Thursday, March 28, 2013

What you can expect from me

When I started this blog, I did not expect myself to be active - but very much so into understanding blogging and the new media which is gaining traction and allowing us having the chance to pit out our own opinion. The main thing I know is stocks investment, hence there is no doubt that I uses this area as the main conversational point.

Although there are quite a few readers who read my articles nowadays, it is important to know where do I stand, what type of stocks do I look at, which do I prefer. As in a kid who is a picky eater, I am a picky stock picker. However, I am not just that - there are just a number of sectors which I am particularly more interested in - banks, finance, insurance, telcos, properties, IT, plantation, education, consumer stocks, and some part of manufacturing. There are several areas which I am particularly bad at i.e. oil and gas, construction, mining. And in areas which I have no expertise or knowledge, normally I would avoid. I do not try to be knowledgeable in everything although I do acknowledge that it is good to learn.

Many of you would also know that I have the Felice's Fund which I put up since 2 years ago. Why do I put this up? Well, to mainly show what I stand for. And of course, many would ask why I put the year 2027 as the target date. If one is into investment, there is no date actually. Our date is when our time is up and even then for those who have beneficiaries, these of course can be passed to them. Hence, there is no specific date. This very particularly applies to most of the stocks I put up - Airasia, DKSH, Malaysia Airport, Wellcall, Padini, Oldtown, NTPM, Jobstreet, Top Glove and to a large extent SP Setia.

My analogy is simple. When I was small, we used to buy Milo - that was more than 35 years ago and during then costs us slightly less than RM10 for a 1.5 kg tin - today, I still go to supermarket to buy Milo at RM25 per tin, and I believe Milo will outlive me. That same principle applies towards how I view most of the stocks that I buy. Yes, sometimes things change, Airasia may face many challenges and beaten by a better airline - if that day happens, we sell the stocks. Selling a stock is easy, unlike properties - which is why despite properties is another good investment, I do not like the hassle.

In my investment experience, I used to buy a very undervalued stock - Selangor Properties. If you study the stock and do a simple calculation, its Revised NAV to its traded price, it was well undervalued. That property company had prime land in Damansara, a decent developer etc. But of course, I was a very naive investor. The price of the stock would not move if the largest shareholder holds a large chunk, not going to pay much dividend as well as not doing anything about it. When the major shareholder, Dr Wen passed away, the stock surged - I had already sold. Are we buying to wait for this kind event? Hence, although sometimes a stock can be undervalued, it may mean nothing. The same story applies now for Hwang-DBS, as there is much speculation on it being sold, with the founder's passing. I am not good at guessing who is going to take over who - as I deem these as speculations. People who have been speculating the acquisition of Public Bank - all of them failed so far. And those who continues to try may succeed one day - that is 1 out of say a million guesses?

Some of you may send me messages asking about some of the stocks. You have to know that I have to be very careful with what I say. A recent example, Fitters Malaysia. It is now not just a fire prevention manufacturer - which to a certain extent I like, but also a property developer and a renewable energy player. It is now trading at much below its NAV and also has a very attractive PE of below 10x based on latest results. When I look at this company, I usually try to separate the different businesses and value them separately. If the fire protection business covers much of the market value, I may be interested. However, much of the profits went to its property development arm.

Now, this is my problem. Is Fitters now a property developer? If it is, where does it stand in future. Will it be in the mould of Mah Sing, a plastic player now turned into a massive developer. The problem is I am not sure, and I am sure that many are not either. Then another question is, after the current development, what's next?

When I bought SP Setia, I was looking beyond its landbank. I was looking at its brand. This is probably why PNB is buying it. SP Setia has proven to turn a decent land into a prime property and it continues to do so, and it will buy many more new landbanks and turn them into good and sellable properties. Even then, there is bigger risk in this investment when compare to say investment into Malaysia Airport. I was looking at the developers of the 70s. None of them are strong today, maybe with the exception of Sime Darby - and we all know why. (I in fact was told in one of my lunch conversation that Sime is a poor developer - they are what they are today due to their massive landbank - not so much due to their capabilities - to a large extent, I agree.)

Now, this same principle I apply to a construction as well as oil and gas companies - except for exploration companies like Shell, Exxon etc. The biggest problem with these kind of companies are that they are very dependent on book orders. Can someone be very sure what is going to happen to say Gamuda, Sapura Kencana or even Dialog in 2020? All analysts reports that I read mention book order. The stock can be undervalued, but sometimes an investment may not go as smooth as we thought. Investing into a business that regenerates income without being dependent on book order may pick up back, but for those who needed book orders may not be so. If we want examples, do look at Scomi and maybe Muhibbah. I am sure there are many more. This is probably why some of these companies like WCT, IJM and Gamuda as well are looking at assets that can regenerate. By the way, book orders sometimes can have a problem where projects may be bidded at a lost. Can any analysts know that?

On the other hand, buying a company that consistently generates using its brand, know-how, advantages that it has - sometimes it does not matter if it is at 15x or 20x PE. McDonalds was at one point of time in doldrums, it picked up back. So was Starbucks, Coca-cola, Johnson and Johnson. Many a times, none of these can be said for those that are dependent on book orders or worse still some of them handouts.

Hence, you may notice that I try to be careful when answering - and sometimes, some of these stocks can be invested due to the large discounts to asset value but just that I do now know when it will pick up in value. Anyway, does anyone know besides maybe the owners?

3 comments:

klkhoo said...

Hi
Learn much reading fr.what U write.
Like your comments on the stocks concern.Do play-play:-well thot out n well research.
Put all U have writen n I think U can come out a best seller.The investing community will be better informed n not just follow the herd instinct.Long term investment in quality stocks that last is the key.Thx n keep it up

eKimkee said...

Yes I have to agree past PER is just an indication and most important is the future PER.

It's just like a property. The price is re-valuated by what has been changed to it's environment instead of just looking at it's price alone.

Undervalue stock with GROWTH definite has more potential & lesser risk to invest. It's simply because they will be noticed one day by the investors and price will appreciated. That's mean timing is the key to activate it.

mine Des said...

'FMH is not directly involved in the transportation of exported and imported goods but rather the company hires third-party shipping lines to transport goods while it resells these services with its own value-added services.'

They r more like an one stop solution logistic agent, their customer can also choose to deal directly with their vendor, i can't see it's ‘moat' as mentioned by Warren Buffet.
It is not expensive but also not undervalued, what impress ppl mayb it's compounded annual growth rate of 15.1% from FY03 to FY14.
Past performance does not guarantee future performance, when this cake become more and more delicious and more and more competitor appear, where is their ‘moat’?
I m still a newbie but serious in value investment, may Felicity advise?