Latitude & VSI
Summary of my investment talk
Koon Yew Yin
The Charity for refugee kids education event at Bentley Music Auditorium, Mutiara Damansara, Kuala Lumpur, on 9th May 2015. I was invited to give a keynote address on equity investment.
After having read the investment philosophies of Gurus like Warren Buffet, Benjamin Graham, Charles Munger, Peter Lynch and a few others, I would like to recommend you to read one book which covers all the famous Gurus called “Valuegrowth Investing’ by Professor Glen Arnold.
Most of the investment philosophies of these famous Gurus are not applicable in Malaysia because we do not have companies like Berkshire Hathaway, Coco Cola or McDonald which have long term competitive business advantage for long term investment, which we can buy to keep for our children and grand children. We have to select Malaysian listed companies stocks based on shorter term prospective.
As you know there are so many selection criteria such as P/E ratio, NTA, Cash flow, Company’s amount of Bank loan etc. From my long experience, I consider the most important selection criterion is profit growth prospect. As we have limited funds and there are about 1,200 listed companies, we can carefully pick and choose the few really good shares with exceptional qualities to invest.
My one golden rule for share selection
The company I choose must be able to make more profit in this current year than last year because when it announces a reduced profit in its annual accounts, the share price will most likely drop. If the annual profit is better than the previous year, the share will most likely go up. Of course the share price will continue to rise if it can continue to make increasingly more profit and reassuring investors that the company has very good profit growth prospect.
My largest holding is VS Industry:
I selected this electronics manufacturing company because it is so cheap in terms of P/E ratio, ROE and other criteria in comparison with the 2 famous leading electronics manufacturers in Malaysia as shown below:
Name Half Year EPS Half Year Revenue Share price P/E ratio
Globtronics 13 sen Rm 180 million Rm 6.10 23
MPI 23 sen Rm 670 million Rm 7.00 15
VS Industry 27 sen Rm 1,010 million Rm 3.96 8
My 2nd largest holding is Latitude Tree:
I selected this furniture manufacturing company because it is so cheap in terms of P/E ratio, ROE and other criteria in comparison with all the listed company shares I know.
Latitude Tree is the largest Malaysian listed furniture manufacturer. It has 3 factories in Johore, 2 factories in Vietnam and one factory in Thailand. 100% of its products are exported to about 20 countries for US $. Due to our Ringgit weakness, it has additional profit growth advantage as shown below.
Its 1st Quarter EPS is 17 sen and 2nd Quarter EPS is 28 sen totaling 45 sen for 1st half year. It has very strong cash flow without any bank borrowing. We can expect to see a better EPS for the 2nd half year. The total EPS for the year will be about Rm 1.00 while its EPS for last year was 56 sen.
What would be the reasonable price for Latitude if its annual EPS is Rm 1.00?
How to improve the price and liquidity of Latitude Tree Bhd.
Your shareholders register will show that my wife Tan Kit Pheng, my nephew Yap Sung Pang and I are holding more than 10% of your total issued shares.
We must congratulate your management for producing such a fantastic profit.
As a result, your share price has gone up very rapidly from Rm 1.00 to above Rm 6.00 in the last 24 months. You would have noticed that it has come down in the last few trading days because we have not been supporting it. Even though it is selling so cheaply in terms of P/E ratio, many investors and fund managers I spoke to, would not buy it because they are afraid that they cannot sell at some point due to poor liquidity.
I would like your board of directors to consider my suggestion on how to improve the share price and its liquidity.
1. Immediately give out 1 bonus share for every 4 shares held.
2. Split one shares into 5 shares making 20 sen its par value.
3. Declare to give out 1 bonus share for every 4 shares held for the next financial year.
4. Declare a dividend policy of giving out 30% of net annual profit.
After the completion of item 1 and 2 above, 4 original shares with one bonus share will become 25 shares. Basing on the current share price of about Rm, 6.00, the new price will be about 96 sen. It is easier for 96 sen to move up to Rm 1. 92 sen than for Rm 6.00 to move up to Rm 12.00.
Basing on your first half year profit of 45 sen per share and 100% of your products are being exported for US$, every investor can foresee your EPS for the year will most likely exceeds Rm 1.00. Moreover, you have additional income from your huge cash deposit with Banks. Your share should deserve to sell at a higher P/E ratio.
A higher share price will benefit all the shareholders, including you, as controlling shareholder. Moreover, with a higher share price, the company can take advantage of it for acquisition of assets and share placement every year according to Securities Commission rules to get large amount of cash for company expansion.
As one of the founders of IJM Corporation Bhd, I know that the company has been doing what I have described above regarding share placement and assets acquisitions to expand the company. Basing on the current IJM Corporate Bhd share price, its market capitalization exceeds Rm 13 billion.
Koon Yew Yin
No comments:
Post a Comment