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Showing posts from 2020

Determining the best time to buy your house

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Case Notes 06:  When is the best time to buy your house in order to get the best capital gain? This article looked at the historical evidence in Malaysia and found that if you had bought a house a year after an economic downturn, you will get the best capital gain. For those who are planning to buy properties in Malaysia 2021, “… industry experts predict that it’s going to be a buyers’ market for the next few years so don’t pass up this advantage to get a better deal…”  iproperty.com For many buying a live-in property, one of the considerations is whether the property will achieve a good capital gain in the future. There are of course many factors that affect the capital gain, from location to the economic conditions.  But I would argue that historically in Malaysia, the year the property was bought makes a significant difference to the capital gain.  To illustrate this, I analyzed the capital gain over several 20 years periods for several house types in 4 regions in Malaysia. The

Dayang - is there a buying opportunity? (Part 2 of 2)

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Value Investing Case Study 07-2:  This is the second part of the 2-parter series on the fundamental analysis and valuation of Dayang Enterprise Holdings Bhd.  This post focuses on management performance, valuation, and risks.  To a value investor, a value trap or a buying opportunity are opposite sides of the value investing coin being tossed up. Which side the coin lands is actually a question of valuation.  Dayang Enterprise Holdings Berhad (DEHB) is currently trading at RM 1.24 per share (as of 1 Dec 2020) compared to its book value of RM 1.42 per share (as of 30 Sep 2020).  You may think that it has enough margin of safety from the book value and hence this would be a buying opportunity.  But this is true only if there is no potential impairment.  After all, the DEHC Group recognized some impairment in 2017 due to low vessel utilization.   Given the current Covid-19 situation and the global oil & gas excess capacity, will there be impairment in the immediate future? But yo

Is Dayang a Value Trap? (Part 1 of 2)

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Value Investing Case Study 07-1:  This 2-parter is on the fundamental analysis and valuation of Dayang Enterprise Holdings Bhd.  This post focus on company analysis.  Dayang Enterprise Holdings Berhad (DEHB) is currently trading at RM 1.24 per share (as of 1 Dec 2020) compared to its book value of RM 1.42 per share (as of 30 Sep 2020).  It was trading at RM 2.51 per share as of the end of 2019.  Looking at the current price, it is cheap.  Is this a bargain or a value trap?   You should not look at “cheapness” from the price perspective.  Comparing the current price with historical highs could be looking at how market sentiments have changed. You have to look at whether the business fundamentals and hence its intrinsic value have changed. There have been changes to the fundamentals since the end of last year due to Covid-19 and the excess supply in the global oil & gas market.   Yet, you cannot conclude that it is a bargain or value trap until you have assessed how these change

Baby steps in Asset Allocation for a Value Investor

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Fundamentals 05:  Basics on how to allocate your net worth to several asset classes from a value investor's perspective. The article was first published on 29 Nov 2020.  I have since updated it so that there is a clear “how-to” section as part of section 1.  Revision date: 14 Feb 2021 "You should have a strategic asset allocation mix that assumes that you don't know what the future is going to hold."  Ray Dalio   You invest your savings to protect the purchasing power from being eroded by inflation. You grow your wealth at the same time. If you know which assets will give the best return, you would be an idiot not to put all the savings into this one asset. In reality, you do not know how the future will turn out so you spread your savings into several asset classes.  You hope that if one does badly, the others will do well enough to more than offset the bad performance. This is asset allocation.   There are two goals in asset allocation: How to achieve returns u

Is White Horse a Value Trap? (Part 2 of 2)

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Value Investing Case Study 06-2:  This 2-parter is on the fundamental analysis and valuation of White Horse Berhad.  Part 2 here focuses on valuation and risks White Horse Bhd (White Horse or the Group) is cheap with a market price of RM 0.60 per share (as of 2 Nov 2020) compared to its Book Value of RM 2.63 per share (as of 30 Jun 2020) But how can you tell that it is not a value trap? Many will say that the Group has made losses for the past 2 years and the current year is likely to be another loss-making one. There are also those who will say that the share price has declined from its 5-years peak of RM 2.18 and is likely to remain low due to the projected losses. I would contend that comparing the current price with historical prices is not the correct way to assess a value trap.  Any comparison should be made with intrinsic value. Join me in Part 2 of this series as I present my valuation of White Horse and argue why it is not a value trap.  Now as to whether you should go an

The Basics Of Valuation - Picking out Value Traps

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Fundamentals 02: A framework for analyzing and valuing companies.   This post was originally published on 28 May as "The Basics of Valuing A Company".  This has been updated to include among others special situations in valuation.  Revision date: 15 Nov 2020 "Price is what you pay, value is what you get" Warren Buffett 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 value 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. At the same time. you have to be wary of value traps. How do you tell what is cheap for a reason (a value trap) vs what is undervalued (a bargain)?  Valuation is the key to picking out value traps. There is no one answer to what a company is worth. You have to triangulate from several angles. Yet

Is White Horse a Value Trap? (Part 1 of 2)

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Value Investing Case Study 06-1:  This 2-parter is on the fundamental analysis and valuation of White Horse Berhad.  Part 1 here focuses on the company analysis White Horse Berhad (White Horse or the Group) is the leading tile manufacturer in Malaysia that is currently trading at RM 0.60 per share (as of 2 Nov 2020). This is much lower than its Graham Net Net price of RM 0.76 per share (as of 30 Jun 2020). The Graham Net Net is often taken as a proxy for the liquidation value.   Even if White Horse is liquidated at RM 0.76 per share, there are still the fixed assets of RM 1.87 per share (as of 30 Jun 2020) available for the shareholders. Is the market suggesting that all the fixed assets are worthless?   White Horse is definitely trading at a low price relative to its valuation.  Is this a value trap? It is only a value trap if the valuation is wrong. In this 2-parter I will lay out my case why I think White Horse is not a value trap.  I present Part 1 here while Part 2 was publi

Digital marketing - Did Malaysian Property Developers seize the opportunities?

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Case Notes 05:  This article is about using website performance as a proxy in assessing the extent to which Malaysian property developers have embraced digital marketing.  Many Malaysian property developers have turned to digital marketing because of Covid-19. “Digital marketing is the use of the internet, mobile devices, social media, search engines to reach consumers.” Investopedia The centrepiece of all digital marketing activities is the company’s website.  “Your website is the key to a successful digital marketing strategy because all other digital marketing elements direct guests to your website." Digital Marketing Skill Institute There are many ways to assess how far companies have embraced digital marketing.  Given its central role, the first step is to look at companies’ website performance.   One way to assess this is to compare the website domain score and organic traffic.  As an investor, you want to know how far Bursa property companies have adopted digital marke

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

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Value Investing Case Study 05-2:  Investment thesis of Petron Malaysia. This post focuses on top management performance, risks, and valuation.    Petroleum products are commodities. To win in this environment, Petron Malaysia has spent considerable efforts to  Improve its refining operations,  Expand its distribution and logistics infrastructure,  Expand its service station network, Establish its Petron brand. 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 the market is not recognizing these efforts. Has the market overswung on its way down or are there management issues and other risks that the market has inferred into the price?  In Part 1 , I have shown that despite the Malaysian economic environment and the excess capacity in the global oil market, Petron Malaysia has managed to grow its physical sales volume.  In Part 2, I will argue that Petron Malaysia has the financial resources and track record for lo

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

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Value Investing 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 bargain Join 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 intrin

Baby steps in assessing Permanent Loss of Capital

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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 risk The volatility school that view risk as variance The 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? Specifically How 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

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

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Value Investing 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 t

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

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Value Investing 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 ma

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

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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 like I 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, bonds There are different investing styles eg technical vs fundamental It 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, etc 2)  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

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

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Value Investing 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. 

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

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Value Investing 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 ho

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

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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 market An 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’

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

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Value Investing 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

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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 behav

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

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Value Investing 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 ha

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

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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 passive Quant or purely quantitative vs traditional Stocks vs other assets This post is about traditional stock-picking using fundamentals. You are here to learn how to be a value investo

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

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Value Investing 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, OR Poor 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

An Effective Way to Screen for Value Traps

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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