Thursday, May 30, 2013

Are there drop in car prices or not?

The promise (just mere promise so far that is) of reducing car price 20% to 30% is not going to help the industry at all. It is akin to your boss telling you, maybe I will give you a pay rise if you help to improve the sales of the company say by end of the year. It definitely is not going to help. The statement is rather open ended and we do not know what to expect, as a car buyer, investor and business owner.

What happens when we do not know what to expect...potential car buyers may delay their purchases - me included. Second hand car dealers will be more careful when building to their inventories. Investors will be careful as I do not see anything concrete that is to happen to the automotive industry. The car parts manufacturer will be very afraid. If this statement is not backed up, probably car sales will suffer the next few years.

Already, we are suffering due to this feet dragging on the automotive policies. I am yet to see Volkswagen being committed to the Malaysia market when comes to CKD (Completely Knock Down).

Investors are not giving a good valuation on car parts manufacturers. I was doing some numbers and the average PEs for the automotive parts manufacturers / suppliers are somewhere around 7x - 8x. Against Thailand, where it is around 15x, we know where we are. This is why, partly the reason APM (owned by Tan Chong), although doing pretty well, with good growth is not being valued highly - below 10x PE. I just am not able to know the strength of APM. If opened up to compete, I am not able to know where is will be able to stand. Let's not talk about Proton and Perodua as we probably would know what will happen.

Investors in the parts sector are not interested in the Malaysian market. This is because we are already lagging behind both in terms of know-how as well as competitiveness. We do not have the scale, that's what I know.

There are no interests in automotive companies except for one or two like UMW and Tan Chong.

This mere statement of, will reduce car prices but without concrete follow up plans is just to make matters worse.

Anyway, I am still hoping for the car prices to reduce as I see this is the highest ticket item I may spend for the rest of my life and it is already and going to be a huge impact to my expenditure.

Tuesday, May 28, 2013

Guidance on supporting sector to the US property market

The news that just came in where US March's home prices rose in the 12 months through March 2013 is the highest since 2006, just would provide positive signs for the furniture companies that supply to US.

You can read the news from here as well as on any main pages of the financial sites in US. When homes are selling, people may want to furnish their houses with new furniture. For those whom do not follow the US housing sector, despite the house of cards (which means poor structure that collapsed the housing sector) few years ago, the demand has outstripped supplies and in some places the developers are struggling to meet the sudden surge in demand.

During the financial crisis, in fact the percentage of Americans who do not own a home has increased and it is imperative that the data would reverse once situation becomes more stable. Currently, that situation is stabilizing, interest rates are extremely low, banks are still finding hard to lend out their excess money (due to the printing money policy by Bernanke) and young Americans are starting to shop for homes again. Yes, America is still a young population.

I have mentioned of some furniture companies which are supplying to the US market here, and these are probably missed out by investors due to the difficulties in connecting the link between US housing market and some of these furniture companies in Malaysia. Not many analysts or even the financial news would cover these companies due to their sizes, where most of them are sub-RM100 million market capitalization. I do foresee these cyclical sector especially the ones that supply to US to do well, and although it is cyclical, it could be still on the uptrend stage. It may not be a long term play, but for cyclicals, you do not need to play long term.

The 10% Target

Many people started investing with an ambitious mind. They wanted to make 5% to 10% within the week. Many of these people ended up disappointed. I realised that among the many whom have started investing about during the same period as I did, around 1992, quite a few of them have left the scene.

No, they have not made enough, but many of these people have suffered enough. How? It is the different objectives that caused these people to have suffered. When the objective continues to change, the picking of stocks have also changed. As I said before, there are probably less than 1,000 listed companies in Malaysia, and out of that probably 10% of them are investible. And for me out of that 10%, probably I can understand about half of them. Oil and gas, some manufacturing and few more are probably out of my league.

For one to be able to know all, it is probably impossible. But stocks investment is not about knowing all. It is about knowing and be comfortable with what we know. Overtime, as we get invested, we will know more. But still we will not be able to know all. If we have a moderate target, we can probably think clearer. We have a different objective when we have a clear mind especially when comes to investment. We are not afraid of having sleepless nights when market drops.

I would say, over the long run, it is advisable for one to have just a 10% target. How is that 10% target going to be achievable and be significant. I just wrote something about power of compounding. It is significant, considering the interest rate condition and what we can get from elsewhere. While 10% is a very achievable target, one should know that it is extremely hard for one to achieve that in the long run. Today, or rather over the last few months, market have been very friendly to many investors. You and I can make more than 20% to 30% say over 6 months. But that is not going to last over a long time or consistently, that can't be achieved. Almost impossible!

So what is the 10% target. The 10% target is to achieve what we try to achieve on average in the long run. The 10% target is also, trying to understand 10% of the stocks that are in the market. While the more we know the better we become, sometimes it can become overwhelming.

The 10% target is also sticking to one's plan. And more often than not that plan is about value investing. Nothing else, as continuously chasing all kinds of stocks is going to make one getting stressed and lose focus.

Sunday, May 26, 2013

What's with the furniture business?

Over the last few days, I have looked (and looked again) at several companies, namely Latitude Tree, Lii Hen, Classic Scenic and Homeritz. Each and every one of the above has its own uniqueness and differences. Latitude's main customers are in United States with about 93% of its business derives from there. Lii Hen's customer base is very much US as well, but its main manufacturing is still in Malaysia. Latitude has very much moved to Vietnam taking opportunity of the low costs.

Classic Scenic on the other hand is a picture frame manufacturer, doing very well to maintain its margin as well as growth. Homeritz, which was the latest to get listed in much more in the upholstery business. It has been on the profit track record over the last 5 years, but the trend was not that consistent.

Among the four, Classic Scenic is probably the most consistent, but in terms of revenue it is probably the smallest. Market capitalisation though it is the highest - about RM131 million. The consistency as well as the dividend payment probably reward the company much more than its other peers. It is now trading around 10x its trailing 12 months income.

Now, what is pretty surprising is that besides Classic Scenic, the rest are trading at their low single digit PEs. Both Latitude Tree and Lii Hen are around 4x, while Homeritz at around 5x. See all below.

Homeritz stock details

Latitude Tree as I have previously written about and invested myself, is still trading at around market capitalisation of RM83.6 million  while its book value is higher than RM200 million. The Price / Book is 0.4x.

Latitude Tree's stock details
These are companies which provides dividends, and all of them provides dividend yield of more than 4%. All of them have pretty good cashflows, they have low receivables to turnover. Debt are very manageable. Despite the competitiveness, the business cannot go much lower anymore as both US and Europe are picking themselves up. The exchange rate is not to the favour of the export led furniture industry. If you notice though, the business is seeing pick up especially for both Latitude and Lii Hen where their market are very much United States. You can read all kinds of report on the US housing market, they are making a return, slowly but surely. It will definitely be positive for companies which have direct and indirect exposure to the industry.

Stock details of Lii Hen
All in all, we can have our apprehensiveness, but what is with the low valuation? The business is pretty cyclical within the year (due to seasonality where close to Christmas period is usually better) as well as over the years (due to costs, demand and fluctuations of exchange rates). But I am hoping to take opportunity by catching the lows. Seldom do I time the market, but in this case, I am just looking at the valuation and hoping for the pick up in sales and margins.

If one has fear as what happened to companies like Kimble and Kenmark, I think the balance sheet as well as their cashflows would have buried that fear. And they are audited by renown auditors - Latitude by EY, Classic by KPMG, Homeritz by Crowe Horwath, while maybe the auditor - John Lim and Associates - which I am not too comfortable is the one hired by Lii Hen.

If one has fear over timber industry, I can understand as it is susceptible to boycotts over Malaysian timber once a while, but for furniture, I do not see that.

I do not want to expose myself too much with this industry but their valuations are way too ridiculous for me to stay away from.

Saturday, May 25, 2013

Power of Compounding and Rule 72

I guess many would have known the power of compounding but some would not know the significance and how much impact it can do to one's portfolio. I have mentioned so much about investing and the earlier one knows the strength of savings and investing (and know how to invest comfortably), the better it is for a person. A person's work life can only stretch to as long as 60 years of age in Malaysia. That means a total of say 37 years of work life. Man is known to live longer now, as an example, my grandma is now 92 and healthy.

Hence, over here I am going to reiterate the power of compounding although many would already know about this. Some however don't.

If I make 10% every year from my investment (and reinvest), how many years would I double up my value of investment? It is not 10 years. That is why the Rule of 72 is being used. (Note that the exact period may not be that accurate, but it is a guide nonetheless)

For a person to manage to get a consistent return of 10% every year, it will take roughly 7.2 years for the investment to be doubled. How Rule 72 applies is through, say you want to double your principal, and you want to know how many years your principal can be doubled assuming the interest or return you are getting is on a consistent basis. You do that by dividing 72 from the consistent return you are going to get. From below table, assuming one gets a consistent return of 8%, he / she would double his principal from investment in 9 years.

The significance of it

To our daily life, the significance is quite drastic. If we put our money into the bank and get 3% (that is what we are getting for many years now), it would take a long 24 years to double up our savings.

If EPF consistently pays 6% every year, it would take 12 years for the person to double up his savings there. Hence, if you have savings of RM500,000 in EPF today, and if the managers have done well to return you 6% every year, you will double your money to RM1 million by 2025, assuming there is no fresh savings.

Say I am targeting a 10% return on average from my investment, I would need to take 7.2 years to get my investment doubled. What if I am a better investor, and I get say 18%, that's only 4 years to see my investment doubled.

On another note, for a company which has a consistent Dividend Yield of 6%, your investment would probably see it doubled in 12 years.

The flip side of it, for those whom have credit cards debt of say RM20,000, you will double your debt owed to the bank in 4 years, because they are charging 18% on your credit.

See the significance!

Friday, May 24, 2013

Where is the bullishness on IHH coming from?

I was wrong to think that IHH would probably be too expensive when this stock was listed last year. It actually is expensive and getting more expensive. Today, its market capitalisation is RM32.1 billion.  Amazing!

IHH's last year's IPO price was around RM2.85. Today, less than a year it is priced at RM3.95. But with the much fanfare, is it really that attractive?

Just yesterday, it announced its first quarter result. This result would perhaps be closer to the more real result, we expect to see in future, after the opening of the Mount Elizabeth Novena in Singapore, apparently a 6 star like hospital. This 1Q13 quarter's results is where you would not see extraordinary income from the locking in of profits from just accounting entry.

For the 1Q13, it registered a Profit Attributable to Shareholders of around RM127 million. See below. Hospital's business is hardly a cyclical business. If any, in fact the lowest period would be the fourth quarter where people are moving away for holidays. Hence the first quarter results is expected to be a better one. So, from here, what can we expect looking forward for the full year? It would only register a full year real results with profits of somewhere around RM500 million.

With this number, I in fact was too bullish. I was thinking of somewhere more than that - between RM600 to RM700 million profits attributable to shareholders, at the top end, last year. Remember, this year is supposed to be the performing year. In the 1Q13, where is the performance?

If it is going to be performing somewhere along the line of RM500 million to RM600 million, that is about 64 times PE we are talking about. Many people would like to use EBITDA, especially when they are finding it hard to explain the slower growth.

EBITDA is great but it is greater for companies that have spent a huge sum of money previously to expand because of the huge depreciation or amortisation. An example of a good company to look at EBITDA would be Malaysia Airport, post the KLIA2. However, IHH is a company which would need to continuously invest. It is promising or rather telling about the China (or Hong Kong) and South East Asia stories. That means what? It needs to invest.

Another thing about hospital is also about investment for equipment. Look below, for the 1Q13, where is the free cash flow? Somewhere along the line of RM148 million for one quarter. It is not good enough for the valuation one pays.

From the latest numbers, IHH still has around RM3.6 billion debt against cash of RM1.7 billion. That is not worrisome, but it is not fantastic either. The company is talking about expansion. We already see the free cash flow to be not too exciting, hence the reinvestment has to be much controlled. The balance sheet is not too strong, hence good dividends will be tough in near future, although it will pay some. So where is the bullishness coming from?

Talking about STAR

I am actually sad that a once Penang based newspaper is now at its position today, No, it is not in trouble but it has gone the wrong way. It has lost its middle ground as a newspaper, but more to serve its political masters. Already the newspaper business is so tough nowadays, where we see demise after demise of many all over the world.

I guess Malaysia they are a little bit lucky where printing license is limited and is probably only opened to one side of the political divide.

However, on the business side, Star is not entirely dead. It is a very decent company, but just that I do not know where it is heading.

The internet and Malaysian demography does disservice to Star as well. Why? People whom want to read Chinese for example, may go for Sin Chew or any others. However, if I want to read English, I do not go to Star. I go to all sorts of sites from New York Times, Washington Post to Bloomberg to Malaysiakini to TheMalaysianInsider. I will just go everywhere else except probably buying the Star newspaper.

The young demography of Malaysia, is not going to help. Star has to reinvent as what the earlier comment says on Jobstreet, needing to continue reinvent. But the main product for Star - which is the paper - is already wrong. Then it went to buy 5% of Catcha, who did the buying decision I wonder. It is now building by going strong on RedFM etc, but yet again I listen to BFM more than RedFM. Many more would like RedFM but the point here is options and choices.

The survival for Star now is because there are no strong competitors in the shrinking segment it serves. It is lucky that I do not even want to talk about New Straits Times.

Thursday, May 23, 2013

Jobstreet continues to amaze (Updated)

I am not saying this because I own this stock. In fact I am upset cause I did not buy more. Sometimes when there are doubters, I tend to pull back (not blaming anyone but myself). The business of Jobstreet continues to do well, now perhaps not in one country but 3 countries - Malaysia, Singapore and Philippines. It is not a "jaguh kampung" anymore.

See below:

Each of the 3 countries I mentioned exceeded RM10 million in revenue for the first quarter 2013. The business is easy but hard to quantify. As I have said before, and those whom have read my blog in this company would probably be tired (sorry) of me continuing to comment on Jobstreet (nope, I am not paid, in fact I am only a small shareholder), but it is not easy to comprehend. Me myself had doubts before. Just see the previous blog and its comment.

We have doubts because of the competition at hand. There is again Star (as I see it going nowhere yet), LinkedIN and perhaps many more. I have invested into Monster, it is a different "Monster", I can tell you that - don't know why. LinkedIN? I doubt so as LinkedIN itself would not be able to get so much market share. Perhaps the soft job market still in US and Europe.

Now, based on the above segmental, look at below for the previous corresponding quarter comparison:

Almost every ringgit earned is a ringgit gained. As long as it grows its revenue, it will perform amazingly.

I do not know how much the company spends on marketing costs, but the main strength now is the database which in the balance sheet you do not see. What do you see in the balance sheet? Besides to tell us that it has a strong balance sheet, nothing much...

Currently, as the company continues to be on the uptrend, its Price to Book Value will get widened. The cash that it holds will cover its expenses for slightly more than a year, I think. And that's it, nothing much to analyse.

Until now, Jobstreet has its policy of distributing 50% of its profits as dividends. It has just upped that to 75%. It has made some mistakes of using the additional cash that it had by investing into some companies. While some of the made sense, i.e. investing into the dotcom job search companies like in Taiwan, there are others which are not bringing much returns. The monies that Jobstreet invested into are the ones boxed in red above. I am just glad that they are preparing to share more of its profits in the form of dividends.

The beauty is in the cashflow, hence dividends (be prepared for more) as well as the P&L. I should have bought more...

Wednesday, May 22, 2013

YSP: You Shall Pass?

With the recent market hike, it is really getting more and more difficult to find good deals or something which we can digest. While globally, market is on the uptrend, Malaysia included, I have just noticed Malaysia in fact is lagging behind markets like Singapore, Hong Kong, Thailand - in fact almost everywhere else now.

I would not call the market as expensive but I am surprise of its strength. What provides that impetus for the bullishness. I do not know actually. Lesser people with pessimism the last few months?

Anyway, as I was looking at some companies, one did really get me to hmmm... wanted to know more. Most companies that announced to Bursa are either doing well, I have sort of covered, but there is one which started with "Y".

Once Warren Buffett used to joke to his audience, "do read through the Annual Reports of all the listed stocks in the exchange." The other person asked, "But, Mr Buffett, there are more than 10,000 companies listed". Buffett, replied, "Start from A". I sort of did that. And now reaching "Y" although Malaysia is far from having 10,000 companies. And anyway, along the way I did jump quite a few alphabets.

YSP SAH is a pharma company, something I can digest, have a decently good growth prospect. Small (around RM150 - RM160 million market capitalisation), I can digest as well as long as it is doing consistently decent or good. It is controlled by Taiwanese. Well, if I have invested into Wellcall and Latitude Tree, previously put some money into Uchitec, did decently well, I may want to try on this. More importantly, is it consistent and is it providing good enough return previously and perhaps for the future. If you look below, there is a sense of consistencies although not too bullish.

Yes, its Return of Equity is deteriorating but this is one company which is a growing. It does reinvest. I have done some checking as well among the hospitals, well this one is pretty small, no doubt but it has been supplying to hospitals for quite a while. Started its business since the 90s, its growth is far from amazing but consistent. Importantly, the dividend is above 5% yield, which in Bursa, not many now you can find. If you are getting some 3% from FD, I would say check out this one. The PE is slightly more than 10x.

Pharma in future is probably going to be a much more recession proof and more and more generic drugs companies are doing better due to many patents are expiring or already expired. It is a competitive business but yet there are monies to be made for many companies. YSP is not a fantastic company, there aren't any with regards to pharma in Malaysia. Why? Pretty much dominated by the big brands globally. With the current price though, it is still a buyable company, pretty much like Wellcall. You would have noticed that a small portion of my portfolio is meant for dividends stocks. Wellcall is one, so is Jobstreet but with the rise, it's Dividend Yield is moving further from the 4% to 5% threshold. For a small portfolio like this I couldn't be bothered with holding cash like what most fund managers are doing i.e. holding some 20% to 30% cash. This is unless the market is grossly overvalued and I am not good at timing the market, so why bother?

Anyway, I am not going to be taking too much of a risk but I am spreading my risk a bit as Wellcall seems to be tapering off in terms of performance, although still providing good dividends. Hence, I am selling half of my Wellcall and move to another which similarly provides good dividend - proposed to be 6.5% this year.

Any wonder why Taiwanese companies some of them provide good dividends? This is your food for thought.

Sunday, May 19, 2013

Now that you think you have the formula for Bursa, what about NYSE and Nasdaq?

There was a time where some of the readers were asking about whether to diversify their investments overseas. I said yes. But, let me say this as well. Be prepared to lose some money as overseas market may not be the same as Malaysia.

There was once I attended a talk by OSK on investment in Hong Kong in one hotel in KL. I remember seeing thousands of potential investors. At that time, the HKSE was on the run (uptrend). Hot Chinese stocks like Bank of China, China Life, China Construction Bank were the order of the day. I did not know how many signed up to invest in Hong Kong through OSK Hong Kong. The people whom had attended were probably trying to park their money overseas legally. I was thinking of the same as well. If I can remember, at the point of time the Hang Seng index was almost touching 30,000. It has since came crashing down to about 22,000 despite China did not see any hard landing between then and now. I can see some guys were losing their pants.

Now, why do I say this. I can guess that on that talk, OSK probably did some good business signing up lots of people to trade in their brokerage house in Hong Kong. At around the same time, Public Mutual and CIMB introduced the East Asian fund if I can remember. Today, it is below the issue price.

This happened to me as well. I thought that I could do well by parking my money in US this time. The NYSE and Nasdaq were very attractive for me having dropped due to the crash post-Lehman. I remember Ford went to around USD2. So was Bank of America. I thought it was opportunity time. It was opportunity time for real. But if this is the first time you are into a new market, be prepared to lose some money or not doing well. New market means new trading patterns. As well as new companies to look at. That's not easy.

Remember me always talking about company, company rather than market, market. In US, I was looking at market market - which is proven wrong. Why was I looking at market (i.e. macro level). I do not have that good a feel on the micro level. I thought that I could have known what Wal Mart is doing, or Bank of America, or Citi or GE or Visa. I am partly right. I am not in US trading US stocks. I am doing it from Malaysia. I thought I can know how Gap is doing by looking at Gap Malaysia. So is Starbucks by looking at Starbucks in Malaysia. Not quite right.

The feel can be totally wrong. I invested into a company called Monster. It is the equivalent of Jobstreet or Seek - or so I thought. I thought it could have done well (later), despite the bad job market in US. It is not doing well. I invested into Corning whom is the largest glass (screen) supplier for the LCD or the smart phones market like Iphones, Galaxy. It is doing decently well but the stock is not doing that well.

Over the last few months, the US market was on the run and now on its all time high. So is my portfolio of stocks in US, but it is not performing very well. It is doing probably just as well as the Dow Jones Industrial Index (Bursa CI equivalent) or the S&P 500 (Emas index equivalent), which is not I wanted. If I would have taken the same amount of cash and put them in Malaysia, there is a high chance would have done much better despite DJIA's trend being better than Bursa over the last 3 years.


My strategy in US is different. I would invest into companies that are large being the Fortune 500 because these are the companies that would have presence in Asia or at least I can read much about. In Malaysia, I take a different approach by looking a mid-sized companies most of the time.

In investment there is no doubt to me (at least) that looking at the companies would be the answer. Timing the market is a strategy but still you have to know the companies. As an arm chair investor sometimes it may not be enough. Even if we visit the place, I have come across when you do a site visit, obviously the management would do their best to paint a good scenario of the company - who wouldn't? You see even analysts no matter how smart they are can get cheated. Hence, sometimes by relying on what you read may not be enough. That's how hard investment can be - but can be interesting though. Think about it.

Now you know why so many funds that have done decently well here (like Pubic Mutual, I think) but failed overseas. I cannot be using me as a benchmark, but market is not just knowing the index, or we thought we know the market situation. Market is knowing your backyard, and the more you know the better it is despite the internet bridging the knowledge divide.

Friday, May 17, 2013

Is DKSH still worth it?

Blankly, I do not know actually. People who read my blog would know that I actually look at the business and company first before looking at the stock. When I first discovered DKSH, I knew the company as its office was just quite near where I hang out usually, at that time. Now no more. There are a lot of brands which uses DKSH to distribute its products. Hence, if a person is observant, they would not miss the company. Usually the brand is the brand, say Enfagrow, the distributor can be DKSH. It does the distribution or market expansion thing for companies like Mead Johnson. People whom have kids will know the brand.

In fact, DKSH does extensive distribution for a lot of pharma brands, and of course people who are in the medical field would know DKSH as well. DKSH is into distribution of many products for many overseas brands in Malaysia as well as the region. In fact, if I call them a distributor, one day I may get a call and ask me not to term the company as a distributor but a "Market Expansion Company", which is precisely what they do.

Over the last few years, especially since the crisis, many Europe and US companies are looking for expansion. You can see it from Heineken's bid for the beer distribution and bottling business in F&N. Many of these companies are willing to pay a good price for prized Asian assets as long as they are good, strong and decently well managed. Why? Because when you want to expand, the best thing to have is a good well managed company so that you can hit the road running from Day 1.

Turning around sounds good, because usually it is cheap, but turning around are for turnaround experts. Look at Dell, Micheal Dell is now doing a turnaround but he is still doubting himself by not paying more for privatising Dell at its current stage. Hence turnaround is not easy.

As a CEO, if I want to say build my market presence in South East Asia, I would want to buy a good company not a bad one. And as said before, many of these companies are looking for good companies in Asia.

The next best thing to look for if you do not want to look for acquisition is to look for a market expansion company. Say, you have a decent brand in Europe (Germany). You do not have a presence in Asia, strong that is. To build that network, you cannot do it your own. It will take years. As I see it, DKSH is a good candidate. It has the billing, collection and distribution system and it is the best in Malaysia.

The beautiful thing is that many companies now could possibly be looking at expanding in Malaysia with this country being part of Asia. DKSH seems like a good fit in assisting.

When I looked at DKSH, it was trading at around RM0.70 - ridiculously cheap by today's standard. But DKSH was not a hit with investors then. It was most of the time untraded, just had a turnaround (remember the turnaround thing I said). But in this case, the company had all the things in place. It was a good company which probably needed better management of its system and finances. It was good but not excellent. I guess today it is moving towards excellence with the financial performance.

At RM0.70, though it was trading at some RM120 million market cap. Ridiculous. Remember I was putting a wild guess in my very early article of the company could be worth at least RM500 million. Now, at RM5.00++, it is trading at around RM800 million valuation. Can you think whether it is worth that amount?

Now, let's not think of PE, or profits or anything else in terms of the usual valuation. Would a business that wants to build a network like DKSH, be buying DKSH Malaysia at RM800 million? Coca-cola is spending billions to build a factory and getting the distribution network ready after the split from F&N. Even then it is not yet ready today, as I can see it. There are still issues with the system.

A company needs refining especially when you are into a new country, and if you can get some help, you will need all the help you can get. We have talked about Parkson facing challenges in the countries it is exploring into - like Vietnam, Indonesia. But there are things you need to do and you need to do. To build a business takes time and this is where I see the value is in for DKSH i.e. to help to speed up the building process.

Freight-WA may be interesting if its risk you are seeking

I have looked at Freight Management's results for the 1Q 2013. It seems that the company is on track despite the reducing gross profit margin. You can see that the company is still trying to grow with controlled investment into some of the areas. I have liked the company for its asset light business as compared to some of the other logistics companies.

However, another play which can be possible is the Freight-WA. Its exercise price is RM0.97 and expiry is sometime around 2017. Current parent price is around RM1.35. With the warrant around RM0.39, it is close to in the money with about 4 years of holding.

Warrant would be good if you have a good feel of the company moving forward. If the company trends the other way however, you can potentially lose all your money. Its higher risk, for those who like that.

Wednesday, May 15, 2013

What's wrong with DCF?

DCF or Discounted Cash Flow if you do your research, has been said to be one of the most preferred valuation model. It is preferred due to its assumed accuracy in terms of projecting what the valuation of a business based on what is projected down the road.

I like cashflow, it is one of the most important measurement on how well a company or business is doing. But DCF is all bullshit. Why?

I have done tonnes of them (DCF) and everytime I feel that I am bullshitting. Most of the time, the DCF that I do is for the company I work for or to make someone happy that the company is worth so much. From a DCF, one can just make a major change to a valuation based on a slight change in the assumption.

Before we go further, what is a DCF? DCF is a method of projecting a company's worth using mainly the future cashflow of a business and a discount value. Both are equally important. But both are equally difficult to project.

A future cashflow - imagine for a business, can some company project its cashflow say 5 years down the road? Or perhaps 10 years down the road? If that person being the CFO, CEO can project that close to accuracy, then he / she is almost superhuman. Future numbers are amazingly hard to predict. It is like someone (a super analyst) projecting what is the Bursa KL Composite say in 31 December 2018. People change, situation changes, management move around. And are you telling me management is not important in a business? Well DCF is saying that, isn't it. DCF can be assuming a scenario 20 years down the road and we are supposed to be taking the number say 2034 as correct for the valuation to be accurate.

In a DCF, the projection is not only for one year, but for a period. If it is for 10 years, then it is for 2014 to 2023 or even in perpetuity. And it has to be almost accurately provided. Can a business be consistent? Some yes, mostly no. In fact, very few yes. Then how are we to provide a DCF accurately?

Then comes the discount value! A 1% difference, in a lot of times cause significant changes to the valuation. So which number to use 10%? 11%? 12%?

Why the hell then someone still wants to use DCF. Most probably, the current valuation is not good enough. And most of the time that current value is not good enough, some guy has the indigenious thought of why don't they come out with a projection over a long stretch of years and project the value backward, considering time value of money.

Well, if someone wants to bullshit another, you can contact me to do the future cashflow for you and discount them to today's value, cause I am pretty good at that!

For investment though, go for the tried and tested, based on historical track record and what you feel the business is heading in the future.

There are only some businesses which a DCF can probably be used - mostly concessions. Even then other factors are so important.

Tuesday, May 14, 2013

Where's the RM60 million?

I have been reading through the announcement. I can't find anywhere that is worth RM60 million in the merger. Can you?

Sunday, May 12, 2013

Should one relook at Parkson now?

It comes at a time when stocks are getting more and more expensive, but Parkson is moving the opposite direction. I once used to hold AEON Malaysia and at that point of time it was way cheaper than Parkson - perhaps half the size in terms of market cap i.e. AEON to Parkson. Surprisingly, slightly more than 1 year later, AEON's market cap is now larger than Parkson.

Share price of Parkson over the last 1 year

Of course, one may say that AEON is performing well - no doubt. While Parkson is sort of having a drop in terms of its performance. I however would be asked that if given the choice, which company would I own. AEON is only with its Malaysia's operations. Parkson is the holding company that holds the group's China's and South East Asia's operations. No doubt in terms of profitability AEON is slightly ahead of Parkson today. But Parkson vs AEON Malaysia is a different ballgame.

I like AEON's business in Malaysia. I like Parkson as well. But if you invest into Parkson, it is the one that holds the brand. AEON Malaysia is the licensee to the AEON's brand in Japan. If any wants to buy AEON Malaysia, they would only be buying the Malaysian outlets, not the brand - pretty much like when AEON Japan bought Carrefour's outlets in Malaysia. It currently has the rights to the brand in Malaysia. That's all.

If one is to own Parkson - they are not just buying the outlets and its location. They are buying the business. Given the choice, a business would definitely gain more value if the earnings are at par.

Now, what makes Parkson's share price trading sluggishly? Its performance over the last 12 months. The poorer performance are due to 2 main factors - competition and expansion.

The retail segment is a very competitive business. Besides competing against each other - AEON, Parkson, Tesco, Giant - company like Parkson is competing against individual brand retailers which have their own stores such as Gap, TopShop, Uniqlo, H&M to name a few. But a brand and retailer like Parkson has its own strength. Imagine a mall without the like of Parkson or Isetan. The malls would call them anchor tenants. Malls need to work with anchor tenants to bring the crowd. Hence, malls need companies like Parkson and Isetan and as such these players normally will provide a better terms as against for example you want to open your own Bally shoes store. The rental per sq ft would be different.

AEON, nowadays prefer to open their own stores, buy their own land and build it, be the mall itself. So are Tesco and Giant. Parkson it seems has started to own its first mall in Setapak, Kuala Lumpur. I believe that it may be looking at this model much more in future. But at the moment, malls still need them.

On expansion, Parkson is now aggressively expanding in South East Asia besides having the largest part of its business in China. This Chinese operations is of value - believe me. The expansion in South East Asia would have caused some cashflow to be used for capital expansion sake, but if one if to buy such a business, I think it may be worth it as if it manages to do well in Indonesia and Vietnam, Parkson may be up for a re-rating despite it being a Malaysian owned and branded supermarket chain.

Due to this, I am taking a plunge by buying 2200 units for the portfolio.

Purchased at RM4.22 per share

Wednesday, May 8, 2013

Is it time to hold cash?

When Bob Pisani of CNBC said that many markets are now at all time or at least 52 weeks high, he forgot to say about Malaysian market as well. Before election, Bursa had already reached all time high. Post election, it went berserk, with the KLCI climbed beyond 1,800 points to later taper down to around 1,750 points. Now, after 3 days it is at around 1,770 points.

Is the market overpriced? I don't think so, if you consider the amount of liquidity that are available in the market. Bernanke is still printing money, not leaving his foot from the gas pedal. Japan is even more aggressive, looking at doubling its issuance of bonds. Basically, everywhere in the world, we are seeing people (rich people that is) do not know where to put their money. In Asia, property has gone to prices where it has never reached before.

Well, so it seems for stocks as well. People whom are holding cash will feel like cash is NOT KING. I provide a scenario. Even with stocks, a decent pick would have its dividend return better than returning a 3.2% interest from Fixed Deposits. Don't believe me. Look at the comparison between Fixed Deposit vs dividends.

Fixed Deposits earned if I would have put the money from Felice's Fund
Based on above, the total FD that I would have earned from the money put in is only RM2,664.55. Against the dividend earned from the portfolio, which one provides me with a better return so far? Few years ago, no one would have expected total dividend earned to be higher than the interest earned from FD.

Now, it seems like it is an issue if one is to hold cash. The return would not even beat real inflation (do not believe the number provided to us...). Hence, all kinds of riskier assets are sought. It in fact seems to me holding cash is the riskier of them all currently.

Nevertheless, the exuberance over the last few days caused me to re-plan. I had wanted to hold Time Dotcom for a longer while, as I wanted Digi's distribution as part of my holding. But it seems that with the sudden rise in stocks over the last few days, I think that selling Time Dotcom would be the better thing to do while I look for another stock to hold.

Sold Time Dotcom

I think I know which one to have if the price is right as there are some stocks which retreated a bit despite the rise in KLCI.

p.s. the sale is partly to do with I believe some of the hands are pushing some stocks up to prove some point...

Monday, May 6, 2013

The lessons of GE13 on stocks investment

By now, there are many who would be feeling frustrated and disappointed over the GE13 results - especially for those who are hoping for a change in federal ruling government. If the percentage of popular vote is taken into account of the support, probably there are a higher percentage of those whom would be disappointed as Pakatan has managed to garner a 51% popular vote as against BN whom managed a 49%.

For those who are disappointed as we are Malaysians and the fact that I see some of my friends whom have been overseas, and made their point by coming back to vote speaks volume of their patriotism despite being away from the country for many years. The majorities who traveled thousands of miles just to put in that one vote may have been voted for the opposition, ended up disappointed but at least they have done their part. They are very much a Malaysian.

Fortunately, for stocks investment, the attachment need not be that strong. There should not be that sense of too strong a feeling for one's investment, but you must know the company that you invest in. Without that, you are just blindly supporting the company by putting your money.

As a minority investor, one should know that there is only a limit that one can exercise. Just like a voter, your vote is one out of the 13 million whom can vote in Malaysia. As a shareholder, you can vote, but your vote is just as much as the number of shares that you hold. In fact, it is even worse as in stocks, the majority shareholder pretty much can dictate the vote as they are the majority. And being a minority, in most cases (despite the protection that is provided to minorities) investing is that much you can do. You can highlight the wrongs and rights that the management have done, or pretty much avoiding the companies that do not have interest of shareholders is probably the best thing to do. No point getting upset over what the management have done which may not be to our interest.

I have invested in many companies which over time, I feel that they have not done to what I believe is right - an example of it is AEON when it uses its parent holding in Japan to buy Carrefour in Malaysia. After I have sold the stock, its prices continued to rise. But I still believe in what I believe, and that's my decision. Even if it continues to be doing well, there must be a certain principles which one should follow as being a minority investor, you should know what you are doing. Not having the right principles in investments can cause heavy losses and holding to something bad for a long period which will just disappoint one as an investor. An example is KNM, which many a times, people just hoped that it turned. It has not so far - how much longer should you wait?

The beauty about stocks investment is that there are a whole long list of stocks which one can choose. Sometimes, there are no right or wrong company. A person who knows the oil and gas industry may like Dialog. As I am not too familiar with that industry, I tend not to buy the stock although it has done well for many investors.

In yesterday's election, one tend to get overly excited and hope that things can change overnight. Change is good but change does not happen overnight most of the times. The common flaw that most people do in investment is that thinking any change in event or management will cause change in the prospect of the company. That most of the time do not happen - in stocks and country you live as well.

A bad company despite one can put in the hope - chances are it will remain to be a bad company. A good company, despite some turn of event that may affect it over the short term will in most cases be a well managed company. While the leader is important, the core of the company or country are the people.

Hence, try not to be too disappointed. If you believe in the people, you should be with the company that you invest in. If you do not, change your portfolio.

That can't be said of the country you are born in though.

Saturday, May 4, 2013

Moving from SP Setia to Wing Tai

After holding SP Setia for 4 months, I have decided to sell the company at RM3.49, taking a profit of RM765.00 from this small shareholding.

If you looked through my previous postings on SP Setia, although I do like SP Setia, I did also mention of it being a short term shareholding. SP Setia will remain to be a great developer but the fact that Tan Sri Liew has been buying land (possibly through proxy like his son and friends) while diluting his stake in SP Setia probably convinced me to sell. I still do not think he is SP Setia, but the fact that it is a pure developer and me being not too comfortable with a full-fledged property developer at this stage, allows me to sell.

Yesterday, it was a small opportune time for me to pick up some of the stocks which may have dropped to their original level when I may have started to look some of the stocks with more in-depth.

This I believe, is due to the jittery effect of the general election which may chart the future of Malaysia when the market is reopened this Monday. Anyway, as always I have mentioned of non-government aligned stocks and I will still keep to that mindset. Time Dotcom and Malaysia Airport are not really government aligned stocks - they are businesses which are largely owned by GLCs. Time Dotcom is managed and to a large extent owned by a group of individuals who happened to run the company but they are majority owned by Khazanah. So is Malaysia Airport which is controlled by the government.

Anyway, over the past one month I have looked and relooked at a company called Wing Tai Malaysia. It is a decent developer with some slight diversification - fashion retailing. Currently, the contribution for the group is around two third property and one third retail. While I am ok with property business, I am as well attracted to its retail arm despite it being a smaller contributor. For its property, it is one of the more prominent developer in Singapore with some projects in Hong Kong and China, but these are held through different listed entity. Hence, it is not a newcomer when comes to property development. Much of its projects are medium and higher end in Malaysia now but its landbank in mainland Penang will cause it to build more affordable housing.

As for the retail business, this is where I think it will achieve more consistent results from. It has more than 10 brands under its arm and the more popular ones are TopShop and its joint venture into Uniqlo. Since 1 - 2 years ago, the government has done away with taxes on clothing and luxurious retail goods. This, I believe has cause brands such as H&M, Uniqlo, Debenhams to be aggressive in the Malaysian market - which from this is good for Wing Tai Malaysia. On its background, you would know that Wing Tai Malaysia was called D&P (Dragon and Phoenix). From my experience, it was a clothing manufacturer reinventing itself into brand retailer, which it to an extent has done decently well. This reinvention of itself makes me believe of the group, of its ability and I have decided to purchase 4200 units at RM1.89 per unit.

You can look at my update on my portfolio here.