Thanks for your sharings esp on Muhibbah.

I think we are on the same track/ tune now.


I also love this stock from FA point of view , contracts of 2.5 billions in hand for a small size company, and many more to come. Good PE and so on.

But a word of cautious is that they have rm 200 m stuck in a project called Asia Petroleum Hub apparently abandoned now. I do not know the latest outcome , and thus unable to update you.

IF they were to write off this amount, of rm 200m, the impact is huge. It could take a couple of years to earn back the losses. IF they could recover back the amount owing to them, Muhibbah does have good prospect.

For the purpose of sharing only.

Do not mean Muhibbah is no good.

Happy Investing.

A broker analysis is attached here

This post has been edited by SKY 1809: Nov 7 2010, 08:29 PM


Attached File(s)
 Muhibbah_100903_RN2Q10.pdf ( 50.22k ) Number of downloads: 20

Doesn't seem convincing to me for no.4
Biggest mistake made by some of the long term value investor.
For the bold statement,Probably it is the best strategy who don't know the intrinsic value.
I prefer to buy the business doesn't pay any dividend if they are excellent management team and meet the conditions stated by you from (1) to (3). Unless they don't know how to utilise extra equity and have to return it to shareholder.

My way of investing is like buying a stock that no different from buying a private business.For me, As long as it is a good business that can sustainable for some period of years, a great management think the business like an owner...keeping the retained earning would be much much more favourable rather than pay it out to shareholder.

Just my 2 cents

This post has been edited by foofoosasa: Nov 7 2010, 07:12 PM

haha good point, but ive used up 95% of my smf already , so cant participate in the Megasale if it ever to happen.

and because of that. i hope it will not be that way haha...

I don't look at the graph, so I don't how the price behave.
I just roughly look at the ROE, operating margin, debt ratio...not an extraordinary business.It is not my game..
But If you trust the estimate of EPS from the analyst (which most often are too bias)..probably you can trade for it or go for short-medium term investment (less than 1-2 year).

-edited-
This is the Intrinsic value I compute based on the broker research analyst provided by SKY1809
2009 2010 2011
0.72 0.85 0.93


This post has been edited by foofoosasa: Nov 7 2010, 08:25 PM

I think Dreamer's strategy is actually the same as your strategy of buying below intrinsic value, cause by definition, if we use the dividend yield as the measures of market return, a 2X-3X spread over FD means the market risk premium is high. This tend to happen during a crisis and prices tend to fall below intrinsic value. It is just a layman and easily understandable ways to say the same thing.

I use to think like you too. But, now, I prefer a certain amount of dividends. It is hard to find management that can deploy capital into something that have incremental return on capital. Even you take the most fantastic company the world have ever seen- Microsoft, they have some fantastic return on equity. Although they pay dividends and buy back a lot of shares, the cash flow generated from its Office, Windows and Server division is still amazingly large. So, the dividends is less than its cash flow. Thus, Microsoft keep some of the cash flow it generated. Since Microsoft have above average ROE, you may think that it is good for Microsoft to retain the earnings to do R&D. But, most of Microsoft R&D is on things that they lose a lot of money, like Bing and they are throwing a lot of money into Windows Phone 7. So, even though MSFT itself have fantastic return on equity, the retain portion is wasted on those that do not generate that high of return of equity. You may say that this is a good deployment of capital in tech industry, but, if XBOX is anything to go by, Microsoft need to throw 8-10 years of cashflow into something before it can generate some decent result. So, not sure whether this is good deployment of capital. The point is, even companies with high Return on Equity, the portion retain may not be reinvested into division that have that high ROE, so, the cash, in a sense is better return to shareholders.

As you mention that you manage to do 20+% compounded growth for 5 years now, the benchmark should be a company that can return 20+% ROE in its reinvested earnings just to match your performance. Very few companies manage to pull that off, yes, even Microsoft can't do that because the money is thrown into division with lousy returns. The historical ROE of US is about 12%, I guess, for Malaysia, it should be around there or lesser as our leverage should be a bit lower due to some Chinese businesses tend to have a more conservative capital structure. So, in your case, since your return is 20+%, I think, most if not all of the time, you should hope companies to pay you dividend because you can actually do better with the money.

So, if you have some good stock picking skill like foofoosasa, one should hope for dividend.

I can give plenty of companies that retain 50%-80% of their earning and generate ROE range between 30% to 80% in oversea.
However..as the company mature..they will start to give out dividend..and this will surely reduce the rate of increasing of the intrinsic value . I accept the fact that someday company will give out return and impossible to retain their earning it as much for business growing business.. except one company ...Berkshire Hathaway..doesn't give any dividend after operating so many years which are operated the best legendary investor the world.
Don't get me wrong.. I like a stock like PBBank which is a great business but not because of they giving out prudent dividend.. and It is just simply wrong to conclude that a company doesn't pay dividend doesn't mean they are not suitable for long term.
It is simple..every business will undergone
1)initial phase - no dividend
2)growth phase - start giving some
3)maturity phase - mostly giving out most
I will hunt every great business with discount value no matter they are in which phase.
But I like business like JOBST type.. or first hand and second hand car website...because they have competitive advantage due to their size... unless the management screw up their competitive advantage by doing something stupid.

The retention ratio is not that important in this discussion as I am comparing between your own incremental ROE vs the companies incremental ROE. In addition, it is not the average ROE that matters, it is the incremental ROE that matters, that is what ROE the incremental retained earnings manage to generate.

I believe the company you talk about that churn out 30-80% ROE are tech, pharma and recently IPO-ed companies. I am not sure how you define ROE, but, if you define it as accounting ROE i.e. Net Income/ Accounting Net Book Value rather than finance ROE i.e. Net Income/ Market Cap then, the company are most likely in the industry I mention above. This is due to the fact that there are certain accounting rules that require them to expense R and D rather than keep it at the books, so, the ROE is actually not a good reflection of true economics of the business because a lot of asset are actually off the balance sheet.

Another possible explaination for such a high ROE is that it is a human resource based business. For example, it is a pure play investment bank (i.e. no trading) or consultancy firm. Again, such companies have a lot of off balance sheet assets that is not reflected in the balance sheet.

In any way, businesses above should not be judged on ROE because their profitability and growth is not a function of their capital allocation decision. It is more of a function of how they increase their brand awareness, customer loyalty and retaining their best talent. All this are off balance sheet assets. So, accounting ROE become unimportant in such businesses because their key success factors is not capital allocation. For example, take coca cola, a management should be judged on how much its retain its brand awareness and image or even increase it as such action would result in an increase in bottom line. He should not be judged on how good he is spending money to build the factory. The damage done on the coca cola brand image on its bottom line should be much more severe than a wrong capital allocation decision.

Another type of companies with such an impressive ROE is those with a recent IPO, but, those advantage tend to fade within 3 years.

I ran a stock screen using Capital IQ with a very basic requirement of non-tech and non-pharma, sustainable >30% ROE of 10 years, debt to equity less than 1.25, out of the universe of 500k companies worldwide, only 200 fits the bill.

In any case, I would like to hear the list of companies you have mention. If it is cheap, I may even buy it. Not necessary need to be in Malaysia. I have access to most markets as long as it is not companies that is listed in Timbaktu.

This post has been edited by the snowball: Nov 7 2010, 09:55 PM

I owned this 3 years ago...
http://www.reuters.com/finance/stocks/chart?symbol=ORL.AX
retail legend in Australia in my opinion..
It is traded at fair value now..but no discount...
There are some other US company which I own but not interested to disclose.
Yes I aware of off balance sheet item such as lease financing...
Anyway I would like our discussion stick to KLSE stock without OT.

It is ok to not disclose. Unless you finish buying the stock already, it is actually better to keep your stock pick secret.

The company is impressive in terms of financials. Just browse through, if add back off balance sheet liabilities, the leverage will be more significant but it is how retails works, which explain the ROE. But, be careful of the licensing deal they have. Keep a close eye on that. I know of a HK company got wiped because of that. Thanks for the sharing.

foofoosasa,

1) I am NOT long term value investor.

2) I am long term DIVIDEND investor.

The value investor need to sell their stock in order to make money. I don't. In fact, with every passing years, my exposure aka cost basis went down.

I bought PBBank when it was $7 and the dividend yield was about 8%. After a few years and collecting about $2 worth of dividend, my cost basis is around $5. My EFFECTIVE DIVIDEND YIELD is around 10% or more now.

3) As per KLSE, I do not TRUST the accounting data reported. Dividend paid is MORE REAL than any accounting report...

Dreamer

Muhibbah up today . Good Pick

aiya, wat u all discuss in the klse thread. then i just cross check TA & FA only. should thank everyone there for sharing their selections
no matter wat is being recommend here. most forumers won't jus accept it & buy for fun they would definitely do their own r&d

furthermore, unless we r billionaire. wat ever counter we intend to buy. it is nothing & the action won't move the counter, compared to the BUYING POWER of the mutual funds, insurance inv link funds, sovereign funds. & do they hav the time to spent in lowyat forum or y would they even wan to come to bolehland 100%? 1% of their firepower maybe can lah unless we got billionaire investor in lyn

Muhibbah is good pick, i got it at RM 1

the reason the price drop due to their previous revenue in their annual report year 2008 onwards, you can trace back their finance report previously

the company is quite strong with what they do, moreover, only RM 1 ...

i only dont like is, they install a water pump and pump out all the water from their factory and make the road flood when there is heavy rain...

Would you mind to share the software you used to screen through all the stocks given your criteria? How trustworthy are those figures? Are those number audited? Is there any authority in-charge of that?

Newbie in stock market.

while we await the answer, it did mention capital iq

http://tradingroom.bentley.edu/infrastruct...tware-datafeeds

I personally prefer William O'Neil (2nd last from above link) but that would mean another war argument with 99% of forumers who are FA

I use Capital IQ. But, mere mortals like us would not be able to afford it unless you have USD13k/year to throw around. It is actually for hedge funds and asset management guys. I got it because it is in my university database. Even in my school, I can't access it as it is for MBA student not undergrad. I somehow manage to convince the librarian to allow me to use it.

Capital IQ is fantastic. It is the best software out there. The figure is accurate and you can check back to the annual report because it provides an instant link. If you know who is Li Lu, the man in running to replace Buffett before he voluntarily pull out, he actually have some stake in Capital IQ. It is way way way better than Bloomberg because it is designed for FA rather than TA. If you like trading, perhaps Bloomberg is a better platform.

William O'Neil Direct Access won't entertain enquiries from individuals unless you are an institutional client. If anyone want to extract TA lessons from it, its going to be a really steep learning curve. Better stick to FA

http://www.williamoneil.com/PDFs/WONDACollateral.pdf

The closest search on its pricing is in a year 2001 book review 'What the book does accomplish is to portray how generally useless fund managers are since 80% of the time they can't beat the market indexes. The book thus makes a great case to invent index funds, such as those offered by Vanguard, which simply buy the whole index and don't bother churning stocks"

http://books.google.com.my/books?id=SfQFy8...epage&q&f=false

Cool, perhaps I should check with my uni and see if they have it.

I find the learning curve of doing stock analysis is steep. Could you provide any insight on how you overcame it? The Wits and Wisdom of Charles T. Munger covers a lot of the factors and method Munger uses whenever he evaluates or searches for opportunities.