myinvestingnotes.blogspot.my (Bullbear Buffett Stock Investing Notes)

Keep INVESTING Simple and Safe (KISS) ****Investment Philosophy, Strategy and various Valuation Methods**** The same forces that bring risk into investing in the stock market also make possible the large gains many investors enjoy. It’s true that the fluctuations in the market make for losses as well as gains but if you have a proven strategy and stick with it over the long term you will be a winner!****Warren Buffett: Rule No. 1 - Never lose money. Rule No. 2 - Never forget Rule No. 1.

Friday, 24 January 2014

CIMB’s private placement exercise draws mixed reactions from analysts

CIMB’s private placement exercise draws mixed reactions from analysts

by Sharon Kong, sharonkong@theborneopost.com.
Posted on January 16, 2014, Thursday

KUCHING: CIMB Group Holdings Bhd’s (CIMB) recent private placement exercise has garnered mixed reactions from various analysts, with adverse market movements the cause of this latest development.

According to RHB Research Institute Sdn Bhd (RHB Research), the capital-raising could possibly have been prompted by adverse market movements. This is due to CIMB having said in its statement to Bursa Malaysia that the sharp depreciation of the Indonesian Rupiah had set back to its capital accumulation plan.
The research house further pointed out that the adverse direction that bond yields have seen in 2013 may have also prompted the fund-raising exercise.

“Based on its first nine months of 2013 (9M13) results, adverse forex and interest rate movements have shaved off RM1.5 billion in shareholders’ equity – exchange fluctuation reserve of RM693 millon and available for sale (AFS) revaluation reserve of RM817 million.

“By our estimates, this translates to RM1.1 billion in CET-1 capital, after taking into account the required regulatory adjustment of a 55 per cent haircut for AFS reserves,” RHB Research said.

With the issue of capital addressed, two things that RHB Research thinks investors will now seek further guidance on from management are the sustainable return on equity (ROE) level going forward, and whether the dividend reinvestment schem (DRS) will continue.

Looking ahead, for 2014, it thinks a 15 per cent ROE target may be possible. This will also be similar to Malayan Bank Bhd’s (Maybank) 2013 ROE target, post the RM3.66 billion capital raising exercise it did in 2012.

Also, now that CIMB has shored up its capital, it remains to be seen whether management will opt to keep in place the DRS, the research house added.

“The latter appears to be well received, achieving a take-up rate of 80.2 per cent for the recent second quarter of 2013 (2Q13) interim dividend.

“The flipside is that the DRS is slightly dilutive, with an estimated one per cent impact on financial year 2014 forecast (FY14F) earnings per share (EPS) and 40 basis points (bps) to FY14F ROE,” it noted.

According to analyst Cheah King Yoong of Alliance Research Sdn Bhd (Alliance Research), the capital raising exercise engaged by CIMB came as a surprise to them.

He similarly opined that they are not certain whether the group will continue with its dividend reinvestment plan (DRP) upon the completion of this private placement exercise.

“Should the research house assume that the group will be utilising the net proceeds raised to retire part of its borrowing and continuing with its DRP, its FY14-FY15 earnings per share (EPS) forecasts will be diluted by three to four per cent,” he noted.

In terms of earnings forecast for CIMB, Cheah highlighted that pending further clarifications by the management with regards to the utilisation of its net proceeds, and the continuity of its DRP, they made no changes to their earnings estimates for now.

“We will revise our earnings estimates for the group post our meeting with the management next week,” he added.

Read more: http://www.theborneopost.com/2014/01/16/cimbs-private-placement-exercise-draws-mixed-reactions-from-analysts/#ixzz2rEaYfgwL

Main points:

1. Adverse forex and interest rate movements have shaved off RM1.5 billion in shareholders' equity.
2. This translates t RM1.1 billion in CET-1 capital.
3. The capital raising exercise by CIMB came as a surprise.
4. What will be the sustainable ROE going forward?
5. Will the DRS (dividend reinvestment scheme) be kept in place?
6. DRS is slightly dilutive, with an estimated 1% impact on financial year 2014 forecast (FY14F) EPS and 40 basis points (bps) to FY14F ROE.

Scenario analysis:

Assuming:
1. No changes to the earnings estimates.
2. CIMB utilising the net proceeds raised to retire part of its borrowing and continuing with its DRP.

It is forecasted that these will impact on CIMB's FY14-FY15 EPS, diluting it by 3 to 4%.

(Share price of CIMB closed at 6.80 per share on 23.1.2014.)

1 Year Chart
Chart forCIMB GROUP HOLDINGS BERHAD (1023.KL)

Chart forCIMB GROUP HOLDINGS BERHAD (1023.KL)

Long term Chart

No comments:

My 18 points guide to Successfully compounding your money in Stocks

Be a good stock picker.
Think as a business owner.
Always look at value rather than the price. Do the homework.
Buy and hold is alright for selected stocks.
Compounding is your friend, get this to work its magic.
Mr. Market is there to be taken advantage of. Do not be the sucker instead. BFS;STS.
Always buy a lot when the price is low.
Never buy when the stock is overpriced.
It is alright to buy when the selected stock is at a fair price.
Phasing in or dollar cost averaging is safe for such stocks during a downtrend, unless the price is still obviously too high.
Do not time the market for such or any stocks.
By keeping to the above strategy, the returns will be delivered through the growth of the company's business.
So, when do you sell the stock? Almost never, as long as the fundamentals remain sound and the future prospects intact.
The downside risk is protected through only buying when the price is low or fairly priced.
Tactical dynamic asset allocation or rebalancing based on valuation can be employed but this sounds easier than is practical, except in extreme market situations.
Sell urgently when the company business fundamental has deteriorated irreversibly.
You may also wish to sell should the growth of the company has obviously slowed and you can reinvest into another company with greater growth potential of similar quality. However, unlike point 16, you can do so leisurely.
In conclusion, a critical key to successful investing is in your stock picking ability.

http://myinvestingnotes.blogspot.com/2012/07/my-18-points-guide-to-successfully.html

11 Lessons From Peter Lynch

Peter Lynch taught me:

1. Behind every stock is a company. Find out what it’s doing.
2. Never invest in any idea you can’t illustrate with a crayon.
3. Over the short term, there may be no correlation between the success of a company’s operations and the success of its stock. Over the long term, there’s a 100% correlation.
4. Buying stocks without studying the companies is the same as playing poker – and never looking at your cards.
5. Time is on your side when you own shares of superior companies.
6. Owning stock is like having children. Don’t get involved with more than you can handle.
7. When the insiders are buying, it’s a good sign.
8. Unless you’re a short seller, it never pays to be pessimistic.
9. A stock market decline is as predictable as a January blizzard in Colorado. If you’re prepared, it can’t hurt you.
10. Everyone has the brainpower to make money in stocks. Not everyone has the stomach.
11. Nobody can predict interest rates, the future direction of the economy, or the stock market. Dismiss all such forecasts and concentrate on what’s actually happening to the companies in which you’ve invested.

Lynch’s advice had a profound effect on my stock market approach. He taught me that investment success isn’t the result of developing the right macro-economic view or deciding when to jump in or out of the market. Success is about researching companies to identify those that are likely to report positive surprises.

Capital Expenditure

A great company with a Durable Competitive Advantage will have a ratio of Capital Expenditures to Net Income of less than 25%. Less is better.

Capital Expenditures are expenses on:
- fixed assets such as equipment, property, or industrial buildings
- fixing problems with an asset
- preparing an asset to be used in business
- restoring property
- starting new businesses

A good company will have a ratio of Capital Expenditures to Net Income of less than 50%.

A great company with a Durable Competitive Advantage will have a ratio of less than 25%.

Less is better.

Benjamin Graham's 113 Wise Words

The true investor scarcely ever is forced to sell his shares, and at all times he is free to disregard the current price quotation. He need pay attention to it and act upon it only to the extent that it suits his book, and no more. Thus the investor who permits himself to be stampeded or unduly worried by unjustified market declines in his holdings is perversely transforming his basic advantage into a basic disadvantage. That man would be better off if his stocks had no market quotation at all, for he would then be spared the mental anguish caused him by other persons' mistakes of judgement."

Philip Fisher's Wise Words

"The refusal to sell at a loss, while completely natural and normal, is probably one of the most dangerous in which we can indulge ourselves in the entire investment process.

More money has probably been lost by investors holding a stock they really did not want until they could 'at least come out even' than from any other single reason. If to these actual losses are added the profits that might have been made through the proper reinvestment of these funds if such reinvestment had been made when the mistake was first realized, the cost of self-indulgence becomes truly tremendous."

(Common Stocks and Uncommon Profits)

The Ultimate Hold-versus-Sell Test

Here is the overriding primary test, followed by observations on why it is so critically important:

Knowing all that you now know and expect about the company and its stock (not what you originally believed or hoped at time of purchase), and assuming that you had available capital, and assuming that it would not cause a portfolio imbalance to do so, would you buy this stock today, at today's price?

No equivocation. Yes or no?

Answers such as maybe or probably are not acceptable since they are ways of dodging the issue. No investor probably buys a stock; they either place an order or do not.

Here is the implication of your answer to that critical test: if you did not answer with a clear affirmative, you should sell; only if you said a strong yes, are you justified to hold.

Some thoughts on Analysing Stocks (KISS)

Ideally a stock you plan to purchase should have all of the following charateristics:

• A rising trend of earnings dividends and book value per share.
• A balance sheet with less debt than other companies in its particular industry.
• A P/E ratio no higher than average.
• A dividend yield that suits your particular needs.
• A below-average dividend pay-out ratio.
• A history of earnings and dividends not pockmarked by erratic ups and downs.
• Companies whose ROE is 15 or better.
• A ratio of price to cash flow (P/CF) that is not too high when compared to other stocks in the same industry.

Margin of Safety Concept: Stocks should be bought like groceries, not like perfume

The high CAGR in the early years of the investing period, due to buying at a discount, tended to decline and approach that of the intrinsic EPS GR of the companies over a longer investment time-frame.

Chapter 20 - “Margin of Safety” as the Central Concept of Investment

A single quote by Graham on page 516 struck me:

Observation over many years has taught us that the chief losses to investors come from the purchase of low-quality securities at times of favorable business conditions.

Basically, Graham is saying that most stock investors lose money because they invest in companies that seem good at a particular point in time, but are lacking the fundamentals of a long-lasting stable company.

This seems obvious on the surface, but it’s actually a great argument for thinking more carefully about your individual stock investments. If most of your losses come from buying companies that seem healthy but really aren’t, isn’t that a profound argument for carefully studying any company you might invest in?

myinvestingnotes.blogspot.my (Bullbear Buffett Stock Investing Notes)

Friday, 24 January 2014

CIMB’s private placement exercise draws mixed reactions from analysts

No comments:

All equity security investments present a risk of loss of capital

The Ultimate Hold-versus-Sell Test

Some thoughts on Analysing Stocks (KISS)

Benjamin Graham

Sell the losers, let the winners run.

Investment Style

Warren Buffett

Political and Economic News

Interesting Blogs