Bull markets are born on pessimism, grow on scepticism, mature on optimism and die on euphoria.

Monday, March 30, 2015

52-Week Low Formula

Just finish this book. Not so bad, not so good neither. 

It examines the 5 formula filters behind selecting the outstanding companies and great investment opportunities that are being overlooked, resulting in bigger gains, reduced risk and faster recovery following economic downturns 

The 52-Week Low formula is not about finding cheap stocks that can be turned for a quick buck. It's a system, a process that takes the guesswork out of investing and removes the influence of human behaviours. 

The author uses 5 filters to select stocks 

Filter 1: Durable Competitive Advantage

The first screening is to select companies with durable competitive advantage, as these companies are difficult to compete with by their nature and positioning. It gives the companies tha ability to adjust to a changing world, fend off upstart competition and insulate themselves from competitors. 

Filter 2: Free Cash Flow Yield

Free cash flow yield is described as Free cash flow / Enterprise Value. 

Free cash flow yield couples the health of the company with its valuation. The free cash flow yield multiple over the 10-year Treasury bond is known as the margin of safety. Investors need to set a minimum free cash flow yield multiple as we do not want to earn slightly more, we need to earn a lot more in cash over the what the bond provides, given the risks inherent in investing in common stocks. 

Filter 3: Return on Invested Capital 

The return on invested capital must be higher than its cost of capital consistently as the cost of capital is what investors in the company demand on their investment. Good companies use their money to make more money. It's just that simple. It is a hallmark of a good leadership and management. 

Filter 4: Long term debt to free cash flow ratio

This ratio describes how many years the respective company need to pay off its debts using the excess cash generated from its operation. It's hard for a company to go out of business if it has very little to no long term debt. There will be downside protection that business with high quality balance sheets provide to their shareholders during uncertain times. Furthermore, they are able to go out on the hunt and buy its competitors to enhance it market share growth. 

Filter 5: The 52-week low

When you come to this filter, you probably filter out 95 percent of the listed companies. Then wait for the company trades at or near its current 52-week low. 

Sounds easy? I don't think so. 

When a company is trading at or near its 52-week low, I think there is something bad happen around the company or the economic and market as a whole is having deep crash. So, do you have some of the elements required to make a buy call even though the company fulfilled those criterion? 

You need to be discipline. Review your investment periodically. The hardest thing to do in investing is to walk away from a winner or sell a company at a loss if it fails one of the filters. 

You need to free from fears. We all have biases and fears. It's extremely difficult to make decision when the people around you are buying the best, hot stocks or having valuation against yours. Investing wisely is not about keeping up with the latest trends, it's like acknowledging your fear and anxiety and overcome them.

Be courage. Stepping away from the known into the unknown is hard. It takes a lot of courage to think differently 

Friday, March 27, 2015

George Kent: Highly depend on Ampang Line LRT project

George Kent Berhad just released its 4th quarter result yesterday.

Revenue and net profit for Q4FY15 dropped tremendously compared to Q4FY14 as there was slight delay for the Ampang Line LRT project. 

Profit margin increased as contribution of meter segment was higher in this quarter due to lack of progress in the engineering division that fetches lower margin. 

Full year revenue and net profit also dropped. Signal a 3-year growth in terms of revenue and net profit to an end. 

Looking at its balance sheet prompt more questions. 

Inventories increased close to 30%. This was probably from its meter division. 

Trade receivables increased close to 68%. This is big, considered that its revenue for the financial year dropped. Furthermore, the amount of increase (~RM98m) was 2 times its FY2015 net profit. 

Reading in conjunction with the cash flow statement, it's no surprise that it recorded a negative operating cash flow due to high outflow of working capital.  Although its capex is small, the group still need to take up some borrowings to pay dividends and for investing activities. 

As a result of that, cash balance reduced while borrowings increased. 

It may not be a red flag as it may be a temporarily situation to solve its liquidity problem. One need to monitor for few quarters more to make judgement. 

Metering segment recorded lower revenue and net profit compared to corresponding quarter.

I'm little bit surprised that its Metering segment showed a poorer performance. I expected there would be growth as the management mentioned they are able to get contracts from Singapore PUB and Vietnam in previous quarters. Throughout these 4 quarters, it's noted that this division able to chalk up stable average RM4-5 millions operating profit quarterly. 

The management combined the Construction and and Infrastructure segment together to form an Engineering division for segmental reporting beginning from this quarter. 

This Engineering segment is my only concern all this while as it highly depends on the Ampang Line Extension project. The contribution of Kuala Lipis Hospital project is quite negligible. Management mentioned there was a rescheduling of the work components for the project. So the group was not able to conduct their work, no work progress, so no revenue was recorded. 

Sad thing is it did not mention why there was a rescheduling and when it will resume. Boss, this is most important. 

Elsewhere, the director also mentioned they are exploring opportunity in Philippines and Indonesia for its Metering segment as they started to deliver in small quantity there. 

And there is rumour that they are able to get the job for the Railway 3 project. But it's better not to trust this kind of articles. Haha

I still quite fond of its Metering segment, but the Engineering segment will drag the group's performance down if the work did not resume and no new contracts was awarded. 

I will keep it in my watchlist. 

Thursday, March 26, 2015

SCGM: One of the Best Quarters

Just went back from vacation and found out that SCGM Berhad had released its third quarter report last week. The overall performance was good to me. 

The group managed to chalk up an impressive performance, probably the best for the past 7 quarters. 

Highest revenue, albeit a little bit higher than Q1FY2015. 

Highest operating profit margin and net profit margin. The lower cost of goods sold due to the drop of crude oil price definitely helped the group. Furthermore, SCGM group purchased its raw material locally but export some of its products. The weakening of RM against USD and SGD currency gave them a helping hand. I foresee its profit margin will stable at one point as the customers will request lower selling price for its products. You hardly find a plastic manufacturer with a 2-digit profit margin. 

As a result, it's no surprise that the group managed to record highest net profit among the past few quarters. 

On separate note, its cash balance dropped a lot due to high capex incurred and dividend payment in this financial year. High capex was for the new production line of plastic cup. 

Given the good cash generability of the group, it should be no problem for the group as its strong operating cash flow should cover its cash outflow. 

For the financial year to date, export sales amounted to 46% of total sales. 

Capex for the new production line were delivered at Jan 2015. 

For the prospects column, the board is quite confident going forward to the next financial year. Better export sales and also the contribution from the new product line. 

The board also mentioned that the input cost like power will impact on its margins. I thought there was a tariff drop last month? 

And surprisingly, the board decided to pay dividend every quarter. For the financial year-to-date, the group had declared 9 cents dividends. There should be another dividend payment for the last quarter of the financial year. 

I will continue to hold this counter. Not so recommend to buy now since its current price is quite high. I will sell it off if there is a sudden surge in price or its growth does not meet my requirement as its current valuation is highly depends on its growth and good fundamental. 

Tuesday, March 17, 2015

ABRIC: Shares owned by Pui Cheng Wui

I tried to find any info regarding this experience investor, Pui Cheng Wui. It turned out to be quite sacred. I think it's normal unless you always appeared in newspapers or other media. 

I did manage to find his name in some annual reports for some companies for its ownership. 

LTKM Berhad Annual Report 2006
LTKM Berhad Annual Report 2009

First one is the current hot stock, LTKM Berhad. His name first appeared in the LTKM Berhard annual report of FY2006 with close to 1.5 million shares holding. 

His ownership increased to 1.74 million shares with around 4.23% shareholdings as at June 2009. 

He sold off the shares between June 2009 and June 2010 as his name disappeared in the FY2010 annual report. 

Historical price of LTKM in June 2006 and June 2009 were RM1.1x and RM1.1x. Not much price changes. However, the share price thereafter increased to RM1.5x before June 2010. Guess he sold off during that period of time. 

Latitude Annual Report 2005
Latitude Annual Report 2009
Apart from that, he also owned Latitude Tree berhad before. His name first appeared in the FY2005 annual report with close to 2.4 million shares. 

On and off, he sold off and purchased back the shares in open market. His name last seen in the FY2009 annual report with 1.3 million shares with 2.4% ownership. 

The share price of Latitude at Nov 2005 and Oct 2009 were RM1.2x and RM0.7. In between the share price dropped to RM0.5x in 2008 

He sold off his shares after that Oct 2009 and the highest share price was at RM1.7x in Mar 2010. Guess he made a handsome profit too. 

And his greatest investment is below 
Cahya Mata Sarawak Annual Report 2000
Cahya Mata Sarawak Annual Report 2013
His name first appeared in the FY2000 annual report of Cahya Mata Sarawak. 

I looked through the shareholding list from AR2000 onwards. He kept on adding his ownership in this company every year until 16.48 million shares (4.84%) latest as shown in the FY2013 annual report. I guess he still owning until today. 

He purchased this company almost every year since 2000 until current ownership of 4.84% where I think he stopped adding it because it almost reach the threshold of 5%

He is indeed a living example of a very long term investor. Holding a share in more than a decade is no joke especially investing this amount of money in a political related company. 

The current market capitalization of his ownership in Cahya Mata Sarawak is 4.84% x 4.61b = RM223 million which is multiple times of the whole ABRIC's market capital. Hahaha

So, I guess he has no intention to acquire ABRIC group from the existing owner as I think he is more to investing rather than doing business. 

Well, if he can push up the price and I can ride along the wave. It does no harm to me since the net cash per share of ABRIC is around RM0.54 too :)

Thursday, March 12, 2015

ABRIC: The Emergence Force of Pui Cheng Wui

For those who invest or follow ABRIC Berhad all this while should note that there is a new substantial shareholder who emerged from nowhere and keep purchasing ABRIC shares from open market. 

It first started at 22-Jan with the news of Notice of Interest Substantial Shareholder being announced in Bursa website. 

Born in 1946. That means he is 69 years old currently and from the address, he stays near Mid Valley. Since that day, he also kept purchasing stocks from the open market and increased its ownership in the group. 

I marked down and summarized his activities on his open purchase in the table. 

So throughout these two three months, he increased its ownership from 9.57% to latest 16.77%. The units he bought every time frequently represented more than 50% of the daily volume of the respective stock. 

ABRIC also announced its quarter report result few weeks ago. 

The group still have around RM126 million at the end of Dec 2014. However, this does not include the dividend payment of RM42 million at Jan 2015. 

After dividend deduction, cash on hand = RM126.1 mil - 42.1 mil = RM84 mil 

Net cash on hand = RM84 mil - RM8.2 mil = RM75.7 mil

No. of outstanding shares = 140,523,553

Thus, net cash per share = RM0.537

Equity attributable to owners = RM120 mil 

After dividend payout, shareholders' equity - RM120 mil - RM42.1 mil = RM77.9 mil

Thus, NA per share = RM0.554

The share price is slightly lower than its net cash per share and net asset per share. It gave me around 25% of MOS based on my average price of RM0.425 if it reaches net cash per share of 54cents . 

But it's still a distance away to catch the founder of the group, Dato Ong who owning close to 42 millions shares. 

So, let's what this new substantial shareholder want to do after rounds of open purchasing. 

By the way, who sold the shares to him .. 

Monday, March 9, 2015

Thong Guan: A Bad Quarter?

I have been monitoring Thong Guan Industries since the drop of crude oil price as the lower oil price may indirectly helps a bit on its profit margin for the stretch film division. The group announced a poor Q3 performance 3 months ago. 

And the group again announced a poor report card for its 4th quarter. 

At first glance, it looked bad with a negative number at the bottom line. Very bad indeed. Nobody likes to see 

In fact, the gross profit margin improved a bit from 10% to 10.42%. 

However, there is no more good news other than that. Distribution and administrative expenses also increased. 

The critical point is the Other Expenses of around RM10 mils that caused this sudden drop in net profit. 

Looking at the operating activities, there was an impairment loss on receivables for an amount of RM5.5 million. The management made a decision that they probably could not collect back the amount from their customer already and made an immediate expense.

In addition to that, there was also realised and unrealised foreign exchange loss with total amount of around RM4.1 million. Not sure where it came from, but 85% of the group's total borrowings are denominating in USD currency. The strong USD currency for the last few months hurt their pocket a bit. Little bit lazy to check the currency of its trade receivable and payable. 

So both elements contributed to the high amount of Other Expenses. 

In terms of balance sheet, one must note that the inventory increased almost 50% compare to last year. 

As of its cash flow, operating cash flow was negative mainly due to increase amount of inventory. The group need to take up additional loan on top of the issuance of ICULS to finance its capex as well as covered its negative operating cash flow.  

Management mentioned a lot of work has been in progress, installation of nano thin stretch film machines, 4 additional lines of PVC food wrap machines, a state of art blown film lines and R&D research centre. But these things need time. 

With the increased in invested capital with the issuance of ICULS and conversion of warrants in future, can the management move the company forward and achieve better return to its shareholders? 

Perhaps no more impairment on trade receivable is a good start. Oh ya, management should explain in the report why there was such a case occurred and what is the preventive action being taken. 

Wednesday, March 4, 2015

Chin Well: A normal Q2 Quarter

Chin Well Holdings just announced its result for Q2FY2015. Some of the key highlights are below

- Revenue and net profit up y-o-y but dropped q-o-q

- The symptom was same for gross profit margin and net profit margin. 

- Profit attributed to minority interest increased for the past 3 quarters. It will be interesting when the profit from its Vietnam plant being fully consolidated into the group's bottom line starting from next quarter onwards.

- 1H2015 was far better than 1H2014.

- Balance sheet remained stable. Expect there will be cash outflow and increase in borrowings next quarter as the result of acquisition. But the cash flow generability had been quite good these 2 quarters. 

- Cash flow remained strong and good positive FCF.

In terms of segment, the revenue for the fasteners division was pretty stable for the past few quarters. It's just the products that being manufactured or sold that affected its margin.

It's noted for this quarter, a products mix with lower production yield in the Vietnam plant lower down its margin and subsequently lower profit was recorded.

A new product, namely panel fence helped to improve the overall performance for its Wire division although the contribution to the group is not that significant.

By looking at the contribution from its Vietnam plant, the profit after tax from this subsidiary increased tremendously for the past 3 quarters. However, there was a drop in this quarter. Not sure it was due to the lower production yield or higher wage incurred. Have to take note of this as Vietnam plant remained a good growth engine for the group.

Will continue to hold and looking forward for the consolidation from next quarter onward

Monday, March 2, 2015

Feb 15 Portfolio

It was a brief month of February and I was away for close to 2 weeks to celebrate cny. Seldom access to internet as the internet speed at home is far too slow.

PJDev & Sunway - Both companies also announced improved result to make up a good financial year of 2014. I still waiting their respective corporate announcements. At the same time, both also declared dividends. What makes it better is both companies also declared higher dividends than last year.

Chin Well - A good Q2 result but lower contribution from its Vietnam plant. Same amount of dividend declared. Contribution from Vietnam plant will be consolidated to the group starting from 2H2015 onwards.

SCGM - Quarter result will be out in March, probably a good one but valuation is not so attractive. Will make decision whether want to sell when the result is out. 

IFCAMSC - Converted into mother stock from warrants earlier. Result was not bad and a maiden dividend was declared. Have to look at next quarter result to check the contribution from its China division. Will sell it when the growth momentum is not there.

ABRIC - NCAV and NNWC asset play. Not sure I have the patient to wait or not :(

CES - A good quarter and perhaps a good financial year too as expected. A special dividend on top of normal dividend were declared. Didnt do much homework on its property development projects for this year. Have to dig a bit.

HB Land - Moderate financial year. Not much cash and high borrowings. No more special dividends. FY2015 will be another year with probably pure rental income. 

HMI - New addition in this month for short term investment. Bet on its probably better result and the price had consolidated for a while. So, I made a bet. 

China Silver - Result will be out in March. It will be good one since it announced a profit guidance of no less than 80% increase in net profit for FY2014. Hopefully a slight better dividend will be announced but the group also need some fund for its online business and a potential acquisition for upstream business. 

In Feb, done a brief studies on AMVIG (2300), Brilliant Circle (1008), China First Chemical (2121)

Also finish a book, namely Getting Started In Technical Analysis written by Jack D. Schwager, It teaches about the basic of charts. Of course from the title of the book, you will know that it's for technical novice or beginner like me. It explained briefly about the types of charts, chart patterns, trading system, charting software, mistake and risk control. It gave me a brief introduction about the chart patterns and parameter but it did not include the volume as a consideration which I think it is a quite important element. For trading system and charting software, I think it's not so useful for me at this stage as my purpose is to learn some basic technical skills to guide my entry and exit price. Will look for other books to learn more about technical knowledge.

Will continue looking some companies listed in HKEX, hopefully can invest one more company soon. 

March will be another month I looking forward to as I will visit Taiwan with my wife and parents :)