Saturday, March 26, 2016

VGD Portfolio

The KLCI closed at 1703.79 on Friday 25 March 2016

With RM30,000, I have started a new portfolio based on the closing prices on Friday 25 March 2016. The stocks are picked for their value, growth and dividends. Hence the name. The time limit set for this portfolio is 31.12. 2018. The stocks chosen are as follows:

CBIP 1000 at RM2.28: RM2,280
ECS (CD 3 sen) 1000 at RM1.75 =  RM1,750
FLBHD 2000 at RM2.14 = RM4,280
Gadang 1000 at RM1.91 = 1,910
Kim Hin (CD 3 sen) 1000 at RM2.01= RM2,010
Magni (CD 5 sen) 1000 at RM4.40 = RM4,400
Sam 1000 at RM6.63 = RM6,630
TGuan LA 1000 at RM2.90 = RM2,900
Uchitech 2000 at RM1.66 = 3,320

Total = RM29,480
Cash balance = RM520.

The stocks are picked to compete with the KLCI. Let’s see how it (the portfolio ) goes from time to time. 

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Sunday, March 20, 2016

FLBHD (5197)

FLBHD is a small-cap stock with a paid-up capital of RM51.6 ml as at 31.12.2015. Its par value per share is 50 sen. Its principal activities are the manufacturing and sale of plywood, veneer and laminated veneer lumber and investment holding. 

The company was listed on 28.4.2011 in the main board. The earnings of the company are as follows: 

Year 2011 : EPS 14.15 sen; 2012 : 11.24 sen; 2013 : 14.66 sen; 2014 : 15.53 sen; 2015 : 30.74 sen. 

Comparing the EPS of 2015 to that of 2011, earnings have more than doubled. This is excellent growth.

As at 30.12.2015, its current assets total RM121.563 ml of which RM57.819 ml is cash. Total liabilities amount to only RM12.715 ml of which current liabilities amount to RM9,699. The Current Ratio stands at 12.53!!!

The company has no borrowings. Its cash alone is enough to cover total liabilities by 4.547 times!!! Is there another company listed in Bursa with such a strong cash position? Please let me know if you know of one.

In respect of dividends paid, there are as follows: 2011: 6 sen; 2012: 6 sen; 2013: 8 sen; 2014: 8 sen & 2015: 15 sen. Thus dividend growth is excellent as well. With so much cash in the banks, the company should have no problem maintaining its dividend payments. Although the company does not have a dividend policy, we can see that it usually pays out about 50% of its earnings as dividends. This is good for those who love dividends.

I understand that the company does not have concession in any timberland. I called the inter-relation officer to find out how the company sources its raw materials, especially timber logs and glue. Unfortunately he refused to tell me about this, saying that was the secret of the company.

The new minimum wages commence on July 1, 2016. This will have an impact on the production cost of plywood. To mitigate this, the company will modernise and automate the manufacturing facilities of the group. This should not be a problem as the company has lots of cash to implement this intention.

The company exports 92% of its products, the bulk of which (76%) goes to US and the rest to other countries, mainly Taiwan & Korea. The value of the US$ has a great impact on the bottom line of the group. The more it appreciates against the Ringgit, the more the group will benefit. The reverse is the other way round. So, keep an eye on the exchange rates.

One of the things I like about this company is that it is environmentally friendly. Its mill is the first Malaysian plywood mill that is certified as a CARB Certified Manufacturer in 2008 by Professional Service Industries, Inc.  The company was also awarded with the JAS certification by the Ministry of Agriculture, Forestry and Fisheries of Japan in 2009 as a proven qualified plywood manufacturer. These certifications certify that the groups’ products are of high quality, and goes a long way to enhance customers’ confidence. 

In additions to the above awards, the company was accredited as a certified Lacey Compliant Wood Products Manufacturer by Benchmark International, LLC (BMH) under the BMH Lacey Compliance  Verification (LCV) Program. This means that its timber logs are confirmed to be sourced legally. 

I like to use the metric, ROACE (Return On Average Capital Employed) to appraise the competency of the management. The higher this is, the better. Using the figures in its balance sheet as at 31.12.2015 and 31.12.2014,  FLBHD’s ROACE is 25.67% which is deemed to be on the high side. 

Going by the track record of this company, I have full confidence that it will continue to grow well. I give a 5-star rating to the management.  

The chart below shows that the stock hit a bottom on 17.8.15 at RM1.22, and then moved up to RM3.09 on 11.1.2016. It is now undergoing a correction phase. The last done price is RM2.23. Should it drift lower, the support levels are: RM2.08 and 2.02 while its immediate resistance is RM2.37. 

Action to take: Buy at support and also when it decisively crossed RM2.37.

This is my opinion. Whatever action you take, you do so at your own risk absolutely.

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Saturday, March 12, 2016

Stock Selection Points To Note

Core business
The first thing I look at when evaluating a stock to buy is the company’s business model. What it does and how it generates profit is important.
In this respect, I will consider the competition of the industry, the quality of its products, barrier of entry, availability of raw materials, as well as the demand and necessity of its products and services.  

Calibre of Management 
Competency and Integrity counts. Competency without integrity is worse than integrity without competency. Incompetency of the management is the main cause of failure. The only way for you to know the management is to look at its record. A growing revenue, improved earnings and dividend payments year after year are the things to look at. 

Balance Sheet (BS)
The BS is an important statement. It tells you what the company has and what it owes others. Once studied, you will know whether the company is solvent or not. An insolvent company is somebody’s problem which you shouldn’t get involved with. 

Current Ratios, Free Cash Flow, Borrowings, Receivables, Payables, Pay-up Capitals, Par Value must all be carefully considered.

Metrics such as EPS, Dividend Yields, Profit Margins, Current Ratio, Debt-equity-ratio, ROCE & Price-to-book Ratio are some important metrics to look at closely. (Refer to Investopedia.com, if you do not understand any of the terms mentioned.)

Income Statement
Quality of earnings must be carefully look at. Not all earnings are the same. The important thing to think about is whether the earnings are sustainable or improved going forward.

Cash Flow Statement 
How cash flow in and flow out must be analysed carefully. Looking at the bottom line alone is not enough. You must know the details.

CEO’s Statement
The CEO is the most important person in a company. Know who the person is. Failure or success of the company depends on this person rather than on anything else. Besides being competent, the person must have integrity as well. 

Dividend Policy
I like companies that have a dividend policy of paying 30% to 50% of its earnings to shareholders. I don’t like to share risk without sharing the gains. A company that pays regular dividends in tandem with its earnings is preferable to one that pays no dividend in the name of growth. Bear in mind that the only benefit a minority shareholder has is the dividend. 

Major Shareholders
The major shareholders control everything. If, for whatever reasons, you don’t like them, avoid the stock. On the other hand, strong major shareholders can do wonder for the company. Next time, when you are about to buy a stock, don’t forget to find out who the major shareholders are. 

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