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Saturday, 28 February 2015

How to Access A Company's Fundamental - Lesson from Private Equity Fund Practises:

Dear Members,


Today's article, I would like to share on Private Equity Fund Investment Practices. It is generally not being exposed and shared to the public as it is kept for investment strategies.

Generally, in drilling a Company's Fundamental Health, we are looking at 2 different set of datas:

1. Financial Health Analysis - To know whether the company is in good health or insolvent.

If the company pass the Financial Health Ratios then we only will go to step 2 which is Pricing. Everything that sells in Bursa comes with a Price (price is what you pay, value is what you get):

2. Pricing Analysis - To know the price is cheap or expensive.

For PE Fund requirement before entering an investment, basically we will drill further the Company's Health by looking at ADDITIONAL INFORMATION normally Private Equity Fund House received and not by retailers. Some information structure requested from the PE would be like below:  

Preliminary Information Required by PE Fund House in addition on the Annual Reports/Quarterly Reports:  

1.         Background information of the business and future plans:
a.          Details of future contracts to be obtained / in the process of bidding
b.         Future business plans and business strategy including capital expenditure requirements

2.         Financials:
a.         Management’s projections for minimum the next 3 years including monthly cash flows and expenses
b.         Latest banking facilities obtained from Financial Institutions / in the process of approval 
c.         Top 10 clients/suppliers/vendors for the latest three years with the transaction values and new lists of 
            targeted potential clients

3.         Regulatory matters:
a.         List of all licenses, permits, consents and regulatory approvals required to enable the Group / Company to conduct businesses
b.         List of all patents, trademarks, service marks, copyrights and other form of intellectual property owned by the Company or in the process to be patented/approved.

Look at ITEM NO. 2 : Financials: 

What are the additional information PE House get that retailers don't and that info really makes a difference?
'The next 3 YEARS OF CASH FLOW AND EXPENSES PROJECTION.'

Different no. 1 

All listed entities do have their own 3 years Internal Forecast for their P&L, CASH FLOW and CLIENTS/PROJECTS POTENTIALLY TO BE SECURED and some even do it projection for 5 years. Don't you think with the info guided to them, the PE Fund should have a SUPERIOR RETURN with all the numbers in their hand? So for the retailers who only rely on Quarterly Report, Annual Report and Investor's Briefing keeps on bragging how much they know about the company and their bosses, perhaps you need to think twice before blowing your own trumpet.

How Private Equity Fund Works?

Generally PE Funds will target for 24 Months till 36 Months Investment Period. Rarely it will exit 3 years as they need to conclude the investment return to present their report card to shareholders with the visible earnings. For 3 years of investment, the TARGETED RETURN SHALL BE 30% (IRR 30%), HENCE 36 months of investment shall yield PE Fund a 100% return (assuming monies received from 3 years to be reinvested under FD deposits).

IRR for 3 years = (30% + 30% + 30%) + 2 years FD rate (assuming 1st year and 2nd year return to be parked in FD to enjoy 3.5% interests)= 100%

Different No. 2 

Do take note that PE Funds are the BIGGER BOYS who take HIGHER RISKS in expectant of RETURN OF CAPITAL 30% Per Annum. Next what would PE House do extra to know that the 30% is achievable?

Now we are revealing their Investment Strategies, please be noted you can only read it at Bursa Blue Ocean Group. Base on their 3 years / 5 years historical track record, PE House will use Quantitative Method to Calculate The Probability of The Future Earnings and bench them against the potential company to be invested. PE House will compare their analysis with the potential to be invested Company's own forecast to gauge the Probability of the Future Outcome. Now your question will be, what are the analysis normally they use?

They are few but not exhausted to: Probability Concept, Decision Analysis, Regression, Forecasting Models. I do not want to touch in details as it is more on Quantitative Models and Studies. By the way, those Technical Chart Indicators by using Exponential or Moving Average are all computed using Quantitative Method. It is a method to calculate the Probability of the Model.

Conclusion

Points to Ponder: With the additional 3 Years Projected Numbers and Cash Flow Numbers on hand, they are targeting a 30% per annum (do note that some of their Projects Invested are Flunked). How could you not to use Fundamentals and Business Evaluation when you are investing a particular stock?

A company is listed for their Good Underlying Business Model. No company is listed because the stock are trad-able and to make you rich overnight. When you invest in a stock, you are buying a stake and investing in the growth of the business that you bought! It is not for you to treat it like gambling in Casino.

Thank you.


Regards,

Humble Pie


 




Thursday, 26 February 2015

Sunway 5211 - Upcoming potential windfall of 10% from Sunway Construction IPO


Sunway - Safe stock with upcoming potential 10% gain from Sunway Construction IPO. (dividends and dividend in specie from Sun Con)

2014 EPS Q1 6.03 + Q2 10.59+ Q3 8.34 + Q4 18.12 = 43.08
P/E                    = 3.32 / 43 = 7.7x
NTA                 =3.44 (trading below market price)
Dividend 2014  = 0.11 
Dividend Yield = (0.11/3.32) X 100 = 3.31% 


Sunway Construction targeted IPO - 2Q 2015.
Upcoming Catalyst - 1 SunCon share for free via dividend in specie for every 10 Sunway shares hold.

P/E 7 (excluded the exceptional gain on 4Q 2013 - take out as it is one off) is considerably cheap for a big cap property player. With the 3.3% dividend for 2014, it is higher than the money market interests. With the upcoming IPO, we foresee this price is a comfortable price for accumulation.


Disclaimer and Declaration

The full content of the article is for educational purposes only and should not be used as investment recommendations. We are not responsible for all investment activities conducted by the participants and cannot be held liable for any investment loss. Examples of specific shares may be citied for illustration purposes.

Regards,

Humble Pie



Monday, 23 February 2015

UPDATED ARTICLE 2: Do you know the First Page of KLSE Stocks consist of Penny Stocks/Small Caps?

Dear All,

On 2nd of February, we have shared on the Penny Stocks traded 1st page of KLSE (most active/highest volume). Let's see hows it fairs:
                  
                   2nd Feb    24 Feb  Up/Down    Remark
Asia Bio :   0.245        0.13     (47%)          - Latest 3 Financial Year End (FYE) in RED
DNEX    :   0.325        0.31     (4.6%)        - Latest 2 FYE in RED
DUFU    :   0.405        0.35     (13.6%)       - Latest 3 FYE in RED
Etitech    :  0.065        0.075     15.4%        - Latest 2 FYE in RED
HOVID  :  0.405         0.445      9.8%         - Latest 3 FYE in GREEN (HEALTHY)    
IRIS       :  0.34           0.335    (1.5%)        - Latest 5 FYE in GREEN (NO STRONG CATALYSTS)
KNM      :  0.595        0.69       16%           - Latest 2 FYE in GREEN
PENTA  : 0.495         0.505      (2%)          - Latest FYE in Green, RED the year before 
Takaso   : 0.60           0.50        (16.7%)     - Latest 5 FYE in RED
TMS      : 0.065         0.06        (7.7%)       - Latest 5 FYE in RED

Basically if I trade the counters with LATEST FYE in RED, I will be making profits on Eitiech.

1 profit trade VS Total 6 Trades: 1/6 X 100 = Winning Percentage Ratio is at staggering low of 16.67%

Average Profit/Loss of total 6 FYE RED counters:
[(47%) + (4.6%) + (13.6%) + 15.4% + (16.7%) + (7.7%) ] / 6
= (74.2)/6
= (12.4%) loss in 3 weeks 

If you use the only FYE GREEN counters to trade, perhaps the ratio works differently? 


Disclaimer and Declaration

The full content of the article is for educational purposes only and should not be used as investment recommendations. We are not responsible for all investment activities conducted by the participants and cannot be held liable for any investment loss. Examples of specific shares may be citied for illustration purposes.

Regards,

Humble Pie




Saturday, 21 February 2015

Telecommunications Stocks: Which one to monitor?


2nd Question from our Friend:

Mtouche, M3, XOX, Xinghe : P/E is 0 - I will avoid

Time - I will keep in view/further monitoring

Redtone and OCK - I will avoid

Digi, TM, Axiata and Maxis is more to Dividend Play - P/E is definitely high for Blue Chips, look at their Div Yield as their growth is saturated. My own personal pick Axiata follow by Digi.


Disclaimer and Declaration

The full content of the article is for educational purposes only and should not be used as investment recommendations. We are not responsible for all investment activities conducted by the participants and cannot be held liable for any investment loss. Examples of specific shares may be citied for illustration purposes.

Regards,

Humble Pie



Healthcare Stocks: Pass or Fail the Ratio Test? Question from our friend


Thank you Selena for your question:

Adventa, Biosis MGRC : P/E is 0 - Not recommended

Supermax - P/E below 15, I will Monitor/Consider
Topglove - P/E below 15, I will Monitor/Consider
Kossan  - P/E is high. I will Keep in View
Hartalega - P/E is high. I will Keep in View

Faber, KPJ and IHH - P/E is too high, I will Keep in View

YSP & CCM - Good dividend & Good FA, I will Monitor/Consider
APEX, PETERLABS, Pharma - I will Keep in view (I may consider if quarterly earnings improved and with new catalysts)

Hovid - P/E is high but having catalysts - I May Monitor/Consider.

Disclaimer and Declaration
The full content of the article is for educational purposes only and should not be used as investment recommendations. We are not responsible for all investment activities conducted by the participants and cannot be held liable for any investment loss. Examples of specific shares may be citied for
illustration purposes.
Regards,
Humble Pie

Pesona and Pesona WC - A Mismatch of Pricing

You may read it at humblepie188.blogspot.com

Pesona - RM 0.865
Pesona-WC - RM 0.54
Exercise Price - RM 0.25

I found this Free Warrant proposal seems a bit weird. The cum right price is RM 0.86. On Feb 4th, listing on warrants. Ratio 1:2 (You get 1 Warrant for every 2 shares held). But on Feb 4th, instead of the price adjusted down, it went up from RM 0.86 to RM 0.885. Basically your free money for that day:

RM 0.28 (0.56/2: half the value of warrant - ratio 1:2) + RM 0.025 = RM 0.305.

It is 35.5% gain in a day!

Do not forget this counter run from 3 years low of RM 0.07 to RM 0.865.
Fundamentally we are not comfortable.

IF YOU BUY THE WC with RM 0.54 and add RM 0.25 (exercise price), your cost would be RM 0.79 (and you will end up holding Mother Price worth RM 0.865 - a paper gain of 9.5%!)

Would that be that Big Free Lunch?
From the conversion price, it looks an ideal investment but personally I will give it a pass.



P/S: Feel a bit anxious when I see a so big KAPLA jumping on the street. Perhaps, I do not eat KAPLA that much. =)


Disclaimer and Declaration


The full content of the article is for educational purposes only and should not be used as investment recommendations. We are not responsible for all investment activities conducted by the participants and cannot be held liable for any investment loss. Examples of specific shares may be citied for
illustration purposes.

Regards,

Humble Pie

Friday, 20 February 2015

Berjaya Auto Berhad: 5248 - Banking on upcoming Mazda Models

Dear Friends,

Happy Goat Year to All! From some of the 4Q reports announced lately, we some weaker performances. We still remain CAUTIOUS even tough oil price is stabilizing. We are more stringent on our stock selections.

Berjaya Auto:

Rolling 4Q EPS : 3.88 (Jan 2014) + 5.97 (April 2014) + 6.95 (July 2014) + 7.12 (Oct 2014)
                          : 23.66

* The EPS has been on an uptrend since IPO Listing (from 3.88 to 7.12). If you look at it more closely, BJAuto is introducing Mazda 2 (Jan 2015), Mazda 3 (March 2015), improved version of Mazda 6, CX-5 and CX-3. Looking at this scenario, they should be able to cushion up against the challenging 2015. I believe with weakening yen, the upcoming Jan 2015 Quarterly report should be okay.

Rolling 4 Quarters P/E: 3.45 / 23.66
                                    : 14.6x

With Mazda 2 launched, assuming BJAuto able to maintain EPS 6.95 + 7.12 for the next 2 Quarters (of course with the help of other new models)

Forecast Forwarded P/E: 3.45 (Price)/ 28 EPS
                                      = 12x (acceptable)

Dividends given on 2014: 0.0875
Dividend Yield               : 2.5%  (comparable to money market deposits)

Although this stock might not be a trade able hot stock, nevertheless it is a safe stock. Better be cautious than overly optimistic.

Happy trading!






Monday, 2 February 2015

Prudent Management in Price Speculation - Jobstreet

Received a question on Jobstreet. It is in the KLSE Trading Platform First Page and as well as a penny stock (after ex-dividend 10/12/2014). After the 1st day closing post ex dividend @ 29 cents, it has been GORENG up till 0.48 @ 30/1/2015. Generally Jobstreet is a good company with great management team. 

After that much GORENG ACTIVITIES, announcement came out on 5 to 1 consolidation. Look at how the management announce it:

1st : Proactive Capital Management 
2nd: Institutional Investors tend to consider penny shares as too volatile.
3rd: Higher share price will result in a reduction of speculative activities.

In a nutshell, management would not like to see their company acts like a CASINO for trading basis. Jobstreet is a company without business, only assets worth NTA 0.37. Again, who are the people GORENG this counters from 0.29 till 0.48? Once the management step in to control the speculation, what do you think of the share price on Jobstreet? 

BTW, who again trading the shares and holding shares @ 0.48? 

Note: A company gets listed is due to their underlying business. Money you paid during IPO/accumulate post IPO is buying a fraction of the business at AN AGREED MARKET PRICE.
When you start to trade Penny Stocks without looking at their Financial Health Report, that is where you open up all the risks to yourself.

Please refer ARTICLE ON: 

KLSE Boom/Bust Market Cycle, How to Use Value Investing Approach In An Effective Way!

   

"When market do not talk about the value of their business and keeps on blowing the trumpet for ‘WANG AKAN DATANG’, and Bank Negara started to be cautious, personally you should take note on this. Value Oriented Fund Managers already left the market."

Left the retailers.

Do you know the First Page of KLSE Stocks are consist of Penny Stocks/Small Caps?

Do you notice in KLSE first trading page all are PENNY STOCKS/SMALL CAPS and the most expensive share is worth 60 cents? Basically we do not wish to spoil your trading party, just to highlight what are you buying/trading in KLSE.

Do you know Fund Managers normally do not buy Penny Stocks? Reason being is their earnings is too volatile and difficult to forecast. Prices normally shoot beyond their Fair Value. Generally in their Investment Mandate, there is a clause of no Penny Stocks involved. So who are people who trades Penny Stocks?

Yes: RETAILERS

When the market slows down/correction, the worst hit is Penny Stocks and who gets burned the most? Yes, RETAILERS.

As much as we like to encourage stocks trading, but please do look at your trading portfolio.
Perhaps it maybe a good idea for you to strategize/plan properly for a CHALLENGING 2015.

There is a reason for putting the word RISK in front of REWARD:
Look at the risk first before talking about reward.

''RISK and REWARD"





Latest 3 years in RED



Latest 2 years in RED




Latest 3 years in RED

Latest 2 years in RED




Latest 3 years in GREEN.




5 years in GREEN




Latest 2 years in Green



3 out of 5 years in RED


Latest 5 years in RED



Latest 5 years in RED

Oil Price Up 11% but Fundamental No Change - Cautious View

Oil price up 11% but we do not see any fundamental changed. Stocks is still building up estimated around 2.3m barrels at Oklahoma. We shall maintain our cautious view in market. Do consider avoiding penny stocks without fundamentals support. 

3 Feb Tuesday 

Dow 17,361.04 (+196.09)
Nasdaq 4,676.69 (+25.86)
S&P 2,020.85 (+41.45)
Gold 1,276.20 (-2.3)
Brent oil 55.08 (+2.09)
WTI crude 49.57 (+1.33)

US stocks ended sharply higher on Monday after a late rally driven by hopes for a Greek debt deal & as energy shares bounced with oil prices.

Crude oil prices rebounded in Asia on Tueday ahead of data on US stockpiles expected to set a tone for the market.

*******

FTSE 6,783.55 +33.15
DAX 10,828.01 +133.69

******
HSI 24,484.74 -22.31
Nikkei 17,558.04 -116.35
STI straits times 3,423.35 +32.15
China A50 3,277.59 -86.28

Asian shares skid as China data disappoints (PMI Index fell to 49.8 last month from 50.1 in Dec) according to data. It missed the median estimate of 50.2 in a Bloomberg News survey of analysts and for the first time since Sept 2012 fell below the 50 level that separates growth from contraction.

End-

Happy Thaipusam