Wednesday, December 26, 2012

Stock Market record new high, so what's your result?

Index is breaking the all time high record! Maybe we need to thanks the hot money “created” by US, seem now already spread the effect, especially for Asia stock markets, from Hong Kong to Taiwan, Singapore, Thailand, Indonesia and Malaysia.

However, you would be surprised if I tell you many investors are not making money, some even lost money in their trade. Why? And how could this happen when market is bull run?

Unfortunately, this is what really happen in retail investors. School never teach how to invest like a millionaire. After all, if there's a school, I don't think there would be any millionaire teacher willing to teach those new bee how to earn their fortune in the stock market. What we could find are those half pass six teacher, so what kind of result can you expect?

In fact, investment is similar to swimming. You can not and also dare not trust the advice from your friends or teacher. Furthermore, you may not know what they told is right or wrong, it could be another stupid idea! Therefore, most investor like to try an error in order to gain the “experience”. I call this as a school fee / tuition fee that one need to pay in order to learn the investment lesson. How big or small the “fee”, it's all depend on your decision.

I paid a 5 digit amount for my “tuition fee” in my earlier part of investment life. It was a big amount and I treat it as my very first investment lesson on “why I lose money in stock market”. Till today, I still record down this important “lesson”, to remind me not to do the similar mistake again.

For those who started to invest in stock market 10 years ago, if you have yet to learn the lesson, my advice is, don't invest anymore, better put your hard earn money in the bank's FD. If you are curious what are the lesson that I learn:
First, never buy a stock base on tips or rumours.
Second, never buy the troublesome company.
Sound simple ya, but if you don't believe me, go ahead to buy a stock base on hot tips, or buy a cheap company that going to burst... almost 90% I am sure you going to pay for it! 

Sunday, December 9, 2012

How the Margin account work?

Margin account is one of the way for those qualify to borrow money against your existing stocks to buy more stocks. Different broker will establishes different margin of maintenance requirement.

For example, if you deposit $20,000, you would have $50,000 of buying power. (some broker give 2.8x, which make the buying power as $56,000) You can margin up to 60% of your stock price (some time 65%), in other words, you use $20,000 of your own money and broker will loan you $30,000. If 65% of margin, then the high side you can borrow is $33,000. Some stock may have lower limit (cap price less than 1), hence the securities value will become less. Let assume we buy 10,000 shares of a stock at $5 per share and below are some of the possible scenarios.

Scenario 1: Cap price 1 and stock price flag
The 10,000 shares still worth $50,000 (securities value). In this case, there's no margin call as margin is 60% (money borrow $30k divide by securities value $50k), however, you lose out, as you need to pay for the interest of $30k.

Scenario 2: If cap price 0.90 and stock price flag
In this case, the securities value worth $45,000 only although the actual market value is $50,000. When the broker calculate the margin, it would become 66% (money borrow $30k divide by securities value $45k). This leave no room for the investor as once the stock price goes below $5, margin call will follow.

Scenario 3: Cap price 1 and stock price goes south to $4
The 10,000 shares now worth $40,000 (securities value). In this case, when the broker calculate the margin, it would become 75%. Margin call will follow and investor will need to top up $6153 to reduce the margin to 60% or the broker will force sell some stock to make the margin become 60%.

Scenario 4: Cap price 1 and stock price goes up to $6
The 10,000 shares now worth $60,000 (securities value). Investor can withdraw $9,000 or buy additional stocks with this value. Another option, sell the stock at $60,000 and return the broker $30,000, a nice return base on initial deposit of $20,000.

Below are some of the important lesson one need to learn from margin account:

  • margin amplifies a portfolio's performance, make losses and gains greater than they would have been.
  • All securities in account are held as collateral for margin loan
  • If you fail to meet the margin call, the broker may sell off some or all your investment to cover the margin requirement
  • It is possible to lose more than you invest when using margin.
  • Use margin account to buy stable blue chip stocks with cap price equal to 1 is better than cap price below 1.
  • Interest rate charged by broker, terms and conditions may subject to change

Some people say, margin account is a two-edged sword. It's a great deal if the stock goes up, but a disaster if the stocks goes down. It's definitely not suitable for beginners as it involve market risk and need to follow strictly on tight money management.

Saturday, December 1, 2012

SP Setia, could be right time to invest?

Most investors would like to seek for stock tips, normally I seldom provide any. The reason is many people don't understand how to handle it, hence, many time Mr A is making money whereas Mr B is losing money though they bought the same stock, just because of the timing and experience make the different.

Recently there is a stock, SP Setia which fall about 18% in share price for the last few days to close at RM3.05 last Friday. You can treat this as stock tips on how to trade it. I think this one is a good example to study and at the same time, trade it to make pocket money. First, let study what could be the reason for it share price to fall?

According to some analysis, the main reason could be the foreign fund were selling due to the stock being removed from the MSCI Malaysia Index. Further add on to this is because of general election mood, many investors may stay sideline, wait and see first.

Investors may also want to find out if the company turn bad? Or if the profit in the decreasing mode? If the answer is no, then it's worth to take a look. It's similar to as if someone is selling their house at below market price in your area, do you need to feel panic or fear, it could be an opportunity to make money!

What's the prospect of the company, is the profit look good in next few years? The answer is sure, among the most recent projects, they have joint venture with Sime Darby Bhd and EPF to develop the 39 acres freehold Battersea power station in London with value about RM39.4 billion. Next on hand project is new integrated health and research institute (1NIH), measuring about 41 acres. This projects will give positive earning figure and keep the business going for few years.

Investors will get the dividend of about 4.8% at current share price of RM3.05. Base on the EPS of 20.8 cents, the PE is about 15x. Many stock brokers give target price of above RM4.00. However, for margin of safety purpose, I will give a discount of 15% from their target price, hence RM3.28 to RM3.40 is not a problem for short term investors.

For those Technical Analysis (TA) supporter, currently the share price is approaching Fibonacci level of 261.8%, hence we could see the technical support at the level of around RM3.00 (plus minus 5 cents). Once most of the TA supporter believe what they see in the chat, it will become strong support at current level, hence more traders will follow and forming buying support at current level. Though sometime I don't really like the TA, however, when you see the high volume appear at the bottom, it may hint, hey, it's time to buy!
Note: In addition to my disclaimer clause in my blog, I hereby confirm I have bought SP Setia recently at RM2.99 and RM3.00 level and had been trading for few rounds at this level. For the time being, RM3.00 is a good support, I feel that 5% or more profit for short term is not a problem. In cases if the stock price fall to RM2.80 or below, execute a cut lost plan.

Monday, November 12, 2012

Just attend a wedding dinner on last weekend. The decoration, very nice, the environment also nice, especially at front of the hotel door can view a nice Taiping lake!

In the midst of having the food, an idea came to my mind. Guess what, every table seem to have this...

Perhaps, it's time to invest into beer company... the reason, no matter economy good or not, so many people like to drink, especially in the wedding dinner, birthday party, New Year celebration or even farewell party. I don't think people will stop drinking in the next ten years, but the thing remain a concern, Malaysia is an Islamic country (some people have different opinion). Anyway, if you can worry about your investment value decrease by 20% or even 50%, then better don't invest, keep all the money in a bank is better. My next action item --> slowly accumulate Carlsberg stocks if there's correction on the stock price.

Sunday, October 28, 2012

Not all IPO you can make the money!

 Recently received few query about Astro IPO (initial public offering) many seem not understand why Astro share price could fall below IPO price (something similar to Face Book IPO). In fact, no one can guarantee that IPO will always make money. Someone also make a joke, IPO seem equal to “It's Probably Over-Valued”.

Why so many people chase for IPO? In fact, strike IPO is similar to strike a lottery, you wouldn't know how much going to make. However, base of past record, many IPOs were actually very successful, hence investors could make quick easy money. That's why there's always interest in IPO.

In fact, for those company who opt to raise fund through IPO, there are a set of stringent guidelines that the company must follow. The Securities Commission (SC) is the body responsible to monitor the public listed company follow the rules and guidelines. Usually, there's one document call “Prospectus” the company need to issue and if you read carefully, they have listed all the possibly event that could go wrong with listing, including risk for IPO investors. (so that you could't blame them, they already told you the fact!)

Investment Banks are the one who handle the initial distribution of shares during IPO. They will try to sell shares to local and regional investors. That's why they need to create story to tell the public, usually telling all the good points (if not, who is going to buy the shares?) and make the story look good and feel good. If the investors believe their story, then the stocks coming out and being bid up multiple times, they call it over subscribe, the news will be published on major news paper. (to show off that the shares sales like hot cake) The Investment will make millions of profit for every successful IPO.

Once the shares listed on the market, supply and demand for the stocks will drives the price up and down. For Astro's case, though the shares were over subscribed, it's not indicator that the price would not fall below the IPO price. (I told my clients to sell the Astro shares on first day of listing, as later there always a chance to buy cheap)

After the event, many scratch their head,Who are those selling Astro shares? (you may click on the link to view the details of Star Article) Those experience know the stock price is driven by supply and demand, also the buyer can become seller if the trend change, see the below story.

Eddie, is a Fund Manager who subscribed the Astro shares. On first day of listing, his plan was to push the stock price go little bit higher (so can clear holding at higher price, remember the purpose of the Fund is to make money), however the selling pressure was so huge, after several attempt, the stock price seem to go south every hour. (he did contact other fund managers as well to understand their view) At last, the team respect the trend, so they changed the plan and decided to sell first then buy later... in the end, Eddie may still holding Astro stocks later, but they already “squeeze” some money out from the market, compare with those who still hold the loosing stock from the IPO.

Next time, if you want to play the IPO stock, try to guess when to buy and when to sell. Unless you are long term investors (must also consider if the stock suitable for long term or not), else think as if you strike lottery, how big or small amount doesn't matter. Most important is when you look back, don't regret if never take any action! This is one of the most important lesson if you were to consider IPO shares in the future.

Thursday, October 11, 2012

Portfolio Review - Oct 2012

The purpose of BC portfolio is to receive stable income (hence seldom buy or sell, and we selected the stable stocks) and at the same time making comparison against my friend's single stock position and the one who park the fund in Bank's FD. The is how we manage risk by creating a portfolio to protect our capital against choppy market.

We started with RM242,000 on 19 Jun 2011, purchase only three stocks:

NameCost Price
Total shareMarket Value






As of 4 Oct 2012, the position look like this:

NameMarket Price
Total shareMarket Value






On the income side (total dividend):


Fr last Q









Comparison with my friend's Single Stock:

NameMarket Price
Total shareMarket Value

NameMarket Price
Total shareMarket Value







With this BC portfolio, the capital is almost protected and we manage to grow it from RM242,000 to RM268,000. Whereas holding a single stock of Jobst, due to market down trend the capital now only worth RM203,974.80. Though our intention is not to sell any stocks in near future, however, if we were need to do that due to what ever reason, we can liquidate more funds with our BC portfolio.

Let look at the total dividend received comparison for Single stock and BC portfolio:

Dividendsen RM


Fr last Q

Fr last Q












The BC portfolio's dividend is almost 7x highest than single stock holdings.

The other friend who put the money in Bank's FD, his return is only RM7,744 (principal of RM242,000 with 3.2% FD rate p.a.).

Future plan: We intend to purchase additional shares of the 3 stocks if market drop, or add one more stock to further diversify our holding of stable income portfolio.

Monday, October 8, 2012

Malaysia Budget 2013

Last week, PM announce the latest Malaysia Budget 2013, below are some of the goodies highlight:

1. One month bonus for 1.4 million civil servants.

2. One off RM500 for household income less than RM3,000 and RM250 for single with income less than RM2,000

3. Special incentive RM200 per month for all military personnel.

4. One off RM1,000 for former member of armed force who did not receive any pension.

5. RM100 to all primary and secondary students and book voucher RM250 to all form six and tertiary students.

6. Individual income tax cut by one percent.

7. RM200 debate for aged group 21 to 30 who purchase of 3G smartphone.

8. Oil & Gas - Companies with investment activities in the refinery of petroleum products will be provided with tax allowance of 100% for the period of 10 years.

So, which company will gain in terms of profit?
Personally, I think all the Telco's will doing very good, then company like Dialog, SkPetro and CBIP will doing very good in next coming year due to tax incentive.

Monday, October 1, 2012

Can you retire with one million?

Today, I came across an interesting article in The Star, “Can you retire with one million?” Just click here to read the full article.

According to the writer, he assume a person with 55 now, having one million in the pocket and have a life time for another 25 years (about 80 years old) He use simple math to divide 1,000,000 by 25 then divide further to come out $3,333 a month. With this, he concluded that life would be tough, hence one still need to work after 55 as $3,333 might not enough to cover the expenses.

Oh no... how can the writer did not know in the world we have something call Investment. One can invest in property, stock market, bond or even business to generate income. For example, he can buy 5 or 6 houses with each value at around $200,000 and collect the rental income. (we don't talk about borrow money, but just use all the cash in his pocket) Assume each house generate $900 of net rental, with 5 or 6 houses, you can simply collect $5,400 per month. Don't forget, after 5 or 6 years, all these houses will appreciate in value, meaning one million will become 2 million quite easily. Thanks to the inflation, you may also revise the rental rate as well, meaning 5 years later, the rental may increase to $10,000 per month.

Another option, one can buy the REIT (Real Estate Investment Trust), with current average return of 7 to 8%, one can expect $70,000 per year if invest with one million, or the dividend of $5,833 per month without worry about collecting the rental and don't need to pay tax. Since the main objective is to receive regular income here and capital appreciation would just be a bonus over the year. Similarly, REIT's rental would increase year after year.

Of course, there are many other ways to generate profit income with one million if you know how to set up a business with reasonable risk. However, if you don't want to take extra risk, the above two conservative way to invest the fund are more than enough to support you living. From the above example, you don't need to kill the chicken, but just sell the golden egg which generate by the chicken every month, how nice! Who say one million just can survive for 25 years?

Sunday, September 30, 2012

How many way to invest in Gold?

If you want to invest in Gold, at least there are three ways.

First, you buy a real Gold Bar. However, the problem is it's too heavy and difficult to move around. Another problem is you need to find ways to part it or keep it in safe place. (and to buy insurance just in case of theft protection)

The other way, you can go to bank to save the Gold, they will give you password account to record down how many grams of Gold you invest. For example, you can go to local bank (Maybank, CIMB or Public Bank) to open Gold Investment Account:

The above 2 methods are mean for those who want to buy Gold for medium to long term. However, if you would like to trade Gold (Buy and Sell in short to medium term) then you may opt for SPDR Gold Share. This is similar to ETF (Exchange Trust Funds) or people call this SPDR Gold Trust, the fund which invested into Gold. For Asian, I recommend to invest in Hong Kong SPDR Gold Shares under the code 2840.

For details of 2840, you may visit the below link, go through their frequent ask question, they are very informative :

Friday, September 14, 2012

What to invest in?

I always receive question from client about what to invest in. One of the simple method I always tell them, invest in “best” company, that should be the direction for all investors. Many investors get the direction wrong, then after few years, only realized they had in the wrong path. Then another question will come... how you know which company is “best”?

Today, we can build a business if you want. Many business will end up losing money, in order words, to build a successful business is not easy. Stock market is a place where it provide investors a platform to buy a successful business, but you need to know the way how to pick the good company.

One of the way how to pick a great company is look for company that can create value or income. Those company use fund from investors to create value to people, produce healthy product or provide service to improve quality of life.

The other way to look for it, look at your personal monthly expenses, I believe cost of living is take up about 50% of your income. Just go through and find out which item involve monthly charges, it's a necessity, you may not able to cut it even if you want to. For me, there are few items, one of them is hand phone bills.  

According to statistic, average Malaysian spend about RM150 for post paid customer and RM50 for prepaid customer every month. Some people even carry with them two hand phone, especially smart phone become a trend now. Beside the hand phone company, Telco service provider are making good money every month!

Last, remember the direction is to think as the owner of the business, if not, you will not enjoy the process of become a millionaire after few years. Don't regret later and say “if I never sold the X stocks certain year ago, I will become a millionaire today!    (refer to my blog: Long Term Investors)
Note: In addition to my disclaimer clause in my blog, I hereby confirm I have bought Telco services provider Maxis and Digi shares few years ago and with intention to accumulate more shares in next few years)

Tuesday, August 21, 2012

Rich or poor, you can choose!

If there's a choice, do you want to become rich or poor? Many people will say, they want to become rich! However, there are some, who think rich are selfish, so they want to remain poor. Some even have a funny thinking that if they become rich, they will need to lost something in order to exchange for rich!

Many people hate their boss, because their boss is rich. Also, they think they are under pay but over work, that's why their boss become rich and rich people are all greedy! If one having this kind of thinking, then most likely he will never being rich. How can you become someone whom you actually hate? If you feel like under pay, then why don't become a boss?

It make more sense to become rich and it's better to remain rich, become stronger and you can help the weaker! If one remain poor, how can they help those poor to become better? That's why when come to donation, rich people can always give, and they hope to give more next year if their business is bigger. And they know they will give more because their business is growing, the money is working for them even they are sleeping.

If you think rich people will lost something in order to exchange for rich, you are wrong! This is poor people's thinking, the rich always think of win win situation. You can become rich, not only in terms of money, but the true wealth, love, people and hope for future.

Even if the government distribute all the money equally to all people, after some years, you will notice the money redistribute and only about 10% of people become rich and the rest of people remain poor! Why? All happen because of mind, the poor people remain poor because they don't have the financial “Blue Print”.

For instant, the poor when they receive few hundred thousand, they will think of how to spend it. Go for holiday in one of Europe country, buy the most expensive car, buy the luxury condo, hand bag and so on... anything you can name it! On the other hand, the rich will think of how to grow these money, form a business that will generate income, buy a properties that can be rented for income, buy a stock that can grow, sell the product that can general profit... if that is not big enough, then “think and grow rich”, go to bank and borrow more money that can generate higher return!

That's the reason why rich remain rich, so, next time, don't hate the rich, but admire and respect them. Most of rich are also honest, if not, their business will not grow big and sustain in years. Learn from them and you can become rich too one day! Once you know the way, money will just flow to you once you become money magnet, just appreciate and say, “Thank You!”.

Saturday, July 28, 2012

Exchange Trade Bonds (ETB)

When I first heard of Exchange Trade Bonds (ETB), I just wonder, what's that. Luckily, Bursa gave us some explanation. According to Bursa, this is the "product" that they will introduce to all retail investors by 3rd quarter of 2012. In fact, I don't understand why make the name so complicated, it a bonds, so just call it a bonds, simple and straight forward.

For retail investors, what we more interested is how to make money? Usually, bonds yield range from 3% to 4% (unless you buy a junk bonds which provide high return), buying bonds and keep till maturity, the return is just similar to Bank's FD. The question is how to find oasis in the middle of desert?

However, if you understand the relation between country's economy and interest rate, then trading in bonds will become very exciting! For example, if generally people expect a country's economy will become worst, then their bond price tend to trade high in value. The reason is because investors seek safe heaven and avoid taking additional risk and switch funds from equity to bonds.

Today, if interest rate going down and expect to down further, then the bonds will sell like hot cake, investors tend to rush and buy the bonds of that country. Some will wonder why bonds price become bullish when interest rate go down.

Generally, history will repeat, fund managers usually buy bonds and make money in three different way. First, buy bonds and keep till maturity. Second, make use of short term interest rate movement to earn the price different from buy and sell bonds. Third, buy the bonds of strong currency, as strong currency will always support the bonds price plus the coupon rate as bonus.

Once you understand this and know how to capture the timing, invest in bonds for period of 5 to 10 years will become very profitable. The interest receive from bonds can be used to invest again when the bond price drop to very attractive level. In this way, we can make use the effect of compounding to grow the principal. Perhaps it's time for Bursa to organised courses for retail investors on how to make money from bonds investment.

Wednesday, July 11, 2012

Dance with Stock Market

Ten years ago, if anyone tell you Greece and Spain will go bankrupt, you will think he is insane. Today, this is the fact. I am not an economic expert, I don't know about their problem and also don't know how complicated is it. But I do know one simple quote, if you want to be poor, focus on spending. If you want to be rich, focus on earning, keeping and investing the money. Borrow money just for spend it to enjoy now and pay later is a bad idea. Rich people know how to borrow money, or use other people's money to earn the higher return.

I like the investment in stock market. It's the best way to keep your money against inflation. In fact, it's the friend of inflation if you choose the right company to invest. Over the years, you will be able to see your asset grow double or triple. In fact, I would say, Stock Market is the greatest invention for people to create wealth! The beauty of stock market is the price movement. Through the up and down trend, it provide opportunity for many's to earn extra money.

Small investor can learn how to value the company and invest to make money. The corporate will learn how to grow their business and profit, investors communities will then give mark which reflected into their company's stock price. The market participant will give each corporate a value base on their current prospect and future growing strategy. This will create the market movement for the share price.

For a mature stock market, no one can predict or control the share price. The only way, you need to accept and respect the trend, ride on it and use it to your advantage. Once you involve in stock market, you will learn that, we are facing with a very big ocean, and how small we are, learn to be hamble. We don't know what will happen in tomorrow's stock price, the only way is learn to accept and adjust our step according to the trend. It's the most practical place for us to learn how to overcome fear and greed.

We should appreciate, there are many things we can learn from the stock market. Over the years, you will know how small you are when facing the whole market. The most important, we can control and drive our direction to reduce the risk and at the same time enjoy the way of making money. Feel proud and appreciate!

Saturday, June 23, 2012

Investment Quote of the day

Investors should be: Select a good quality companies, invest with reasonable price, wait for the company to grow up and enjoy the benefits of dividends or capital appreciation. The rest of the time should be "eat, drink and enjoy life".


Monday, June 18, 2012

Financial Freedom - Do you?

Two weeks ago, I meet his wife. She told me, her husband disappear few days ago. His husband already did not pay the monthly instalment for 3 months, hence, the newly bought car was taken away by the bank. Loan shark also came to her house seeking for payment.

I was never think of such a good person will left his wife. Where is love? Is love or money important? I would say, both head and leg are equally important. The fact is, love without money, you can not build home. He was indeed living hand to mouth.

I think if he have proper financial knowledge, he will not face this kind of problem. Knowing what you want and what you need is really important. Buying a big new car and finance with extra loan? Don't forget, you need to pay insurance, road tax and maintainance. Why don't use the small car or take public transport or may be taxi?

Another example, handphone is something we need, but iPhone is something we want. Of course, if you have really a lot of income, then go ahead to treat yourself better. Financial independence is more important than displaying high social status.

Living without saving money, is a problem. If you are employee who enjoy high income, you should save money. As you wouldn't know when you will lost your job. If you are a business owner, saving is a must. As the business income is not guarantee. I will not call it save for the rainy day, but save for Financial Freedom or joyful day. Allocate some time, energy and money in ways conductive to building wealth.

Friday, June 15, 2012

Maybank's Gold Investment go online

Last year, I posted inquiry to three Malaysia largest bank, say investors are looking forward to buy gold online. None of them reply my query. I thought they already forgot. Until recently, noticed that “Maybank Gold Investment Account” now enable investor to buy and sell gold online, I believe this is the first bank in Malaysia to allow investor buy and sell gold from online internet banking. They even got the special promotion till 30 June 2012, for details, read the below:

The spread of buying and selling price is bit high. For example, today's Selling and Buying price are RM169.40 and RM162.28 per gram. (Gold price in today's quote USD1618/ounce) Meaning the bank will make the profit no matter the gold price up or down. For instant, if a customer buy 10 gram of gold, the bank will earn RM70++. 
This is good news from investor point of view, I will give another good mark to Maybank, thumb up!! In next few months, I expect the other two banks will follow soon.
p/s: add on Aug 2012, beside Gold, now investors can purchase Silver as well, it's another added point for Maybank.

Monday, June 11, 2012

Reit Dividend Review 2012

The overall REIT portfolio are doing very good in the volatile market. We experience US market down trend which started last month, but overall, the REIT counters are flag.

Below tables show the total dividend payout by Malaysia REIT for the year of 2011 and 2012.

Right now, Amfirst Reit become the highest Dividend Yield stock in the market. However, there's the potential decrease of dividend payout, hence, this is not the good choice for the time being.

Since REIT price is almost stable, it's better to add those REITs that with potential increase of dividend payment. I recommend Hektar, Axreit and Qcapita for those who want to increase their portfolio holdings.

Wednesday, May 23, 2012

Gas Malaysia - IPO

Recently, many clients would like to find out details about Gas Malaysia Berhad (GMB). After doing some research, I try to gather the information from bursa's web, below are the summary.

GMB is one of the ISO certified company who operate the distribution of natural gas and liquefied Petroleum Gas to home, commercial business and industries.The company source it's natural gas from Petronas.

Who is the competitor? 

Only 2 company in this industry, GMB and Petronas Gas Berhad (PGB). PGB involve in distribute to customer who consume > 2 MMScfd, whereas GMB involve those customers less than 2 MMScfd.

GMB can consider as one of the monopolistic business in the country. However, GMB can not simply raise the selling price, hence, it would be something similar to PBA or TENAGA upon listing.

Is the company borrow a lot of money?   

No gearing, meaning the company do not have any borrowing. However, the IPO is offer for sales, hence none of the proceed receive from this IPO will go into GMB's book.

Who is GMB's customer?

GMB have about 33,600 customer base, but 94% of sales actually came from 5 main customers from the industry, they are Nippon Electric Glass, Malaysian Sheet Glass, Hartalega, Fatty Chemical and Central Sugars Refinary.

Currently, GMB's market share is about 13.50%, in other words, there's plenty of room to grow if the management do their job, hopefully!

How's the GMB's earning level?

As usual, this is the most important part. GMB record profit of 229 million last year (2011), with total share of 1,284 million (after IPO), we can calculate the total EPS (earning per share) is about 18 sen. Using the IPO price of RM2.20, the PE is about 13x. I know, fom the surface, ya, very cheap, if compare to Tokyo Gas and PGB which currently trade at about 20x PE. However, this is before the revise selling price, remember the profit margin going to cut down by about 44% starting at current financial year.

What the share holder can expect? 

GMB has a dividend payout policy of at least 75%, hence, it's about 13 sen if GMB can maintain last year's earning. Wait, since the profit margin going to reduce by at least 44% as per the latest contract with government which take effective from June 2011, meaning EPS for next year will be around 12 sen and dividend is about 9 sen only. Base on this figure, 20x PE is about RM2.40, any price above this level is consider high end! Due to the overall market is not so good at the moment, I will recommend "sell" on any price above this level for the time being.

Wednesday, May 2, 2012

Some snippets about Maybank

Recently, I received Maybank annual reports, it's a big change. Now no more thick and heavy book, unless you ask for it. It came with thin booklet and a CD. To my surprise, the CD came with CEO presentation, you can view something like “youtube” as the CEO talk to you at front and presenting the annual report. Compare to last year, where CD came with boring PDF file, now this is big improvement!

Maybank was my first investment when I was schooling at form six. In fact, last time I never did any homework. The reason I bought it last time was because it's the first bank I came to know, where I open my first Saving Account and the branch was near my house. Luckily I made the right choice, Maybank still exist today!

Today, I still make Maybank as my core investment, meaning about 30 to 40% of fund park at Maybank's share. After so many years' up and down, I learnt lesson how to handle the share with profit trading. The 1997 crisis and 2008 financial crisis, both sent Maybank's share price down by nearly 50% from the highest. The recent crisis in 2008 was most scary, the market value just gone by 50% in few weeks time. That time, I still remember, almost all news paper advised investor sell Maybank and many brokers gave target price of below RM3.00! The news of Maybank bought Indonesia BII (Bank International Indonesia), they need money for the purchase, so Maybank came out Right Issue at RM2.75. After the announcement, Maybank's share drop by 10%, 20%, 40% and more, people think Maybank had over paid for the deal. I am not sure how many dare to buy Maybank's share at that time! I advised friends buy Maybank stock and keep for long term, but I came to know later that nobody actually interest to buy at that time. 

Today, Maybank is trading at the range of RM8.65 to RM9.00! Many might not know Maybank is still forming up trend movement. It gave dividend of 60 cents last year, with RM8.65, it's about 6.91%. I think people still willing to pay for RM10.10 a share which translate to 5.94%, is quite reasonable. (but again, I will wait for next financial crisis to buy more, now not in any hurry to buy it)

When one calculate the PE ratio, with earning per share of 68 cent, 14 times is about RM9.52. RM10.10 is about 15 times PE.

From the earning side, Maybank's profit grow by 8% annually, last year, a big surprise! As the profit grow by nearly 20%. Thanks for the re branding exercise and purchase of Kim Eng. Now, the "Tiger" grows with "wings", it can fly higher and further.

However, I don't think it will repeat the same growth as of last year. Assume it can't grow and with flag earning for the next few years, with dividend policy of 40 to 60%, one can easily beat the bank's FD rate if buy Maybank whenever the price go down. Also, Maybank reward the share holder handsomely by providing Dividend Reinvestment Plan. Just imagine how nice if you can buy Maybank with 10% discount to current market price. This enable investor to accumulate Maybank's share at RM8.00 when the current market price is RM8.80!

Maybank don't pay me to promote the stock, this is just to share with all how to take investment from business point of view and make huge potential return! 

Tuesday, April 24, 2012

Financial Report - Cash Flow

I noticed tend to forget the important points when reading the financial report. Hence, decided to write down important points to take note when reading the financial report. This is for my own good and at the same time can help and share with those who are interested.

The last part of financial report is Cash Flow statement. No matter how good the asset, if the company cannot service its debt, the company will fall in default. From the cash flow statement, we can know if the cash is flow in or out of the company.

Cash Flow statement divided into 3 sections, namely, Cash Flows from Operating, Investing and Financing.
1. Cash Flow from Operating shows the net income and any depreciation or amortization add back.
2. Cash Flow from Investing usually show negative, as the money spend to buy equipment or spend to maintain those equipment, we call them Capex or Capital Expenditures.
3. Cash Flow from Financing activities record down all the dividend payments or the company buy back it's shares. Here if negative is good for investor. However if the company issue shares or bond to have the positive cash flow, it's not good for investor as their share holding are diluted, unless the company able to demonstrate this will create share holder's value.

We are more interested to know what is the Free Cash Flow for the company. The formula for Free Cash Flow is Cash Flow from Operating minus Capex.

Free Cash Flow = Cash Flow from Operating - Capex

Red Flag: Be aware if the Free Cash Flow have a big swing. For example, from 2.4 million suddenly drop to negative 3.4 million, this may sound like.... something fishy!

Financial Report: Balance Sheet

Next, we would like to know how much asset in the company. In this case, we need to study the second report, Balance Sheet. The name "Balance" because the report is prepared in such a way that, Asset is equal to Liability. When investor bring in $100k, from the company point of view, it's similar to borrow the money from the bank, hence record under the liability side. If the company use the fund to buy goods or equipment, the figure will record under "Asset" side as well. So the formula now become, Asset = Liability.

The left side is Asset (borrower) which represent where the money go to and the right side is Liability (Lender) which represent where the source of fund come from. That's why, when the investor bring money to invest in a company, it's similar to company borrow the money from investor and the company do not have the obligation to return you the money. (unless they do a capital repayment)

Taking the total Asset minus total Liability, we will have the net worth of the company. The net worth of the company sometime also know as "book value" or "share holders' equity".
Asset = Liability + Equity
By knowing the Asset and liability, we can always calculate Return on Asset (ROA) and Return on Equity (ROE). If ROE > ROA, means the company borrow money.

Another area we need to know is inventories or goods. Technically, the increase of inventories should be same pace as sales. Red flag: If inventories rise faster than sales, something is not quite right. Just imagine if Apple production line produce 10 billion of iPhone6 and put in stock room, this figure will record here. However, one year later, if nobody want to use iPhone anymore, all the inventories will become worthless!

Next is Account Receivable, we can know how much the company give credit to it's customer and how long the collected period.
Red flag: If Account Receivable increase in much faster pace than sales, something could be wrong! In the past, many company cook the book, sell something but not receive the payment and keep accumulated in account receivable, which create false signal that the sales and revenue of company is very good!

Prepaid expenses or payment in advance, if any figure, is sign that the goods sell like hot cake, meaning customers willing to pay in advance. This could mean the company's products are in good demand and having competitive advantage.