Showing posts with label SPG. Show all posts
Showing posts with label SPG. Show all posts

Wednesday 2 June 2010

A quick look at Kenmark (2.6.2010)






















A quick look at Kenmark (2.6.2010)
http://spreadsheets.google.com/pub?key=tyT8o3UdiCxgyUhc6ph3flg&output=html
















Securities Commission probes Kenmark


Could I have predicted what would happen to Kenmark from its accounts?
Definitely NO

However, it is most unlikely that Kenmark will be a stock I would have in my portfolio based on my investment criterias.  Therein, lies my protection against buying such a stock.

Interestingly, here are the comments in the latest SPG (Dynaquest) in its recently released latest edition of March 2010 on Kenmark:

Kenmark is engaged in the manufacturing of wooden furniture which are mainly exported to the West.  In FY 08, it expanded from the LCD TV trading and distribution into the assembly of LCD TV.  Its 9M 10 results exceeded our expectations with earnings soared by 129.6% yoy.  We saw significant improvement in the Wood-based manufacturing segment although Trading segment is not doing so well.  Looking forward, improving business environment and better margin are going to fuel Kenmark's profit growth.

It was obvious that those in Dynaquest did not and could not forsee what was coming in Kenmark then.  ;-(

Thursday 6 August 2009

What do you get in SPG and how to use it?

What do you get in SPG and how to use it?

The guide contains critical investment information for all stocks listed on the Main Board of the BMS.

SPG is designed for investors who believe in buying stocks based on their fundamentals. If an investor wants to buy a share based on fundamentals, what type of information would he need?
  • Essentially, he would need the most up to date information on the quality, performance and pricing (valuation) of the stock.
  • He needs information on the quality of the stock so that he will not overpay for stocks for poor quality.
  • He needs data on performance so that the stock he buys will perform well in the future and give him good return.
  • Lastly, he needs information on the pricing of the stocks so that he knows at what level to buy the share.

Since the typical fundamental investor is usually a long term investor, he would also need to have a good idea of the future condition and it is of course very difficult to look into the future.
  • If an investor is very knowledgeable and is prepared to do a lot of research work, it may be possible to determine the future condition and prospect of a company.
  • We are believers of the saying that: "The past is a good indication of the future". Hence the SPG provides you with 12 years of earnings and dividend records as well as three years of financial data and ratios.
  • A company with a good track record is likely to continue to do well in the future unless there is a complete change in management.
SPG contains two main types of information:
  • Descriptive and
  • Statistical.

Descriptive information comprises information on:

  • Ownership,
  • Activities,
  • Corporate Structure,
  • Past & Future Performance and
  • Capital of the company.

This section is mainly designed to give the readers an idea of the performance and quality of the company in terms of its strategy, earnings and assets management.

SPG briefly discusses qualitatively the immediate past, current and future earnings prospects of the company. SPG does not discuss the historical earnings trend apart from that of the previous year as this data is available in another part of the report.

The descriptive part of the report, seeks to provide you with some fo the answers to the "WHAT stock am I buying?" questions.


Stastistical information is made up of two parts:
(1) Critical stock market information, for 12 years or from the year of listing, comprising of the
  • Annual Price Range,
  • EPS,
  • DPS,
  • DY Range and
  • PER Range.

(2) Financial information comprising of Summary Statistics from
  • the Balance Sheet and
  • Profit & Loss Statement of the company as well as
  • a collection of Critical Financial Ratios.

This is probably the most improtant and unique part of this publication. The information provided is in the form of data for each year. The annual stock performance figures, be they price, EPS or DPS, may not be enough in themselves.

Serious investors may like to take a longer view by seeing how the figures may have changed over the years.
That is, what are the historical growth rates of the price, EPS and DPS of a stock from the past.

Furthermore, owing to the fact that the performance for a particular year may be very good or very bad, the DY and PER figures would be seriously distorted. It is sometimes more useful to look at the average figures rather then the individual year's figures.

The Statistical part of the report is used more for answering to the "WHICH stock to buy?" and the "WHEN to buy a stock?" questions.


Ref:
How to use the Stock Performance Guide (SPG)
Stock Performance Guide by Dynaquest Sdn. Bhd.

SPG guide on capitalisation changes

Internal capitalisation changes are those capitalisation changes which affect the number of shares held by the pre-existing shareholders (i.e. bonus, rights, splits, etc.).

Shares issued to outsiders in the case of share swaps, special issues, etc., do not affect the number of shares held by the pre-existing shareholders.

SPG does not believe that bonuses increase the value of shares, and advise investors not to pay much attention to the past number of bonus issues.

We look at rights in another light, however, as we are not in favour of rights issues unless the company has been an exceptionally fast growing ones (i.e. growth in excess of 20% per year). In other cases, a company which has issued more than one rights in the past decade ought to be viewed with caution.

It is perhaps worth pointing out that a company which has many capitalisation changes all bunched together during a short space of time without a concomitant increase in earnings could be trying to impress its sharehodlers and the stockmarket. Historically, such companies usually performed poorly after such capitalisation changes were over.

Any existing issues which will lead to future dilution should be noted. Dilution means the creation of extra number of shares which will cause the per share earnings and dividend to decline. Normally, dilutive issues include warrants (TSR) and convertibles. By comparing the number of new shares which will be issued with the existing number of shares, the user would have an idea of the potential dilution.

For example, if a total of 100 million new shares will be issued and the exisitng number of shares is 300 million; the potential earnings dilution would be 25% without taking into consideration the notional interest saving. That is the EPS will decline, say, from 10 sen per share to 7.5 sen.

Fixed income securities (i.e. bonds etc) issued by the company should be considered too.


Ref:
How to use the Stock Performance Guide (SPG)
Stock Performance Guide by Dynaquest Sdn. Bhd.

Wednesday 5 August 2009

More Gems from SPG

Financial Statistics


Nett Tangible Asset Backing Per Share (NTA/Share)

This is a more conservative measure than Nett Asset Backing Per Share (NAB/Shr). NTA/Shr is more conservative because the intangible assets (mainly goodwill) are deducted from the total value of the assets before dividing the amount by the number of share.

For most companies, the NTA and NAB are similar. NAB/Shr is supposed to show the actual nett amount of asset which is represented by each share of the company. This is an often quoted figure but its use is very limited. The reason being that the NAB/Shr is dependent on the total book value of the assets of company which in turn is dependent on the valuation method used to record the value of each piece of the assets fo the company. Some companies are very conservative and use the original purchase prices as the book values. Other companies use market values. Furthermore some of those companies which use market values may be over generous in their method of determining market values. Thus the true value of the assets of a company is very difficult to identify and can be very different from the book NAB of the company. We would advise the use of this piece of data with care. Additional research is needed before a firm judgement can be given.

The NTA/Shr can be used to compute the Price To Book Ratio by dividing the current price by this figure. This ratio shows how many times is the price higher than the NTA/Shr. Ceteris paribus the stock with the lowest Price To Book ratio for the same industry represents the best value. For example, a company selling at 70% of its NTA would seem like good value, as we can buy at well below the cost of its assets, unless it had originally bought its assets at well inflated prices.

Liquid Asset Per Share (Liq Assets/Share)

Liquid Asset is defined to include cash, bank balances and deposits. Generally a company which has a lot of liquid assets on hand is a financially strong one. A company which is financially weak is unlikely to have a lot of liquid assets on hand. However, some financially sound company do not have a lot of liquid assets as they may have other uses for their liquid assets. A very high ratio of liquid asset per share indicates high financial strength of a company.

Debt/Equity Ratio (D/E Ratio)

The D/E Ratio measure the ratio between the amount of Interest Bearing Debt a company has and the amount of Shareholders Equity. The amount of shareholders equity of a company is the same as its Nett Asset Backing. One must bear in mind what we have said about the lack of standardisation in measuring the value of the assets of a company.

D/E ratio is another crude measure of the financial strength of the company. The smaller is the debt relative to the equity, the stronger is a company. As a very rough guide, a D/E ratio of more than 0.5 is regarded as high and one of more than 1.0 is regarded as very high. A very low ratio supports the contention that a company is a financially strong one.

Altman's Z-Score

This is a popular "all in one" measure of the financial strength of a company. The higher the value of the Z-score, the stronger is the company financially. Simplistically, a Z-Score of below 2.00 indicated that the financial strength of a company is questionable and a score of above 2.00 is regarded as good.

It is to be noted that the computations of Z-score includes the price of the share and if the market price is very low, the Z-Score can be very low also. Further, it is to be noted that the Z-score computed for a particular financial year for the situation as at the end of the financial year. The current situation may be very different from that at the year end.

Asset Turnover

This ratio indicates the efficiency with which the company is able to use all its assets to generate sales. Generally, the higher a company's total asset turnover, the more efficiently its assets have been used. Please note that different industries tend to have different asset turnover ratio. This ratio should only be used for comparing firms in the same industry. (Asset Turnover = Total Sales/ Total Assets)

Gross Margin

Gross Margin equals Gross Profit/Sales. Gross Profit is defined as Sales Revenue - Cost of Goods Sold. Gross margin measures (roughly) the percentage value added by a firm on its raw material before selling it. For the same industry, the higher is the gross margin of a firm, the higher is the potential for obtaining profit and the better is the management quality.

Free Cashflow to Capital

FCF is the amount of nett cashflow left after paying for re-investment in fixed and current assets. FCF measures the ability of a firm to pay out dividend. FCF/Capital compares the FCF of a firm with the total capital employed (defined as total shareholders equity & debt). The higher the ratio, the more efficiently is the firm using its capital.

Return on Equity (ROE)

In the West this is considered to be a most important ratio for it is an indication of how well the management is making use of the assets of the company in generating return for its shareholders. Generally, it should not be less than 10% averaged over time. However, owing to the fact that a great number of local Malaysian companies have vastly overvalued their assets, their ROE is very low. We consider low ROE to be a red flag. It shows either the company is poor in managing its assets or high in revaluing its assets or both. Either of these is not a good sign.


Ref:
How to use the Stock Performance Guide (SPG)
Stock Performance Guide by Dynaquest Sdn. Bhd.

Some GEMS from SPG

Some GEMS from SPG:


Corporate Information

1. Market Capitalisation:

This gives an indication of the worth of the company placed by the market. On occasions, the worth maybe too high. Certain small companies may have market capitalisation of many billions. At times like this, the market capitalisation gives a sense of reality. During period of extreme bullishness, all Bursa Malaysia companies have a minimum value (about RM200 m). If the market capitalisation is below this value, the company maybe under-valued during this type of market.

2. Segment Information:

Most companies operate in more than one sector of the economy and different sectors of the economy perform differently. A better understanding of the company can be obtained if the sales and profit before tax of each segment is separately provided.



Market & Financial Statistics

3. 3-Year Price Chart:

The weekly price chart of the stock for last three years give a visual indication of the current valuation relative to historical valuation. A stock whose price is very high or very low relative to its historical level is probably worth investigating further.



The Critical Stockmarket Information
The Annual Information

4. Adjusted Price Range

The adjusted price range over the past decade would give a good idea of the range and trend of price movements of a particular stock. The most important use of the price range is to consider the trend of the price over the years and compare it with the growth of earnings and dividend as well as consider it in relationship to common sense.

Generally, beware of sudden price movements upward from a low previous level because such upward movements usually cannot be sustained. Similarly if the price has been in a sharp fall inspite of reasonable DY and PER, it usually will recover in due course.

The second most important use of this information is to consider the size of the price range in the past. The greater the range of movement, the more volatile is the share's price and the riskier it is as an investment. An investor has to be particularly careful if he is considering buying a highly volatile share which is not backed by good dividend or earnings. Even worse is the situation in which the volatile shares is selling at a high price.

5. Adjusted Dividend per Share (DPS)

This is the most important column to look at when evaluating the worth of a share. The ideal situation is for the DPS of a company to grow smoothly and rapidly over the years. There is one important caveat in the use of this information; the amount of dividend paid out must be compared with the amount of earnings per share (EPS). The growth of DPS must be proportionate to the growth of EPS. A company cannot sustain year after year of higher DPS than EPS. On the other hand, the DPS should not be too small compared with the EPS unless the EPS is growing rapidly. Under normal circumstances, the DPS should be between 30-70% of the EPS.

6. Adjusted Earnings per Share (EPS)

This column shows the progress made by the company in terms of its earnings per shares. As with DPS, the ideal situation is one in which the EPS grows smoothly and rapidly. Failing that a company ought to have either a stable or growing EPS. The worst would be for a company which has highly variable AND declining EPS. This is the second most important information to look at when one is trying to evaluate the worth of a share.

Starting from FY97, extraordinary gain/loss is excluded from the computation of bottomline earnings while "exception" gain/loss is not. To prevent violent fluctuations in EPS, SPG continues to exclude these from the computation of bottomline earnings, except in cases where such gains/loss may be regarded as part of the ordinary business of the firms.

7. Adjusted DY Range

This information is only truly useful if the shares are investment grade shares. By this we mean shares which are not speculative and whose prices bear reasonably stable relationship with its DPS and EPS. Regretably, in the Bursa Malaysia a large number of shares fall into the speculative category.

It is very important to know the DY of a share because this figure provides us with a direct comparison against the return we can get from fixed deposit. The return we can expect from a share should bear some relationship to the average return on fixed deposit.

Very generally speaking, the DY of share we want to invest in ought to fall roughly within the range of 2-6%. Investors are willing to accept lower DY for shares with faster growing DPS/EPS and vice versa. We ought to buy share with DY of less than 1.5% only in exceptional circumstances.

The DY range is the minimum and maximum DY for a given year calculated using the highest and lowest prices for a given year. This information allows investors to relate the current DY to the range of DY experienced by the share in the past. Ideally, the DY at the price which one is considering buying the share should be at worst be in the middle of its past range. Thus, we always ought to check the historical range of DY before the purchase of a share. If the DY is too low, we ought to be very careful.

8. Adjusted PER Range

PER is probably the most commonly used ratio for evaluating the worth of a share. SPG does not recommend its use by laymen as strongly as DY because in Malaysia, EPS tend to fluctuate a great deal and as a result this makes the resultant PER less stable and difficult to use.

PER is an important ratio because it gives us a quick idea of, in a sense, how quickly an investor can get back his money in the form of earnings after buying the shares. A share purchased at a PER of 33 would mean that the purchase price is 33 times larger than the current earnings capacity of the share one is buying. That is, if the EPS stays unchanged, it would take 33 years for the earnings to equate to the buying price. For this reason, SPG does not recommend the purchase of a share at PER of much greater than 20 in normal circumstances.

Although the use of PER seems simple, there are several problems in the use of PER which render it not very usable by laymen at times. The first problem is that owing to the lack of stability of EPS for many Malaysian shares, there are years when the EPS is very low. When that happens, the computed PER is very high. This would make the share seem very expensive for that particular year. However, the high PER is only due to the abnormally low EPS for a single year and cannot be taken as representative of the average situation. The same problem in reverse occurs if the EPS is exceptionally high. Ideally, the concept of PER is only applicable if the share has very stable EPS or if the PER is computed using some sort of average or normalised EPS. The second problem, is that, whenever the EPS of a share is negative, it is not possible to calculate a meaningful PER figure.

As with the DY range, the PER range is the range of PER for a given year calculated using the highest and lowest prices for a given year. The reason for providing this information is that investors can relate the current PER to the range of PER experienced by the share in the past. Ideally, the PER at the price which one is considering buying the share should be at worst in the middle of their past ranges. Thus we ought to check the historical range of PER before the purchase of a share. If the PER is high by historical standard we ought to be doubly careful. In a company where its EPS had been volatile, PER range is not as useful as in the case of a company with stable EPS. A PER ratio towards the low end of its historical PER range would seem to suggest that its valuation is low at this price level

Non-Annual Critical Market Information

9. 5 and 10-year Growth Rates for Price, DPS and EPS

Serious investors pay a lot of attention to the growth rates of price, EPS and DPS. Growth rates over a long period (5 and 10 years)overcome the problem of cyclical fluctuations in earnings, dividend and price.

These growth rates provide three useful types of information. First, a comparison of the growth rate of price against those of earnings and dividends gives the investors a clue to the sustainability and valuations level of the current price. Second, a comparison of the growth rate of dividend against earnings give a clue of the sustainability of the current dividend. Averaging the growth rates of the high and low prices give some idea of the growth rate of the mid-range price. Once you have the growth rate of the mid-range price, you can then compare it with the growth rates of the EPS and DPS. If its price has been growing at a very much faster rate than earnings and dividend, it probably cannot be sustained. Similar comment would apply to a comparison of the dividend and earnings growth rate.

Third, the growth rates of the EPS and DPS provides us with a useful measure of the management quality of the company. If we compare its growth rates with those of other companies in similar line of business, a better than average growth rate would signify above average management quality.

When using these figures, investors are cautioned to be aware of the fact that things in recent years may be very different from those of earlier years. Although a company's ten year EPS or DPS growth rate may be good, its actual performance over the last five years could have been lacklustre due to the Asian Crisis. It would be risky to evaluate it on its average five or ten years' growth rate alone. (Therefore, need to study the individual years data too).

10. Average Values of 5-Year & 10-Year DY Range and PER Range

The reason for providing this type of information is to aid the users in determining whether the current price of a stocks is reasonable compared with the historical records. Ideally, the DY and PER ranges provide guidelines as to the expected ranges of a stock's future DY and PER. One should not purchase a stock if its DY is far below or the PER far above the historical range. The previous statement however must be applied with care if the current DPS/EPS is not normal. In an abnormal year, excessively low DPS or EPS can give rise to false readings in terms of the DY/PER. One should always refer to the 5- and 10-year growth rates for DPS/EPS to see whether the current level of DPS/EPS is in line with previous years figures. Otherwise, one should use the average DPS and EPS for the computation of the DY or PER.




Ref:
How to use the Stock Performance Guide (SPG)
Stock Performance Guide by Dynaquest Sdn. Bhd.

When to buy a stock?

In trying to decide when to buy a stock, an investor has to take into consideration several factors:-

  1. How does the present price compare with the historical prices?
  2. How does the price trend compare with its earnings and dividend trends?
  3. Is the current EPS and/or DPS unusually high or low?
  4. At the current price, how do the PER and DY compare with the historical PER and DY ranges?
  5. Does the present price look reasonable compared with the historical price or does it look too high or too low?


Ref:
How to use the Stock Performance Guide (SPG)
Stock Performance Guide by Dynaquest Sdn. Bhd.

Which stock to buy?

In trying to decide which stock to buy, an investor has to take into consideration the following factors:-

  1. What are the trends of the earnings and dividend of the stock?
  2. How well does the price trend correclate with the earnings and dividend trend?
  3. Is there a divergence between earnings and dividend?
  4. How volatile has the share price been in the past?
  5. How do the present PER and DY of the stock compared with the PER and DY of other stocks in the same sector?
  6. What are the prospects of the stock?


Ref:
How to use the Stock Performance Guide (SPG)
Stock Performance Guide by Dynaquest Sdn. Bhd.

What stock am I buying?

In trying to answer the above question, the investor has to find out certain important things about the stock, principally:-

  1. Who are the principal shareholders and officers of the company? Are they well known? Well connected?
  2. Do they have long experience and good reputation? Are other companies in the group good performers?
  3. What activity/ies is the company involved in?
  4. How good is the management of the company?
  5. How well is each segment of the company doing?
  6. What is the capital of the company?
  7. What is the financial strength and liquidity of the company?

Ref:
How to use the Stock Performance Guide (SPG)
Stock Performance Guide by Dynaquest Sdn. Bhd.