Friday, June 18, 2010

Top Glove Result

Top Glove just released its result couple of days ago. So it is time to re-access the result again and check how good/bad it scores. I am keen to further check it out with some key points of  previous post to make it sound more relevant and interesting.

1. 管理层的素质 (competency of the management):
Let's check the growth from year to year. Net Profit for 9 months ended 3Q10 at RM204.2 mil, UP 81% from 9 months ended 3Q09, and more than 12 months of FY09 of RM168.1 million. That is very impressive. Let look at the profit margin. Ending 3Q09 is 200218/1538046 = 13%. Ending 3Q08 is 112323/1104563 = 10%. The Profit margin improve by 30%. Does the improvement due to the price collapse of the raw material ( latex ). I don't think so. In fact the latex price was increasing through the past 9 months. Does the growth rides on the debt ? Let's see. 7596+3259 ( Long T + Short T ) = 10.85 mil with the net profit of 204.0 mil. Wont go any further about this because it is not an issue at all. The management has scored A++ .

2. 营利的素质 (quality of profit)

A glimpse at P&L tells me that the profit is all from operating profit. No foreign exchange gain. In fact for the past 3 months the appreciation of RM against USD did affect its overall profit. Lets check the most important part, the cash flow. CF ( Operating ) = 185 mil. CF ( Investing ) = -55 mil ( excluding treasury share sale of 17.28 mil ) CF ( Financing ) = -75.75 mil ( excluding share capital increase of 26.55mil ). So it meant out of 185 mil generated from the company operation, 55 mil is used for expansion and 75.5 mil is used to pay debt and dividend. Hence without  the ( 26.55mil + 17.28 mil ), the company add 185-55-75.75 = 54.25 mil. Or 98 mil if inclusive of 26.55 mil + 17.28 mil. In short 98 mil was add in the peggy bank. Another A for Top Glove.

3. Pricing Power.
This could be reflected in its profit margin. It was said in bullet 1. Another A for Top Glove. There would be a lag time of passing the cost to the customer. Hence, I believe the increase of 24% of raw material price would not be a big issue here. We could actually tie back this with the decrease of profit from previous quarter. The revenue is increaseing by about 10% but the net profit decrease by 10% from the previous quarter. It is not a big issue here.

4. 成长的行业
About 3 months back an analyst doubted the global demand of glove would increase with the absent of H1N1. I blogged about it. I also bragged about how we could listen to the captain of the ship ( Top Glove CEO ) and not the passanger who is a total stranger to us. Again the CEO proved that he is right. Look at the revenue. Still growing. We shall check others love maker to further confirm it.

5&6. Innovation & Efficient 的管理
3Q ROE = 204186/1039987 = 19% ( consider only accumulative of 3 quarter result )  D/E = 10.85/1040 = 1.0% . 3 Q ROA = 204186/1341883 ( total asset ) = 15.2 %. Flying colour.

7. 保守的 company policy

Read the words from the CEO. The management set a very clear company direction and walked the talk. Talk is cheap unless you walk it. Interim dividend also be increased 100% t o 14 sen. Another thub up for the management.

Overall, 2 thumb up for the company. Am I too late to discover this company. A bit late yes. Late is better than nothing. Going forward, walk my talk, eat my own cooking....long TopGlove big time kawan... Adio...

P/S : Prediction : World Cup 2010 Champion : Japan ( No choice have to choose Japan hahhahaha )

"Could the Mob change the parade route, Bill, or eliminate the protection for the President? Could the Mob send Oswald to Russia and get him back? Could the Mob get the FBI the CIA, and the Dallas Police to make a mess of the investigation? Could the Mob appoint the Warren Commission to cover it up? could the Mob wreck the autopsy? Could the Mob influence the national media to go to sleep? And since when has the Mob used anything but .38s for hits, up close. The Mob wouldnt have the guts or the power for something of this magnitude. Assassins need payrolls, orders, times, schedules. This was a military-style ambush from start to finish... a coup detat with Lyndon Johnson waiting in the wings."   ~ Jim Garison ( JFK ( 1991 )

Tuesday, June 15, 2010

( Risk and Quality ) ~( From 2nd brother ) 风险和质量

Well said 2nd brother. Yes I do agree with 2nd brothers his statement :

 " 风险,简单来说所有的数字包括 PE,NTA,Discounted Cashflow, margin of safety,Dividend yeild, balance sheets,cash flow statement,income statement 都不能有效的减低风险 "

No doubt about that. But I would like to add that all the numbers could tell you something about the company. I am not talking about a quarter or 2 results. Generally, we should actually dig to 3 or 4 years results  to tell you how good the company is. 3 or 4 years is just a guide line. Sometimes a great company could be just listed. For instance Hartalega, Master Card and etc. But that are special cases. I have blogged about risk before. It is kind of long which are separated in 3 parts. HERE

Even though I do agree with 2nd brothers, I must humbly emphasis that numbers and figures are important figure which could be used as the basic for decision making. It could give us some idea how good the company is. I do not know how to elaborate so I would like to borrow several 2nd brother's key points and several simple examples :

1. 管理层的素质 (competency of the management):

How competence a company is could be reflected in, for instance, company growth rate and its debt level. Look at Top Glove and Hartalega. The managements have been able to grow the company at double digit grow rate with visibly no debt at all. And there is no M & A as well. 

 2. 营利的素质 (quality of profit)

Does the company profit surge because of an one off item or because of selling off their assets ? It could be seen in the Profit and Loss statement. Does the company profit come from mostly foreign exchange gain as Tenaga's and Air Asia's ? This could be shown in the cash flow statement and its cash and cash equivalent in Balance Sheet. Does the profit come from the accounting fraud ? The prime example is Megan. Look at the increase of receivables in Megan before the matters came to the full blown. These are the numbers which tell you the risks and the quality of the profit. The figure " cash balance " in the cash flow statement could tell you the quality of the profit. For instance, a good quality profit should show the "cash balance" in cash flow statement  keep on increasing from quarter to quarter.

3. Pricing Power.

How good the company pricing power is could be indirectly reflected in its profit margin. A rise or a maintained profit margin without the the presence of cost cutting is telling us the the company could pass the raising cost to its customer. This is telling us that the said company has the pricing power over its product. Look at Top Glove and Hartalega profit margin. It is telling us something.

4. 成长的行业

This is more to a top down approach. But this could still be indicated and compared. Check the CARG for ceratin company and compare it to the industry. Somehow we could get a bigger picture of the industry. We could also trace its profit margin, ROE, ROA and to gauge its prospect.

5. Innovation

We could roughly tell how tell how innovative a company is by reading its financial result. A low capex ( Cash Flow for Investing ) with a high return ( Profit and Loss ) could mean how innovative the company is.  A high Return of Equity ( ROE ) means the management is good in managing the company money. But a financial innovative company could push the ROE to higher level by adding more debt or doing some off balance sheet tircks. All these could be traced by reading the number and figures.

6. Efficient 的管理

Efficiency is important and could be told indirectly in the figure too. A high ROE mean the management is good or superb in managing the company financial resource. A high Return of Asset ( ROA ) could mean the same thing too. Do not confuse with the NTA ( Net Tangible asset ). A stock with high P/B doesn't mean the stock is expensive if is has very high ROA. It is merely an account entry. Let say a stock price is selling at P/B = 2 but has a ROA of 30%. If the Book ( NTA ) is at 2 then the P = 4. An  ROA of 30 % meaning the earning is = 0.6 and selling at 4 which translate into an PE of 6.7. Could it be still expensive ?  This is the number and figure that could explain. A improving profit margin and high sales also show us how efficient the  is management.

7. 保守的 company policy

I don't think this could be traced in BS, P&L,Cash Flow nor ES. But, I must say that, we should read the chairman, or the CEO statement in the company financial report. It could give us some idea what s the company heading to. We could gauge the expected dividends should the company has a dividends policy.  With a clear and sound company policy and vision ( I mean the management really meant it, not the one just to beautify the company annual report, at least we could gauge the future of the invested money. For instance read the what the CEO of Top Glove, Public Bank or CIMB said in their annual report.

" You better bury Ned right!... Better not cut up, nor otherwise harm no whores... or I'll come back and kill every one of you sons of bitches."   ~ ( Will Munny ( Unforgiven (1992) )

Thursday, June 10, 2010

List of Don'ts

The list is meant as a reminder to me. You are welcome to post your comment and I would add it to the list if deemed suitable.


1. Do not listen to the media especially the analysts. They would tell the public what they want to hear. Take others opinions at the face value. Dig into the provided information  and studied before decision making. For the ones who read the Cari Forum ( Chinese Version ), I bet you guys remember the case Megan and LB Aluminium.

2. Do not think low PE is good all the time. You rarely find good company with low PE. But, if there is a change of appraisal, there would be appraisal of the PE as well. PE should be treated as a function of risk not value.

3. Do not follow the crowd. Most of the time general public are wrong.

4. Do not average down. When the stock you bought keep on going down, it must be a reason. Remember Megan ? The one who average down is probably not in the game forever.

5. Do not bitch whenever we missed out something. I SHOULD HAVE = I DIN'T. Period.

6. Do not overpay a counter. Beware, it could be trapped with high PE counter. There must be a reason for the high PE. Is the prospect of the companies fo rosy that it command a PE of 30, 40 or even 50 ? Evaluate whether the market is too optimistic about it ?

7. Do not buying something you don't know.

8. Do not think " what if ". There is not such thing. Admit our mistake. George Soros said " I am rich because I know when I am wrong "
9. Depending on the fund size. Do not over diversified. There is no point to invest 20k in 20 different stock. There is a huge mistake to put 500k in a single counter. A single mistake on that would wipe you out.
10. Do not lose the capital. Once it is lost, we are out of the game.
11. Do not chase the past performance. Past performance is a reference not a guide. An industry would not grow forever. In case of stock performance wise, the same applies. Iris was 1.00++ 2 years back. So do  not expect it would go back to that price level.
12. Do not average up as well unless you are really 100% convicted and sure about it. The thing is it is hard to be 100%.
13. Do not borrow money for investing. Do not margin it.
14. Do not eat untill you are 110 % full. In other words do not be too greedy. Market would not go up forever. 
15.Do not be too pessimistic. Market won't go down forever.
16.... to be filled up in future ...

" Sandy Claws - in person. What a pleasure to meet you."
                                   ~ Jack Skellington ( The Nightmare Before Christmas ( 1993 )) 

Friday, June 4, 2010

Market Timing At Upper Level

Market timing playing an important part in investing. especially for the technical analysts. They are betting on the trend of the market hence it is probably the most important for them. They have to time it accurately in order to meet their goal. On the other hand, the value investor do not pay much attention to market timing. In my opinion, I think market timing would help to achieve out goal faster. Of course, we couldn't be 100% sure that our timing is 100% accurate, but achieving 75% is good enough . Hence, they are a lot of people of us who try to buy in stages. But, the accuracy of buying is also very much depend on how to digest the situation. You got it wrongly, it would kill.

The prime example is Bill Miller ( the guy who beat S & P 500  15 years straight ) in 2008 when he bought Countrywide and Bank Of America heavily because he judge the Lehman Brother collapse too likely. Well, who did expect the collapse would bring the whole financial system down anyway. The year of 2008 losses was amounting all his gain for the past 15 years before that. I check in the bandwagon too fast. It was roughly before or after the LB collapse. I wasn't so lucky that I put most of my capital at the beginning. But I was lucky to log in some profit in between and went for stage by stage until Mach 2009. It worked for me at last. But I consider myself lucky. It was hard  and mentally challenging. Indeed, at the moment, nobody knew what would be the outcome and it was really hard to judge the whole situation. A great legacy of Bill Miller was destroyed like that. So, the wisdom of the great teacher of Ken Hebner was right " you just need to take care of the downside, the upside would take care by itself "
So, we are now have pretty idea what to do when the downside was coming. Dubai crisis is a small fish. But the EU crisis looks like a 400 pound gorilla ( compare to the 2008 crisis = 800 pound ). Of course I am just guessing. But precaution is my priority now since my market capital is getting bigger. Yes, when the market capital is gettign bigger, it is a diffrent ball game. The bigger it is the more difficult it would be. That is why WB's job is tougher nowadays compare to 30 years ago.

Sighh.. I am derailing from the purpose of  this post. Instead of only taking the downside, I think we should be taking care of the upside as well.  The tricky question is when should we sell ? I always cought in this situaition. Keep on adjusting myself to accomodate the market situiation. I came up with a cash-equity ratio of 20:80 which I would monitor from time to timr. It worked very well. Too bad I started to reduce more cash and incease the equity when the market start to move. Kan na sai, it backs fire. Instead of increse the equity when the market is up I should have reduce it. "Sekilang bagus lah." I should have = I didn't. Damn I was so reluctant to sell when the crisis started to surface, but was caught up with so call "hope". No point bitching here :).. Hmmm  I said in my previous post, I have reduced the equity and raise the cash to 37 : 67 now. It might be a mistake. But, I think this would work just find. Time will tell me that.

Dow tanked 323 points last night. Do I feel happy with that ? Not really. It means some of my buddies's stock would have a very volatile session next week. I am more prepared this time than the 2008 which cought be by surprise. I hope you do as well. For the ones who has gone through teh bull in 2007 and burst in 2008, I think you guys could sense what I really mean. Again Happy Trading.

P/S : For the ones who like Japanese movie. This is a very dense and shocking movie. If you can't satnd the blood scence ( I mean a lot of blood ) this is not for you. Check its sequel Noriko's Dinner Table. I find this movie disturbing but somehow poetic, dark, ... really something.

"  Let's get enough people to beat 54! 100! Let's get 100! "

~ School boy 1 ( Suiside Club ( 2001 )

Thursday, June 3, 2010

Beh Tahan This Guy

My colleague told me about this guy  several years back. I have never seen or read such an arrogant, self indulge, shiok sendiri, and hate inflicting financial blog. By all mean, I congratulate him and would like to learn from  him if all the calls he made were true. I consider myself a value investing follower. But, do I say anything wrong about Technical Analysis ?  Is there anything wrong with technical analysis that he has to say that all these technical analyst are fools an he is the god ? Does him sleep better when the TA lose their money is the market ? Hei, sometimes we win sometimes we lose ok. Even the greatest investor on earth WB made mistakes and lost money ? Does it make him happier or sleep better at night when he saw the others lost their saving or money ? They ( TA ) have family to feed as well. If the TA doesn't suit him, then by all mean leave the TA alone. I believe some of them made tons of money with technical analysis. As far as I am concern, the infamous BNF ( ( Japanese stock trader, his net name), has increased his own fund from 1.6 million yen to 18 billion yen in 8 years. And yes, he is a stock trader. He day trade and he even minutes trade. Is he a fool ?  You don't have to call the TA fools just because they do not want to follow your way. What is the problem with him keep on praising himself how good is him ? I don't believe that one could have 100% winning steak all the time. Why posting only the profit and not the lost ? Never made a single mistake at all ?

Seriously, I am sincerely want to learn something from him. Admire his return in fact. It is a very impressive  return ( if it is true ). But, it is just not right to call others fool. If you come across this Samgross, please do share with us your insight so we could learn from you. Do not be angry with this post, I am just telling you that it is rude to call the the TA fools. And it is not right to laugh at the others when they were losing money while you were making.I wonder will he read this while he is indulging himself.

It took me sometime to think whether to post this or not. it is a very riude post.Curse me if you like. Say I am rude as him as well. I just " beh tahan " when I read his post accidentally just now ( Feel bored so browse his blog because I have nothing to read after lunch ). I apologize to his fans if they are offended.

Hmmm, who would read this unpopular blog anyway. Maybe I just want to shiok sendiri here. :)

P/S : This is a very interesting movie. Alanis Morissette is the God . :)

" Rufus: You know what the dead do with most of their time? They watch
the living. Especially in the shower.
Jay: I cant wait to die. "  ( Jay and Rufus ( Dogma (1999))