A journey of thousand miles begins with a single step 千里之行，始于足下。

[chialc88]

MM 9 years numbers (credit: Kyith)

Good morning valuebuddies.


Yes, I peeked at bwl posts today and I just wanted to make a point that bwl is illegal.

Q: Ai yo, don't says that.
A: why not.

Q: It's your assumption wow.
A: why do you says that?

Q: how can bwl be illegal?
A: how not?

Q: how can?
A: seriously, you don't know?

Q: yes, I don't think so.
A: ok, tell me. what's the official storyline on who and what is selling DR'S Secret in China?

Q: Official?
A: yes, tell me. who is selling DR'S Secret in China?

Q: Those shops owner.
A: Yes. tell me, are they on commission scheme?

Q: what do you mean?
A: ai yo, the famous 663 lar. don't act blur lay.

Q: of course, they are.
A: sure?

Q: of course, this is the reason why DR'S Secret is selling like hot cake.
A: is this legal?

Q: what do you mean?
A: legitimate business.  that's what I meant.

Q: to bwl or to the shop owner?
A: what's the diff?

Q: to bwl - they don't really control the shop owner.
A: so, to bwl is what?

Q: no control means not my problem.
A: ok. then to the shop owner?

Q: shop owner had not registered under direct selling. they are free to do what they want.
A: then?

Q: then, both bwl and shop owner are legitimate business.
A: ok. I rest my case.

Both hold hands and drink Starbucks 1-for-1 coffee.

---

MM 9 years numbers (credit: Kyith)
looks very different from 5 years numbers from Brian.

In Brian's 5 years number (2012 - 2016),
all the numbers are perfect!

constant, yearly incremental revenue, GP, NP, cash
with constant ROE 25% and zero debt.

Kyith's 9 years number (2007 to 2016),
projected a completely opposite stories.

Instead of showing in a chart (which will dilute the chaotic situation),
let me do a narrative of it's numbers (rev, GP, NP, cash in general).

We had a good and strong 2007 
going up to 2008,
then drop drastically to 2009 and
then climb up strongly to 2010 and
then up in 2010, 
up in 2011 and 
then down in 2012 
then up a bit in 2013, 
then up again in 2014, then
a big jump in 2015 and lastly
up a bit in 2016.

In once glance over my narrative or flip back to see Kyith's table,
you'll conclude that it's a erratic business and heavily influenced by market cycle.

So, let's take a pause.

Analysis #1, We rejected MM based on the facts that it's at 52 weeks and 5 years peak price.
It's PE is 14 ( aka more than 8).
It's PB is 3.8 ( aka more than 1).

Analysis #2, when we look at MM 5 year results from 2012 to 2016 (2017 if you do a simple google),
it flies by fantastic color.

Analysis #3, which looks at 9 year results from 2007 to 2016,
concluded that it's a cyclical stocks and hence can not make it again.

Between #2 and #3, one of them must be correct.

An incorrect analysis will either caused a missed opportunity (small matters)
or big losses when the cycle turned (10 years of saving gone).

Thinking, thinking, thinking...
Centuries:

[chialc88]

9 year numbers looked erratic and cyclical.  5 year numbers looks fantastic. Why?

After some thought, could it be the MM had cross a Chasm?

Perfect!

[chialc88]

Good morning, valuebuddies,
The birds are still chirping and the sun is out.
Looking at all the booming flowers really warmed my heart.
White, yellow, orange, peach, pink, red and even the morning glory's purple really makes me smile.

I thought of copying what Brian and Kyith and create my own spreadsheet from 2002 to 2016.

Of course, our numbers looks very similar but with subtle differences:


A quick interpretation of the numbers from 2002 to 2016:
1. Revenue
    Strong revenue grow from $15m to $51m
    really impressive!
    the wavy wavy 2007 and 2009 looks insignificant.
2. Pre-tax Profit
    Pristine record!
    Never see this before!
3. Pre-tax Profit Margin  (must be double digit)
    Pass - double digit except 2002 and 2009.
4. Net Profit Margin
    Excellent - double digit except 2002 and 2009.

(BTW, I thought a decent company should have double digit margin so that when there is a economy downturn, it still can sustain a single digit NP aka instead of reporting loss)

5. Liability to Asset Ratio 
    Perfect score.

(Of course, it's too conservative and defected the purpose of incorporating a company. But, its Micro Mechanics unique way of aiming for zero debt, so be it.)

6. Dividend
2003 - 0.5
2004 - 1.5
2005 - 3.0
2006 - 3.5
2007 - 5.0
2008 - 5.0
2009 - 2.0
2010 - 3.0
2011 - 3.0
2012 - 3.0
2013 - 3.0
2014 - 3.0
2015 - 5.0
2016 - 6.0
2017 - 8.0

[chialc88]

What a fantastic weekend in Singapore!

More to come...


I hate to buy stocks at 52 weeks high, let alone at 5 years high or all time high.

From 2002 to 2016, MM looks good.
From 2007 to 2016, MM looks erratic.
From 2012 to 2016, MM looks great!

From erratic, good to great, what is the real MM?


Definitely we are concern about it's erratic performance especially 2009
when it's revenue and earning drop to record low.

Revenue - definitely impacted by the cyclical nature of semicon.
Earning - what had happened? could it due to newly acquired CMA factory in US?

---

There are a few strange aims or principles of MM that I think make it stand out from it's competitor.

First thing first, MM aims to be zero debt.

Rationale is so that when there is a economic down turn, it do not need to be concern about paying down bank instalment.

Similarly, MM choose to own it's properties instead of leasing.
For the same reason, when there is a economic down turn, it do not have to worry about earning enough $$$ to pay rent.

These (and more) enable MM to focus on taking care of customers, employee and shareholders instead of diverting attentions to debtors make it more resilient to the famous cyclical nature of electronic sectors. (boom/bust).

[chialc88]

先付款 strange practice - pay the supplier first

we worked in so many companies.
some of us also operate a business.

how many people will choose to pay their supplier first
aka not negotiate for a longer credit term? says 60days, 90days?

especially during economy crisis when cashflow and liquidity is a major concerns for most company/people?

Not this one.

For a simple reason.

Imagine that if you pay your supplier promptly.
And, especially during economy crisis.
When you call up you supplier to top up your supply,
you can bet that he will deliver to your door steps faster than any other of his many customers.

So simple!
Questions is why nobody choose to pay their supplier first?

One Last Time:

[chialc88]

坏帐, 注销, 库存inventories, inventory write off and bad debt

if you got chance,  check up MM's inventories.
do a quick ratio with sales (or revenue).
you'll realised that MM carries very little inventories.

so, it's not a surprise that inventory write off is so small that it virtually does not exist.
(except recent year when CMA comes into picture, but still very small % against sales).

What is surprising is those inventory that MM kept and write off,
is actually not the goods that they sold.

You know that MM is using tools/machines to products good for it's customer (from raw materials like Aluminium).
The inventories are for the tools/machines.

Got it?

So, the questions is then why MM do not produce inventory (goods)?

Let's recap MM's motto:
"Perfect Parts and Tools, On Time, Every Time"

Having a mission of "On Time, every time" means
that a certain level of inventory must be maintain,
so that when there is a surge in customer orders, 
instead of rushing thru the production process and compromised the quality,
it only make sense to stock up aka hold an reasonably high inventory level (finished goods ready to ship).

So, on one hand MM's pledged to be on time every time and
yet, MM did not keep any inventory at all (recall: the inventory is for their tools/machines)

If you got it, that means you'll appreciate how tough is working in production/manufacturing section of MM.


You'll also appreciate what type of IT systems MM put in place to integrate with customer/supplier/logistics partners.

You might also appreciate MM's executive sophisticated planning skills (factory location, automated process, QA (pre & post manufacturing).

It's a tough business and thank you Chris, COO Ming Wah, CFO Kam Wing and their team.

Into you -


fun, fun, fun!

[chialc88]

欠钱还钱 O$P$ 

Easier says than done.

If you ever hold a position of General Management, 
then you'll know how difficult is for debt collection.

If you do own a business during economy crisis, 
then you'll know that how fast can an apparently great partnership turn sour.

Again, if you have chance, take a look at MM bad debt all these years.

Pay special attention during the period before and after Global Financial Crisis GFC.

You'll be amazed by their bad debt.

Of course, season businessman know that to prevent any collection becoming bad,
we need to track the trade receivable (esp > 90D) carefully.

And, of course, an excellent businessman will do things proactively to qualify the credit-worthiness of his customer (order by order).

That of course, will still never achieve the fantastic super low bad debt of Micro Mechanics.

Way behind.

Something is happening to MM that imagine during GFC,
everyone of it's customer paid up promptly (can verify from the trade receivable > 90D)
and also in full (aka did not asked for hair cut).

What is happening?

  Come on Singapore! Love me Harder...

[chialc88]

Good morning valuebuddies.
Woke up to the birds chirping happily.

It's celebration time again.
Happy Diwali.

屠妖节Deepavali  தீபாவளி



Look deep into nature, and then you will understand everything better - Albert Einstein 


I'm very excited as another chapter in my life had just started toady.

Thank you our valuebuddies for your selfless sharing.
Gratitude.

[chialc88]

Good morning, valuebuddies.


A conclusion about the economy does not tell us if the stock market will rise or fall.
This should be a wake up call to all students of fundamental investing.

You see.
Our basis of spending hours of our time doing peer comparison, industry benchmarking etc
is simply to gain a deeper understanding of how our favourite company stands among it's competitors.

If it's doing well, then of course, we expects it's share price to rise (faster than it's peer.)
as simple as that.

But, is it so?

How could it be a more superior business performing better than its peer
having a share price that constantly lacking behind its peer in stock market?

I thought that everyone is saying stock market in the short run is a voting machine,
and in the long run (which I'm keen) is a weighing machine?

Then, how could a better quality company share price perform sub-par to its peer?

If this is the case, then what's the point of doing fundamental analysis?

---

I think fundamental analysis is still important because I got to learn more about the business of a company it's operating.
How is it successfully operate to satisfy it's customers demand.
Whether it could raise the price of its product easily.
And, of course, being in high tech industry, 
I'm always keen to understand their transformation stories.
And, of course, couldn't wait to see them roll out and cross the chasm.

But, then, I'm also aware that despite it's hardworking team,
achieving the un-achievable,
it's share price might not be proportional to its business results.

Strangely enough, a little promotion from our valuebuddies do helps.
(my experience).

---

An observation (after spending 10,000 hours in looking thru SGX companies)
is this:
it's very easy to spot a great business with excellent results.

Only problem is most of them is at its high
aka its already fully valued (or above value).

So, if it's so easy to spot these great business, 
then what's the fuss about reading thru IPO and AR of all SGX companies?

Shouldn't one spend time in just reading and get to know these great companies?

But, then what's the point?
Their price is so out of wrack? 

But, didn't everyone says that we need to learn about fundamental?
We had to read thru all these IPO and AR then can considered as fundamental.
Not only that, we need to consider all the companies in the same industry group,
then we can be pro (professional) and
have the confident to make our choice...
... chose wisely and bet on the brightest company in the group.

 

mmm, what's wrong?
Why are you doing that? 

Let me just remind you that the performance of a company does not  directly proportionally reflected on it's share price.
In additional, it's very easy to spot the brightest company in the group.
The problem that you're facing is that its share price is already fully valued,
which I suppose you'll not buy them at fully valued price.

---

Ok, I must confess that I'm lost.
Tell me what to do?
(but, no more Micro Mechanics. Give me a break, ok?)

Sure.
What about start with F&B services sector?
Consumer 
Watch the video and then you tell me what you think:

[chialc88]

Good morning, valuebuddies.
The global financial crisis inspires us to think about America's moat.
Artificial means such as protectionist legislation or creative accounting aren't sustainable.
Instead, we need to invest in
   real, honest-to-goodness services, products, and ideas that people around the world want to buy.
What we offer has to be more
   innovative, economical and convenient, and reliable than anything else on the planet.

On 30 Oct 2017, if you're there at NLB,
you will be expecting to see something like this:


You will enjoy the sessions.
It's the results of 450+ hardworking team of Micro Mechanics.
A) MM's key ratios ... you will be awked by their growth rate.
B) Group revenue... look carefully at 2 things:
   1. Seasonality
        - which quarter is the traditional high revenue and which Qtr is the lowest?
        - Observe the trends, is the weak and strong Qtr revenue seasonality still remains the same? or change?
        - If it change, what could be the reason? (tips: think about CMA)
   2. Revenue trends...
        - look at FY17 Qtrly trends and compare it with FY16 Qtr by Qtr.
        - Q1FY18 result, compare it with Q1FY17 and Q1FY16.
        - Are you able to do some projection on to it's Q2, Q3, Q4FY18?
        - You should have a few data point:
           a. FY16 Qtr by Qtr comparison with FY17
           b. FY17 Q1, Q2, Q3, Q4
           c. last but not least FY18 Q1 actual
C) Balance sheet
     focus on MM's inventory. 
     already, there is an increasing trends. why and at what number then it's a concerns?
D) Cashflow
     focus on capex. 
     MM should had completed the twitting to CMA. capex should be control tightly.
     if it's not the case, need to ask what's the expectation on capex and
        closely monitor the increase (especially if it goes up sharply).
     Nano is another ball game,
      if there is a need to be spend on capex, then need to take a closer look at sustainability of cashflow.
E) GP margin should always be about 50% mark and above.
    Absolutely not acceptable for MM's GPM to go below 50%. full-stop.
F&G) customer segments
    focus on identify the new trends.
    where is the key customer come from.
    how it it impacting the revenue growth?
    what MM going to do to widen it's moat?
Of course, most important...
                                                          ..... what's the outcome of all the initiatives?
  
I'm still learning and I really appreciate your comments.

Thanks in advance.

If you going to 30 Oct 2017 meeting, 
instead of talking to MM executive,
might want to get to know some of our fellows investors too.
Pay special attentions to those who asked questions 
and also raise they hand for recording of meeting approvas.

They are pretty famous people (investors) in Singapore landscape.
Suggest that you make full use of Monday and get acquainted with them.

Live to tell: