- China slowing down
- weaker British pound
David Stevenson, Associate editor, MoneyWeek
- India
- junior gold stocks
- silver
John Stepek, Editor,MoneyWeek
January 31, 2012
January 21, 2012
market view
- move from emerging market currencies to dollars
- keep in Indian currencies if you must
- buy gold
Merryn Somerset Webb, Editor-in-chief, MoneyWeek
- oil prices to fall
- Europe and Japan is looking cheap
- short AUD
John Stepek, Editor, MoneyWeek
- gold price $1900 end of 2012, or 2013
Dominic Frisby
2012 themes:
attractive - treasury bonds, quality dividend stocks, small luxuries, consumer staples and foods, dollar against euro/aud/canadian, healthcare providers, rental apartments, productivity enhancers, north american energy
unattractive - developed country stocks, home builders, house prices, consumer discretionary, consumer lenders, banks, junks bonds, emerging country bonds, emerging market stocks, commodities price, old tech capital equipments producers
Gary Schilling
- keep in Indian currencies if you must
- buy gold
Merryn Somerset Webb, Editor-in-chief, MoneyWeek
- oil prices to fall
- Europe and Japan is looking cheap
- short AUD
John Stepek, Editor, MoneyWeek
- gold price $1900 end of 2012, or 2013
Dominic Frisby
2012 themes:
attractive - treasury bonds, quality dividend stocks, small luxuries, consumer staples and foods, dollar against euro/aud/canadian, healthcare providers, rental apartments, productivity enhancers, north american energy
unattractive - developed country stocks, home builders, house prices, consumer discretionary, consumer lenders, banks, junks bonds, emerging country bonds, emerging market stocks, commodities price, old tech capital equipments producers
Gary Schilling
December 02, 2011
property investing in Malaysia
Ways to make money from property investment:
- discount from developer
- rental return- completed medium cost apartments; 7-8% pa; poor appreciation; timing not needed; tenant management
- capital appreciation - completed landed homes; poor rental return 3-5%; good appreciation 5-10%; timing important
- commercial properties (shoplots, offices) -rental 6-8% pa; good appreciation 5-10%; location important; for wealthy individuals
- raw land development
- plantation
- orchards/ecofarms
- property development
- buy basic or run-down house - refurbish
- abandoned/haunted house
- auctions
- accessibility being upgraded - OKR, Kesas, Guthrie
- area with new projects
- residential convert to commercial - main roads with conversion potential
- student accomodation - near LRT
- flipping
- bird nest farming
November 15, 2011
DOMINAN
Dominant Enterprise Bhd is involved in the manufacturing and trading of flat laminated and moulded wood products, targeting furniture makers and home fitting manufacturers.
Let's look at some figures for Q1FY12:
ROE and ROR is 12% and 4% respectively on a five year average basis. The ROR is on the low side, unfortunately. For comparison, it is around 12% for Evergreen and Eksons.
Revenue and profit has risen since listing in 2003. Currently, local market accounts for a major part of its revenue. It also exports to Australia, Singapore, Europe, US, Asia and other overseas market. Risks include material cost, oil price and forex risks.
From its annual report 2011: "Our strategy going forward is to identify expansion opportunities in overseas markets and to develop innovative products that cater to consumers’ tastes."
I can't find any analyst covering it, probably because of its low market capitalization.
It is undervalued according to my calculations, so I have been eyeing it for some time. It's liquidity is rather low and price has been on the downtrend since early this year. However it gives a good dividend yield, around 7%. Dividend payout around 30-40% the past few years.
Its price have been consolidating for the past 3 months. If you have bought it at 48c, now you will already have about 10% gain. I noticed it risen on some volume yesterday, so I have initiated a position in it today.
Let's look at some figures for Q1FY12:
- current ratio =1.84
- working capital - LTD = $76m
- debt/equity = 0.05
- LTD/PAT = 0.6
- cash/debt = 0.13
ROE and ROR is 12% and 4% respectively on a five year average basis. The ROR is on the low side, unfortunately. For comparison, it is around 12% for Evergreen and Eksons.
Revenue and profit has risen since listing in 2003. Currently, local market accounts for a major part of its revenue. It also exports to Australia, Singapore, Europe, US, Asia and other overseas market. Risks include material cost, oil price and forex risks.
From its annual report 2011: "Our strategy going forward is to identify expansion opportunities in overseas markets and to develop innovative products that cater to consumers’ tastes."
I can't find any analyst covering it, probably because of its low market capitalization.
It is undervalued according to my calculations, so I have been eyeing it for some time. It's liquidity is rather low and price has been on the downtrend since early this year. However it gives a good dividend yield, around 7%. Dividend payout around 30-40% the past few years.
Its price have been consolidating for the past 3 months. If you have bought it at 48c, now you will already have about 10% gain. I noticed it risen on some volume yesterday, so I have initiated a position in it today.
October 09, 2011
index investing using SMA
Let's consider 3 methods of investing based on market indices.
We use the 3 years' chart as of Oct 9, 2011 (approximate values used). 14 market indices are used.
A - buy an index when its 30 week simple moving average (SMA) crosses above the 50 week SMA and sell the index when the opposite occurs
B - buy an index when its 50 day SMA crosses above the 200 day SMA and sell the index when the opposite occurs
C - buy an index when its 50 day SMA crosses above the 200 day SMA and sell the index when the opposite occurs but with the 200d SMA turning down
Our benchmark is D, the three year return as of Oct 2011 (approximate).
We see that method B & C have the superior performance compared to A (in green). However both underperform the benchmark for 10 indices (in yellow). This is especially for the emerging markets.
However if we took 4 years instead of 3 years, the results might have been very different. Each method would probably have outperformed the benchmark since they would have avoided the bear market of 2008.
Using method B & C would yield about 10% per annum (including US) over a 3 year period. 4 markets (ASX, TW, Hang Seng and Shanghai) return less than 6% per year!
Note that if we managed to buy at the exact low and sell at the exact high (our holy grail!) would have return at least 30% per year for most of the markets.
Someone (I forgot who) recommended selling stocks (distribute) when the 30w SMA is below the 50w SMA while buying stocks (accumulate) when the opposite occurs. Based on the results above, I think using the faster moving 50d and 200d SMA would perform slightly better.
However I would also think that selling and buying gradually in such a manner would risk being equivalent to selling and then buying back at the same levels (e.g. sell at 1000, 800, 600 then buy at 600, 800 and 1000.) especially if the index moved sideways in the longer term.
Better of course would be sell mostly in the beginning of the bear and buy mostly at the start of the bull (based on the SMA). The risk to this would be too short bull and bear duration or sideways market in which case the commission will be costly.
We use the 3 years' chart as of Oct 9, 2011 (approximate values used). 14 market indices are used.
A - buy an index when its 30 week simple moving average (SMA) crosses above the 50 week SMA and sell the index when the opposite occurs
B - buy an index when its 50 day SMA crosses above the 200 day SMA and sell the index when the opposite occurs
C - buy an index when its 50 day SMA crosses above the 200 day SMA and sell the index when the opposite occurs but with the 200d SMA turning down
Our benchmark is D, the three year return as of Oct 2011 (approximate).
We see that method B & C have the superior performance compared to A (in green). However both underperform the benchmark for 10 indices (in yellow). This is especially for the emerging markets.
However if we took 4 years instead of 3 years, the results might have been very different. Each method would probably have outperformed the benchmark since they would have avoided the bear market of 2008.
Using method B & C would yield about 10% per annum (including US) over a 3 year period. 4 markets (ASX, TW, Hang Seng and Shanghai) return less than 6% per year!
Note that if we managed to buy at the exact low and sell at the exact high (our holy grail!) would have return at least 30% per year for most of the markets.
Someone (I forgot who) recommended selling stocks (distribute) when the 30w SMA is below the 50w SMA while buying stocks (accumulate) when the opposite occurs. Based on the results above, I think using the faster moving 50d and 200d SMA would perform slightly better.
However I would also think that selling and buying gradually in such a manner would risk being equivalent to selling and then buying back at the same levels (e.g. sell at 1000, 800, 600 then buy at 600, 800 and 1000.) especially if the index moved sideways in the longer term.
Better of course would be sell mostly in the beginning of the bear and buy mostly at the start of the bull (based on the SMA). The risk to this would be too short bull and bear duration or sideways market in which case the commission will be costly.
October 05, 2011
ICAP Investor Day 2011
icapital.biz held the Investor Day 2011 in conjunction with its AGM at the KL Convention Center. I share some takeways from the talks from the captains of the industry.
(Too bad I didn't have my DSLR with me, otherwise I can post some pictures. Anyone care to donate their unwanted handphone camera to me?)
Ex-CEO of F&N Dato Tan Ang Meng:
- the 4 largest beverage manufacturers in Malaysia now are F&N, Permanis, Coca-Cola and Yeo Hiap Seng (in descending order.)
- carbonated drinks margin is highest at 15% compared to others (Asian drinks, juice) but its market share is going down especially in developed countries (for health awareness reasons) but it still has growth potential in developing countries like China and India
- Japan (Asahi, Suntory, Sapporo, Kirin) is expanding overseas due to their demographics (older population lesser consumption)
- status quo will remain for the moment for Permanis before Asahi starts introducing new products
F&N 100 plus is a large contributor to its revenue while its condensed milk sales are resilient (thanks to teh tarik stalls)
- values F&N at $7.3b (based on Permanis acquisition) but he thinks Permanis was overvalued while F&N is slightly undervalued due to the pessimism over losing its Coke licensing
- Coca-Cola (just went its own way here) is seen as a threat but will be struggling in the next few years, which is an opportunity for F&N to capitalize on with its large distribution network
- YHS is a good takeover target
CFO of Petronas Dagangan Rozaini Musa:
- Petdag is #1 in the commercial (supplying to airplanes, industries) and LPG (cooking gas)segment and #2 in retail (petrol stations, after Shell) and lubricants.
- retail still has room to expand while there are plans to expand abroad to Thailand and Indonesia
starting to sell LPG through petrol stations
CEO of Malaysia Smelting Corporation Dato Seri Mohd Ajib Anuar ("The tin man"):
- MSC is the 2nd largest tin metal supplier in the world
- tin is mostly used in electronics at the moment (for soldering) besides tin plates for packaging but has also many other uses and is non toxic
- price volatility is due to its securatization leading to speculative activities
- for smeltering, earnings are on a cost plus basis while for mining it is correlated to the price of tin itself
- US used to keep a large stockpile but now not anymore
- MSC losses in 2010 was due to divestment of its non-tin assets causing impairment
- MSC now intends to focus on tin only, thus earnings will be more stable going forward and plans to develop new mines abroad
As for Tan Teng Boo's view:
- he is bearish on 2H2011 since early part of the year
- although there may be another global recession, which will be worst than in 2008, global economic depression is unlikely due to the growth of emerging markets (none in 1930s)
- problem is worst now compared to 2008 because governments of developed nations have run out of policy tools (interest rates are near 0%) while developing nations are suffering from high inflation
- Malaysian economic outlook in the long term depends a lot on whether the promised economic reforms will take place
Padini held a fashion show with many pretty, slim models. If I could bring home that tall, long haired Eastern European (?) girl, now that would be a fantastic takeway :P
(Too bad I didn't have my DSLR with me, otherwise I can post some pictures. Anyone care to donate their unwanted handphone camera to me?)
Ex-CEO of F&N Dato Tan Ang Meng:
- the 4 largest beverage manufacturers in Malaysia now are F&N, Permanis, Coca-Cola and Yeo Hiap Seng (in descending order.)
- carbonated drinks margin is highest at 15% compared to others (Asian drinks, juice) but its market share is going down especially in developed countries (for health awareness reasons) but it still has growth potential in developing countries like China and India
- Japan (Asahi, Suntory, Sapporo, Kirin) is expanding overseas due to their demographics (older population lesser consumption)
- status quo will remain for the moment for Permanis before Asahi starts introducing new products
F&N 100 plus is a large contributor to its revenue while its condensed milk sales are resilient (thanks to teh tarik stalls)
- values F&N at $7.3b (based on Permanis acquisition) but he thinks Permanis was overvalued while F&N is slightly undervalued due to the pessimism over losing its Coke licensing
- Coca-Cola (just went its own way here) is seen as a threat but will be struggling in the next few years, which is an opportunity for F&N to capitalize on with its large distribution network
- YHS is a good takeover target
CFO of Petronas Dagangan Rozaini Musa:
- Petdag is #1 in the commercial (supplying to airplanes, industries) and LPG (cooking gas)segment and #2 in retail (petrol stations, after Shell) and lubricants.
- retail still has room to expand while there are plans to expand abroad to Thailand and Indonesia
starting to sell LPG through petrol stations
CEO of Malaysia Smelting Corporation Dato Seri Mohd Ajib Anuar ("The tin man"):
- MSC is the 2nd largest tin metal supplier in the world
- tin is mostly used in electronics at the moment (for soldering) besides tin plates for packaging but has also many other uses and is non toxic
- price volatility is due to its securatization leading to speculative activities
- for smeltering, earnings are on a cost plus basis while for mining it is correlated to the price of tin itself
- US used to keep a large stockpile but now not anymore
- MSC losses in 2010 was due to divestment of its non-tin assets causing impairment
- MSC now intends to focus on tin only, thus earnings will be more stable going forward and plans to develop new mines abroad
As for Tan Teng Boo's view:
- he is bearish on 2H2011 since early part of the year
- although there may be another global recession, which will be worst than in 2008, global economic depression is unlikely due to the growth of emerging markets (none in 1930s)
- problem is worst now compared to 2008 because governments of developed nations have run out of policy tools (interest rates are near 0%) while developing nations are suffering from high inflation
- Malaysian economic outlook in the long term depends a lot on whether the promised economic reforms will take place
Padini held a fashion show with many pretty, slim models. If I could bring home that tall, long haired Eastern European (?) girl, now that would be a fantastic takeway :P
October 02, 2011
ICAP AGM 2011
icapital.biz held its FY2011 AGM yesterday at the KL Convention Center. icapital.biz is a closed end fund of Malaysian stocks managed by Tan Teng Boo.
This year's main issue during the AGM was whether buy back shares of the company due to its persistent undervaluation by the market since the global financial crisis (it has been trading at a discount of around 20% to its nett asset value.) As Warren Buffett has announced that Berkshire Hathaway intends to buy back shares for the first time in its history, icap has also been evaluating this.
The investors were given a presentation of the pros and cons of a buyback. From their analysis, a share buyback followed by cancellation of the shares will only have at most a 2% effect of increasing its NAV. In Malaysia, the maximum amount of share buyback is 10% of the shares. A share buyback may temporarily reduce the fund's undervaluation but there is no guarantee that this effect will be long-lasting since the buyback is a one time event. This has been proved by some case studies research in the US.
The other option would be to sell the shares later after the price goes up. This is not good either but I forgot what was their reason (because I did not take notes)... I think it was because this action is unfair to the long term investors in the fund. Maybe it is like giving some of the cash to those who want to opt out of the fund later at the expense of others. Also, the anticipation that the shares will be sold later will depress the price of the fund. To me, it doesn't seem ethical for the fund to do so, as it would penalize those who sold at below NAV either out of desperation or ignorance.
But then, if done at a continued basis, it could serve as a stabilizer to ensure the fund always trades near its NAV. Imagine such a policy being announced, then on the next trading day nobody would sell at below NAV (assuming everybody was well informed). The only sellers are the traders who think the price will go down more. Similarly nobody would sell above NAV except traders. This however may be impractical due to the 10% limit. And maybe it will lead to potential manipulation?
A share buyback will reduce the cash balance of the fund (by about $30m to $85m, my estimate based on its annual report.) That will reduce the ammunition the fund has to buy some cheap undervalued stocks when the opportunity arrives. This is the option preferred by the fund manager.
The fund's analyst (all their analysts sound and look like fresh university graduates) also highlighted the difference between a company and closed end fund share buyback. If a company buys back all its shares, its taking itself private but its business still continues to generate profit for the company. When a closed end fund buys back shares, it is amounting to liquidating itself.
As a comparison, Berkshire has traded at a premium which has reduced over the years until now it is near 1.1x NAV. Warren Buffett recently announced they will buy back shares at below 1.1x NAV. No one seems to be sure of his reasons, perhaps he is just trying to signal his confidence in the US economy.
The other issue, which always crops up, is the request to pay dividends. The manager says a firm no to this as it is against the fund's original objective.
To be noted, local retail investors have been selling the fund (based on the decreasing number of shareholders) but some foreign investor have been buying in the past year. 5 foreign investors are among the top 30 largest shareholders.
Well, whatever action taken it depends on the objective. If you want to cash out, then you would want the fund to buy back so you can sell at close to the NAV (or you hope many new investors will come in so that the discount starts decreasing). If you believe in long term capital appreciation, which is the objective of the fund, then you prefer the fund use its cash to buy more undervalued stocks later (and you buy more of the fund while its at a discount). If you want to wait and see, then you wait for the fund to trade at a premium and then consider selling (but when that happens, you'll probably hesitate, right :P)
This year's main issue during the AGM was whether buy back shares of the company due to its persistent undervaluation by the market since the global financial crisis (it has been trading at a discount of around 20% to its nett asset value.) As Warren Buffett has announced that Berkshire Hathaway intends to buy back shares for the first time in its history, icap has also been evaluating this.
The investors were given a presentation of the pros and cons of a buyback. From their analysis, a share buyback followed by cancellation of the shares will only have at most a 2% effect of increasing its NAV. In Malaysia, the maximum amount of share buyback is 10% of the shares. A share buyback may temporarily reduce the fund's undervaluation but there is no guarantee that this effect will be long-lasting since the buyback is a one time event. This has been proved by some case studies research in the US.
The other option would be to sell the shares later after the price goes up. This is not good either but I forgot what was their reason (because I did not take notes)... I think it was because this action is unfair to the long term investors in the fund. Maybe it is like giving some of the cash to those who want to opt out of the fund later at the expense of others. Also, the anticipation that the shares will be sold later will depress the price of the fund. To me, it doesn't seem ethical for the fund to do so, as it would penalize those who sold at below NAV either out of desperation or ignorance.
But then, if done at a continued basis, it could serve as a stabilizer to ensure the fund always trades near its NAV. Imagine such a policy being announced, then on the next trading day nobody would sell at below NAV (assuming everybody was well informed). The only sellers are the traders who think the price will go down more. Similarly nobody would sell above NAV except traders. This however may be impractical due to the 10% limit. And maybe it will lead to potential manipulation?
A share buyback will reduce the cash balance of the fund (by about $30m to $85m, my estimate based on its annual report.) That will reduce the ammunition the fund has to buy some cheap undervalued stocks when the opportunity arrives. This is the option preferred by the fund manager.
The fund's analyst (all their analysts sound and look like fresh university graduates) also highlighted the difference between a company and closed end fund share buyback. If a company buys back all its shares, its taking itself private but its business still continues to generate profit for the company. When a closed end fund buys back shares, it is amounting to liquidating itself.
As a comparison, Berkshire has traded at a premium which has reduced over the years until now it is near 1.1x NAV. Warren Buffett recently announced they will buy back shares at below 1.1x NAV. No one seems to be sure of his reasons, perhaps he is just trying to signal his confidence in the US economy.
The other issue, which always crops up, is the request to pay dividends. The manager says a firm no to this as it is against the fund's original objective.
To be noted, local retail investors have been selling the fund (based on the decreasing number of shareholders) but some foreign investor have been buying in the past year. 5 foreign investors are among the top 30 largest shareholders.
Well, whatever action taken it depends on the objective. If you want to cash out, then you would want the fund to buy back so you can sell at close to the NAV (or you hope many new investors will come in so that the discount starts decreasing). If you believe in long term capital appreciation, which is the objective of the fund, then you prefer the fund use its cash to buy more undervalued stocks later (and you buy more of the fund while its at a discount). If you want to wait and see, then you wait for the fund to trade at a premium and then consider selling (but when that happens, you'll probably hesitate, right :P)
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