China Mobile

hi guys, ADRs are available easily to Singapore investors now and one consideration is definitely China Mobile, one of the biggest telco in the world.

Its yield is currently 3.5%, not much and you haven't factor in withholding taxes but its fundamentals look very sound.

Negligible debts, increasing free cashflow and low payout ratio of 41% of net income.

dividend payout have been increasing steadily.

[full analysis here >> China Mobile a potential dividend aristocrat?]

Will it become a "Satyam"???

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

The question remains whether the numbers you see are the actual numbers.

(04-11-2010, 08:35 AM)momoeagle Wrote: The question remains whether the numbers you see are the actual numbers.

This is indeed a very pertinent question, for it underscores our rationale for investing in a particular company as we will base our analysis almost entirely on the reported numbers. Hence, a margin of safety is required in case the numbers turn out to be either wrong, or fictitious.

Sometimes I think it also boils down to some business sense and common sense. Some companies which report sparkling ROE/ROA and net margins should immediately be suspect if they operate in a price-competitive, commodity-like industry (I learnt this from d.o.g., thank you!).

This reminds me.

There's a book that's widely reccomended on how to detect these kind of accounting fraud.

Financial Sheniagans by Howard Schilit. I borrowed it from the NLB once but only gave it a quick skim through. It does get heavy for those not comfortable with Accounting.

I also recall the new editions of The Intelligent Investor with commentary by Jason Zweig having pretty good examples of how using certain Value valuations, one would have avoided buying into all the Dotcom hype. Might be a better place to start for those accounting challenged people like myself.

But having said that,
if one doesn't get comfortable with accounting, it's tough for one to be a Value Investor. Ok, before this gets off-track, will put it in the book review form under the 'Interesting Books' thread.

(04-11-2010, 08:39 AM)Musicwhiz Wrote: Some companies which report sparkling ROE/ROA and net margins should immediately be suspect if they operate in a price-competitive, commodity-like industry (I learnt this from d.o.g., thank you!).

Why is this so, MW?

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(04-11-2010, 07:53 AM)Drizzt Wrote: hi guys, ADRs are available easily to Singapore investors now and one consideration is definitely China Mobile, one of the biggest telco in the world.

If I'm not wrong, China Mobile is the biggest telco in the world.

Hi Taka666,

Well, I thought it's obvious - if a company sold commodity-like products with not much brand differentiation, and customers are more price-sensitive rather than brand-loyal, then most firms within the industry will compete based on price rather than on branding or superior product differentiation. There are a lot of commodity-like products being manufactured and sold out there, to give some examples would be toilet paper, cutlery, stationery etc. where price counts more than anything else. There are even some products with "generic" characteristics which are used by retail chains as branding (e.g. mineral water is branded by GIANT, and Watsons has their own brand of hand soap).

This is actually why I look at the industry a company is in first, and then tie it back to the competitive edge the company has (or is supposed to have). This will make it immediately clear if I should carry on my research or not. Another big factor is gross/net margins, ROE and also consistency (note this word) of profits and cash flows.

Why do I stress on consistency? I noted in your blog that you mentioned construction companies being undervalued, and gave HLS as one example. But such companies have no consistency of earnings and it can be very cyclical, which is why the FY 2006 numbers look so terrible, while for FY 2009 it looks very rosy and may give the appearance of being undervalued.

Just my 2-cents.

(04-11-2010, 02:32 PM)Musicwhiz Wrote: Hi Taka666,

Well, I thought it's obvious - if a company sold commodity-like products with not much brand differentiation, and customers are more price-sensitive rather than brand-loyal, then most firms within the industry will compete based on price rather than on branding or superior product differentiation. There are a lot of commodity-like products being manufactured and sold out there, to give some examples would be toilet paper, cutlery, stationery etc. where price counts more than anything else. There are even some products with "generic" characteristics which are used by retail chains as branding (e.g. mineral water is branded by GIANT, and Watsons has their own brand of hand soap).

This is actually why I look at the industry a company is in first, and then tie it back to the competitive edge the company has (or is supposed to have). This will make it immediately clear if I should carry on my research or not. Another big factor is gross/net margins, ROE and also consistency (note this word) of profits and cash flows.

Why do I stress on consistency? I noted in your blog that you mentioned construction companies being undervalued, and gave HLS as one example. But such companies have no consistency of earnings and it can be very cyclical, which is why the FY 2006 numbers look so terrible, while for FY 2009 it looks very rosy and may give the appearance of being undervalued.

Just my 2-cents.

You said "Some companies which report sparkling ROE/ROA and net margins should immediately be suspect if they operate in a price-competitive, commodity-like industry". How can companies with high ROE and net margins be operating in a commodity-like industry?

Regarding consistency, Kingsmen and TMC are more consistent in terms of cash flow. I like HLS, even though it's not a gem like TMC, due to the MRT boom that is coming up and HLS is very reputable in the construction of MRT. It has also no debt and lots of cash.

Hi Taka666,

Perhaps I wasn't clear enough, sorry. I meant that if you note such high ROE and gross/net margins for a company which is in a highly competitive industry, then you should question the integrity of the numbers. It's best to do a 10-year review to look at the consistency of the numbers before passing any judgement.

As for HLS, I do agree it has a strong Balance Sheet.

(04-11-2010, 04:59 PM)Musicwhiz Wrote: Hi Taka666,

Perhaps I wasn't clear enough, sorry. I meant that if you note such high ROE and gross/net margins for a company which is in a highly competitive industry, then you should question the integrity of the numbers. It's best to do a 10-year review to look at the consistency of the numbers before passing any judgement.

As for HLS, I do agree it has a strong Balance Sheet.

Haha MW now I get it. I was stunned for a moment when u said "Some companies which report sparkling ROE/ROA and net margins should immediately be suspect if they operate in a price-competitive, commodity-like industry". It made me think that all companies with high ROE and net margins must be operating in a commodity-based industry. I have now learnt to question the numbers if price-sensitive companies have high ROE and profit margins. I have seen this trend with S-chips. Do you know why is this so? Are they cooking their books?