Base rates for Malaysian sectors

[i4value]

I am a long term fundamental investor. When I analyze companies, I look also look at how they have performed relative to the sector. This required me to collect industry data to serve as base rates.

For example the charts below shows some base rates for the Bursa property companies



Comparing against the sector is probably more appropriate than picking a few peers to compare with. Does anyone have a different opinion

[weijian]

Property developers require huge working capital. Whenever they manage to recycle their money from completed developments, they will more often than not, retain the profits to plough into new land banks. In Malaysia, a lot of land banks (especially the cheaper ones) need time and holding power for its potential to be realized, ie. infrastructure spending by the government, population/wage growth and surrounding peers to build along each other. So long term....is really LONG term.

Would it actually be "easier" to invest in a property in Malaysia instead? Or to play the property cycle, go for property mgt/agency firms that are listed?

[i4value]

Your question is like whether it is better to invest in gold or gold companies. One is a physical think while the other is a piece of paper...Ok the fundamental investor would consider as investing in a business.

But you have not addressed my main question. Should we benchmark against the peers or the sector?

[weijian]

hi i4value,

It is akin to investing in "gold or gold companies", but properties are unique and not a commodity where every ounce purified in Africa is the same as in South America as long as they follow the same spec. This is where the deviation for outperformance (or underperformance) may come. Rather than been gold, it can also be a golden goose laying golden eggs (rental income). But whether in Spore/Msia, the allure is still capital gains - whether is it inflation (building materials are getting really expensive in Msia) or disinflation (low rates. Msia's OPR rates are still really low wrt to how others have increased)

As for your main question - unfortunately I do not have much "quant investing" experience and so I am unable to give a robust answer to your question.

Nonetheless, your postings and blog posts (which I am reading) contains great knowledge that I am learning from.

[i4value]

Actually I am coming from the perspective of a fundamental investor. My two cents worth is that those who use relative valuation should be using the sector as benchmark rather than peers. This is because no 2 companies are alike in terms of strategies, management and risk even though they are in the same sector. So I think that by choosing peers the analysts are building some biases into the valuation.