Tuesday, October 17, 2017

SOS Ms Yellen, Mr Trump & Mr Market


MS YELLEN

Yellen may well be paving the way for further delays in Fed tightening, which has been the case for years. So don’t count on another 25 basis-point rate hike in December and three more next year, as the Fed has forecast. And don’t assume big reductions in the central bank’s $4.5 trillion portfolio will occur soon


MR TRUMP

Tax cut as Merry Christmas of 2017.  Bringing back USD3.0 trillion.

MR MARKET

Dow Jones index continue inching towards 23,000.


HOW ABOUT BURSA MALAYSIA?

Second and third liners are dwindling down a sloppy hill.  The index stocks are flattish at best, for 2017, remain on the high side of the its historical PE trading band.  Thanks to the prolong low interest rate.

Many export stocks benefited last 2-3 years from the depreciation of Ringgit, 25-30%.


QUARTERLY RESULTS PLAY IS FOR SHORT TERM?

Some of the stocks that dropped >25% due to bad quarter:

1) Perstima
2) IQGroup
3) Superlon
4) Magni
5) Prolexus

Similarly, these stocks went up when they attain the quarterly growth as expected (other than stocks which is not in the thematic group).  

Hence, some of which the share price grow much faster than the fundamental, is like driving with a dagger on your wheel, the moment you hit a hump, you are dead.  So, be very careful when playing with quarter results, the return is superb, similarly the downside.


VALUE INVESTING METHOD - REQUIREMENT - LONG TERM HOLDING

If you are a long term investors based on value investing method, one of the most basic tenets you must have is patient.  IF you do not have it, don't use this method.  OF COURSE, the stock must have the characteristic of a value stock (strong moat, sustainable and growing earnings, strong balance sheet), and the share price does not overshoot its value too much too soon.  Another way to play these type of stocks is using the step ladder method, when share price overshoot fundamental (assume stock PE > market PE by a big margin, and it takes 3-4 years growth to catch up) why risk it?  Sell some first, to lower your average cost per unit. 

Some good example I have in mind (only if you own the stocks) is Vitrox, Unhitech and Padini.  All are good fundamental stocks, however, their PE runs way pass their sector mean, so step ladder method is fine.  Is not full proof, but, it is COMMON SENSE.

Saturday, October 14, 2017

SOS What does Warren Buffett of Asia say about Bursa stocks?

WARREN BUFFETT OF ASIA

So what is your style of investing?
We are stockpickers. We look at individual stocks. 
Investing is about common sense. Now, businesses are listed on the stock market. However, you cannot treat them just like a business, as the stock market is made up of millions of players who make illogical and emotional choices. 
So, there are many methods being used - momentum, looking at certain psychological levels, top down, bottom up .... I still go back to value investing. For this, you need to be very patient. Value always outperforms in the long term.
I don’t believe in speculating. Because it is my job to make money consistently over time. This is my career.

Read more at http://www.thestar.com.my/business/business-news/2017/04/01/warren-buffett-of-asia-bullish-on-bursa/#CHwtMecJH4t6HdEF.99


(Interview of Cheah Cheng Hye, the Warren Buffett of Asia)

WHAT CAN WE LEARN?

1.  Investing is about common sense

You cannot treat stock just like a business.  Why? As the stock market is made up of millions of players who make illogical and emotional choices.  In short, in a short run, the value of the business may not be represented in the share price.  

If your method used for investing is VALUE INVESTING.  Why is this method will achieve good return in the long run?  Because, value ALWAYS outperforms in the LONG TERM.

2.  Value ALWAYS outperforms in LONG TERM?

Why? The stock markets has proven that.  So, that is PROVEN, why people still doubt this method?  It is because, they cannot reconcile their mindset of long term investment against the share price movements (in the short run).  It is not because the value of the stock has deteriorated, but, because their mindset is not able to sustain the divergence between the value and the share price.

Hence, for value investing method, the investor MUST have to be PATIENT, or a long term mindset.  Failing which, this person will be very FRUSTRATED, wondering why their stock price going down while the value of the stocks is not deteriorating.  

It is actually a mismatch of mindset vs share price expectation.  Expecting the stock they pick (value stock) to ascends in the SHORT RUN and LONG RUN.  Hence, when in the SHORT RUN when the share price is dropping, the FRUSTRATION will arise.  

Simple as that, that means, while they want to invest long term, their mindset is short term (expecting the share price to go up), without realising the stock market is made up of millions of players who make illogical and emotional choices AND value always outperforms in the long term.  Hence, Dr Cheah Cheng Hye said, investing is COMMON SENSE.

That is why WB said, focus on the game and not the score line.  WB is said one must focus of changes in the fundamental of company, not the changes of the price of the company.  If the fundamental improve, value should improve, if share price drop, he or she should be happier because he is buying into an improved fundamental company at a cheaper price, giving it a higher margin of profit or safety.

3.  WALK THE TALK

If you use value investing as your BASIS or METHOD, you must have the patience.  Because, in short value investing must be followed by a long term view (patience) to wait for the long run because value ALWAYS outperform in the long term.

Just basic common sense.  Like fishing, if you are impatient, lets not go fishing, because you are likely to get frustrated. 

Next time, a fund manager MUST be clear to his clients and said, I am using this VALUE INVESTING METHOD, which required the HOLDER to have the LONG TERM MENTALITY.  There is nothing got to do with the fundamental of the stock, more of the change in TEMPERAMENT of the holder/investor.  So, please, not mix up between VALUE and PRICE, long term and short term mindset, you will not end up like "pui" or "sui".  It is not the stock that is lousy or the stock is useless (when price did not go up), it is the holder which is lousy or useless, because, when you sign up for value investing, short run gyration of share price is IRRELEVANT.  If you are frustrated over something IRRELEVANT, I think one of to think twice whether he or she is suitable for the game, don't expect to have a baby in a month when your wife is three months pregnant, you will likely not get what you think you want.

Saturday, October 7, 2017

SOS Trading vs Long Term Holding of Stocks?

Great Quotes by Phil Fisher

Here are some awesome  quotes by Phil Fisher to get started.
“The stock market is filled with individuals who know the price of everything, but the value of nothing.”
“I don’t want a lot of good investments; I want a few outstanding ones.”
“what really counts is a management having both a determination to attain further growth and an ability to bring its plans to completion.”
“it is often easier to tell what will happen to the price of a stock than how much time will elapse before it happens.”
“Doing what everybody else is doing at the moment, and therefore what you have an almost irresistible urge to do, is often the wrong thing to do at all.”
“Even in those earlier times, finding the really outstanding companies and staying with them through all the fluctuations of a gyrating market proved far more profitable to far more people than did the more colorful practice of trying to buy them cheap and sell them dear.”

Trading vs Long Term Holding of Stocks
Every now and then, there will be debate on which is better.  Frankly, I find it fruitless.  Everyone is entitle to their own style of investing.  No need to proof which is better, investment is not a competition for me, at least.
So, don't waste a brain cell over it.  Just be comfortable with your own style.  Win or lose, you are responsible for your own money.
SOME FUND MANAGER

My fund manager has compiled 20 stocks that performed spectacularly in Bursa over last 20 years with CAGR of >20%, some are 30%, some are 40%.  The FM quickly claim he holds 7 of them.  Great.  However, his last 3 years performance is worst than FD rates of 4% but he claim he did better than the Emas Index.  However, can we said he is not performing? Or do we give him MORE time to make up for his weak performance?  Well, I have seen stock that doesn't move for 7 years and suddenly went up 5x over the last 3 years.  So it takes 10 years to move up 5x, is he performing?  Yes, only the last 3 years, the first 7 years, guess how many holders sold it? Easily >70%.  So, its easier said than done, long term holding can blindside you sometimes. Btw, over the last 10 years, there are 3 different CIOs. 

Similarly, some clients unable to withstand the poor performance, they sacked the FM or CIO, only to find out from another client, should he or she waited another 6 months, the portfolio turn from below 2% to more than 10% profits.  Unfortunate to him or her, that is the problem when some do not understand what investment is for long term (5-10 years) means, although he or she understand what long term investment is all about, but the mindset is not prepared for it.  Until the mindset is ready, welcome to who can "walk the talk" principle.

WHAT CAN NEVER BE THOUGHT TO INVESTORS?

We can learn Fundamental Analysis and Technical Analysis, but we cannot teach an investor to be patience.  Many are unable to withstand the downturn of certain particular stocks they own while looking at other Top 10 Gainers, thinking that they have lost out so much opportunities for not investing in the Top 10 Gainers, even their own stocks fundamental have improved (more profits, more contracts, better margin) over time, while the share price is dropping.  One particular stock that I have some interest, Gadang is a good example.  

Many forumners in i3 expressed their frustration over Gadang share price performance, despite getting more contracts such as MRT2 + other major projects + an improved PBT as against previous financial years.  Yes, Gadang has very low PE, around 7x (net cash), and prospective PE of 6.2x (next one or two years) while many other construction companies has around PE of 12x.  Technically speaking, we should be happy when a fundamental of a company improve and the share price goes down, because the upside is better (margin of safety is wider now).   As a value investor, one must have a long term view (2-5 years) and believe the price will reflect the fundamental eventually.  If one disagree with this principle, then, it is wiser not to invest in stock market.  

Of course, there are many other elements involves besides its fundamentals.  Liquidity, shareholders' reputation, industry trends, fads, foreigners inflow or outflow, management reputation, etc which is not in the control of the company's management.  That is why, the only focus we can place on is the fundamental of the stock.  Eventually, someone will see their "sustainability" or "quality" of the long term earnings.


Tuesday, September 19, 2017

SOS Design your own Investment Manifesto

MR CHEAH CHENG HYE - VALUE PARTNERS

Investment is about common sense and must have the 3Rs

1.  Right business (business model - growth and sustainable and quality)

2.  Right people (one-third of our selection mistakes come from misjudging the management)

3.  Right price (price paid must be a lot lower than the estimated value)

EGO - will eventually makes you pay


PAT DORSEY - MONINGSTAR

The 5 RULES for successful stock investing

1.  Do your homework (select the right biz + right people)

2.  Find Economic Moats (select right biz that is sustainable)

3.  Have a margin of safety (right price - price must be lower than value)

4.  Hold for the Long Haul (right price - value will eventually prevail)

5.  Know When to Sell (when price exceed value significantly)


WARREN BUFFETT

The 5 principles

1.  Make a list of Criteria to buy a Stock

2.  Invest in Industries or Companies Familiar to you

3.  Stay in Cash if necessary

4.  Monitor the stock you Hold (quarterly)

5.  Sell at the Right Time (no longer met your criteria)


PETER LYNCH

1.  "You don't lose anything by not owning any successful stock, even if it is a ten bagger"  - don't worry about missing out, opportunity are aplenty.

2.  "Don't become too attached to a winner that complementary sets in and you stop monitoring the story"

3.  "Just because a company is doing poorly doesn't mean it can't do worst"


PHILLIP FISHER

1.  Don't buy into a promotional companies - i.e. in the early development stage

2.  Don't be afraid to buy during war scare

3.  Don't be influence by what doesn't matter

4.  Don't follow the crowd

5.  Don't overstress diversification


CHARLIE MUNGER

1.  Invest in what we know or circle of competence

2.  Look out for durable moats or competitive advantages

3.  Look for management with integrity

4.  Pay for price that make sense

It is as simple as that.  University got to make it complicated, else they cannot justify their existence.


DESIGN YOUR OWN MANIFESTO

Start today!

Monday, September 11, 2017

SOS Charlie Munger's key to wisdom is a habit anyone can form

KEY TO WISDOM

Reading!

"In my whole life, I have known no wise people who didn't read all the time - none, zero" says Munger

Bill Gates reads 50 books a year.

Warren Buffet spent 80% of his day reading.


KEY TO BE A GREAT LONG TERM INVESTOR (5, 10, 15, 20, 25 years)

Patience!

Most participants take investing like a competition.  Whoever reach the finish line first win! Winning is not the key to be a long term great investor.  Patience is.

We can understand mutual funds needs to maintain their ranking to attract more investor, else, they will run out of biz.

As for individual investor, it is meaningless.  You don't even get a medal for winning.  Unless it is a competition organised.  So, avoid comparing your own investments with others (for fun may be ok, don't take it seriously).


WHAT HAPPEN TO KLSE LAST FEW MONTHS?

Coma!

Besides some thematic plays and syndicates play on certain stocks, majority of the stocks are moving either sideway or downwards.  It is mainly due to sentiment and low liquidity.  When will the liquidity comes back? Partly depends on the foreign institutions, and local retailers + institution.



WHY SOME GROWTH STOCKS' PRICE MOVE DOWNWARDS?

In the short run, fundamentals of a stock and its share price may not agree with each other, in the long run, they will meet.  Those who are rushing to the finish line will be frustrated, as the share price may not reflect the fundamentals immediately.

In a short run, the market runs on populism.  In a long run, the market will reflect the substance.  Some stocks are popular now, but, may not be so when substance does not follow.



Tuesday, August 22, 2017

SOS Does an investor need to know valuation skills?

VALUATION SKILLS

1.  It helps, but not the only factors that drives the "share price".

2.  It helps, but not able to tell you the direction of the business.

3.  It helps, but will not tell you what is the lemons in the market, that, experience will play a role.

4.  It helps, but does not teach you how to control your temperament to avoid temptations in the markets.

5.  It helps, but it never tell you when is the peak to make a sell call.

6.  It helps, but it will not tell you if the management have integrity.


WHAT IS THE VALUATION METHOD

There are many method to estimates the range of value for a stock.

Some of the important financial metrics used for valuation are:

1. ROE/ROIC
2. Profit Margin
3. Profit Growth
4. FCF, Operating CF
5. DY


SO IT HELPS, BUT NOT EVERYTHING?

1.  Of course, else, just take a Valuation course, and you don't need to work a single day in your life?

2.  It only helps you to avoid to differentiate noises and nonsenses against important factors that improve the fundamentals of a company.

3.  Never use valuation to time the market.

4.  Liquidity considerations and technical analysis should be used for timing.

5.  If we uses a confluences of approach, such as fundamental, macro trend, technical analysis and sentiment, it will improve your return probability.



LOSS AND GAIN

The avoidance of loss is the surest way to ensure a profitable outcome.


LONG TERM INVESTOR vs TRADER

Different tools are used for different type of players in the market.  Many always have different opinion when they look from different time frame perspective.

Being a long term investor, you will pay less attention on world macro changes in interest rate (not that it is not important), noises on predicting quarterly result, get the quarterly expectation wrong, and many other noises and nonsenses (short term sentiment of the market) because a long term investor focus and a trader focus is not identical.

Long term investors is concern about "the factors" that effect the quality and sustainability of the earnings as well as the integrity of the management (what they do).


OTHER IMPORTANT FACTOR THAT HELPS

To identify the mechanism that drives the bottom line for a particular company or sector.  Besides the conventional methods of good financial metrics, one must also  focus on factors that were strongly correlated to stock price movements.

So, this factor (the art side), was to anticipate changes of economic trends that are not expected by others, and therefore, not yet reflected on the stock price.


TRAITS TO HAVE

Independent, rationale, continue learning, open minded, strong convictions etc.  Use principles from gurus as a guide, not a bible, else, you will miss the NEXT tech stock.

Wednesday, August 16, 2017

SOS At least 30% upside for OCK Group from 90 sen?

WHY DO YOU BUY OCK GROUP AT PE OF 30X?


Let's cut to the chase:

1) Total shareholders fund (SF) is about RM420m @ 31 March 2017

2) Profit after tax over SF, or ROE, the denominator is RM420m. (RM200m raised in 2016 for new biz in Myanmar and Vietnam)

SPLIT BIZ INTO TWO SEGMENTS

3) In order to understand this company, we have to segregate it into TWO biz

   (a) Non-tower biz (Biz A) -  Engineering projects, maintenance of towers, contracts to build towers, projects on fiberisation, & solar energy (concession)

   (b) Tower ownership and rental biz (Biz B) -  build and lease back for long term (>20 years), and own and lease to telco operators.

SEGMENT 1 - ROE or PE Method

4)  (a) Non-tower biz share of SF is about RM220m - making about RM29m (exclude one off expenses of RM5m) in FYE2016, so ROE is 29 over 220, ROE of about 13%.  This biz is growing at about 5-15% (include solar energy).  RHB gave it a PE of 16x, because of growth.

SEGMENT 2 - EBITDA MULTIPLE or DCF Method

(b) Tower biz share of SF is about RM200m (RM132m raised in end of 2015 (Myanmar project) via rights issue & RM60m plus was raised in mid 2016 (Vietnam acquisition of SEATH project)

Total Project cost (estimates)

Myanmar (build and leaseback)  -  RM300m (built about 620 towers out of total 920 towers)

Vietnam (acquired brownfield BTS - smaller towers) - RM200m

5)  Myanmar project - deliver most of 600 towers by end of Dec, hence FYE2016, PAT contribution is negligible.  So, if we use ROE, it will be 0%. PE >100x in 2016.  Tower ownership and rental biz is unique and the industry has accepted the valuation method, using EBITDA multiple to calculate.

Vietnam project - FYE2016, PAT contribution is also zero, acquisition completed on 13 Jan 2017.

So, ROE is actually negative as they incurred corporate exercise costs & acquisition costs for FYE2016, but zero revenue or contribution.  Initial year profit will be low as they are paying back loan, tenancy ratio is growing gradually, depreciation (testing time given to customer, lower revenue during initial period).

The right method to value it is using EBITDA Multiple or while we can use DCF as a good reference.

VALUATION = SEGMENT 1 + SEGMENT 2

6)  Biz A -  ROE about 13% with 5-15% growth PE 16 X RM29m = RM464m

     Biz B - ROE is zero for FYE2016 (only investment costs in Balance Sheet).  Started contributing in 1Q (somewhere mid Jan 2017).  Long term DCF by RHB Research (10 Aug 2017) = Myanmar = RM450m and Vietnam RM110m


Segment 1 + Segment 2 = RM464m + (450 + 110) = RM1,024
No of shares = 871m

Estimated FAIR VALUE of SHARES = RM1.18 per share  

(have not include new tenancy ratio growth of MPT (Feb 17) and, Mytel (Jul17) or new towers expansions 200-400 units p.a. over 2017 and Mytel build to suit of 300 units)


CONCLUSION

EXISTING BIZ (SEGMENT 1)

Tower Maintenance, Solar, Fiber laying contract. Value about RM464m using PE 16x.  Still growing. Solar making about RM4m in 2017.  In Malaysia, we also have about 200 towers.


NEW BIZ (SEGMENT 2)

OCK Group started a NEW and SUSTAINABLE biz called INDEPENDENT TOWER (OWNERSHIP & LEASE) in 2016, raising about RM500m, of which RM200m is EQUITY and about RM300m in BANK BORROWINGS.

This building and leasing tower biz is a high growth biz especially in Myanmar and Vietnam.  EBITDA multiple is about 7-8x, but can be improved to 5-6x if tenancy ratio is improved.  This is what OCK is trying to do.  OCK EBITDA ratio should be around 10x.  (Indonesia tower is 13x, better financial metrics and size)

1.  OCK has built 620 towers and rental coming in in 1Q2017.  Will continue to build remaining 300 towers.  OCK has a build and leaseback with TELENOR for 12+5+5+5 years.  Total cost about USD70m or RM300m.

2.  MPT become second tenant of the said towers.  Approximately 90 towers.

3.  Mytel become their third tenant of the said towers.  No figures was given.

4.  Mytel also requested OCK to build and leaseback 300 NEW TOWERS value approx. RM90m

5.  OCK bought about 2,000 BTS in Vietnam for about RM200m from a private equity.  OCK will be improving the costing + also building about 200 new BTS each year using internal generated funds + also improving the tenancy ratio.

6.  RHB mentioned in their report, possible additional M&A in Indochina (market news said Telenor wish to divest some of their towers in Myanmar.  (SPECULATION ONLY).

TRADE RECEIVABLE - SEGMENT 3

Discussed in AGM 2017, apparently, OCK has a very high Trade Receivable, of as high as RM100m.   Management explained that it is a Deferred Payment arrangement client and is of the view collection is not an issue.  This segment is ignore by analysts, hence, will give a surprise when collection is done.  This will reduce gearing ratio.
 
This is a VALUE + GROWTH stock.

UPDATES @ 27 SEP 2017

1.  Market sentiment is week since May 2017.  OCKWA peak at 41 sen in May and dropped back to 29 sen as at 27 Sep 2017.  A huge dropped of 12 sen, even when OCK fundamental was improving since April 2017 (a) co-location of MPT 90towers (b)co-location of MyTel 70 towers in Jul 2017 (c)MyTel requested built to suit of 300 new towers in Myanmar (d) Additional towers built for Telenor.

2.  The drop in OCKWA price (from 41 sen to 29 sen), due to general sentiment, most small cap stocks dropped, other than some thematic play.  The weak market sentiment, mainly due to low liquidity and foreign investors leaving the country, does not reflect the actual fundamental of the company, as most analysts revised upwards their TP for OCK to RM1.00 to RM1.05 per share due to favourable qtr results.

3.  Hence, at 29 sen, it is very undervalued and has huge potential, as better results is expected for the next 1-3 years as OCK continue to expand the towers, and co-locate more towers.  Should not be worry with this TEMPORARY market sentiment.  

UPDATES @ 4 OCT 2017

1.  Announced entered into a JV with LTAT on AES project.  No mentioned of project cost, a 60:40 (LTAT:OCK) equity holding.

2. OCK dropped to 89sen and warrant dropped to 28 sen.  Keep drifting lower and lower (with low volume of less than 1-2mil) since peak at 41 sen (at high volume of 9.7m) on 24 May 2017.  It continue to drop despite results is in line with analysts expectation for 1Q and 2Q.  As usual, the 1H result seasonally represent 30% of the full financial year.

3. So, now warrant is traded at 11.2% premium.  28 + 71 = 99 less 89 = 10 sen (over 89 sen).  The warrant expire in Dec 2020, meaning, there is 3 years 3 months before expiry.

4. Fundamental of company is improving, new towers contract & new co-location for existing towers in Myanmar.  Many are baffled by the price reaction although fundamental is improving.  I suppose some are concern about Rohinya issue.  According to management, Telenor, has reposition its towers nearer to major cities (a plus for OCK for co-tenancy), perhaps, that delay the initial project a bit.  Since it is a good long term direction, it is better for OCK.

5.   So, at 28 sen, its a good bargain.