AEON Credit Service (M) Berhad

AEON Credit Service (M) Berhad

Business Description:
AEON Credit Service (M) Berhad (AEON Credit) is a Malaysia-based company engaged in the provision of easy payment schemes, personal financing schemes and issuance of credit cards under the brand names of Visa and MasterCard. The personal financing schemes and easy payment schemes are based on Islamic principles.

AEON Credit has three regional offices, 31 branches and service centers located in shopping centers and towns and a network of more than 4,300 participating merchant outlets. 

As of February 20, 2010, AEON Credit had an approximately 113,000 principal credit cards in circulation. During the fiscal year ended February 20, 2010, the immediate and ultimate holding companies were AEON Credit Service Co., Ltd. and AEON Co., Ltd., respectively.

Current Price (14/1/2011): 3.90
2010 Sales 210,144,000
Employees: 1,500
Market Cap: 468,000,000
Shares Outstanding: 120,000,000
Closely Held Shares: 69,827,900

Announcement Date		Financial Yr. End		Qtr	Period End		Revenue RM '000		Profit/Lost RM'000		EPS		Amended
21-Dec-10		20-Feb-11		Other	20-Nov-10		56,097		16,041		13.37		-
21-Sep-10		20-Feb-11		Other	20-Aug-10		53,769		14,783		12.32		-
15-Jun-10		20-Feb-11		Other	20-May-10		53,025		13,202		11.00		-
19-Apr-10		20-Feb-10		Other	20-Feb-10		53,136		14,305		11.92		-

ttm-EPS = 48.61 sen
ttm-PE = 3.90 / 0.4861 = 8.0 x

DY = 0.235 / 3.90 = 6.03%


Year       DPS      EPS
2006        Not Listed
2007       2.8       16.4
2008       9.5       27.8
2009     15.1       40.6
2010    16.9        45.2
2011    18.0E     49.0E


Historical
5 Yr  
PE range  10.3 - 16.1
DY range  3.9% - 2.6%

Capital Changes

2007   1 to 2 Share Split

Oct 1, 2010	0.115 Dividend
Jun 25, 2010	0.12 Dividend
Oct 2, 2009	0.105 Dividend
Jun 26, 2009	0.1134 Dividend
Oct 10, 2008	0.0876 Dividend
Jun 30, 2008	0.0744 Dividend
Jan 2, 2008	0.0135 Dividend
* Close price adjusted for dividends and splits.

FYE                                  2010         2009          2008          2007        2006
RM’000 
Income Statement
Revenue                        210,144      186,919      151,797      116,043      69,119
Profit before tax              72,226      65,930        45,750        27,545     1 9,293
Profit after tax                 54,275      48,757        33,394        19,702      13,506

Net EPS (sen)*                 45.23         40.63        32.65           25.00       19.10
Gross DPS (sen)               22.50         20.10        12.84             6.84         5.33
Net assets per share (RM)  2.09           1.80           1.51             1.06          5.2


* Note: Earnings per share has been calculated based on weighted average number of ordinary shares outstanding in the respective year.  Comparative earnings per share and dividends per share information have been restated after adjusting for the bonus issue and share split undertaken by the Company in December 2006

Balance Sheet                                           2010              2009 
Assets
Plant and equipment                               22,047            24,820
Investment                                               1,797              1,797
Receivables                                         360,704          323,325
Total non-current assets                       384,548          349,942

Receivables, deposits
   and prepayments                              622,484          557,718
Cash and bank balances                          3,161              2,462
Total current assets                              625,645          560,180

Total assets                                      1,010,193           910,122

Equity
Share capital                                         60,000             60,000
Share premium                                      56,147             56,147
Retained earnings                                134,315             99,696
Total equity attributable to
shareholders of the Company              250,462            215,843

Liabilities

Borrowings (unsecured)                      460,041            358,529
Deferred tax liabilities                              1,782                2,386
Total non-current liabilities                   461,823            360,915

Payables and accruals                           44,453               50,035
Borrowings (unsecured)                       246,631            276,279
Taxation                                                  6,824               7,050
Total current liabilities                       297,908             333,364

Total liabilities                                      759,731             694,279

Total equity and liabilities                   1,010,193            910,122

http://announcements.bursamalaysia.com/EDMS/subweb.nsf/7f04516f8098680348256c6f0017a6bf/f233541e9528412c4825772d00389b6d/$FILE/AEONCR-Cover%20to%20Page%2032%20(2.5MB).pdf


Chairman’s Statement
AEON Credit will explore further on how to give more
rewards to our customers and create more synergies
with our business partners.

Introduction
On behalf of the Board of Directors, I am pleased to
present AEON Credit Service (M) Berhad (AEON Credit)
Annual Report and Audited Financial Statements for
the financial year ended 20 February 2010.
2009 has been a challenging year for the company.
Malaysia did not escape the effects of the global
economic downturn with the Malaysian economy
contracting in the first three quarters in 2009. With the
positive Gross Domestic Product (GDP) growth of 4.5
per cent in the fourth quarter of 2009, consumer and
business confidence have returned.  The government’s
introduction of financial stimulus packages has helped
avoid a recession sweeping through niche areas of the
economy.
Fortunately the Company achieved yet another year of
continuing improvement in its financial performance.
This is despite the challenging operating environment
and the uncertainties in the global financial market in
2009.
I am delighted to report that for the financial year
ended 20 February 2010, the Company’s net profit
increased by 11.3% to RM54.26 million from a net
profit of RM48.76 million from the previous financial
year. This resulted in improvement of earnings per share
from 40.63 sen in FYE2009 to 45.23 sen for FYE2010


Prospects
Prospects for 2010 remain bright. With economic
growth, the financial sector is expected to thrive and
domestic demand, particularly consumer spending,
is expected to be higher. These positive conditions
give us ample opportunities to grow our business. We
will continue to focus on improving our products and
services. We will explore further on how to give more
rewards to our customers and create more synergies
with our business partners.
With the collaboration with AEON CO. (M) BHD.
(AEON CO.) on the new AEON card, the Company
aims to maximize the business synergy of both
companies. The card was exclusively introduced for
JUSCO shoppers, focuses on loyalty points and more
rewards for the customers. It combines JUSCO credit 
card issued by the Company with the J CARD issued
by AEON CO. as a “2 in 1” card which comes with
exclusive benefits and privileges to cardmembers as
well as other lifestyle benefits and rewards.
The partnership that we have with AEON CO. on
the new AEON card will offer more value to J CARD
members. In addition, the perks, benefits and the
support given by more than 500 privilege shopping 
partners will firmly put the card in a leading position
within the credit card market and we are hoping that
this will help in boosting our credit cards revenue in
the near future.
I am pleased to announce that as of 18 March 2010
we have merged our Corporate Social Responsibility
activities with AEON CO. (M) BHD. under the AEON
Foundation. With this, we shall work hand in hand with
AEON CO. (M) BHD. to organize charitable activities
that are beneficial to the Malaysian society.
As part of our expansion plans and in order to capture
wider market segments, we have recently opened a 
new branch at Temerloh, Pahang and a service centre 
at AEON Bandaraya Melaka Shopping Centre. The
Company will find ways to cater for the wider local
area needs and provide convenience to its consumers.
We will focus on promoting our consumer financing
products by carrying out more promotional activities
both in urban and suburban areas.
The establishment of new branches, service centres
and marketing offices nationwide are in line with our
plans to capture larger market segments and our 
continued focus to achieve robust growth.


Dividend
The Board of Directors has proposed a final dividend
of 12.00 sen per share less 25% income tax, which
would amount to final net dividend payment of
RM10.8 million. This would result in total dividend 
payout ratio of 37.3% of the net profit for FYE2010,
including interim dividends paid in the course of the
year. The Company had paid out net final dividends of
8.51 sen per share for last financial year, representing
an increase of 54.5% from the prerious year.

Acknowledgement
On behalf of the Board of Directors,  I would like to
take this opportunity to thank Mr. Naruhito Kuroda
who relinquished his position as Managing Director
of the Company on 20 April 2010 to assume his new
position in AEON Credit Service Ltd, Japan. I wish
to express our sincere gratitude to him for his years
of service and contributions to the Company. At the
same time, I wish to welcome Mr. Yasuhiro Kasai who
has been appointed as the new Managing Director of
the Company on 20 April 2010 and Mr. Tomoaki Saito
who was appointed as the Director of the Company on
19 April 2010.
On behalf of the Board of Directors, I wish to thank
my fellow Board members, the Management and all
the staff members for their dedication and efforts to
the Company.
We also would like to thank all our valued shareholders,
business associates, bankers, government authorities
and most of all, our valued customers for their
continuous support to the Company over the years.

Thank you.
Dato’ Abdullah Bin Mohd Yusof
Chairman



Managing Director’s Operations Review


Our focus will be on new business
expansion and new services.





Financial Review


AEON Credit Service (M) Berhad was able to
achieve growth in operations and results despite the
challenging business environment during the year
under review. Nevertheless, the economic slowdown
affected certain segments of the Company’s customer
base and resulted in reduced annual growth rate 
for the Company’s consumer financing business in
comparison with the preceding year.
The Company’s recorded higher revenue of RM210.14 
million for the year, representing growth of 12.4% 
from RM186.92 million total revenue in the previous 
year. The improved results were due to the growth
in consumer financing achieved from the Company’s
Easy Payment Schemes, credit card and other products 
during the year and the expansion of service and
business areas as well as retail merchants’ network.
Meanwhile, profit before tax grew by 9.6% to RM72.23 
million from RM65.93 million last financial year. 
Earnings per share correspondingly increased to 45.23 
sen from 40.63 sen in the previous year.
The financing receivables as at end of FYE2010 was 
RM946.27 million, representing growth of 8.4% 
from RM872.86 million in the previous financial year. 
Meanwhile, non-performing loans (NPL) ratio was
1.80% as at February 2010 compared to 1.88% in
February 2009.
The financial year also saw the Company’s maiden fund
raising through an asset backed securitisation (ABS)
funding programme for RM150 million to tap the debt
capital market, as part of the Company’s strategy to
diversify funding sources in sustaining future business 
growth. 


Operational Review
Card Business
During the first three quarters of the financial year,
growth in credit cards in circulation was achieved
through aggressive marketing promotions and the 
launching of the new AEON Card in September 2009.
The new launching combines the JUSCO credit card 
issued by AEON Credit with the J CARD privilege card 
issued by AEON CO. (M) BHD. as a “2 in 1” card.  It
comes with various exclusive benefits and privileges
to card members which include enhanced ‘Double
Reward Points’ to cardmembers for spending at
JUSCO Stores/ Pasar Raya MaxValu nationwide.
However, the introduction of government service 
tax for principal and supplementary credit cards as 
announced in October 2009 has affected the credit 
and charge card issuers in Malaysia, including AEON 
Credit. The industry faced cancellation of existing
credit cards by consumers who wished to reduce the
number of cards held as well as greater challenge in
issuance of new credit cards.
Various measures taken by AEON Credit in response
to introduction of the service tax included offer of 
benefits and “retention package” promotion to retain 
cardholders. Majority of card cancellations were by 
“non-active” card members, thus not affecting revenue 
significantly. As at end of the financial year, total
principal credit cards in circulation were approximately
113,000


Easy Payment and Personal Financing Business
Easy Payment Schemes continue to be the major 
contributor to the profit growth of the Company.
During the year, AEON Credit focused on strategic
marketing efforts in a challenging market environment
through merchant development, promotions, roadshow
activities etc, both in urban and suburban areas. The
various promotions include a promotion in conjunction
with the AEON Credit Group achieving issuance of 20
million credit cards in Asia and numerous nationwide
and local area promotions to boost the sales volume,
including promotions in collaboration with merchants
and major suppliers. The Company continues to 
expand its network of participating merchants and 
chain stores, which offer Easy Payment schemes to 
customers nationwide. 
Through AEON-Biz, a financing scheme for small 
companies to purchase office automation equipment 
such as computers and photocopying machines, the
Company continues to cater for the demand from
SME business segment. Towards the end of the
financial year, the Company has expanded its “Used 
Car Easy Payment” scheme which provides financing
to customers who are seeking for second-hand
car financing to East Malaysia and certain states in
Peninsular Malaysia.

Further Business Expansion
The Company expanded its network of branches and
service centres to 31 locations nationwide to bring
convenience to its customers, including the latest
service centre at AEON Bandaraya Melaka Shopping
Centre and a branch at Temerloh. Six marketing 
offices were also established nationwide at Segamat,
Sitiawan, Taiping, Sungai Petani, Sandakan and Sibu to
cater for local area merchant service needs.

Future Plans
With the improvement in the Malaysian economy,
AEON Credit expects to maintain growth in 
performance in a scenario of improved consumer and 
business confidence.  
The Company is looking at ways to increase its card
base and with the new AEON card that offers double
J CARD points for every Ringgit spent at any JUSCO
stores nationwide, it targets to attract more shoppers
and J CARD members. Besides, with the conversion of
all card face to one standard brand name – “AEON”,
we are able to create awareness and recognition of 
our products and achieve new growth in our cards 
recruitment. The standard brand name will also enable
AEON CO (M) BHD. and AEON Credit Service (M)
Berhad to realise greater synergies in the Malaysian
card business market and send message to our potential
customers on the combined benefits offered.
The Company will also expand on its business 
associates and affiliated merchant network and boost 
the uptake of its Easy Payment Scheme products. As
part of the Company’s expansion plan, it will embark on
services via website for the convenience of customers,
business partners and merchants in 2010/2011. We
will introduce more convenient functions & services to
our customer via a new AEON Web Portal and also 
improve operational efficiency by introducing online 
easy payment application submission for merchants.
The company will also continue its collaboration with
AEON CO (M) BHD. on improving the AEON Loyalty
program by taking responsibilities on the development
of new participating merchants as well as outsourcing
of reward point management system and operations.
The new AEON Loyalty program with more attractive
benefits & privileges is scheduled to be launched by
the AEON Group in early 2011.
Our wide network of merchants and the increasing 
number of JUSCO stores in Malaysia have also given 
us opportunity to broaden our card business scope to 
include credit card transactions acquiring business, 
which is targeted to be launched by 2011.
AEON Credit expects to maintain profitability 
growth in the prevailing competitive environment 
through improvement in operational efficiency and 
productivity.

Acknowledgement
I would like to thank the Board of Directors, employees,
our shareholders, customers and business associates
for the confidence and continued support for the
Company. I would also like to express my gratefulness
and sincere appreciation to the management and
staff of the Company for the continuous support and
dedication, which are important for the future growth
of the Company.

Yours sincerely,
Yasuhiro Kasai
Managing Director

http://announcements.bursamalaysia.com/EDMS/subweb.nsf/7f04516f8098680348256c6f0017a6bf/f233541e9528412c4825772d00389b6d/$FILE/AEONCR-Page%2033%20to%20ProxyForm%20(1.6MB).pdf

DIVIDENDS 
Since the end of the previous financial year, the Company paid:
i) a final ordinary dividend of 11.34 sen per ordinary share less tax at 25% totalling RM10,206,000 (8.51 sen
net per ordinary share) in respect of the year ended 20 February 2009 on 14 July 2009; and
ii) an interim ordinary dividend of 10.50 sen per ordinary share less tax at 25% totalling RM9,450,000 (7.88 sen net per ordinary share) in respect of the financial year ended 20 February 2010 on 20 October 2009.
The final ordinary dividend recommended by the Directors in respect of the year ended 20 February 2010 is 12.00 sen per ordinary share less tax at 25% totalling RM10,800,000 (9.00 sen net per ordinary share)



LIST OF THIRTY (30) LARGEST SHAREHOLDERS
As at 30 April 2010
 
No.          Names            No of Shares            % of Shares held 
1 AEON CREDIT SERVICE CO., LTD 68,040,000 56.70
2 HSBC NOMINEES (ASING) SDN BHD 4,301,000 3.58
HSBC -FS I FOR APOLLO ASIA FUND LTD
3 MAYBAN NOMINEES (TEMPATAN) SDN BHD 2,789,100 2.32
MAYBAN TRUSTEES BERHAD FOR SAHAM AMANAH SABAH (ACC 2-940410)
4 AEON CO. (M) BHD 2,580,000 2.15
5 MAYBAN SECURITIES NOMINEES (ASING) SDN BHD 1,800,000 1.50
AEON THANA  SINSAP (THAILAND) PUBLIC COMPANY LIMITED
6 AEON CREDIT SERVICE (ASIA) COMPANY LIMITED  1,800,000 1.50
7 MAYBAN NOMINEES (TEMPATAN) SDN BHD 1,800,000 1.50
ABERDEEN ASSET MANAGEMENT SDN BHD FOR KUMPULAN WANG PERSARAAN
(DIPERBADANKAN) (FD 1 - 280305)
8 SIA TONG HOCK  1,418,800 1.18
9 AMSEC NOMINEES (TEMPATAN) SDN BHD 1,292,100 1.08
AMTRUSTEE BERHAD FOR PACIFIC PEARL FUND (UT- PM-PPF)
10 HSBC NOMINEES (TEMPATAN) SDN BHD  1,135,900 0.95
HSBC (M) TRUSTEE BHD FOR HWANGDBS SELECT OPPORTUNITY FUND (3969)
11 AMSEC NOMINEES (TEMPATAN) SDN BHD 1,070,000 0.89
ABERDEEN ASSET MANAGEMENT SDN BHD FOR TENAGA NASIONAL BERHAD
RETIREMENT BENEFIT TRUST FUND (FM-ABERDEEN)
12 HSBC NOMINEES (ASING) SDN BHD  1,000,000 0.83
EXEMPT AN FOR BNP PARIBAS SECURITIES SERVICES (SINGAPORE- SGD)
13 MAYBAN NOMINEES (TEMPATAN) SDN BHD 900,000 0.75
ABERDEEN ASSET MANAGEMENT SDN BHD FOR THE
EMPLOYEES’ PROVIDENT FUND BOARD (250416)
14 DATO’ CHONG WENG CHOY 800,500 0.67
15 MAYBAN NOMINEES (TEMPATAN) SDN BHD 797,900 0.66
MAYBAN TRUSTEES BERHAD FOR CIMB- PRINCIPAL SMALL CAP FUND ( 240218)
16 LEONG SOO KENG 717,000 0.60
17 PUBLIC NOMINEES (TEMPATAN) SDN BHD  560,000 0.47
PLEDGED SECURITIES ACCOUNT FOR KONG GOON KHING (E- BTR)
18 WONG CHEE LING 548,000 0.46
19 NARUHITO KURODA  530,000 0.44
20 CARTABAN NOMINEES (ASING) SDN BHD  500,000 0.42
EXEMPT AN FOR BANK SARASIN -RABO (ASIA ) LIMITED (AC CLIENT FRGN)
21 AMANAHRAYA TRUSTEES BERHAD  486,300 0.41
PUBLIC SMALLCAP FUND
22 HSBC NOMINEES (ASING) SDN BHD  481,700 0.40
EXEMPT AN FOR JPMORGAN CHASE BANK,NATIONAL ASSOCIATION (NORGES BK LEND)
23 MOTOYA OKADA 480,000 0.40
24 YOSHIKI MORI 480,000 0.40
25 AMANAH SAHAM MARA BERHAD 473,100 0.39
26 LEONG LI NAR  460,600 0.38
27 AMANAHRAYA TRUSTEES BERHAD  400,000 0.33
ASM PREMIER FUND
28 HDM NOMINEES (ASING) SDN BHD 391,800 0.33
EXEMPT AN FOR UOB KAY HIAN (HONG KONG) LIMITED (CLIENTS)
29 HSBC NOMINEES (ASING) SDN BHD  360,000 0.30
AA NOMS SVS HK FOR TSE, KWONG
30 HSBC NOMINEES (TEMPATAN) SDN BHD  320,000 0.27
HSBC (M) TRUSTEE BHD FOR HWANGDBS ASIA QUANTUM FUND (4579)

TOTAL  98,713,800 82.2



http://www.reuters.com/finance/stocks/overview?symbol=ANCR.KL

Quality Investing

Quality investing
From Wikipedia, the free encyclopedia

Quality investing is an investment strategy based on clearly defined fundamental factors that seeks to identify companies with outstanding quality characteristics. The quality assessment is made based on soft (e.g. management credibility) and hard criteria (e.g. balance sheet stability). Quality Investing supports best overall rather than best-in-class approach as the specific industry’s or country’s quality is evaluated as well.

Contents  [hide] 1 History 2 Identification of Corporate quality 3 Comparison to other investment models 4 References 5 See also

[edit]History

The idea for quality Investing originated in the bond and real estate investing, where both the quality and price of potential investments are determined by ratings and expert attestations. Later the concept was applied to enterprises in equity markets.

Benjamin Graham, the founding father of value investing, was the first to recognize the quality problem among equities back in the 1930s. Graham classified stocks as either quality or Low quality. He also observed that the greatest losses result not from buying quality at an excessively high price, but from buying Low quality at a price that seems good value.^[1]

The quality issue in a corporate context attracted particular attention in the management economics literature following the development of the BCG matrix in 1970. Using the two specific dimensions of life cycle and the experience curve concept, the matrix allocates a company's products – and even companies themselves – to one of two quality classes (Cash Cows and Stars) or two Non-quality classes (question Marks and Dogs). Other important works on quality of corporate business can be found primarily among the US management literature. These include, for example, "In Search of Excellence" by Thomas Peters and Robert Waterman^[2], "Built to Last" by Jim Collins and Jerry Porras^[3], and "Good to Great" by Jim Collins^[4].

Quality Investing gained credence in particular after the burst of Dot-com bubble in 2001 when investors learned of the spectacular failures of companies such as Enron and Worldcom. These corporate collapses focused investors’ awareness of quality from stock to stock. Investors started to pay more attention to quality of balance sheet, earnings quality , information transparency, corporate governance quality.

[edit]Identification of Corporate quality

As a rule, systematic quality investors identify quality stocks using a defined schedule of criteria that they have generally developed themselves and revise continually. Selection criteria that demonstrably influence and/or explain a company's business success or otherwise can be broken down into five categories:^[5]

1. Market Positioning: quality company possesses an economic moat, which distinguishes it from peers and allows to conquer leading market position. The company operates in the industry which offers certain growth potential and has global trends (e.g. ageing population for pharmaceuticals industry) as tailwinds.

2. Business model: According to the BCG matrix, the business model of a quality company is usually classified as star (growing business model, large capex) or cash cow (established business model, ample cash flows, attractive dividend yield). Having a competitive advantage, quality company offers good product portfolio, well-established value chain and wide geographical span.

3. Corporate Governance: Evaluation of corporate management execution is mainly based on soft-criteria assessment. Quality company has professional management, which is limited in headcount (6-8 members in top management) and has a low turnover rate. Its corporate governance structure is transparent, plausible and accordingly organized.

4. Financial Strength: Solid balance sheet, high capital and sales profitability , ability to generate ample cash flows are key attributes of quality company. Quality company tends to demonstrate positive financial momentum for several years in a row. Earnings are of high quality, with operating cash flows exceeding net income, inventories and accounts receivables not growing faster than sales etc.

5. Attractive valuation: Valuation ultimately is related to quality, which is similar to investments in real estate. Attractive valuation, which is defined by high discounted cash flow (DCF), low P/E ratio and P/B ratio, becomes an important factor in quality investing process.

According to a number of studies the company can sustain its quality for about 11 months in average, which means that quantitative and qualitative monitoring of the company is done systematically.

[edit]Comparison to other investment models

Quality investing is an investment style that can be viewed independent of value investing and growth Investing. A quality portfolio may therefore also contain stocks with Growth and Value attributes.

Nowadays, Value Investing is based first and foremost on stock valuation. Certain valuation coefficients, such as the price/earnings and price/book ratios, are key elements here. Value is defined either by valuation level relative to the overall market or to the sector, or as the opposite of Growth. An analysis of the company's fundamentals is therefore secondary. Consequently, a Value investor will buy a company's stock because he believes that it is undervalued and that the company is a good one. A quality investor, meanwhile, will buy a company's stock because it is an excellent company that is also attractively valued.

Modern Growth Investing centers primarily on Growth stocks. The investor's decision rests equally on experts' profit forecasts and the company's earnings per share. Only stocks that are believed to generate high future profits and a strong growth in earnings per share are admitted to a Growth investor's portfolio. The share price at which these anticipated profits are bought, and the fundamental basis for growth, are secondary considerations. Growth investors thus focus on stocks exhibiting strong earnings expansion and high profit expectations, regardless of their valuation. Quality investors, meanwhile, favor stocks whose high earnings growth is rooted in a sound fundamental basis and whose price is justified. (QVM approach)

References

1. ^ Benjamin Graham (1949). The Intelligent Investor , New York: Collins. ISBN 0-06-055566-1.
2. ^ Thomas Peters and Robert Waterman (1982). In Search of Excellence. ISBN 0-06-015042-4
3. ^ Jim Collins and Jerry Porras (1994). Built to Last. ISBN 978-0887307393
4. ^ Jim Collins (2001). Good to Great . ISBN 978-0-06-662099-2
5. ^ Weckherlin, P. / Hepp, M. (2006). Systematische Investments in Corporate Excellence, Verlag Neue Zürcher Zeitung. ISBN 3-03823-278-5.

[edit]See also

• Value investing
• Growth investing

http://en.wikipedia.org/wiki/Quality_investing

Guan Chong: Bonus and Warrants

Guan Chong

Before Bonus Issue:  240 m existing shares.

After Bonus Issue:  240 m existing shares + 80 m new shares = 320 m shares

Warrants issued: 60 m warrants.
Exercise Price MR 2.00.
Conversion 1 warrant for 1 mother share.
Lifespan of warrant: any time within five (5) years 
EX-date:10/02/2011
Entitlement date:14/02/2011
Entitlement time:05:00:00 PM

The price per mother share for determining the price of the warrant was based on a recent 5 days average price of RM 2.44.  After bonus, this 240 m shares will increase to 320 m shares and each share is then priced the equivalent of RM 1.83.

The warrants are given free.  Each warrant can be converted to one mother share.  With an exercise price of MR 2.00, each warrant is issued at a premium of RM 0.17 or 9.29%.

[On 21.1.2011, the price of Guan Chong was RM 2.62 per share.  After the bonus exercise, the share price will be RM 1.965 per share.  The warrant will be at a premium of RM 0.035 or 1.8% only.]

Understanding warrants

A warrant is a derivative.  It derives its value from its underlying mother share.

The performance of a warrant will always depend on performance of its underlying share mother share.

Warrant is trading at a discount when:
Mother share price > Price of warrant + Exercise Price

Warrant can trade at a discount if the underlying share has just enjoyed a spectacular run in price.  Investors should avoid buying these discount warrants if they feel the high price of the mother share is unsustainable.

Warrant is trading at a premium when:
Mother share price < Price of warrant + Exercise Price

The warrant's premium can crudely measure how much more expensive it is to acquire a share via a warrant compared to buying a share directly.

Premium are commonly used as a quick measure of the warrant's expensiveness.

Because warrants are issued at a premium, investors must consider if it can appreciate to a level that allows recovery of the paid premium within the warrant's lifespan.

Another important factor to consider when selecting a warrant is volatility. A high volatility warrant, even though more expensive, can very well generate more money than a low volatility warrant. High volatility means that the underlying share is more likely making big swings.

It has to be noted that the time span to expiry is very important for warrants. The longer it is from expiry, the higher should be the premium because longer time will be afforded for the mother share to rise.

Of course, you are entitled to dividends as shareholders, but as a warrant holder, you only need to pay a fraction of what shareholders pay.

Most Malaysian investors do not have a good understanding of warrants. However, it must be noted that we should not purchase warrants that are grossly out of money.

While warrants can offer a smart addition to a portfolio, keep in mind the following - your view of the underlying share is important; understand the unique nature of warrants and stay attentive to small movements in the market.

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Company Name: GUAN CHONG BERHAD
Stock Name: GUANCHG
Date Announced: 11/01/2011

Subject: GUANCHG - NOTICE OF BOOK CLOSURE

1) Bonus issue of 80,000,000 new ordinary shares of RM0.25 each ("Bonus Shares") in Guan Chong Berhad ("GCB") ("GCB Shares")to be credited as fully paid-up on the basis of one (1) Bonus Share for every three (3) existing GCB Shares held ("Bonus Issue").

2) Issuance of 60,000,000 free warrants in Guan Chong Berhad ("GCB") ("Warrants") on the basis of one (1) free Warrant for every four (4) existing GCB Shares held.

Kindly be advised of the following :

1) The above Company's securities will be traded and quoted [ "Ex - Bonus Issue" ] as from : [ 10 February 2011 ]

2) The last date of lodgement : [14 February 2011 ]

3) Retention Money : Where securities are not delivered in time for registration by the seller, then the brokers concerned :-

a) Selling Broker to deduct [ 7/19 ] , of the Selling Price against the Selling Client.

b) Buying Broker to deduct [ 45.00%] of the Purchase Price against the Buying Client.

c) Between Broker and Broker, the deduction of [7/9 ] of the Transacted Price is applicable.

Remarks : "Bursa Malaysia Securities Bhd would like to clarify that on the basis of settlement taking place on 16 February 2011 with bonus issue of GUANCHG shares of RM0.25 each, any shareholder who is entitled to receive GUANCHG bonus issue shares, may sell any or all of his GUANCHG shares arising from the bonus issue beginning the Ex-Date (10 February 2011).

For example, if Mr. X purchases 300 GUANCHG shares on cum basis on 9 February 2011, Mr. X should receive 300 shares on 14 February 2011. As a result of the bonus issue, a total of 400 GUANCHG shares will be credited into Mr. X's CDS account on the night of 14 February 2011 being the Book Closing Date. Therefore, Mr. X can sell the bonus issue shares of 400 on or after the Ex-Date ie from 10 February 2011 onwards."

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Company Name: GUAN CHONG BERHAD
Stock Name: GUANCHG
Date Announced: 07/01/2011

On behalf of the Board, we are pleased to announce that the Board had on even date, resolved to fix the exercise price of the Warrants to be issued pursuant to the Proposed Free Warrants Issue at RM2.00 per GCB Share (“Exercise Price”), which represents a premium of approximately 9.29% or RM0.17 over the theoretical ex-price after the Proposed Bonus Issue of RM1.83 per GCB Share, calculated based on the five (5)-day VWAP of GCB Shares up to and including 7 January 2011 of RM2.44.

Based on the exercise price of the Warrants of RM2.00 per new GCB Share, the Company stands to potentially raise up to RM120 million during the tenure of the Warrants upon full exercise of the Warrants by the holders of the Warrants. Such proceeds will be utilised for the day-to-day working capital requirements of the GCB Group.

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Lifespan of warrant: The Warrants may be exercised at any time within five (5) years commencing on and including the date of issuance of the Warrants and ending at 5.00 p.m. on the date preceding the fifth (5th) anniversary of the date of issuance, or if such day is not a market day, then it shall be the market day immediately preceding the said non-market day, but excluding the three (3) clear market days prior to a book closure date or entitlement date announced by the Company and those days during that period on which the Record of Depositors of the Company and/or Warrants Register is/are closed.Any Warrant not exercised during the exercise period will thereafter lapse and cease to be valid.


http://announcements.bursamalaysia.com/EDMS/edmswebh.nsf/all/482576120041BDAA482577B9003BAABC/$File/GCB%20-%20Announcement.pdf

Learn Patience. Yes, patience is a virtue you must have as a value investor.

You can never count on stocks for short-term needs.  As long as you have at least 5 to 10 years and you have chosen a solid company, there's a good chance you won't have to take a loss on a stock.  But you must be patient and willing to wait for the market to turn around for that stock.

Yes, patience is a virtue you must have as a value investor.  To get a good bargain, you need the patience to wait for a stock to recover, as well as the risk tolerance that allows you to hang tough even if the stock has been beaten down.

How do you know if the company is still on the right track?  That comes with research and what Graham calls intelligent investing.

To be an intelligent investor, you must have the time and knowledge to carefully pick your stocks and then monitor your portfolio.  So if your time constraints won't allow you the time you'll need for the research, you may need to be a passive rather than active investor.  These differences will impact the type of portfolio you want to build as a defensive value investor.

You also need to know how you will react when the market takes a nosedive and drops 10% to 15%.  Are you the type of investor who will run for the hills and sell off all your stock?  If so, you do not have the risk tolerance to be an active investor; you need to develop a more passive portfolio with steady returns.  A down market is the time an active defensive investor looks for good buys.

Another question you must ask is, what will you do when the market is going up 10% to 15% or more?  If you think you're the type of investor that will jump on the bandwagon, you don't have the discipline to win as a value investor.  When the market goes up that dramatically, stocks are usually overpriced.  Active defensive investors might sell SOME winning holdings, but they would NOT likely buy any stock during this type of market unless they believe they've found a good beaten-down stock that the crowd missed.

While value investors need to learn patience, you should never hang tough if you believe you made a mistake and the company is performing much worse than you expected, or if you no longer believe in the company's management team.  Take your hit and get out before things get even worse.

Luck versus Investing. Luck plays a part in every investor's life.

Value investing certainly requires a bit of luck, but it is mostly based on perseverance and discipline.  Since you will be taking some risk as you pick beaten-down companies, you do need the luck that most of these risks will pay off.  You also need the discipline to stick with your choice, knowing it will eventually pay off even if things don't look good immediately.  And, yes, some of those risks won't pay off.

Luck plays a part in every investor's life, but few credit their success to being lucky.  So don't count on luck to get you where you want to go.

Discipline is the key to the door of success for value investors.  You have to know how to set your investing goals and stick to them.  You must have the ability to develop your own road map to success without having to worry about taking directions from others.   You also need to become an accumulator of wealth and have the discipline to not spend as much as you make, so you have money to invest when you find a good bargain.




Remember, disciplined people are not easily side-tracked.  They:

• set their sights on a series of lofty goals,
• figure out strategies for meeting those goals, and 
• have the discipline to not lose sight of those goals, even if they stumble and fall along the way.  

They get up, fix the problems, and continue to stay focused on their ultimate goals.

Develop the Value Investing Mind-Set

Value investors must think long term and not think that making a quick profit is their first priority.  You must realize that you won't be investing in the same types of stocks as your friends, and you won't be able to compare quarter-to-quarter returns.

You'll also need to enjoy digging into the annual reports of the companies that interest you and be prepared to analyze everything you see.  Successful value investors are those who enjoy researching and learning everything about a company before diving in and investing.

The key tools you'll need as a value investor are:

• Patience to wait for the market to realize you found a gold mind in a beaten-down stock.
• Discipline to spend the time researching your choices and not get caught up in the mob mentality as people push stocks higher and higher above their true value.
• Desire to learn all you can about choosing the right industries to explore, picking the right stocks within those industries that are unjustifiably beaten down, and then having the courage to wait until the market realizes what a great investment it is missing.
• Ability to check your emotions at the door.  Don't get emotionally involved in your stocks.  Your value portfolio is way to make money.  Don't fall in love with it or the stocks in it.
• Expectation of adequate profits but not extraordinary performance.  Historically the average annual return for stocks in any 20-year period is about 10 to 12 percent per year.  That doesn't mean you'll earn that amount each year:  some years will be higher, some lower, but that's the average return you should expect with a long-term stock portfolio.
• Ability to calculate what a stock is worth, based on careful analysis of the business.  Don't gamble on how much the stock may go up because someone else is foolish enough to pay that.  Eventually, the fools disappear and you could be left holding the bag.
• Ability to think for yourself.  Unless you've found a friend who is also dedicated to the idea of becoming a value investor, don't count on those around you for support.  You must learn to think for yourself.

In the preface to Benjamin Graham's The Intelligent Investor, Warren Buffet writes,  "To invest successfully over a lifetime does not require a stratospheric IQ, unusual business insights, or inside information.  What's needed is a sound intellectual framework for making decisions and the ability to keep emotions from corroding that framework."

Market Behaviour: The Least You Need to Know

Warren Buffett mentioned that an intelligent investor will require good knowledge in two subjects.  These are:

1. having a good understanding of market behaviour and 
2. mastering the valuation of different assets.

Understanding market behaviour is important as this allows the intelligent investors to take advantage of and not to fall victim to it.

• What are the types of market behaviour the intelligent investors may encounter?  
• How should you approach these market conditions?  
• How can you take advantage of these through your buying and selling of shares?

As a value investor, understanding the market behaviour can be rewarding.  At least you need to know:

• Bull markets tend to be good times to take profits on stocks you're ready to sell.
• Bear markets tend to be good times to find great buys because so many stocks are on sale.
• Get yourself under control and learn to move at your own pace, not the pace of the crowd.

Related topics:

Market Behaviour: The Least You Need to Know
Market Behaviour: Crowd Impacts on Stock Prices

Market Behaviour: Can You Beat the Market?
Market Behaviour: Bull Runs
Market Behaviour: Bear Stalls
Market Behaviour: Pendulum Swings (Volatility)
Market Behaviour: Irrational Exuberance
Market Behaviour: Unjustifiable Pessimism
Market Behaviour: Control Yourself (Patience)

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Market Behaviour: Control Yourself (Patience)

Patience is a virtue you must learn in order to excel as a value investor.  You must think outside the box and move in a direction the crowd likely is not following.

If you want to invest intelligently according to the basics established by value investing master guru Benjamin Graham, you must control the following:

1. Your brokerage costs
2. Your ownership costs
3. Your expectations
4. Your risk
5. Your tax bills
6. Your own behaviour

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1.  Your Brokerage Costs

Find yourself a good broker who doesn't charge too much to handle your stock trades.  If you feel confident that you know how to handle stock trading, do it yourself with an Internet discount broker.

We don't recommend full-service brokers because you don't need their research services and you certainly won't want to follow their advice - unless by some lucky break you find a broker who truly believes in value investing.

Also, don't trade too often and waste your money jumping in and out of stocks.  Most value investing gurus hold on to stocks for four to five years.

Learn to be patient and give a stock you've picked time to recover.  Its price may go down after you buy the stock, so don't get discouraged.  Few people can actually buy at the absolute lowest price.  Most value investors choose a stock on its way down.

But don't be so patient that you end up losing all your money.  Sometimes, you will make a mistake when picking a stock.  Just admit your mistake, accept your losses and move on.

2.  Your Ownership Costs

If you decide to invest using mutual funds, be sure to buy no-load funds with very low management fees.  Few funds are worth the cost if their management fees are more than 1 percent.

Remember, for a mutual fund manager to meet the returns of a stock market index, he or she must beat the index by at least the cost of the mutual fund's management fees.  Management fees are a drain on all mutual funds.  

Unless for some reason you've picked a particular mutual fund manager you want to follow, your best bet is to invest using an index fund.  Fees for many index funds are just 0.15 to 0.35 percent.

3.  Your Expectations

Always be realistic about the returns you want to get out of a stock purchase.  Even if you decide to follow some newsletters that specialise in value investing, don't get caught up in someone else's hype.  You'll never be disappointed if you carefully assess the true value of a stock and are conservative about the cash flows you can expect from the stock purchase.

4.  Your Risk.

Keep a close eye on the amount of risk you can tolerate.  Determine the asset allocation that best manages your risk tolerance.  

Periodically re-balance your portfolio so you know that you're maintaining your portfolio at a risk tolerance level that you can tolerate.

Determine how much of your portfolio you can afford to put at risk.  Stock investing is a risky business.  You can afford to take more risk if you have a longer time frame before you need the money.  

For example, if you won't need the money for 10 years or more, you can take on the greatest amount of risk. If you plan to use the money in two years, put that money in a cash account.

5.  Your Tax Bills

Each time you sell a stock, you may have to pay taxes on the amount of profit you make from the transaction. If you hold a stock for less than 12 months, the taxes you pay are based on your current tax rate.  

If you hold a stock for more than 12 months, your tax bill could be as little as 5 percent for capital gains, if you are in the 10 percent or 15 percent tax brackets.  You'll pay 15 percent capital gains tax if your tax bracket is 25 percent or higher.

Unless you've made a terrible mistake picking a stock, you should always hold it for more than a year, to minimize the tax hit on any gain.  The only exception to this rule is fi you have a significant profit in a stock and you're afraid the stock could take a tumble.

6.  Your Own Behaviour

It's human nature to get excited and follow the crowd in feeling good about a stock.  The crowd shows its enthusiasm when it bids the price up so high that the P/E ratio tops 20.  Learn to resist these feelings.

It;s also human nature to get frightened when everyone is running from the stock market.  Get your emotions under control and start to take a look for good buys when everyone else thinks it's time to escape.

Related topics:

Market Behaviour: The Least You Need to Know
Market Behaviour: Crowd Impacts on Stock Prices

Market Behaviour: Can You Beat the Market?
Market Behaviour: Bull Runs
Market Behaviour: Bear Stalls
Market Behaviour: Pendulum Swings (Volatility)
Market Behaviour: Irrational Exuberance
Market Behaviour: Unjustifiable Pessimism
Market Behaviour: Control Yourself (Patience)