Friday, December 2, 2011

Able to foresee and able to capitalize

It has been sometimes i did not update my blog, very sorry to all the viewers.For the past few months, thing has been stagnant until recently.

Yes i manage to foresee it is only the correction for stock market not the beginning of the bear market. However able to foresee and able to capitalize on it is a seperate issue. As i mentioned previously, i did not purchase any stock for past few months. Indeed my stock portfolio did not change for more than 1 year. My core holding - Hartalega, Public Bank and Allianz did not perform well in term of share prices, but their scorecard in term of financial results are satisfactory.In year 1929, Philip Fisher also managed to foresee the market was going to collapse however he did nothing. Instead he was looking for stock which was relatively cheap or stock that yet to go up. He was losing money, although he was rigth that market eventually collapsed few months after his prediction.I managed to foresee HLFG is going to be the winner of Hong Leong Bank - Eon Bank saga, but i failed to capitalize on it. I said Astro and Aeon Credit is attractive but i also failed to purchase any. I also made a few bad call like YTL Cement, and luckily i did not buy. All these are recorded down for me to review for my future investing decision making.Year to date i still barely making money but only dividend received.

In year 2008 i started to invest in property, and going aggresive by year 2010. What i want is to diversify my investment vehicle. I was lucky that the property market was booming starting from end 2009. Some of my investment still yet to see the result but what can said is property investing is profitable. You need to be selective and not over leverage.

Similar to my stock investment, although the result is not satisfactory currently but i still have confidence. This because i foresee my stocks holding going to make more money (business profit) than now for years to come.

22 comments:

  1. hello 2nd brother, why would you say that it is merely a correction but not the beginning of the bear market? What is the time frame we are talking in our discussion?

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  2. Hi uncle ho, 2nd brother..
    Long time no see. Its was great to see ur update here

    江湖

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  3. YTL Cement performance outdo even LMCement. Why is YTL Cement price not going up?

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  4. UncleHo, i had been talking about this is not a beginning of bear market months ago, you can refer my previous posts. I still maintain my opinion, Euro Zone will not create a crisis. So I am correct for the past few months only loh! To me a known event will not create a crisis, only the unknown will. Every alternate day we will see the Euro Zone problem in the media, to me a problem will remain a problem not a crisis.

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  5. Malaysia Investor, if the stock market will perform as to the reported financial result at all times, then that is not stock market anymore. The market is really efficient. The lousy stocks will not have their followers, the stock market is not efficient in short term.

    You should able to notice that i am grumbling for quite sometimes about my stocks holding did not perform well in term of share prices recently although they reported a good set of financial results. I recognize that the market is not efficient. If the stock market is efficient, then the chances we beat the market is slim.

    Yes YTL Cement reported good financial result than LM Cement but so what? The market still not buying the idea, it mean a lot of investors still dont like the idea. We have to re-access whether we are correct or not? if we are right, then we can still hold on.

    I used to own stocks that not performing well for 1-2 year, eventual they did beat the market. Of cause, few did not satisfactory. I am reviewing my holding every now and then, whether the fundamental of my stocks are deteriorating or not? If the answer is no, then i will keep them.

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  6. Your reason of inefficient and efficient is very similiar to Warren Buffet's remark. But, I think we still do not have any answer on why YTLCement PE ratio is only 6.6 and PE ratio for LMCement is 19.94.

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  7. Furthermore, YTLCement Net Profit for year 2011 is 337 million ringgit whereas net profit for LMCement for year 2010 has drop to 295.34 million from the year before 412.28 million ringgit.

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  8. YTL cement sales jump from 2010, 1,854 billion ringgit to 2.192 billion ringgit. Whereas, LMCement sales has drop from 2009, 2.48 billion to 2010, 2.32 billion ringgit. Is YTL Cement eating up LMCEment market share?

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  9. Malaysia Investor, normally people will price (or the share price people willing to buy) the stock based on few considerations. 1st, the dividend a stock is paying out. Look at Nestle, BAT, Digi and etc, these group of stocks are traded at very high PE. This is because people priced them using dividend model instead of PE model. The consistency of high dividend justify the price of stock. If one day this group reduce their dividend, their share prices would be hammered down. This is what happen to Carlberg 2 years ago after it reduce its dividend. It share price rebound recently due to higher dividend and growth from Singapore operation.

    2nd is the growth rate of a company. Higher a company able to grow, people are willing to pay a higher PE. This because the high growth rate will reduce its PE rapidly.

    3rd is the visibility of the immediate future. If the future outlook is bright, then people is willing to pay premium. If the outlook is not so clear then people is not willing to pay at higher PE. This is what happen to Property Stocks and Banking Stocks currently. To me, some of the banking stocks like Public Bank and CIMB are attractively priced currently. Both counters committed to pay out 50% of the profit to shareholders. If the outlook of the economy turn better the share prices of both banks will soar as people are projecting they going to make more money in future.

    Back to your YTL Cement case, please take the points to justify its share price. If you still unable to justify, the YTL Cement is under value or people is not appreciate what you appreciate. Then you may consider it is a Beauty Contest.

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  10. Noted with thanks on your opinion on Euro problem (or crisis). I am not a fan of bull, neither I believe in bear. I am in opinion that this is going to be a soft-land issue so directions of the market is going to be volatile with high beta. Either way, holding of asset which shall appreciate is very important.

    Thanks again, and happy investing.

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  11. 2nd brother, appreciate your point of view. But the fact is that YTL Cement's net profit and sales figure has beat LMCement doesn't it mean that YTLCement has eaten up LMCement market share? Or is most YTLCement sales intercompany related?

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  12. This comment has been removed by the author.

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  13. Furthermore, is there customer loyalty for cement products. I know Nestle's MILO has dominated the market like Coco-Cola and Pepsi Cola. Therefore, it has manage to build brand customer loyalty. Digi and Dutch LAdy has also manage to build brand customer loyalty. But does cement product has brand customer loyalty? If we can't differentiate the product of a company from the rest of the market, then the profit margin of that particular product will go down. And therefore, it will be categorise as comodities business where the net profit margin will be very unpredictable just like airline and palm oil business

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  14. I have been owning YTLCement for quite some time. I was initially attracted to the stock due to two primary reasons; a) it is the lowest cost producer in the country b) it is the only manufacturer that has the technical know-how to customize building products for the customers. In terms of microeconomics, these two factors present a huge moat around the company. To prevent being blindsided by the simple facts that could be found in the annual report, I read a few analyst reports in order to know anything which I dont know yet. Much to my amazement, YTL is indeed leading the price war by giving a higher rebate to its customers.

    In terms of a macroeconomic view, the future of the cement industry, I must admit, do not look bright. The demand from the property sector is drying up. There might be huge rebate given out by cement producers but that does not mean there is a sustainable demand. Besides, coal price has been going up a lot which will further squeeze their profit margin. There is no pricing power when the demand for the products is low.

    On the issue why YTL Cement is priced so much lower than Lafarge Cement despite the former has a better financial result, I believe it is mostly due to the liquidity and shareholding structure of both stocks. The market obviously prefers to pay a premium for a foreign subsidiary (see Nestle, Digi, Dutch Lady) which is less tighly held by its top shareholder. Thus, in my opinion, a discount in valuation for YTL Cement is justified but not at a wide discount.

    When the macroeconomics especially the country's property outlook turn bright, I expect the market to rerate YTL Cement in the foreseeable future of 5 to 7 years time.

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  15. Heineken Pilsener, appreciate very much of your insight. By the way, how do you get those information?

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  16. I got those information just by reading the annual reports of YTL Cement. By the way, P/E is not a suitable metric to value a cyclical business like YTL Cement due to its cyclical nature of profitability. The P/B ratio would be a better valuation metric for the cyclical business. Now at 0.95x P/B, YTL Cement still has a significant margin of safety and is literally priced for zero growth for years to come in spite of the competitive advantage that it has over its peers.

    My only concern with YTL Cement is the parent company, YTL Corp, might opt for a privatization of this wonderful subsidiary when the ICULS is fully converted in 2015. It does not help when the parent company has announced in a few public events that they will not reject the idea of privatizing their subsidiaries should the market continue to undervalue them. Nonetheless, this concern is not really a big problem if we do not overpay for its shares. I also believe in the management's integrity in not mistreating its minority shareholders by privatizing the company way below its book value, as well as the capacity of institutional investors in fighting for a better valuation if an offer comes in.

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  17. How can it be call cyclical business when its net profit rise from 66.8 million(2002) ringgit to 337 million ringgit (2011). It is a growing business. It has been growing year on year. Same as Lafarge cement. Lafarge cement NP rise from 64.8 million ringgit (2001) to 412 million ringgit (2009). But in year 2010, NP droped to 295.3 million ringgit.

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  18. Heineken :
    Yes PE is not a good tool to be used to justify a company. It is just an indication of how demanding a particular stock is because th Pm ( Price ) is fluctuating according to the market condition. But to use NTA to justtify YTL Cement I am not totally agree with that. Cement industry is not a balance sheet oriented business. Unlike insurance company or bank which generate income base on it's asset quality. Look at Public Bank and Allianz balance sheet. Most of the income are from the good quality of asset they own. As for YTL cement, I haven't gone through the blance sheet or their P & L, what I will like to highlight is there is no point to hold a " high value " asset which can't produce much income. I would prefer a 100k USD worth of Public Bank to 120k worth of YTL Cement if I need to keep it in th " vault " fr 3 years. Look at Btoto, market prices it much higher than it's NTA. Btoto is not a balance sheet oriented company, in my opinion YTL Cement neither. I am not saying that YTL Cement doesn't worth much, I just opine that we shall have different approach to value it. That is my 2 cents ... Adios.....

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  19. There is no point analyzing YTL Cement anymore since the parent is taking it private with a pathetically undervalued offer. I guess I just made a bad analysis by overrating the integrity of the management.

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  20. For YTL corp shareholder to buy YTLCMT at RM 4.50, it is really cheap la.

    For YTLCMT owner it is equal to RM 4.50 / 3.17 share = RM 1.42 to own a share YTL also cheap la.

    Considered as win-win?

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