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.

Wednesday, 9 August 2017

Kim loong - An Efficient Planter (Malacca Securities)

Author: MalaccaSecurities | Publish date: Wed, 9 Aug 2017, 05:45 PM

We initiate coverage on Kim Loong Resources Bhd (KLR) with a HOLD recommendation and a target price of RM 4.15. Although we like KLR for its standing as one of the leading mid-cap plantation companies in Malaysia with an established track record of approximately 40 years of operational experience, its valuation is already fair, in our view, after its share price has climbed steadily since the start of the year.

We also like the company’s proficient operational structure of having delivered a higher-than-average oil extraction rate (OER) vs. the industry average over the years. Approximately 84.0% of KLR’s trees are at the prime production age and offers strong fresh fruit bunches (FFB) production yield on the approximately 15,000 ha. of oil palm land that it has cultivated in Malaysia.

The group is currently expanding its plantation landbank, focusing on East Malaysia that will ensure longer term earnings growth and has started planting on 2,419 ha. of Native Customary Rights (NCR) land in Sarawak. Going forward, its earnings will also be augmented by the sale of electricity generated by its biogas plants.

We expect KLR to register a double digit three-year net profit CAGR of 15.0% to reach RM94.1 mln in FY19, while revenue is expected to grow 3.9% to RM962.8 mln over the same period. We arrive at our target price by ascribing a target PER of 14.0x to its forecast FY18 EPS of 29.6 sen. The assigned PER is within its’ peers’ PERs of 13.0x-15.0x. We also expect KLR to continue rewarding its shareholders with decent dividend yields of between 5.7%-5.9% over the next two years.

Recommendation

We like KLR for its established track record as one of the more reputable plantation companies in Malaysia, having been operational over the past 40 years. Over the years, the group has also gradually positioned itself as a sizeable mid-cap plantation company in Malaysia, owning approximately 15,000 ha. of oil palm land.

KLR has been reaping higher oil extraction rate (OER) vs. the industry average over the years, showcasing the group’s competitiveness and competency in maintaining its FFB processing efficiency and quality through an integrated milling operation, coupled with reduction of wastages through the conversion of waste to increase the extraction of residual oil from pressed fibre.

We are also positive on KLR’s expansion plans in the Sarawak region. The group is in the midst of obtaining the acceptance from Native Customary Rights (NCR) owners for the remaining land. With the completion of the aforementioned acquisition, KLR will own approximately 23,500 ha. of plantation land across Malaysia.

The group’s operations are also overseen by an experienced management team with over 40 years of experience in the oil palm industry (refer to Appendix 1 for full profile of its Board of Directors), thereby ensuring sustainable top-of-the-range operational statistics and OERs going forward.

At current price of RM4.00, however, we think that its share price upsides are limited given that KLR valuation is already fair, trading at prospective FY18 and FY19 PERs of 13.1x and 12.9x, which are close to its peers average of 13.3x and 15.1x respectively. Nonetheless, we are positive on KLR growth prospects, backed by its established track record, coupled with its position as one of the leading plantation companies in Malaysia with higher operational efficiency vs. its peers.

At the target price of RM4.15, KLR will trade an implied PER of 13.5x and 13.3x for FY18 and FY19 respectively, which is slightly below of its peers, but close to fair, in our opinion, given the cyclical nature of the crude palm oil industry.

Investment Risk

Risks to our recommendation include fluctuations in the CPO prices. The volatility of CPO prices is subjected to weather conditions, demand (mainly from both China and India) and supply (from both Malaysia and Indonesia).

The supply of soybeans could affect CPO prices as both products are regarded as substitutes. Should the soybean price premium against the CPO price decline overtime, demand will shift to the former product and vice versa.

A firmer Ringgit against the U.S. Dollar could impact the group’s bottom line. A recovery in the local currency against the Greenback will negatively impact on the group’s earnings and vice versa, as the majority of the country’s CPO output are exported.

The plantation sector in Malaysia relies heavily on foreign workers. Foreign workers in the plantation sector’s job scope typically include harvesting, field works and other adhoc works. A worst-than-expected labour shortage, particularly in East Malaysia, could hamper harvesting and the corresponding production efficiency.

Source: Mplus Research - 9 Aug 2017

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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)

Wednesday, 9 August 2017

Kim loong - An Efficient Planter (Malacca Securities)

Recommendation

Investment Risk

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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

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