Showing posts from 2020

Is Petron Malaysia a value trap? (Part 1 of 2)

Case Study 05-1:  Fundamental analysis and valuation of Petron Malaysia. This post focuses on its current situation, how it got to where it is today, and its future prospects Petron Malaysia Refining and Marketing Berhad (Petron Malaysia) is a downstream oil and gas company.With its current price of RM 3.26 (1 Oct 2020) compared to its NTA of RM 5.93 (as of 30 June 2020), you may wonder why is the market giving you such a bargain.No doubt the oil and gas industry is going through a challenging period due to the Covid-19 pandemic as well as the global excess supply. Is the share price at such a level because the company has poor prospects?  Are its assets going to be impaired?If these answers are yes, then it is a value trap.  But if it is not, then it is a bargainJoin me in a 2-parts series as I present my rationale why Petron Malaysia is not a value trap.I will show that it still has a good future and that its assets are not going to be impaired.  Its intrinsic value is still intact. 

Baby steps in assessing Permanent Loss of Capital

Case Notes 04: This is a post about how I compared the risk of investing in two companies from a permanent loss of capital perspective using a risk management framework. In investing, there are 2 schools of thoughts about riskThe volatility school that view risk as varianceThe permanent loss of capital school that view risk as a permanent reduction of the amount invested
The volatility school has strong academic credentials.  This branch of finance theory has developed to a stage where you can numerically bring risk into the valuation process.  But all the discussions on risk as permanent loss of capital are qualitative.If you are a beginner in investing following the permanent loss of capital school, how can you manage risk? SpecificallyHow to compare risks between two companies?How to methodically bring the permanent loss of capital into the investment process?
This can be achieved through a risk management approach comprising:Identifying the possible causes that can lead to a permanen…

Is CSC Steel a Value Trap? (Part 2 of 2)

Case Study 04-2:  This post focuses on the intrinsic valuation of CSC Steel. It is a continuation of the fundamental analysis carried out in Part 1. 
Steel is a commodity.
As a commodity company, CSC Steel sells its products at the prevailing international market prices. CSC Steel’s profitability will be affected by the prices for its raw materials (hot roll coils) and its finished cold roll coils. 
When commodity prices are on the upswing, all companies that produce that commodity benefit. 
During a downturn, even the best companies in the business will see the effects on operations.
In Part 1, I have shown that despite being in the down cycle and with minimum trade protection policies, CSC Steel has managed to be profitable. 
With a price that is below its Graham Net Net (a proxy for its liquidation value), is the market suggesting that there is no upturn in sight? 
In Part 2, I will argue that the CSC Steel has the financial resources, track record, and technology to meet the challenges o…

Is CSC Steel a Value Trap? (Part 1 of 2)

Case Study 04-1:  Company analysis and valuation of CSC Steel, a cold roll company listed on Bursa Malaysia. This post focuses on the business fundamentals
CSC Steel Holdings Berhad (CSC Steel) is currently trading at RM 0.835 (as of 1 Sep 2020) per share compared to its Graham Net Net of RM 1.53 per share (as of 30 Jun 2020). 
The Graham Net Net is often considered a proxy for the company’s liquidation value. 
In fact, Ben Graham spent most of his time investing in Net Net companies. 
Why is CSC Steel trading below its liquidation value then? Is the market suggesting that it is not even worth its liquidation value? 
Is this a value trap or a steal? 
A value trap is one side of the value investing coin. The other side is that it is a steal, a hidden gem.
CSC Steel has RM 0.80 cash per share (as of 30 Jun 2020), zero borrowings, and a good operating track record.  Its value is intact.  It is not a value trap.
Join me in a 2-parts post as I lay out my case on why the market is wrong. 
There is d…

Baby Steps into the Investment Universe: Beginners: Part 1 of 3

Fundamentals 04-1: This is a post for those who don't know anything about investing but want to start investing. I frequently come across questions on Quora likeI have $ 100, how do I start investing?I want to learn to invest, but where do I start?These are beginners learning how to invest. We sometimes forget that there is a large investment universe out there. There are different asset class eg stocks, bondsThere are different investing styles eg technical vs fundamentalIt can be confusing for someone without any investing knowledge. How do you start if you want to learn to invest as a beginner?1)  First get an overview of the various aspects of investing eg fundamental vs technical, active vs passive, etc2)  Once you have some basic understanding, chose your path.  This will depend on your personality, the amount of time you have, your educational background, etc 3)  Thereafter you proceed with a more in-depth study of the chosen investing path. This article is to help you go th…

UOA – will it continue to create shareholders’ value? (Part 3 of 3)

Case Study 03-3:  Continuation of the analysis and valuation of UOA Group. This post focuses on valuation and risks.  At AUD 0.63 per share (as at 30 Jul 2020) UOA Ltd is trading below its intrinsic value that I estimated to range from AUD 1.06 per share to AUD 2.20 per share.  At the current price, there is an ample margin of safety.With most of its activities in Malaysia, is the market saying the there is no future for the Group in the country?UOA has shareholders in Australia, Singapore and Malaysia.  Are all the 3 markets behaving like lemmings or are there wisdom in the crowd? Join me in the 3-parts post as I lay out my case on why this time it is not the wisdom of the crowd.Part 1, published on 2 Aug, showed how the Group got to where it is today. Part 2 published on 16 Aug focused on the future and the performance of top management. Part 3 presented here will cover valuation and risk mitigation. I will show you that there is definitely mispricing.  Hence an investment opportunit…

UOA Ltd – it is a bargain or value trap? (Part 2 of 3)

Case Study 03-2:  Continuation of the analysis and valuation of UOA Group. This post focuses on the prospects of the Group and the performance of top management. Value traps and bargains are opposite sides of the value investing coin.  Which side of the coin you are on depends on the company analysis. UOA Ltd is currently trading at AUD 0.63 (as of 30 Jul 2020)  per share compared to its Book Value of AUD 1.06 (based on 31 Dec 2019) per share.Is this a bargain or a value trap?This is a property group where the cash, land and buildings accounted for about 88% of the total assets in the books. Surely the market is not expecting these assets to be impaired. We all know that the property sector is cyclical and we are experiencing a long trough of the cycle. But strong property companies like UOA Group can withstand the down period of the cycle. Join me in the 3-parts series as I lay out my case on why the market is wrong.  Part 1, published on 2 Aug, showed how the Group got to where it is…

In Malaysia, which has better returns; Stock market or Property?

Case Notes 03:  Comparing the returns from investing in residential properties in Malaysia with those from investing in Bursa Malaysia
We are always looking for better assets to invest in.  One frequent question is which is a better investment - property or the stock market.
In researching the web to find the answer, I have found that the responses generally fall into 2 categories Analyses that give the pros and cons of each type. Those that focus on the comparative returns between stocks and property
Furthermore, the answers will also differ depending on the type of investors A layman may be interested to compare residential properties with the stock marketAn institutional investor is more likely to compare the stock market with commercial properties. 
In this post, I will take the view of the layman.  I will compare the returns from the Malaysia stock market with those from residential properties.
What have I found out?
For Malaysia, the return analyses suggest that if you don’t have a 30 y…

Is UOA Ltd a Value Trap? (Part 1 of 3)

Case Study 03-1:  An analysis and valuation of UOA Ltd. This post focuses on the business analysis part.

UOA Ltd is currently trading at AUD 0.63 (as of 30 Jul 2020) per share compared to its NTA of AUD 1.06 (based on 31 Dec 2019). 
The UOA Group has significant assets tied up in properties.  Is the market suggesting that these are going to be impaired?
It this a value trap or is there a buying opportunity?
The Group also has a track record of compounding its shareholders’ value at 18% per annum over the past decade. 
Is the market ignoring these and giving you a fantastic buying opportunity? 
Join me in the 3-parts analysis as I lay out my case on why the market is wrong.  This is not a value trap.  
There is definitely an investment opportunity given the mispricing.  Does it mean that you should go and buy it? Read my Disclaimer.
Part 1 of 3 is presented here
Part 2 of 3 was published on 16 Aug 2020. 
Part 3 of 3 was published on 30 Aug 2020. 

Baby steps into the investment universe - Risks; Part 3 of 3

Fundamentals 04-3: Learn how to mitigate against risk. There is also a selected URL of free resources for self-learning at the Advanced level and about Risk.  Revision date: 12 August 2020
In Part 2 of 3, I provided the steps to develop your skills in analyzing companies and valuing them. 
But learning to invest is more than those because things do not always turn out the way you expect. You can even lose money. Bad things do happen.
This is risk.  
Charlie Munger has said that all investment evaluation should begin by measuring risk. 
Learning how to manage risk has to be part and parcel of learning how to invest.
But bad things happened not only because of poor skills or even bad luck. It can also be due to your behavior.
In learning how to manage risk, you should also learn about how your behavior can affect risk. In this Part, we will cover the risk and behavioral investing part of the ‘How to invest”.  There is also a list of resources for the Advanced level, risk, and behavioral investi…

Is Asia File a Value Trap? (Part 2 of 2)

Case Study 02-2:  Valuation and risk assessment of Asia File to show why it is not a value trap.   Revision date: 2 Aug 2020
The value of a company is more than just its NTA.  It has customer relationships, a brand name (ABBA in the case of Asia File) and manufacturing secrets.
With a market price below its NTA, does it mean then that Asia File is grossly mispriced?
If it is just the market over-reacting to the current economic climate, there could be an investment opportunity.
However, if the Group is facing some secular headwind that is going to disrupt its business like what happened to the newspaper and taxi sectors in Malaysia, then it is not an investment opportunity.
Which is it?
In Part 1, I have shared Asia File's track record and showed that there is no imminent disruption due to digital technology.  
But digital disruption is coming and the question is whether Asia File is using the time to reinvent itself. 
In Part 2, I will argue that the Group has the financial resources and…

Are these outstanding Bursa stock tips - what to buy?

Stock Tips.  This post is about "How to cut down your investing time, look here".   It is a quick guide to all the case studies in the blog so that you make an informed decision whether to invest in the companies featured.   Revision date: 18 Oct 2020
What to invest in? What to buy?
We are all looking for investing tips. It is a short-cut to getting ideas of what to invest without having to do much work.
The reality is that those asking for stock tips are assuming that it would enable them to make money.
For this to be true, you have to understand the basis of the tips What was considered in arriving at the recommendation?How was the value derived?Did it factor in any risk?
As a prelude to my stop tips, I compiled several infographics that answered these questions.
At the same time, from a risk mitigation perspective, the market price of the stocks should be trading at some discount to the intrinsic values. 
While all value investors agree that companies have intrinsic values, we al…

Baby steps into the investment universe - Analytical; Part 2 of 3

Fundamentals 04-2: Step by step guide as well as selected URL of free resources to start you off in learning to be a successful value investor.   Revision date: 12 August 2020
I actually learned to invest by reading online materials, listening to podcasts and watching videos, all available free online. I seldom buy books although I have read many that I have downloaded.
That was more than 15 years ago.  Today there are vastly more resources available online so that it should be easier to learn from online resources.
Is this correct?  Not really because unless you learn to focus, you are likely to be overwhelmed. 
Let me guide you on how to successfully learn to invest from freely available online resources. 
There are several dimensions to investing Technical vs fundamental Stock picking/active vs passiveQuant or purely quantitative vs traditionalStocks vs other assets This post is about traditional stock-picking using fundamentals.
You are here to learn how to be a value investor, to be able…

Is Asia File a Value Trap? (Part 1 of 2)

Case Study 02-1: An analysis of Asia File's performance and business model to show why it is not a value trap.   Revision date: 12 Aug 2020
Asia File is currently trading at RM 1.85 (as of 1 July 2020) per share compared to its NTA of RM 3.06 (based on 31 Mac 2020) per share. 
Is this a value trap?  
As a Group in the “brick and mortar” stationery business, you may wonder whether the market is pricing the Group because of: The current economic situation, ORPoor prospects in the digital economy. We have seen many traditional industries such as newspapers and taxis being disrupted by digital technology.  Many would agree that the stationery industry is a candidate for disruption. 
But I would argue that it is premature to link the potential disruption to Asia File's current share price ie there is a market mispricing.
Join me in a 2-parts post as I lay out my case on why Asia File's value is still going to be intact and even grow in the near future.   
It is not a value trap as the …

An Effective Way to Screen for Value Traps

Case Notes 02: Value trap and other Pointers from Ekson's case study.  Revision date: 20 Sep 2020
Can you screen for value traps?
First thing first.  
If you have not read the Eskons case study (Part 1 and 2), I suggest that you do so in order to maximize the value from this post.  
Investopedia defined a value trap as
“… investment that appears to be cheaply priced because it has been trading at low valuation metrics…The danger of a value trap presents itself when the stock continues to languish or drop further after an investor buys into the company.”
Value trap is a common search for phrase as the Google Trend report below shows.

The chart indicates that there is some interest in value traps over the past 5 years.  It is not surprising to note that during the current pandemic, there has been a slight increase in interest in value traps. 
You would have thought with the sustained interest, there would be a common understanding of what the phrase meant.
However, a survey of the top 100 si…

Is Eksons a value trap? (Part 2 of 2)

Case Study 01-2: Valuation and Risk Assessment of the Group
Eksons is cheap with a market price of RM 0.57 per share on 1st June 2020 compared to its Graham Net-Net value (a proxy for liquidation value) of RM 2.28 per share based on its Balance Sheet at 31st Dec 2019. 
But how can you tell that it is not a value trap?
Many will say that for Eksons to be a value trap either one of the following must happen: The Group is not able to turnaround the Timber segment and as such the market will continue to view it negatively.The cash and securities are wasted away causing a substantial decline in its Asset-based value. Is this the correct way to assess a value trap?
By the end of Part 1 I hoped that you have got a good picture of what Eksons do, the problems it faced and its outlook.  
In Part 2, I will complete my case on why Eksons is not a value trap. 
Now as to whether you should go and buy Eksons - see my Disclaimer.

Contents Did Top Management Seize Opportunities?Is there an Awesome Buying Oppor…

Can we learn anything from investment case studies?

Case Notes 01: Pointers from Ekson Case Study 01-1 and Case Study tips.   This post has been updated to cover what you need to learn in the context of value investing and the role of case studies. Revision date: 18 Oct 2020
If you have come to this blog hoping to get weekly tips on which stocks to buy – sorry, you have the wrong blog.
OK, the case studies do provide you with a pretty good idea of whether the featured companies should be high in your buying list.
But I hope that is not the main reason you are here because, with one case study per month, I will probably be featuring only 12 companies per year. What can you get from this blog? If you are new to investing, I hope to shorten your learning time by helping you develop the 3 skills required to be a successful value investorHow to analyze companiesHow to value them How to mitigate riskIf you are an experienced investor, I hope to provide insights for the featured companies.
To help you get the most value from the blog I have structu…

Is Eksons a value trap? (Part 1 of 2)

Case Study 01-1: A fundamental analysis of the Group
What is a value trap? It is an investment that is trading at a low price relative to its value that while appearing to be cheap, is misleading. 
With a market price of RM 0.57 per share on 1st June 2020 and with cash and marketable securities of RM 1.27 per share (based on the Balance Sheet on 31st Dec 2019), Eksons looks like a bargain. 
But is there a catalyst for the price to go up? Or will there be some impending impairment that will wipe out a significant portion of its value? In other words, is Ekson a value trap? 
In this 2-parter I will lay out my case why Eksons is not a value trap.  
Now as to whether you should go and buy Eksons - see my Disclaimer.
I present Part 1 here while  Part 2 was published on 21 June 2020. 

Contents Is there Anything Special about the Group's Expertise?Is there Concern about how it Uses its Funds? Is the Current Performance Outstanding?Tracing the Group's Rich and Unique HistoryWill the Timber s…

How To Mitigate Against Risks When Value Investing

Fundamentals 03:  Risks differ depending on the type of assets and investment style.  This post looks at risk and risk mitigation from the perspective of a stock-picking value investor.  Revision date: 22 Aug 2020
When you invest in equities, the goal is of course to get a better return compared to keeping monies in fixed deposits. 
Unfortunately, the returns from equity investment are not guaranteed.  There will be times when you will make less than what you can from fixed deposits. 
Worst still there will be times when you lose all your investments. The challenge is how to mitigate against them.
There are 2 schools of thought when it comes to risks Those that treat risk as some form of varianceThose that consider risk as permanent loss of capital
This post is about how to mitigate against permanent loss of capital. This is because I look at investments from a long-term perspective. Any variance is a paper loss or gains that I do not worry about.
BTW, this is not some textbook treatise. Rat…

The Basics Of Valuing A Company

Fundamentals 02: A framework for analyzing and valuing companies.   Revision date: 19 Aug 2020

Everyone loves a bargain. If you are offered a price for something you want that is at a significant discount to what it is worth, I am sure you will be thrilled. 
This is the heart of investing – to buy an equity stake in a company at a price that is at a discount to its value. The question then boils down to how to determine what the company is worth.

There is no one answer to what a company is worth. You have to triangulate from several angles. Yet you want to keep it simple so that you do not lose the forest from the trees.

Big picture. Simple yet insightful. Come from several perspectives.

To do all of these you need a framework. I have one that came from many trials and tribulations.
Contents How I approach valuationGetting a sense of the company's performance from the valuation resultsAnalyzing Asset ValuesAnalyzing Earnings ValueWhat do I assume in my valuation?Pulling it all together

An Introduction to Value Investing - confronting value traps

Fundamentals 01: Originally published under "An Introduction to Investing in Listed Companies".  Cover issues to consider when investing.  Updated to include notes on how to analyze companies and other value investing tips. Revision date: 18 Oct 2020

If you want to invest in listed companies from a value investing perspective, but do not have the time or knowledge to analyze and value the companies, join me as I share my analysis and valuation of such companies. I hope to short cut your learning journey. 
As a value investor, you would be investing when the price is at a significant discount to the intrinsic value. The question then is whether your assessment of intrinsic value is accurate. If your valuation is wrong, then the stock is really cheap for a reason and you have a value trap.But if your assessment of intrinsic value is correct, then you have a bargain.
From the above perspective, value traps and bargains are two sides of the value investing coin.
More importantly, val…


Fundamentals 00: Definition of key terms used in the blog

While you don't need to be an accountant to understand my blog, there are some terms that I use throughout my analysis that are "technical jargon". Many terms come from different disciplines and may not be familiar even among accountants. That is why I have described them here.

As a person with a quantitative analysis background, I am very comfortable working with numbers. This has proven to be a blessing in my investing journey as I don't' get hung up on the numbers but instead see them as part of a company's story.

Along this line, I use many indicators and metrics that are computed based on information extracted from the company's' financial statements. The list below also provides an overview of the formula behind the various indicators and metrics.

This list is not meant to be exhaustive. I don't want to repeat what is readily available online so I have tried to keep the list short. Howe…