Update on TSH Resources

I made a blog entry on TSH Resources before in which I highlighted the amazing manner OSK recommended a buy on this stock.

Here is the very bottom-line of what had happened.

I am sure if an OSK subscriber that follows the buy recommendation won't be too happy.
Just in Aug 2005, TSH was @ 1.74 with a buy and a target price of 2.19.
Now in Jan 2006, TSH is @ 1.47 with a buy and a target price of 1.78.

TSH was trading at a price of 1.40 the other day when it made its 2005 Q4 earnings.

And the very same analysis who had made all those calls, dared to remark in the following manner.

• Just a hiccup! Net profit of RM29.7m was 34.1% and 28.7% below consensus and our forecast respectively. This is predominantly due to a write back in tax credit amounting to RM8.9m (being reinvestment allowance realised in FY04) after the company has now been granted a 10 year pioneer status for its biomass subsidiary commencing FY04.

My issue with that analysis is if an OSK subscriber had followed the recommendation, I'm pretty sure that they would not be too happy at all with what had happened to the stock price since the recommendation. And worse of all, the stock performed way below OSK forecast.

Let me repeat what I posted again.

On Aug 25 2005, TSH announced its earnings and OSK mentioned that 'its earning was 36.8% below market and our estimates'. Now the very problem was OSK forecasted a shocking 61 million net earnings for TSH. (Ah.. the higher the profit estimate, the cheaper the stock would appear... hence the juicier the BUY recommendation!). Now since TSH is going to miss the forecast earnings by a lot, OSK quickly readjusted TSH earnings to just 55.7 million.

Price of TSH then was 1.74. OSK target price was 2.19.

On Nov 25 2005, TSH announced its earnings. Total year-to-date 3 quarters net earnings for fiscal year 2005 was only 28.253 million. One more quarter left and OSK had expected TSH to earn some 55.7 million. And obviously this was getting really embarrassing. And what OSK did next was even worse. The earnings forecast were no longer to be found (not sure if it was my browser) and instead OSK still insisted it was a buy. It said 'We reiterate our BUY recommendation with a 12-month target at RM1.78 based on sum of parts methodology."

Sooooo....... price of TSH was now at 1.47. And OSK was calling a buy based on sum-of-parts (meh leh ka?) on TSH with a target price of 1.78!!!

Now if one puts those two past events into perspective... wasn't it disgusting that OSK is now saying it is a mere hiccup? And even more disgusting was how OSK said TSH performed just 28.7% below their estimates!!!! Why couldn't they admit their past overly optimistic earnings forecasts?

And guess what... OSK forecast for FY 2006 is now only at 43.1 million! LOL!! (see table below)



Now take a look at their earnings table posted in their Aug 2005 report. LOL! They had a forecast net profit of 68.7 million for fy 2006. (see table below)

Waitttt..... guess what.... i found OSK earnings table posted in their July 2005 report. And fy 2006 forecast was at a whopping 73.4 million!! (see table below)



Truly amazing isn't it?

Look at OSK earnings forecast for TSH fy 2006.

From 73.4 million -> 68.7 million -> 43.1 million!!!

Hoi! This bugger playing masak-masak ka?

Oh and guess what?

• Downgrade to NEUTRAL . Given the required gestation period, we are downgrading TSH to Neutral with 12-month target price ofRM1.49, based on sum of part valuation methodologies on estimated FY06 figures. Nevertheless, we would reckon investors to retain TSH under their radar given the strong catalysts moving forward.

Downgrade wor!

• Just in Aug 2005, TSH was @ 1.74 with a buy and a target price of 2.19.
• Now in Jan 2006, TSH is @ 1.47 with a buy and a target price of 1.78.
• Now in Feb 2006, TSH is @1.40, downgrade to neutral with a price target of 1.49!!!!!

And let's not forget that the 12-month target is based yet again on sum of part valuation!!!

Anyway how has TSH been doing?

Ok, firstly last year's earnings were boosted by that one-off gain from the listing of Ekowood, of 15.336 million. Secondly, there is this tax credit adjustment in TSH account for this quarter. So to get a rough understanding, let's take a look at the Profit Before Tax (PBT) numbers for TSH recent years.

PBT Since 2001: 19.458 million, 30.174 million, 49.470 million, 67.709 million, 49.788 million.

(note last year's PBT was actually 83.045 but i minus out the one-time gain of 15.336, which meant the adjusted PBT for TSH for last year was 67.709 million)

As you can see clearly, TSH current earnings simply isn't happening. And let's not forget the fact that last year, TSH warrants were fully converted to ordinary shares, which meant a drastic dilution in earnings per share. Ouch!

ps. TSH closed yesterday, 28th Feb 2006 at a price of 1.31!

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Move Over Who?: Part VIII

Karensoft reported its earnings tonight.

This was what the management wrote in their notes. ( read more here )

• For the fourth quarter ended 31 December 2005, Karensoft Technology Berhad achieved a turnover of RM0.188 million. Compared to the RM0.172 million achieved in the third quarter ended 30 September 2005, turnover was 9% higher. Despite the marginal increase in the Group’s revenue, its pretax loss widened by 714% to RM8.164 million from the preceding quarter’s loss of RM1.003 million. The huge pre-tax loss incurred for the current quarter was attributable to depressed sales volume, impairment of development cost, provision for doubtful debts and China investment written off.
  For the twelve months ended 31 December 2005, Karensoft recorded a turnover of RM1.254 million compared to last year’s corresponding results of RM6.147 million. Consequently, the Group recorded a pretax loss of RM10.612 million compared to last year’s corresponding period pre-tax loss of RM3.929 million. The significant drop in revenue and the doubling of losses were mainly attributable to poor market demand for its enterprise applications and solutions, impairment of development cost, provision of doubtful debts and investment written off.

==>

a turnover of RM0.188 million?

pretax loss widened by 714% to RM8.164 million!!!!

(total year) pretax loss widened by 714% to RM8.164 million !!!!!!!!!!

• Prospects
  
  The Group has launched a new ERP known as KarenSoft ERP4Auto, which is specifically targeted at automotive industry. KarenSoft ERP4Auto product will assist automotive industry players be more efficient and productive in managing their cost with the AFTA pressure. Hence, the Group foresees the new product to contribute positively to future earnings.
  
  The Group will continue to market it existing KarenSoft ERP2 and other products to target mid-sized and top-tier SMIs in the domestic as well as overseas markets. Karensoft will also continue to develop customized niche products for specific industries.

Huh?

So what happened to its software package that could challenge the great Microsoft's Office Suite??

* past postings can be found here...

Karensoft
Karensoft: Part II
Karensoft: Part III
Karensoft: Part IV
Karensoft: Part V
Karensoft: Part VI
Karensoft: Part VII

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Talk Is Soooooooooo Cheap!

Here is a quick update to Talk is sooooo cheap

BSA reported its latest earnings tonight.

Quarterly rpt on consolidated results for the financial period ended 31/12/2005

Total net earnings for fiscal year 2005 = 10.171 million.

Remember the cheap talk?

• BSA International Bhd is aiming for profits of RM60mil to RM70mil next year, said group executive chairman..

Based on the earnings announced by BSA, do you think this company will be able to meet the bossie target of rm60-rm70million the next fiscal year 2006?

LOL!!!!

Yup...

Talk is really sooooooooooooo cheap because supply exceeds demand!

:p

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Magnum Again.

I just read the research report on Magnum from RHB when I recalled I had blog on Magnum before.

Here is a snippet of what was mentioned then..

• Magnum needs to greatly improve its corporate governance. Its cross holding structure with its parent Multi-Purpose Holdings which owns 34 per cent of the company and in which Magnum has some 10 per cent stake, is viewed negatively.'There's no clear reporting line when it comes to inter-company transactions,
• 'Magnum's lack of earnings transparency is another concern... the company made big provisions in the past three years which did not relate to its core business, but to overseas investments which had not paid off.

Ok that was then. A newspaper article had come out blasting Magnum on its poor corporate governance and the lack of transparency from the company's managment.

Now if I was on the company's management, surely I would have seen the article, right?

And if I had seen and read the article, I would have clearly noted that the investing community is simply not happy with Magnum's lack of corporate governance and transparency.

Now surely, if I was on the company's management, I would have respected the investing community opinion and view on such important issues and I would have made an effort to change and to improve.

Right or not?

Back to now. Present day. Now in that RHB report, the researcher wrote the following.

• Net profit more than doubled for the year due to normalised luck factor as Magnum adopted more prudent risk management. However, this has limited its top line performance. Other divisions’ performances were mixed to lower with write off and provisions more than offset gains from sale of properties. Also note that no explaination was given for the RM13.3m losses at the IT and Trading division in 4Q, we suspect it may be due to write off.

Ahem. No explanation was given for the rm13.3m losses at the IT and Trading.

Don't you find it so unacceptable? As a plc, Magnum has a duty to respect its minority shareholders and explain why and how such a loss happened. Magnum simply cannot let the investing community to second guess what had happened. This yet again is poor corporate governance.

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More on learning from a Trader

Taken from the trading classic book Reminiscenes of A Stock Operator.

• I remember very clearly how every day i would buy more cotton. And why do you think i bought it? To keep the price from falling down! If that isn't a super sucker play, what is? I simply kept on putting up more and more money - more money to lose eventually. My brokers and my intimate friends could not understand it; and they don't to this day. Of course if the deal had turned out differently i would have been a wonder. More than once i was warned against placing too much reliance on Percy Thomas' brilliant analysis. To this i paid no heed, but i kept on buying more cotton to keep it from falling down. I accumulated four hundred and forty thousand bales before i realised what i was doing. So i sold out my line.
  To learn that a man can make foolish plays for no reason whatever was a valuable lesson. It costs me millions to learn that another dangerous enemy to a trader is his susceptibility to the urgings of a magnetic personality when plausibility expressed by a brilliant mind.

Extremely interesting in my opinion.

Can I learn from this lesson as well?

For example, take those investment advisers. What would equate to brilliant mind? How about a reputable investment advisor? Is there a danger in placing too much reliance on their research notes?

Ah... iCapital for example would be a good example. Yes, they have a good reputation. No doubt. Let me repeat again.. yes they have a good reputation...

however... here's the issue.... since they have a good reputation... is there ever a danger if an investor rely too much on their reports and on their advice?

Good example... err.. the Mieco incident, which was fully described in the posting Mieco: Part II

In which, in Aug 2004, when Mieco was trading at a price around 2.36, with a trailing pe of 15x current earnings, insisted that Mieco was a buy for the longer term (despite the apparent sign of weakness in the company's fundamentals).

So let's ass-u-me, one had relied on this investment advice and purchased the stock. Look at the end result today. The investor would have been punished severely because Mieco currently trades around 1.02.

See the danger?

So for me, I really agree that there is an extreme danger if one relies too much on investment advices and recommendations. No matter who they are, no matter how smart they are and how smart they appear to be, i think it is best we reasoned out ourselves if their recommendation(s) make sense or not. Meaning to say, I think it is really silly to invest in a stock just because so-and-so is recommending it. Let's not take anyone's words for granted and it is best we check out the finer details ourselves and reason out if their recommendation make sense or not. Else we would end up making a fool out of ourselves and our money!

Let's take Mieco into perspective. Yes, there is a justification for iCapital to make their recommendation in Aug 2004 but then, there was also a justification to avoid the stock in Aug 2004 (read the arguments presented in that posting again )

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ROI on Uchi: Part III - the ESOS issue

It would appear that we have a very interesting situation in Uchi Tech.

We are looking at a stock...

• With a CAGR of 25% over the last 6 years.
• With a CAGR of 18.76% over the last 4 years.
• Last year's net profits grew 17%
• Net profit margins of 56%.
• Nett cash. No debts

But it is considering a tacky 15% ESOS!!

As mentioned by the great, late Philip Fisher:

• the management of a company is always for closer to its assets than its shareholders. And without even breaking any laws, there are number of ways that the management can benefit themselves and their families at the expense of the minority shareholders, for example employing their relatives, buy-and-selling of properties between relatives at above market rates or the issuing common stock options.

Yes, by issuing a 15% ESOS, the directors of the company are putting themselves in a position where they benefit themselves more than the minority shareholder.

Now here is some interesting issue worth considering. Here's what we need to do. Open the wordfile attached to that ESOS announcement

1. See line 3. Maximum no. of Shares to be issued pursuant to the exercise of outstanding Existing ESOS options granted/ which may be granted. Total? 23,445,280 million shares.

Question that begs to be asked. Why is there so many outstanding existing ESOS?
Since there already exist so many outstanding ESOS, why the need for another 15%?

2. See line 5.
To be issued pursuant to the Proposed New ESOS (up to 15%)... 59,375,712.

Now if you add both figures up, you will get 82,820,992 new shares, assuming full exercise of ESOS.

Currently Uchi has 372,392,800 shares. Which means there is a possible dilution in earnings per share of 22% assuming full exercise of all these ESOS.

Now let's be realistic and ask ourselves this... is 22% dilution in earnings per share a lot or not?

Simple way to look at this dilution.

Say U** has a current eps of 100 sen.
Say U** has a possibility to trade at a price earnings multiple of 18x.

Which means U** could be worth some 18.00 in market price.

Now a 22% dilution means... the eps would be 78 sen.
And using the same pe multiple assumption of 18x, U** should be trading at a market price of 14.00.

See how disadvantage to the minority shareholder?

Oh yes, it is mentioned that ESOS is important for a company for it is a proven method to retain talent in a company. No doubt about it. But from a minority shareholder of the company oint of view, do you think it is fair that your earnings per share be diluted by so much?

Now comes the really subjective and tricky part of any review.

Say you really, really hate such a proposal but on the other hand you recognise that this is still a very solid company. How?

Would you forgive Uchi on this and consider this as just one red flag? Are you willing to forgive UCHi and consider this as only just one naughty thingy?

Or would you kick Uchi out of the door?

How?

Oh this issue of flags... LOL... sometimes... I wonder if investing is a game of collecting flags? Like in soccer, you get a yellow card and then a red card! Ahhh.. but do not get me wrong here.. me just ranting on it that's all... lol... just poking fun lah..... :p

Anyhow... at the end of the day... it matters not what I think about ESOS or what I think about UCHi... most important is us making the correct rational decision.

just for the record... Uchi is now trading at 3.30.

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ROI on Uchi: Part II

Regarding the growth issue for Uchi, yes, i have explained it rather in a simplistic manner.

Some folks actually use a more complex (and since it is more complex, it is pretty subjective... LOL.... and more confusing!) measuring such as the CAGR yardstick or the Compounded Annual Growth Rate.

Why is it complex and subjective?

Well.... let me say this... a company's compounded annual growth varies and each starting point of reference will yield a different interpretation.... err... complicated, eh?

For example... take the computation of Uchi's CAGR since 1999. Net profit then was 19 mil. For fy 2005, Uchi's net profit is now 73.578 million. Number of years = 6. Using one of them business calculators (simple lor - no need complexity), with a couple of clicks here and there, we get Uchi's CAGR since 1999 = 25%. Awesome, eh?

Now if say we take the computation of Uchi's CAGR since 2001. Uchi's net profit in 2001 was 37 million. Uchi's net proft in 2004 was 63 million. Number of years = 4. So Uchi's CAGR since 2001 = 18.76%. Err...not as awesome as since 1999. Can we interpret it and say that the last 4 years, Uchi's profit growth was not as strong?

And of course if we do a y-o-y comparison... Uchi's net profit in 2003 was 59 million. So Uchi's net profit only 'growed' 7% in fy 2004. And for current fiscal year, fy 2005, Uchi's net profits grew 17%.

Which is why i say this growth and the CAGR is pretty subjective. Depending on the starting point of reference, each year will likely to yield a different CAGR.

Ahhh.... the complexity in using numbers and yardsticks.... !!!!!!

Anywayyyyyy..... from a business perspective.... what's our most important evaluation/assessment of Uchi's growth? How are we going to review such a performance?

Again... this is where it gets subjective..... :)

For me... i would say that Uchi has a business which showed an impressive growth over the last 6 years. However, the last couple of years, as in the laws of growth (ie nothing can grow at a robust rate forever), Uchi's growth has slowed. However, the biggest plus is the strong and impressive improvement in Uchi's net profit margins. This would suggest to me that the management is making an effort to increase profit to overcome the slower growth in its business. This would be my assessment... which of course is very subjective on this part....

what about urs?

Does it pass or fail to meet your assessment that Uchi remains a good business investment? ie... do we STILL want to own and be a partner in such a business?

Ok.. let me flip this around... and use a trader's perspective on this matter. Now I am very lucky that this terror trader dude Liam was willing to share this comments with me before. :p (So I hope he won't mind me sharing his comments here... :p)

• Altho' earnings growth has peaked and no more returning 12% per annum BUT financials and margins are still great, is there a problem?
  Wouldnt it come a time when every biz would have to go thru a consolidation cycle? The fact that growth has slowed but if amply compensated by higher revenue translating into better financials, isnt it a stock worth holding?
  An analogy from a trader's perspective, after a spike in price, a stock usually consolidates at a certain range - this is a price range where an equilibrium of buyers and sellers can agree to trade. Now, the next phase of movement will then be dictated by whether the buying or selling is greater than the other and u then take appropriate action.
  Do i sell into a consolidation? No, I dont. Any similarities here?

How?

Some MORE issues to consider eh?

Cheers!

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ROI on Uchi

ROI - the Review of Investment

So you have purchased yourself an investment in a great business at a good price. So what do you do?

Do you honestly think it is wise to leave your great investment aside and hope that your investment will grow forever and ever?

Get real!

That's the harsh answer I keep reminding myself. For in the real businessworld, most businesses simply cannot grow forever and ever. Leaving our investment aside and hope that our investment(s) will grow into a 10 or 20-bagger is simply foolish thinking.

Remember we are but normal average investors. And because we are normal average investors, we are more likely to make mistakes, either via faults in our own stock selection process or the company that we have vested interests, might not be a good company anymore! And if it is no longer a good company, why hold on to the investment?

Which is why the ROI is so important. We need to review our investment to make sure that the stocks we are holding is still a good stock. We need to review if the very reasons to invest in the stock remains valid. Now if the stock is no longer good, it simply makes no sense to hold the stock.

Ah, yes talk is always very cheap because supply is always greater than demand. (LOL!)

Ok.. let me share a mumbling on a real example.

Let's assume (forget this not, the word assume (ass-u-me) means making an ass out of u and me.. :p) that I had made an investment in Uchi Tech. Remember hor... ass-u-me I had made an investment in Uchi.

Now say one of the reasonings that I purchased Uchi was for its earnings growth. Yup, say i was seduced by the fact Uchi is making lots of money and is going to make more money in the future. And because of this reason, I made an investment in this stock.

So for my personal ROI, I really need to ask myself honestly how valid is this reasoning now?

Do you see how I have stressed on the word honestly? Sounds silly right? But as silly as it may sound, many an investor have failed to this question themselves truthfully!

Back to Uchi. To answer this question, i would look at Uchi's historical yearly earnings. (please verify the data posted here.)

fy_______ Sales______Net Profit
1999_____51.532____19.949
2000_____66.022____23.170
2001 ____ 94.999____37.062
2002_____118.847___49.479
2003_____120.659___58.571
2004_____115.352___62.759
2005_____131.884___73.578

Question time. From 1999 to 2005, has Uchi earnings continued to grow? Are you satisfied with it?

Next issue. Take out the good old calculator and calculate the net profit margins. Are you satisfied with the net profit margins? Has the margins been sacrificed for the sake of earnings growth? (ah.. this one is debatable. For some, they do not like to see net profit margins been sacrificed for the sake of growth.)

Net profit margin since 1999: 39%, 35%, 39%, 42%, 49%, 54%, 56%

How do you rate such a performance? Still good?

Next, check on the company's balance sheet. Take it as a challenge. Ass-u-me that you are on a mission to discover the biggest .. err... err... investment trap in the Bursa Malaysia. Comb thru Uchi's balance sheet and see if you can smell a rat in there!

Things to ask.. is there a drastic built-up in the company's inventory? What about the trade balances? And what about the company's borrowings?

Do we smell a rat?

And the most important thing is the Moola!

Show Me Ze Moola!

Simple issue. The company announced that it made more and more money each year. Do we see the 'wealth' being created or not? Is the company really worth more or is the simply company worth less?

Big issue here.. for we have seen so many companies saying they earn so much money.. but... somehow... the investor, they dun see the moola!

Compare the cash balances. Is the current piggy bank more than last year fiscal year? If no, where is ze moola? Did the company pay out more dividends?

How? Are we satisfied? Or am i singing Mick Jagger's classic, I can't get no Satisfaction, already?

Remember in ROI, there is no point in cheating. If we cheat ourselves, meaning if we give ourselves lame excuses and find flimsy excuses to justify our own reasonings to stay invested in the stock, we are simply cheating ourselves and we are only helping the share market make a fool out of our beloved money!

How? Does Uchi past all these simple issues or not?

Are we satisfied that Uchi has a realistic chance to grow somemore in the near future?

And then check the local corporate issues... do we see the company doing anything funky?

Remember in the posting, Management Integrity,

• According to Fisher, the management of a company is always for closer to its assets than its shareholders. And without even breaking any laws, there are number of ways that the management can benefit themselves and their families at the expense of the minority shareholders, for example employing their relatives, buy-and-selling of properties between relatives at above market rates or the issuing common stock options.

I saw this Uchi announcement posted...

How? Uchi is proposing a new ESOS.

Ahem. A 15% ESOS priced at a "price to be determined by the Board upon recommendation of the ESOS Committee based on the weighted average market price of the Shares for the five (5) market days immediately preceding the date of offer with a discount of not more than ten percent (10%) or such other percentage of discount as may be permitted by the Bursa Securities or any other relevant authorities from time to time during the duration of the Proposed New ESOS; or.."

how? If and when this new proposal is passed, a minority shareholder will see their earnings per share being diluted by 15%.

Is this fair? Is this acceptable by you?

If no... then the option is to either vote against this proposal ... and if that fails... then perhaps... yes perhaps it is time to say goodbye to the stock! Remember Fisher teaching that in such instances, the company is finding ways to enrich and benefit themselves at the expense of you, the minority shareholder!

Again how?

Well, these are the very issues I will be addressing myself, if and if I own shares in this stock, Uchi Tech.

ps... I am merely mumbling my thoughts... ok?

Cheers dude!

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Can an investor learn from Traders?

Can I learn from a trader?

Is the trader's mindset any different than an investor's mindset?

For me, good rational thinking is simply needed, in regardless if one is an investor or one is a trader.

Do not believe?

Let's take one of the classic books, Reminiscenes of A Stock Operator and compare some of the issues mentioned in the book and find if the investor can learn anything.

• I would rather play commodities than stocks. There is no question about their greater legitimacy, as it were. It partakes more of the nature of a commercial venture than trading in stocks dies. A man can approach it as he might in any mercantile problem. It may be possible to use fictitious arguements for or against a certain trend in a commodity makret; but success will be only temporary, for in the end the facts are bound to prevail, so that a trader gets dividends on study and observation, as he does in a regular business. He can watch and weigh conditions and he knows as much about it as anyone else. He does not guard against inside cliches. Dividends are not unexpectedly passed or increased overnight (to drive the stock prices up) in the cotton market or in wheat market or corn. In the long run commodity prices are governed but one law - the economic law of demand and supply. The business of a trader in commodities is simply to get the facts about demand and supply, present and prospective. He does not indulge in guesses about a dozen things as he does in stocks.

Understand that one law - the economic law of demand supply in a given trade. Guarding against inside cliches, trying to figure out what is happening. In short, stocks are easily manipulated. JL talked about how stocks announced dividends overnight just to drive up the stock price.

Any change then and now? Nope! Crooked owners are still crooked owners. And crooked owners of stocks still cheats. They manipulate stock prices!

Is the intelligent investor any different than the trader in this perspective?

Remember Warren Buffett's Goal ?

• Our goal is to acquire either part or all of businesses that we believe we understand, that have good, sustainable underlying economics, and that are run by managers whom we like, admire and trust.

See how important Buffett stressed that the good business MUST be run by managers whom we like, admire and TRUST.

Or the issue of Management Integrity mentioned by the late Philip Fisher?

• It's not only the dislike for dealing with unscrupulous people but Fisher believes that companies managed by people of dubious integrity will definitely meet with failure.

The trader guards against inside chiches. The investor? They too need to avoid investing in stocks whose owners/management cannot be trusted.

One of my personal favorite saying in the book Reminiscenes of A Stock Operator is, "I have never thought it is good business to play any game in any place where it was necessary to keep an eye on the dealer because he was likely to cheat if unwatched."

Lesson here? The issue of trust is so very important.

• What does a man do when sets out to make the stock market pay for a sudden need? Why, he merely hopes. He gambles. He therefore runs much greater risks than he would if he were speculating intelligently, in accordance with opinions or beliefs logically arroved at after a dispassionate study of underlying conditions. To begin with, he is after an immediate profit. He cannot afford to wait. The market must be nice to him at once if at all. He flatters himself that he is not asking more then to place an even-money bet. Because he is prepared to run quick he hugs the fallacy that he is merely taking a fifty-fifty chance. Why, I've known men to lose thousands of dollars on such trades....

Take the issue of the investor investing in a stock because of the market.

Commonsense tells the invesotr that it makes no sense because the investor is basing the reason to invest base on the market price and the prevailing market sentiments.

In a bullish market sentiment, the believe is simply that the market could go higher. This is it. The big, big bull that we have been waiting so long is finally here. This is it. What are we waiting for? Whack them stocks! (Chiak the bugger!) However, do remember that it has simply been proven so many countless times that if an investor buys anything that is overvalued, and given time, such investment will most likely end in a loss.

Conversely, in the case of a falling stock, if one uses the price as the main factor to invest in the stock, the investor will most likely to end up losing lots of money if that stock price decline is caused by falling earnings which turns into a permanent deterioration of the business fundamentals. Be more realistic, companies in this region, they do not have such a strong durable advantage as the Cokes. Here it is possible to have so-called good companies turning into a bad company. And the biggest danger is that it could remain bad for a long time. And sometimes these companies could even can go bust!

And this is one reason why we hear so many folks saying that investing does NOT work. They argued that they had tried and experienced investing before and that they bought this so-called good fundamental counter at such a low PE but somehow despite buying and holding that stock for a long term, that investment never did worked out. So why didn't it not work out? Was the reasoning to buy the stock flawed? Was the stock selection simply wrong? Was the reasoning to invest influenced mainly by the market price? One of Buffett's famous saying to remmber here is, ' Buying a poor quality stock at a cheap price would most likely yield a poor set of investment results.'

(to be continued.... )

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Mieco: Part V

Flashback....

In Mieco

What a huge difference! No?

And even if Mieco’s earnings does turnaround… isn't there a possibility that whatever earning derived from its new plant might be used to pay for its debts? And if so, what’s left then for the investor?

How?

Mieco last traded at 1.37. Its warrants closed at 0.50.

Still think that now is an opportunity to invest in the stock?

How about avoiding?

How about selling?

Yes, again… there is no doubt that when Mieco’s new factory is fully operational, there is a huge possibility that Mieco’s earnings will turnaround.

But the biggest issue is: WHEN!

When?

Bila?

Consider this.. if Mieco’s new plant needs another 6 months or so to start producing (if only hor.. me have no idea when its factory is ready) and in the meantime Mieco’s quarterly earnings continues to decay...just imagine what would happen to Mieco’s share price? Isn’t there not a possibility that the share price might continue to drop some more if and if Mieco’s earnings does not improve?

Isn’t it more prudent to avoid the share until we have better earning visibility?

Why be a hero in a hard place?

Why take such unwarranted risk in the stock market?

Do we want to end up as a zero? A zoro? Or a Soh-loh?

Think about it dude… :D

~~~~~~~~~~~~~~~~

In Mieco: Part II

Hmmm.... and what is even more interesting is the following...

1. At 2.36, a buy for the longer term.
2. At 1.37, still a buy for the longer term.
3. At 1.00 (yup Mieco is now trading at 1.00!!), Mieco is still a BUY!!!

:P

And all this while... Mieco's fundamentals is clearly decaying. Cash is clearly depleting. Loans building up. Profitability margins have been eroding. And worse of all, Mieco is now losing money.

And wouldn't you find it strange that iCapital still has a buy rating on it?

Now consider the vested interests it has, do you rate their ratings and recommendations as partial or impartial?

~~~~~~~~~~~~~~~~

In Mieco: Part III

Dejavu!!

Company is not doing well BUT the management comes out and insist that the company prospect is still bright!

Guess what? On 22nd Nov 2005, Mieco announced that it lost 3.742 million for its 2005 Q3.

Present day, 21st Feb 2005, 4.30 pm, Mieco last traded at 1.00. Again the Fisher question is asked. Would the investor do well if he/she excludes themselves from such an investment?

~~~~~~~~~~~~~~~~

In Mieco: Part IV

LOL!!

The share price is not doing well!

Speaks volume for the quality of Mieco Chipboard as a share, isn't it?

Reminds me of one of my Granny's repeated saying (excuse the English here), "If give people, people also dowan, like this type stuff means no good stuff!"

~~~~~~~~~~~~~~~~

Mieco just announced its earnings (Mieco last traded at 1.03. Its warrants closed at 0.33)....

   Mieco Chipboard Bhd (5001.KU) - Malaysia
   3rd quarter ended Sep. 30:
   Figures are in Ringgit (MYR).
                                 2005               2004
Revenue                 MYR77,848,000      MYR63,728,000
Pretax Profit              (4,731,000)        11,461,000
Net Profit                 (3,742,000)         9,161,000
Earnings Per Share          (1.78 Sen)          4.36 Sen
Dividend                      Omitted            Omitted
   9 months ended Sep. 30:
Revenue                   201,019,000        172,573,000
Pretax Profit               2,848,000         28,115,000
Net Profit                 (1,136,000)        21,540,000
Earnings Per Share          (0.54 Sen)         10.26 Sen
Dividend                      Omitted            Omitted
    (Figures in parentheses are losses.)

Read more...

Confusing financial headlines

I really do not understand some of the financial headlines in our newspaper.

For example, take this title of this article posted in the Edge Daily: Esso's net profit surges 80.58% in FY05

For me, before I clicked on the link, I thought Esso Malaysia Bhd must have had a hell of a year for its FY 2005.

Correct or not?

Net profit surges 80.58% screamed the headline!

Here is the snippet of the article.

• Esso's net profit surges 80.58% in FY05 By Ashwin Raman
  Esso Malaysia Bhd recorded an 80.58% increase in net profit to RM19.72 million for the financial year ended Dec 31, 2005 (FY05) from RM10.92 million a year earlier.
  In a statement on Feb 23, it said revenue for FY05 increased 33.44% to RM8.26 billion from RM6.19 billion in FY04, as a result of higher product prices.
  During the fourth quarter however, its net loss widened to RM8.68 million compared with RM2.5 million a year earlier.
  It said that during the fourth quarter 2005, prices reversed the upward trend seen over the first nine months of the year

Ahh... aren't we confused yet?

The title suggests that Esso Malaysia had a fantastic fy 2005.

However... in its fourth quarter ... ESSO reported a net loss of rm8.68 million.

Don't you agree that perhaps the reporter could have given a much better title for this article?

Read more...

EPF declares 5% dividend.

Malaysia's Employees Provident Fund (EPF) has declared a dividend rate of five percent for 2005, an increase over the previous year's 4.75 percent.

What's your feelings towards this dividend? Satisfied or not satisfied?

And if you are a reader from another country, how does the Malaysian EPF dividend payout rate against your own country? Care to share some views and comments?

Oh, for those who withdraw some funds out from the EPF to invest in unit trusts or to invest in the stock market on their own, what's your feeling towards this 5% thingy? Is your own personal performance giving you a better return? Is your unit trust managers giving a much better return for your money? Time to re-evaluate your investments, eh?

Read more...

Mieco: Part IV

Saw this newsclip involving Mieco

• Bandar Raya Developments Bhd (BRDB) has withdrawn its resolutions for the proposed de-merger of Mieco Chipboard Bhd from the group after realising that the proposal would not get the required support from shareholders, said its chairman Datuk Mohamed Moiz. ( Read more here: BRDB withdraws de-merger proposal )

This means that the distribution of up to 119.09 million Mieco shares to BRDB shareholders on the basis of one Mieco share for every four existing shares held in BRDB is withdrawn.

This issue was mentioned in this earlier posting: Mieco: Part II and here is a snippet from it.

Oh... here's another important issue to consider.

remember Bandar Raya's plan to distribute Mieco shares?

now just for info ... this deal is still pending... now assuming it goes thru...

let's work out some implications..Mieco has 210 million shares total.

Out of this portion... Bandaraya plans to distribute 119.1 million to its shareholders. (wah that's some 56% wor!)

Now.... key issue for them minority Mieco shareholders is... what will these Bandaraya shareholders do after receiving these shares?

Will they keep? or will they sell?

Reason to keep? Err... err.... Mieco too cheap to sell? Hold for long term mah!

Reason to sell? Hoi.. Mieco losing moola mah. so Mooooola in me pocket better than paper money which might diminish if Mieco's performance does not improve soon!

So them Bandar Raya boys have decided to cancel this proposal. Which really kind of makes sense cause if I am a shareholder of Bandaraya and I am given free share of a company whose earnings is declining so bad, I would have sold those free shares ASAP!

And if I am a Bandaraya shareholder, I would really wonder how could the management come out with such corporate exercises. Why couldn't they just focus on the core business activities?

==>

Ahh.. from Business Times: ( click here: Plan to demerge Mieco rejected )

• SHAREHOLDERS of property developer Bandar Raya Developments Bhd (BRDB) have rejected the company's plan to split its particleboard subsidiary from the group, citing unsuitable timing for the move.
  BRDB chairman Datuk Mohamed Moiz said the group has withdrawn the proposal to demerge Mieco Chipboard Bhd, a move intended to allow the company to focus on its core business."Shareholders felt that the timing was wrong considering the share price is not doing well.

LOL!!

The share price is not doing well!

Speaks volume for the quality of Mieco Chipboard as a share, isn't it?

Reminds me of one of my Granny's repeated saying (excuse the English here), "If give people, people also dowan, like this type stuff means no good stuff!"

Read more...

Really Titanic Bull!!

This is how Titan performed on a quarterly basis.

2005 Q1 net profit 159.3 million (not listed yet)
2005 Q2 net profit 111.326 million.
2005 Q3 net profit 71.924 million
2005 Q4 net profit 19.282 million.

Take a look at the numbers. It takes no rocket scientist to see that on a quarterly basis, Titan's net profits are DECLINING drastically.

159.3 -> 111.3 -> 71.924 -> 19.282???

And some might view such decline as ALARMING!

Let's look at what's been mentioned in today's financial news.

1. From Business Times: Titan net profit rises to RM362m

• TITAN Chemicals Corp Bhd yesterday said high oil prices were the reason for the 40 per cent shortfall in net profit for the year to December 2005 against what it forecast in its listing propectus. Despite the shortfall, however, net profit at Malaysia's largest petrochemical firm was 38 per cent higher than a year ago.

Firstly, that 38 percent higher than a year ago is a NON issue. No one forced Titan to boldy forecast that optmistic earning forecast. Or did some one forced Titan to boldy forecast its earnings will more than double the very year it seeks listing? So whose fault was it? Well, I have no idea but when Titan misses its promised earnings by a whopping 40%, I do feel sorry for them IPO investors of Titan, for they have bought a stock based on a grossly optimistic earnings projection.

• Titan has decided to offer another 3 sen dividend to its shareholders, on top of the interim dividend of 3 sen declared earlier.

Hmm... would I be wrong to say that Titan is trying to offer more dividends as a sweetener to divert attention from its failure to deliver what was promised?

• Managing director Donald M. Condon Jr expects 2006 to be a good year for the company as demand for polymer strengthens and oil price stabilises

Yet another classical Philip Fisher example (see Management Integrity )The company's earnings is DECLINING AT A DRASTIC pace. Instead of explaining clearly and precisely wat happened, this drastic decline of earnings appears to be a non-issue. Not even a mention. See how the company focused on the issue of record earnings? See how the MD chose to focus on the future and gives optmistic expectations yet again?

Ok... here is the version from Star Biz

• “We were able to keep up our good momentum for 2005 as a whole because we operated very efficiently. Our continued efforts to improve day-to-day running were also showing good results,” he said.

Good results?

A net profit that declined from 159.3 -> 111.3 -> 71.924 -> 19.282???

How could the above results be deemed as good results?

ps...

Did you all know that Titan's quarterly earnings was so drastically poor, declining at such an alarming rate?? If I had not post this fact, would you be thinking that this was just a simple issue of Titan not delivering what it promised in its IPO?

Oh... someone mentioned this to me before...

The higher the IPO forecast, the more money is generated and the more profit for everyone involved.

True ah?

Read more...

Titanic Bull Again!

Flashback (see Titan ):

LOL!!!!

It's just normal.

Just prior to their listing, during their ipo period, these companies would promise their prospective investors heaven and earth. Bright future prospects with optimistic earnings growth.

And of course, needless to say, their merchant bankers, marketing their ipo, were just as optimistic.

Oh... i am talking about Titan Chemicals.

Here are some of the optimistic claims made on the local news media.

• Friday May 27, 2005
  Titan confident of meeting 2005 profit forecast
  SURAJ RAJ
  
  TITAN Chemicals Corp Bhd is optimistic that it can meet its net profit forecast of RM604mil for the financial year ending Dec 31, 2005.
  
  “Based on an annualised first quarter net profit, we have exceeded the forecast,” said chief financial officer Fauzi Ghani at a ceremony to launch the company's prospectus in Kuala Lumpur yesterday.

After being listed, the company made its 2005 Q2 earnings report on Aug 25th. It reported a net profit of 111.326 million for the quarter, giving it a year-to-date total net profit of 270.585 million.

And of course the company was very upbeat the day it released its earnings.

This was one of the headlines.

• Friday August 26, 12:38 PM
  
  Malaysia Titan sees strong profit margin until 2009
  
  KUALA LUMPUR, Aug 26 (Reuters) - Malaysia's Titan Chemicals Corp said on Friday it expects its strong profit margin to continue until 2009.
  
  Managing director Donald M. Condon Jr says Titan Chemicals has been largely unaffected by the surge in oil prices because it is able to pass growing costs to customers

And here is a snippet from another article.

• Titan on track to meet financial goals
  By KANG SIEW LI
  September 5 2005
  
  TITAN Chemicals Corp Bhd, Malaysia’s largest petrochemical company, said it remains on track to meet or exceed its financial goals for the full year, allaying concerns over the negative effect of higher oil prices on the company.

==>>>

22/2/2005

Titan just announced its earnings tonight.

And how much was promised by Titan again? RM604 million.

And how much did Titan deliver? RM361 million.

Just saw this shocking news article: Titan posts record earnings of RM361m

Record earnings? Excuse me, Titan was SOLD to the investing public in a titanic IPO worth some rm950 million. And the whole valuation was based on the fact that Titan itself gave a promise that it would deliver some rm604 million in net earnings. And how much did Titan deliver? rm361 million!

Here is some titanic stuff from that article..

• Speaking at a media briefing in Kuala Lumpur on Feb 22, Titan managing director Donald M. Condon Jr attributed the impressive results to the strong first-half performance.

Well I am impressed, aren't you?

• On the performance of Titan’s share price: “We do think our share is undervalued. That’s why we’ve put together a share buyback plan. The plan will be put in place depending upon how the share continues to do in the market.”

Undervalue? Did he say undervalue?
Titan clsoed the day trading at rm1.35.
What was Titan IPO price? rm2.17!
!!!!

Here is the summary of Titan's earnings from yahoo news..

Titan Chemicals Corp. Bhd. (5103.KU) - Malaysia

4Q ended Dec. 31:

Figures are in Ringgit

                                 2005               2004
Revenue              MYR1,145,187,000   MYR1,159,388,000
Pretax Profit              34,938,000        248,514,000
Net Profit                 19,282,000        119,756,000
Earnings Per Share           1.24 Sen           9.11 Sen
Dividend                     3.00 Sen            Omitted

12 months ended Dec. 31:

Revenue                 4,497,571,000      3,555,088,000
Pretax Profit             503,197,000        544,241,000
Net Profit                361,781,000        262,263,000
Earnings Per Share          23.31 Sen          19.95 Sen
Dividend                     6.00 Sen            Omitted

Read more...

More Listings?

Bursa expects 70 new listings this year
Bursa Malaysia chief executive officer Yusli Mohamed Yusoff says the exchange is taking steps to improve the quality of listed companies by improving investor relations via analysts briefings and roadshows

hmm..

• “We have a range of very good companies and a few not so good companies and a lot in the middle range ... we want a good mix to give investors interest and confidence in the market,” Yusli told Business Times recently.

A range of very good companies and a few not so good companies and a lot in the middle range....

Do you agree with his statement?

• BURSA Malaysia Bhd expects 70 initial public offerings this year, comprising companies in all sectors... Bursa Malaysia currently has more than 1,000 companies listed on the exchange.

70 new IPOs this year? Waaah... and not forgetting BM has already more than 1,000 listed companies...

Another pump-priming example of BM thinking as a businessman? The more listed companies means the more possibility of BM making more money. But in all honesty, all there so many 'qualified' companies in Malaysia? I rather not see companies being listed just for the sake of BM meeting its numbers. Don't you?

• At the same time, the regulator is taking steps to improve the quality of listed companies by improving investor relations via analysts briefings and roadshows.“When investors have a good idea of a company, they will know its true value,” said Yusli.

What would you want to see?

Me? I would like to see much better corporate governance and more important, I think BM should clamp down on corporate directors making overly optimistic projections in the news media. It's terribly shambolical to see a company director making an outright bullish statement about their company prospects, while the company's financial performance utterly contradicts their statements!

And what them private placements?

Another complicated issue.. depending on who we are.. for a trader, this issue is not too bad and it could even represent trading opportunities but for the minority shareholders, such issue is simply not fair as the private placement is executed at their expense. More shares or more slices of the cake are simply offered to others and often at huge discounts, which not only dilutes them of their earnings per share but also places them at a cost disadvantage when compared to these so-called placement investors. Which really makes the private placement more of a privilaged placement issue!

Read more...

Mieco: Part III

Let's look at an example based on the blog posting on Philip Fisher: Management Integrity.

Let's refresh what was said.

According to Fisher, "It is the nature of business that in even the best run companies unexpected difficulties, profit squeezes, and unfavorable shift in demand for their products will at times occur."

For example, a well-managed company under-taking a massive plant expansion might face unexpected delays, unexpected expenses or unbudgeted costs. And this delay totally messes up the management's profit forecasts or could it even put a huge damper on the group's profits.

And according to Fisher, "How a management reacts to such matters can be a valuable clue the investor."

Now in the plant expansion example, some management may 'calm up' their investors by not telling the investors what exactly is happening because the mangement does not want to create an impression that either things are out of control or they do not have a contingency plan to correct what is going wrong.

And according to Fisher, "The investor will do well to exclude from investment any company that withholds or tries to hide bad news."

Let's look at how true his statement that "The investor will do well to exclude from investment any company that witholds or tries to hide the bad news."

Let's use Mieco Chipboard as an example. (this is because I was just updating some of my old notes, I realised that Mieco fitted this example very well!)

Let's run thru briefly what happened again ( Click here for a compiled table ). Firstly, there was this new factory expansion. Exactly as what Fisher is talking. And this new factory is not delivering!

On 24th May 2005, Mieco reported its 05 Q1 earnings. One can see that Mieco's quarterly earnings dropped from 8.948 million a quarter ago to just 2.498 million.

So instead of explaining to the investors why the sudden huge drop in profits, there was this overly bullish statement made by Mieco on the 17th June 2005, stating that Mieco targets 500 million in revenue the next year. And Mieco was rightly querried by the SC on the 20th June.

Classic example of what Fisher was saying! Company did poorly. Instead of explaining to the investors what went wrong, the company continued to make optimistic statements in the press! Now big question, should the investor listen to Fisher's advice? Would the investor do well if he/she excludes themselves from such an investment?

On 29th Aug 2005, the company announced its 05 Q2 earnings. Net profits slumped to an alarming 120k for the quarter. Remember Mieco had underwent a huge capital expansion to finance the new plant. And the new plant is simply not delivering.

Did Mieco management come out and explain why their results were so extremely poor?

On Sept 13th 2005, RAM downgraded Mieco's RM175mil Al Murabahah commercial paper from stable to negative.

Mieco shares started to tumble badly in the market.

Now get this, on the 12th Oct 2005, the management had a write-up in the Edge weekly. The article carried the title 'Mieco's long-term prospects still bright'. According to the reporter, that was what the director said of the company prospect.

Dejavu!!

Company is not doing well BUT the management comes out and insist that the company prospect is still bright!

Guess what? On 22nd Nov 2005, Mieco announced that it lost 3.742 million for its 2005 Q3.

Present day, 21st Feb 2005, 4.30 pm, Mieco last traded at 1.00. Again the Fisher question is asked. Would the investor do well if he/she excludes themselves from such an investment?

Read more...

My Way

If ever there is a need for a theme song for investors, it just simply has got to be MyWay. Here is why I think that this is such a lovely song. :p

Regrets, I've had a few,
But then again, too few to mention.
I did what I had to do,
And saw it through without exemption.

In our life as an investor, we are bound to have regrets or mistakes. No one goes through life without making a single mistake. It's just not possible. And in investing, since mistakes cost us money, we want to make very sure that the mistakes are kept to the bare minimum and besides limiting the amount of mistakes, we do not want any of those mistakes turn into a massive mistake that it wipes us completely out of the investment game. Think of what Sinatra is singing here 'Regrets, I've had a few (keeping the mistakes to the minimum). But then again, too few to mention (ah, the mistakes made are just minor mistakes or mistakes that would not be damaging our heart and soul!).'

The song continued 'I did what I had to do and saw it through without exemption'.

In investing, did we do what we had to do? If our investing philosophy is all about intelligent investing (the purchase of shares in good businesses when market prices were at a large discount from underlying business values) whenever we make an investment, is our investment done in the most rational decision? Or do we make an exemption and sacrifice the pricing factor by overpaying an investment just because we ass-u-me that a market rally is about to happen? Or perhaps it would be better to stick to our game plan, and do what we had to do and do it without exemption?

I planned each charted course,
Each careful step along the byway.
But more, much more than this,I did it my way.

Planning each charted course, each careful step along the by way. Did we plan enough in our investments? Were we careful in each of our investments? Or did we sacrifice a tiny little weenie bit in our margin of safety? Did we take unwarranted risks in our investments?

The very last part, I did it my way. Think of Warren Buffett's advantage. Buffett's advantage is that he knows he is right because his reasoning his right and that sometimes the manic Mr.Market might not agree with him. So if we made the best logical reasoning (very crucial here.. the issue of how dead sure are we that we are right?) then it doesn't matter if Mr.Market agree with us or not. For we have done it our way, the right way!

Yes, there were times,
I'm sure you knew,
When I bit off more than I could chew,
But through it all, when there was doubt,
I ate it up and spit it out.
I faced it all and I stood tall
And did it my way.

Ah, there were times, I'm sure every one of us has faced it before, the making of mistakes.

So what do you do when there was doubt?

Hmm... interesting issue. Being wrong or being in doubt? Well when we are wrong, we know very well the right thing to do in life is to stop being wrong. But when we are in doubt, ah there is a mighty huge difference because we do not know whether we are right or we are wrong. This part, for those trading in the market, it is very precisely clear that they never, ever to trade in doubt. But for investors, this issue is not as crystal clear. Take for example, a company having a setback in their business operations. The 'doubt' for the investor is defining the setback. Is the setback temporary or will the setback turn into a permanent issue? An investor who assumes the setback is a temporary thingy, might treat it as an investment opportunity. However, if the setback turns into a premanent issue, then the investor has simply made a wrong investment and what's more damaging, in such incidents, it takes a far longer time for the investor to realise that the setback is permanent. And by then, the mistake would have turn so huge that it might kill the investor in a single blow! This is why some investment gurus teach one not to invest in a stock whenever we are in doubt!

And not forgetting, 'I ate it up and spit it out'... when we are wrong in our investment, we have to 'spit it out'. That is the investor has got to admit their investing mistakes and cut-loss!

So sing it out loud....

And now, the end is near,
And so I face the final curtain.
My friends, I'll say it clear;
I'll state my case of which I'm certain.

I've lived a life that's full,
I've traveled each and every highway.
And more, much more than this,
I did it my way.

Regrets, I've had a few,
But then again, too few to mention.
I did what I had to do,
And saw it through without exemption.

I planned each charted course,
Each careful step along the byway,
And more, much more than this,
I did it my way.

Yes, there were times,
I'm sure you knew,
When I bit off more than I could chew,
But through it all, when there was doubt,
I ate it up and spit it out.
I faced it all and I stood tall
And did it my way.

Read more...

Management Integrity

In the investment classic, Common Stocks and Uncommon Profits , the late Philip Fisher wrote about 15 points one should consider when buying a stock (chapter 3).

The last 2 points (points 14 & points 15) focused on the issue of management integrity.

• Does the management talk freely to investors about its affairs when things are going well but “clam up” when troubles and disappointments occur?
• Does the company have a management of unquestionable integrity?

According to Fisher in point number 14:

• The management that does not report as freely when things are going badly as when they are going well usually 'clams up' in this way for one of several rather significant reasons. It may not have a program worked out to solve the unanticipated difficulty. It may have become panicky. It may not have an adequate sense of responsibility to its shareholders, seeing no reason why it should report more than what may seem expedient at the moment. In any event, the investor would do well to exclude from investment in any company that withholds or tries to hide bad news.

Think of the issue mentioned in DVM: Part III.

Here we are seeing exactly what Fisher is talking about. The company makes a rather huge loss. And instead of even explaining to the investing public why and how the losses occured, the executive director of the company talked about being optimistic about the company's future prospects.

According to Fisher, "It is the nature of business that in even the best run companies unexpected difficulties, profit squeezes, and unfavorable shift in demand for their products will at times occur."

For example, a well-managed company under-taking a massive plant expansion might face unexpected delays, unexpected expenses or unbudgeted costs. And this delay totally messes up the management's profit forecasts or could it even put a huge damper on the group's profits.

And according to Fisher, "How a management reacts to such matters can be a valuable clue the investor."

Now in the plant expansion example, some management may 'calm up' their investors by not telling the investors what exactly is happening because the mangement does not want to create an impression that either things are out of control or they do not have a contingency plan to correct what is going wrong.

And according to Fisher, "The investor will do well to exclude from investment any company that withholds or tries to hide bad news."

On the issue of integrity, this is a simple no-brainer. Does it make sense to go into a business-partnership with someone you do not trust? It is hard to imagine why anyone would want to go into a business partnership with someone who would most likely cheat us the minute we turn our back.

According to Fisher, the management of a company is always for closer to its assets than its shareholders. And without even breaking any laws, there are number of ways that the management can benefit themselves and their families at the expense of the minority shareholders, for example employing their relatives, buy-and-selling of properties between relatives at above market rates or the issuing common stock options.

It's not only the dislike for dealing with unscrupulous people but Fisher believes that companies managed by people of dubious integrity will definitely meet with failure. (Don't you agree?) For those in control would attempt to make money at the expense of the minority shareholders for these minority means nothing to them but mere other people's money who are there for them to abuse!

Read more...

DVM: Part III

DVM, a company whose expertise is in the broadband telephony and Internet Protocol mobile products, has a write-up in the Business Times today. ( see DVM banks on revenue from abroad )

Yes, this is the same DVM Technology that I have blog a couple of times before ( see DVM and DVM: Part II )

Firstly, it was nice to see the Business Times stating the financial performance right at the start of the article.

• In fiscal 2005, DVM made a net loss of RM8.9 million on RM11 million revenue. Net profit and revenue stood at RM848,000 and RM11.5 million respectively in 2004.

The last sentence of the write-up stands up.

• Chen, however, declined to comment on the company's financial performance for fiscal 2006, only expressing optimism on the group's prospects, fuelled by its business development efforts.

Perhaps Chen should have been reminded that as the executive director of a public listed company, he should understand the importance of explaining the extremely poor results of DVM to his minority shareholders. Recording a loss of rm8.9 million from a a paltry revenue of rm11 million is truly shocking to say the least. Hence, he should understand he has the duty to explain clearly to the investors who purchased shares in his company because they believed in the long term prospect of his company.

Expressing optimism on the group's prospects is simply not enough. How does he expect his shareholders to continue to share his optimism when the past results tells a horrific story?

So don't you agree that by declining comments on such issues, as why the company lost so much money, just shows the utter lack respect of the executive director to his shareholders.

ps.

DVM was sold to the investing public at an IPO price of 40 sen. DVM is now trading at a price of 11 sen. Another good example of the destruction of market wealth in our stock exchange!

Read more...

Mistakes cost us Money!

It has been mentioned many times that when you 'play' the share market you need to pay tuition fees. And making mistakes is how one learns to be better in the share market. Pay to learn is what they teach you.

But if one pays too much and too often, isn't there a chance one might just quit the game? Who wants to lose all the time? And if one quits, what about all the tuition fees paid? Or what if one pays so often that it wipes one out financially?

Ah... this is why limiting the cost of one’s mistakes simply paramount to one’s financial health.

And one does that by learning from one's mistakes and better still, we try to learn from other people's mistakes.

Making a wrong judgment is so easy.

Remember always, we are just normal investors, normal investors who would always make mistakes!

So what is a wrong judgment? Say you invest in a stock and the simple reason is that you expect it to be making more money each year. Now, upon studying the evidence given to us via the current quarterly earnings announcements, we discover that the company is not making more money but instead it is making so much less money each quarter. You expected the company to make more money this year but it did not. Instead, the company's earnings have declined drastically. Doesn't this mean we are wrong? Look at it, for whatever reasons, the stock's earnings are not growing but instead its earnings are declining. Do we want to admit we are wrong or do we take a self-denial approach and give ourselves personal satisfaction by insisting that we are still correct? And perhaps we would take extreme measures such as finding various (wrong) reasoning to justify to ourselves that it wasn't us that were wrong but it was due to some unforeseen circumstances beyond our control that made our stock selection not correct for the time being. But hang on a minute here. Whether it was us that were wrong or not, it matters not, we are still holding on the ticket(s) to a stock whose earnings are declining drastically. And the market it compounds the matter worse by punishing the stock via heavy selling. How? Do we want to be in a situation where we get punished so drastically that it wipes us out of the game? No possible?

Or how about we invest in a stock because the company is making a massive plant expansion and through our own reasoning, we believe this plant expansion should reward us handsomely. Well, that is a valid reasoning to invest in a stock. But what if the plant expansion runs into massive problems? Such as, we did not foresee a drastic increase in borrowings to finance the plant. Or for some reason or another, the plant is still not completed. Or when the plant is completed, the economics of the product which the plant produces changes drastically? For example, the product could go out of favor or the product faces new intense competition by other plants or perhaps a new substitute product has been accepted by the market. Cutting it short, what if this plant expansion is not going to be as rewarding as what we ass-u-me it would be? Isn't it possible that we could have a brand new plant but insufficient business to cover the cost of this investment to build the new plant? How? Once again we are wrong. We had bet the plant would deliver but it did not happen. Is the best move to accept that our speculation that the new plant would bring more profit is simply wrong? Or do want to take the self-denial approach by hoping that the fortune of the plant would improve in the future? Ah, it is possible but look at what we are doing. Instead of investing, we are now hoping that the market would correct our investment mistake. What if we are not lucky enough? Would the market punish us by wiping us of the game?

Remember if we are really wrong, and no matter how much longer we wait, we are still wrong!

In the share market mistakes costs us money.

So how big a mistake do you want to make? And how costly a mistake do you want to make?

Don't we want to make sure that our mistakes don't wipe us out?

Remember the idea is to find ways of controlling our risk so that, if we are wrong, we don't get killed.

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The STILL NOT CLEAR financial news!

Truly amazing once more.

• SALCON Bhd is close to securing another water treatment project in China, sources familiar with the company tell BizWeek.
  It is believed that Salcon is close to inking a water treatment project in one of the larger cities in Fujian province worth 400 million renminbi (RM200mil). ( China connection for Salcon )

It is believed... the 3 most used words by this so-called financial reporter.

I really wonder who is really believing in what!

First of all, do check on this past blog posting on Salcon to see the ludicrous comments made by the very same reporter. And the most scandalous part was the part where he wrote the following.

• At its close of 45.5 sen on Thursday, Salcon is trading at a price earnings ratio of some 9.4 times. The company’s price to net tangible asset per share is at an attractive 0.9 times, which is well below that of its peers, Puncak Niaga Holdings Bhd and Taliworks Corp Bhd.

A price earnings ratio of some 9.4 times? Which simply was a badly twisted fact!

Let's take a look at the rest of today's article...

• At press time it is still not clear which city Salcon will be venturing into, but the larger cities in Fujian province include, Fuzhou, Lianjiang, Xiamen, Fuqin, Nanping, Sanming, Zhangzhou and Quanzhou.

Emm.... if it is STILL NOT CLEAR.... then... what is the reporter writing about???? Can a reporter legally report on what he or his sources is not clear about?

Are we looking at the first of its kind in the world? The still not clear financial news?

• After about six months of negotiation, an agreement may be inked pretty soon, the source says. “There was a break in negotiation during the (lunar) New Year celebrations, but the final leg of talks continued recently, and everything should be ironed out soon,” he says.

Emm... may be means may be! And who is this source? Why no name? Or perhaps we are even talking about INSIDER info?

• Salcon CEO Datuk Lim See Teok is believed to be spearheading the negotiation and has made several trips to China to try to close the deal quickly, to prevent competitors from scuttling Salcon’s plans.
  It is still not clear what sort of margins Salcon is looking at, or how much equity the company will have in the water treatment plant. But judging from the company’s other projects in China, Salcon is likely to take a 60% stake in the water treatment plant.

Emm... see? It's the still not clear news!

• Late last year, the company made inroads into Linyi City in Shandong province via Linyi Salcon Water Co Ltd, in which it has 60% equity. The remaining 40% is state-controlled.
  Other than Linyi, the company has two other smaller water treatment jobs, in Changle and Chenggong county.
  Should Salcon achieve the same split as the project in Linyi, whereby it has 60% equity in the joint-venture company, the company’s sales would be boosted by about RM120mil.

Emm... Should Salcon achieve.... err... SHOULD..... that's a big assumption isn't it?

• “This is definitely a large job by Salcon’s standards. The company used the smaller jobs it secured as a springboard to move into more lucrative jobs like this one. This could be the start of more large jobs for Salcon,” the source says.
  Lim had earlier said that Salcon was aggressively looking into securing more jobs in China. He had noted, however, that competition was stiff as other big European players were also vying for water treatment jobs in China.
  “There are plenty of projects. China is a big country, we have a good track record and the experience,” he said.
  Eventually, it has been reported, that the company plans to list its Hong Kong unit Salcon Linyi (HK) Ltd on the Hong Kong Stock Exchange once it has secured some large-scale jobs.
  “It (the floating of the Hong Kong units shares) will be done after a few more projects of this size have been secured. The Linyi water treatment plant (which is the largest Salcon has secured so far) is likely to contribute RM19mil to revenue ... This will be much larger – five to six times larger – depending on the split,” the source adds.

Emm... everything is according to this source! How? Can I believe? Or is it to be believed????

• The company has hoped that the China ventures will boost its earnings which, in recent years, have not been very encouraging. For the current financial year, the earnings impact of the new water treatment business in Linyi and Changle will show itself in Salcon’s financials.
  For the nine months ended September last year, Salcon posted a net profit of RM600,000 on the back of RM136.2mil sales.
  For the third quarter, the company made RM30,000 net profit from RM23.5mil revenue.

Emm... after so much creative writing has been done, the reporter decides that he has to include some actual facts... which is... despite the company hoping that the China ventures will boost its earnings, the end results has been really poor!

So what do we have? This reporter is talking about the possibility of Salcon getting some 200million worth of water treatment projects in China. Just a possibility BUT the bottom line it is still not clear.

Meanwhile... for me.... this is the VERY CLEAR PART.... Salcon itself is a company which is really struggling to make profits. Gosh, a third quarter net profit of rm30,000?

How?

ps... here is Salcon beautiful picture... :p

More blog posting on similar issue.

1. Should Financial Press be allowed to spin-off Rumours?
2. Is our financial news really financial news?
3. Is our financial news really financial news?: Part II
4. Mutiara

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