Top of Ze World: Part VI

Edited: April 7th. 7.20 pm

Let me bore everyone with numbers and more numbers for Top Glove.

1. FY 2001.
Shareholders Equity = 93.170 million. Total loans = 13.958 million.
Total capital used = 107.128 million.
Earnings generated = 17.217 million.
Return of total capital used for 2001 = 17.217/107.128 = 16.1%

2. FY 2002.
Shareholders Equity = 109.136 million. Total loans = 13.440 million.
Total capital used = 122.576 million.
Earnings generated = 18.036 million.
Return of total capital used for 2001 = 18.036/122.576 = 14.7%

3. FY 2003.
Shareholders Equity = 130.471 million. Total loans = 39.289 million.
Total capital used = 169.760 million
Current earnings generated = 25.222 million
Return of total capital used for ttm = 25.222/169.760 = 14.9%.

4.. FY 2004.
Shareholders Equity = 162.006 million. Total loans = 63.063 million.
Total capital used = 225.069 million.
Earnings generated = 39.509 million.
Return of total capital used for 2001 = 39.509/225.069 = 17.6%

5. FY2005.
Shareholders Equity = 216.082 million. Total loans = 154.191 million.
Total capital used = 370.993 million
Current earnings generated = 58.141 million
Return of total capital used for ttm = 58.141/370.993 = 15.7%.

6. TTM (Trailing Twelve Months or most recent 4 quarters).
Shareholders Equity = 255.538 million. Total loans = 199.478 million.
Total capital used = 455.016 million
Current earnings generated = 69.666 million
Return of total capital used for ttm = 69.666/455.016 = 15.3%.

How?

How would you want to evaluate such numbers?

On one side of the coin, a ROTC of 15.3% is still pretty impressive despite the huge debts being employed to fun the expansion. And because the ROTC is 15.3%, surely this simply vindicates that all the spending, the negative cash flow and all the borrowings is justifiable.

But.... butt.... buttt....

On the other side of the coin, one could argue that since hitting the peak in FY 2004, with a ROTC of 17.6%, Fy 2005 only showed a ROTC of only 15.7% and the most recent 4 quarters numbers are only showing a ROTC of only a 15.3%. Although the numbers is still impressive, one could argue that a visible downtrend can be seen. And the interpretation could be, yes the initial expansion is justifiable but pace of expansion has grown way too fast and that the company could not generate enough returns to justify the huge outlay in its expansion.

Again... two sides of a coin.

How would one interpret this?

And here is another more interesting issue. Blogger Ichi The Killer , mentioned the following:

• I have many of the same reservations about it, but still it keeps going up ... so what can we say, right?

Ahh... this one issue that will forever exist in the share market and it depends so much on how the individual handles such situation.

Take Megan Media last quarterly earnings. Despite it reporting a huge jump in earnings, the investor finds their earnings so suspect since the main catalyst for the huge jump in the earnings is caused by a shift in accounting. Crudely put, it was simply an earnings made by the accountants.

And the market reaction? The stock went zoom, zoom, zooooom from 60 sen to 70 sen.

How?

Well stuff like this will always happen. Take trading for example. A trader could find a whole bunch of stocks that he or she is not comfortable with it. And yet, these stocks yet went zoom, zoom, zooooom too!

How?

Should the investor or even trader adjust their strategy/game plan to try to catch every uptick, every stock movement?

My say? I believe in sticking to what I am comfortable with. Stick to my comfort zone and play the game that most suits me.. yup, play the game where my chances of winning is good!

Oh... remember the story of the 3 legged mahjong and dead dummy mention in this blog posting?

Let me repeat here again... :D

Now my Granny simply loves playing either Mahjong or Dead Rummy. Now she really excels in the game of mahjong, especially the 3-legged mahjong, in which I would say that she wins probably 7 out of 10 times whenever she plays. Her winning average is about 70%. In the game of dead rummy, she ain't as hot. (not so geng wor!) She has probably a winning average of about 30%. And because of her knowing exactly what she's good at, she always, always insist to play the game of 3-legged mahjong, because she knows winning is much easier for her.

So what about me?

Me? LOL!.. Firstly, I am good at Dead Rummy and my best strategy is to avoid her at all cost at the mahjong table and wait patiently to play Dead Rummy with her. LOL!.. yeah, I am indeed being very snake here (ho ho ho) but by playing only Dead Rummy with my Granny, I know very well that I am playing my best game verus her worse game. Won't this improve my chances of winning? (else? I will be slaughtered at ze mahjong table and be ze water fish!)

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Some interesting comments from hhc. April 7th. 7.20 pm

• Let's look at the sector Topglov is operating with. It's a volume game business with pretty tight margin which means anymore price cut will hurt its bottomline.
  
  Imagine what will u do if u r the owner? (of course we can just DONT invest in it). But, as the owner, the only logical way is to make yrself HUGE before anyone else and elbow them out. If u r the number one in these kind of volume game, u can control a lot of things to protect yr margin.
  
  ok then, how to increase size?
  1)Build new plant and reinvest yr profit (too slow , i think)
  2)Leveraging and M&A. fast but will attract a lot of attention and risk of indigestion.
  
  Topglov chooses the 2nd part which is , i will say pretty well run, at least until now.
  
  I dont like its balance sheet but i do admire that Topglov boss has the gut to face the world. If i m not mistaken, MR Lim stil hold a lot stake in topglove.
  
  And generally, no hanky panky deal between major shareholder and company so far which is the sign that the owner is willing to share the wealth with minorities.
  
  Maybe that's why fund managers like it and it's all in its price. If they are not long term investor, u wont see topglov volume is decreasing a lot from last years. One explanation is that ppl are holding the share.
  
  Lastly i fully agreed with yr concern and i was out from topglov not so long ago. There are value elsewhere...