, for if that's true, professors or PhD holders would be the richest people on the planet..
So, what determines success and to a larger extent, riches? It is the IMAGINATION - in being able to combine knowledge, information and experience into something of value
Everyone has access to the same information, annual reports, books by authors, economic reports... You can see the by-the-book forummers expounding list after list of theoretical jargons, more to confuse than convince, while the successful outlier sees an imaginative perspective not immediately apparent to the norm
And that is the hallmark of a great entrepreneur - skill, guts, instincts and creativity in making use of chaotic mess of information into structure of substance
Seeing beyond his cockiness, Phillip has this pedigree and he's earned it... Thanks for the wonderful read of your thought processes
Which is why I pointed out the fact that topglove is adding more production lines, more expansion, more r&d, more cost reduction activities, more improvement.
Hartalega is giving up 240 million every year from 400 million in earnings and giving it out as dividends.
TOPGLOV is giving out 190 million out of 400 million earnings, and using the retained earnings to grow bigger and extend its moat and improve its business.
TOPGLOV is cheaper to buy, and has better mix than HARTA.
I'm content to bet on this horse for the long term.
Posted by (S = Qr) Philip > Mar 10, 2019 11:58 AM | Report Abuse
Which is why I pointed out the fact that topglove is adding more production lines, more expansion, more r&d, more cost reduction activities, more improvement. 1. ADDING MORE CAPACITY MEANS CREATING MORE PROBLEM TO THE ALREADY GLUT OF RUBBER GLOVES AND ITS SELLING PRICE AND THIS WILL IMPACT ITS PROFIT & MARGIN MAH...!!
Hartalega is giving up 240 million every year from 400 million in earnings and giving it out as dividends. TOPGLOV is giving out 190 million out of 400 million earnings, and using the retained earnings to grow bigger and extend its moat and improve its business. NO BIG DEAL MAH..counter like hartalega and topglove pays div about rm 400m a yr bcos their mkt cap already exceeded rm 11 billion mah, this translate to a modest div yield of 3.7% pa loh...!!
TOPGLOV is cheaper to buy, and has better mix than HARTA. Not true their valuation of Harta almost the same as topglove but 1 thing is for sure harta is more efficient as its ROE is much higher loh..!!
I'm content to bet on this horse for the long term. IF U HOLD LONG TERM U GET NORMAL RETURN & NOT OUTSTANDING LOH..!!
BETTER TO EXPLORE SOME OTHER INVESTMENT AVENUE LIKE INSAS LOH...!!
Next 5 or 10 year harta will produce 100% amg glove..topglove.supermax and kossan will take market share for nitrile glove that left by harta...i think next move for top glove to buy UG healtcare to compete with harta in amg glove ..harta already in new level for amg glove that not many competitor....
Please open annual report for all the producers and check trade journals. Rubber glove market is a disposable product which needs to be replaced every time you use it. The entire world market is growing by more than 10% yearly for the past 10 years. Mature markets( USA, Japan) are growing slower, but the other markets are growing by 30+%. Please open page 27 of the annual report la SOHAI.
Stop posting your nonsensical remarks ( in ALL CAPS nonetheless) and stay away from my blog. I wrote it. You are not welcome. Go away stockraider. And stop asking me to buy shit like INSAS.
>>>>> 1. ADDING MORE CAPACITY MEANS CREATING MORE PROBLEM TO THE ALREADY GLUT OF RUBBER GLOVES AND ITS SELLING PRICE AND THIS WILL IMPACT ITS PROFIT & MARGIN MAH...!!
Revenue is all time high la stupid SOHAI. Disposable product how to become cyclical bodoh? You think petronm with scheduled shutdown? Do you even know what is cyclical business? You stupid or something? Annually every year HARTA and TOPGLOV did better than the previous year for upteen years. Stick to your sapura and INSAS, you brainless office boy.
I repeat, don't pollute my blog. Or I will have to shut down replies again.
My blog is for people who seek knowledge, not those who shut their brain and repeat useless information.
U should consider switching to this no brainer counter loh...!!
Posted by stockraider > Mar 10, 2019 01:19 PM | Report Abuse X
LETS ANALYSE OPENSYS ;
OpenSys has four business revenue models, namely (i) outright sales, NEUTRAL GROWTH PROSPECT (ii) software services, GOOD PROSPECT STILL GROWING (iii) outsourcing services CHEQUE PROCESSING FALLING VOLUME (iv) maintenance services. GOOD PROSPECT DUE TO HUGE CRM MACHINE
THE CHALLENGES POSE;
1. CHEQUE PROCESSING OUTSOURCING BUSINESS FALLING INCOME DUE TO LESS VOLUME OF CHEQUE USE LOH....!!
2. OUTRIGHT SALES OF CRM MACHINE LOWER GROWTH RATE AS THE VOLUME GROWTH TAPER DOWN DUE TO MATURITY OF THE MARKET AND COMPETITOR LIKE NCR AND HITACHI START COMING OUT WITH THEIR OWN CRM MACHINE. THIS MEAN MKT INTENSIFY LOH....!! BUT OKI UP THEIR ACT....THEIR MACHINE CAN EVEN PROCESS RM 1 NOTES LOH......!!
3. SOFTWARE AND MAINTENANCE SERVICES SHOULD BE THEIR CORE BASE BUSINESS BUT THERE MAKE UP FOR DECLINING SALES OF CHEQUE PROCESSING AND LOWER RATE OF CRM SALES ?? RAIDER SEE THE ANS IS YES.....BUT MKT SAY UNCERTAIN....THATS WHY PE LESS THAN 10X LOH....!
But overall...Raider see it is a worthwhile investment in opensys the core software and maintenance should give a large core base income loh......!!
Thanks Philip for yr info. However me being a 75 year old retiree find some parts a bit difficult to follow. However no worries. I have picked up a few lots of P.CHEM Yinson & Top Glove for my children and hope to see them grow and flower in the years to come. Will be adding on to them when finances permit at regular intervals. Again thanks and a good night
What a great article! This is what I want to see more in i3. Thank you so much Philip for sharing. My newbie mind is learning a lot from your postings.
"My blog is for people who seek knowledge" - Philip - Great words. Please continue as your postings has benefited many people including me.
But this biker fellow...dia bike sudah hilang loh....!!
Posted by Jester > Mar 22, 2019 3:21 PM | Report Abuse
What a great article! This is what I want to see more in i3. Thank you so much Philip for sharing. My newbie mind is learning a lot from your postings.
"My blog is for people who seek knowledge" - Philip - Great words. Please continue as your postings has benefited many people including me.
Picked up additional 29,500 shares of PCHEM @9.05 on march 26th t+3 based on dividends yield of 18 cents for my shares of 1,495,200 shares. The balance dividend seafood dinner in Penang!
Top Glove, QL, Yinson...they had explosive organic growth the last 10 years.
Gkent? Gkent is facing 2-3 quarters of disappointing results and a real test for its survival in new challenging environment , its probably feast or famine and whatever is currently in balance sheet is probably irrelevant in comparison.
A good article with plenty of good investment stuff will always attract many comments, whether good or bad comments. But obviously the sharing of the author has been attracting many good comments, which the author deserves it.
Hi jackfruit, I'm not a stock analyst, I'm merely a amateur stock picker who reads a lot, am rational in my investments in not being much affected by highs and lows of the market, and treat investing as being part of a business, instead of prices on a stock ticker tape that goes up and down every day.
The real money in stock investment is in the waiting. Not in the buying. I will be preparing my latest quarterly report, just as soon as gkent and yinson announce results, should be end of this month.
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Posted by (S = Qr) Philip > 2019-03-09 20:22 | Report Abuse
Thanks for the pertinent information SSLEE.
Do you know what the information is trying to tell you?