GiraffeValue.com

[GiraffeValue]

Only invest in stocks that is deeply undervalued with fat MOS, below is my current portfolio:

Sim Lian Group Ltd
Hotung Inv
United Overseas Australia Ltd
Metro Holdings Ltd
Teckwah Industrial Corp Ltd 
PNE Industries
Nam Lee press metal
New Toyo International Holdings Ltd
Hong Fok
Global Testing
POWERMATIC DATA

Targeting 20 stocks by the end of 2015.
Expected return : 5%.

Will start updating this thread whenever I have new post, of coz it will be stock related post.

[GiraffeValue]

Ugly Little Monsters • Value Stocks
APRIL 12, 2015

“Are there any stocks that you recommend?” asked by a friend of mine. This is one of the hard ass question to answer, is not that I don’t have some stocks in mind, it’s just that I don’t see an individual stock or a group of a few stocks as an engine for generating returns. To be exact I see it as a tiny component part of my value stocks portfolio. I will be doing a great disservice for them if I just say stock X, Y, Z & A are good without explaining that, they are only good by holding a group of say 20-30 stocks. And not 2-3 of them! The followings are some of the stocks that will probably perform well as a portfolio.

Nam Lee Pressed Metal

Nam Lee Pressed Metal balance sheet

Total Liabilities : 20,056
Cash : 27,303 !
Mkt Price : 0.290
Adj NAV : 0.420 [MOS 45%]
EV/PBIT : 5x
Debt : Zero

The cash itself has already fully covered and with excess of its total liabilities!
Eliminate worthless items and some discount to its major assets. The net of it is 45% higher than the current traded price!
EV/PBIT of 5. There’s no debt and with great amount of cash which suggested one thing which is the earning of the company is low.
cf

Stable dividend yield of 4-6% with slight increase of DPU.
0.51 Payout which is quite high, given the pretty stable FCF and good cash reserve. Likely that constant stable dividend won’t be a problem.
Nam Lee Pressed Metal NAV growth

The growth of NAV – I love it.
Conclusion – It deserves a 5% allocation of my capital

PNE Industries

PNE Industries balance sheet

Total Liabilities : 11,312
Cash : 19,390 !
Mkt Price : 0.121
Adj NAV : 0.176 [MOS 47%]
NCAV : 0.169 [MOS 40%]
EV/PBIT [most recent 12 mths] : 1.937x !
Debt : Zero

Same as the above, cash itself has already exceeded its total liabilities. And the discounted value of its assets still higher than its current traded price by 47%
Dirt cheap price to pay for its earning, reason being the cash holding and zero debt makes its EV cheap.
PNE Industires dividend and CF

Steady increase DPU with 5-6% div yield. Payout pretty good 0.35 on average.
Good cash reserve with up trending. Great FCF with decreasing capex.
Oh! And 25% dividend yield on last year after they sold one of their subsidiary(I’ve excluded the div on the above pic)
PNE Industires NAV growth

Again I love IT!
Conclusion – 5%

Captii Ltd

Captii Ltd Balance Sheet

Total Liabilities : 5,847
Cash : 11,880
Mkt Price : 0.045
Adj NAV : 0.064 [MOS 42%]
NCAV : 0.051 [MOS 13%]
EV/PBIT [most recent 12 mths] : 3x
Debt : Zero

Very similar to the two above stocks, cash exceed total liabilities, NAV consist of receivable, PPE & Inv. property. Since large portion of its NAV is Inv property and receivable, thus buying this stock is equate to buying property & receivable. Again, MOS is 42%.
EV/PBIT is rather cheap 3x, same reason as PNE Industries – great cash reserve & no debt.
Captii Ltd Div and FCF

Super healthy FCF with stable cash in reserve. And reduction of capex over the years.
DPU increased steadily since 10. Pretty low Payout except for 13, not so concern on no div. during 09,08 &07.
Captii Ltd NAV growth

Needless to say about the growth on NAV.
Conclusion – Likely to include this stock in my portfolio, one concern I have is the super low liquidity, but I guess such concern likely to deter many investors and with low supply of stocks and high demand in the event where value being unlocked a spike in price will not be something of a surprise.

Envictus

Envictus Bal Sheet

Total Liabilities : 79,822 RM
Cash : 110,458 RM
Mkt Price : 0.118 SGD
Adj NAV : 0.164 SGD [MOS 39%]
Debt : 0.04 debt to equity

The P/E of the stock is 0.373 as there is one huge disposal of asset which boosted its earning.
Company has been making net loss for two conservative years, due to the positive P/E and net profit market might not realize the existence of net loss after excluding exceptional item. Thus there’s a possibility where subsequent earning released, the market will reacted strongly.
Envictus Div and FCF

2014 has a 78% special dividend yield[Excluded from the above]!
However normal DPU has been dropping years after years. Payout as well, however is still very high. Cash reserve is still pretty good.
NAV is quite volatile unlike the above three stocks.
Conclusion – My investment mantra has always been clear which is invest in value stocks , not just stocks with dividend. Thus it does not really matter to me whether the years ahead will have dividend.The question is more toward whether is there a bargain in this stock. From pure balance sheet point of view there is, but because is M’sia company with balance sheet figure started in RM and I did the rate conversion self, chances are mistake will be made, hence together with the currency risk, I would think being conservative is better. Furthermore, there is downtrend in the price and as mentioned in point 2. And say the market price declined by 10%, I might invest in it.

Powermatic Data

Powermatic Data Balance sheet

MOS[price to adj. NAV] : 82%
EV/PBIT : 7.73x

Will talk more about it in further post.

Hong Fok

Hong Fok Balance sheet

MOS[price to adj. NAV] : 75%
EV/PBIT [Based on 5yrs avg earning] : 11.12x

Will talk more about it in further post.Ugly Little Monsters Stocks.

After being stunt by my lengthy explanation about the rationale of investing in a portfolio of value stocks. I was then asked about the expected returns, which I conservatively said probably 5-8% and if one is good with some bits of luck then probably 10-15%. Then he replied “But hor there is one guy in the seminar say he can easily made 50% on just 3 months and he’s driving Ferrari some more”. And now I stunt – not because of the return, but because of his level of financial maturity.

[CityFarmer]

Targeting 20 stocks by the end of 2015.
Expected return : 5%.

The 10-years Singapore Bond yield is around 2.9%, while the target is 5%, thus the risk premium on Singapore equity is around 2%

I am so sure the target is justified.

(just sharing a doubt)

[GiraffeValue]

Targeting 20 stocks by the end of 2015.
Expected return : 5%.

The 10-years Singapore Bond yield is around 2.9%, while the target is 5%, thus the risk premium on Singapore equity is around 2%

I am so sure the target is justified.

(just sharing a doubt)

Yup that is a very low targeted return. 10yrs CAGR for STI ETF is already 8%.
I deliberately put a low targeted return because I do not want myself to be overly concerned about the stock return which affect may my decision making.

Anyway in investing there's a very strong element of randomness which is not easy to determine returns, it's not like if I have a targeted return of 5%, that will be my return nor if I have 10% targeted return I will sure achieve it. Hence for now so long I don't lose money, I'm good

[GiraffeValue]

PEC LTD.

Mkt. Cap. 107m
Total Liabilities : 140m
Cash : 80M
Mkt Price : 0.420
Adj NAV : 0.609 [MOS: 45%]
EV/PBIT : 4.62
Debt to Equity : 0.1

Another company with great cash and low debt. I like its low EV/PBIT of 4.62. Current PtB is at 0.5. According to my Adj NAV it gives a upside of 45% MOS.
The Investment Property is actually worth $8.7M which is disclosed in the FS.
$37M in PPE consist of property.

To Read Full Story click here.

[GiraffeValue]

Kingboard Copper write up

And 

15 Criteria For Deep Value Stock Selection

-Low P/E – the lowest of 20-30% of SGX stocks (use EV/PBIT if possible)
-Low P/B – the lowest of 20-30% of SGX stocks
-Low/No debt
-Dividend Yield – good to have
-Low/No cash burn rate – best is to have increasing cash flow year after year.
-Insider buying/Regular share buyback – if not then at least no serious selling by its management
-Hold a basket of at least 20 stocks
-Portfolio re-balancing (Yearly)
-Strong balance sheet – hard assets like property and land are great, high cash reserve is awesome, high receivable – must be extra careful. Never reduce its total liabilities. Pay special attention to disclosure note particularly on hard assets.
-Google or visit forums like ValueBuddies – to check whether are there things that you have oversight, and discern whether is it just noise or concern.
– Equally-weighted portfolio – to prevent making the mistake of favoritism towards any particular stock
– Knowledge-cost averaging – lump-sum investing fails when the stock price going down, dollar-cost averaging fails when the stock price going up. Knowledge-cost averaging wins in both ways since it’s based on the idea of monthly investing plus accumulating of knowledge. DCA investor will keep buying even though the valuation is stupidly high, whereas KCA investor would have accumulated enough knowledge to tell that valuation is high and it’s time to exit or at least not making panicky mistakes .
-Keep a record of your holdings and transaction – it’s completely pointless to say you make 4 digits, 5 digits or even 6 digits without making reference to your “risk” capital invested. The most basic at least record the date and amount of buying/selling transaction in your Excel, and use “=XIRR” to compute your annual return.(google XIRR for more info).
– Be mentally prepared your portfolio value may fall 20-30% at any unexpected event, and 50% or more during global financial crisis. Statistically speaking(low p/fundamental vs high p/fundamental) it will be more resilient than blue chips stocks. Not mentioning that blue chips are more speculative in nature than low cap stocks.

Just think about it if you are a trader/speculator would you trade a low cap stock that you have never heard of or Singtel, or Apple, or Google? You will definitely choose the one that is the most watched, the most liquid stock of all so that you can get in and out easily.

You may not agree but the higher the quality of the stock is, the more speculative it actually is. And as a long term investor this is very bad for you.

why?

Just imagine for a moment that you are investing for a long term on a stock that filled with many participants, largely make up of traders/speculators that playing the game of who-can-be-the-first-one-to-hit-sell-equal-win, and never forget there’s also another batch of professional managers who are using sophisticated trading model that making short-selling bet against you.

Those are not even the worst, the worst is that those traders/speculators/managers aren’t even human! They are bots/algos like the one we saw in movie terminator. They are programmed to sell at lightning speed before the price quote even reaches your broker screen. Unless you were John Conner who can lead a resistance team of long term investors to fight against the bots/algo, even so your chances of surviving is still very slim
Oh… No no no no. It’s all wrong. f***, even John Conner is terminator!
-Ignore Schip
-Ignore stocks that have a history of doing regular rights issue, warrants and private placement.

[Raks]

Kingboard Copper write up

And 

15 Criteria For Deep Value Stock Selection

-Low P/E – the lowest of 20-30% of SGX stocks (use EV/PBIT if possible)
-Low P/B – the lowest of 20-30% of SGX stocks
-Low/No debt
-Dividend Yield – good to have
-Low/No cash burn rate – best is to have increasing cash flow year after year.
-Insider buying/Regular share buyback – if not then at least no serious selling by its management
-Hold a basket of at least 20 stocks
-Portfolio re-balancing (Yearly)
-Strong balance sheet – hard assets like property and land are great, high cash reserve is awesome, high receivable – must be extra careful. Never reduce its total liabilities. Pay special attention to disclosure note particularly on hard assets.
-Google or visit forums like ValueBuddies – to check whether are there things that you have oversight, and discern whether is it just noise or concern.
– Equally-weighted portfolio – to prevent making the mistake of favoritism towards any particular stock
– Knowledge-cost averaging – lump-sum investing fails when the stock price going down, dollar-cost averaging fails when the stock price going up. Knowledge-cost averaging wins in both ways since it’s based on the idea of monthly investing plus accumulating of knowledge. DCA investor will keep buying even though the valuation is stupidly high, whereas KCA investor would have accumulated enough knowledge to tell that valuation is high and it’s time to exit or at least not making panicky mistakes .
-Keep a record of your holdings and transaction – it’s completely pointless to say you make 4 digits, 5 digits or even 6 digits without making reference to your “risk” capital invested. The most basic at least record the date and amount of buying/selling transaction in your Excel, and use “=XIRR” to compute your annual return.(google XIRR for more info).
– Be mentally prepared your portfolio value may fall 20-30% at any unexpected event, and 50% or more during global financial crisis. Statistically speaking(low p/fundamental vs high p/fundamental) it will be more resilient than blue chips stocks. Not mentioning that blue chips are more speculative in nature than low cap stocks.

Just think about it if you are a trader/speculator would you trade a low cap stock that you have never heard of or Singtel, or Apple, or Google? You will definitely choose the one that is the most watched, the most liquid stock of all so that you can get in and out easily.

You may not agree but the higher the quality of the stock is, the more speculative it actually is. And as a long term investor this is very bad for you.

why?

Just imagine for a moment that you are investing for a long term on a stock that filled with many participants, largely make up of traders/speculators that playing the game of who-can-be-the-first-one-to-hit-sell-equal-win, and never forget there’s also another batch of professional managers who are using sophisticated trading model that making short-selling bet against you.

Those are not even the worst, the worst is that those traders/speculators/managers aren’t even human! They are bots/algos like the one we saw in movie terminator. They are programmed to sell at lightning speed before the price quote even reaches your broker screen. Unless you were John Conner who can lead a resistance team of long term investors to fight against the bots/algo, even so your chances of surviving is still very slim
Oh… No no no no. It’s all wrong. f***, even John Conner is terminator!
-Ignore Schip
-Ignore stocks that have a history of doing regular rights issue, warrants and private placement.

Just curious how "long" is "long term investor". I noted that there's no emphasis on growth etc.
Any exit strategy?

[GiraffeValue]

About "long" I think everyone has their own definition. For me more than 5 years I would consider long.

On the when to sell. I have a more detailed blog post on here
http://www.giraffevalue.com/investing/va...t-to-sell/

6 Reasons To Sell as A Self-proclaimed Value Investor

1. When the mkt. price touched the stock fair value. In other words MOS turns zero, and there is no more profit margin to be made.(Ignore the trend/momentum theory)

2. Timeout, the date where you set for your portfolio rebalancing. Usually, that is a once a year thing. If you worry that you may forget then set it the same day as your birthday. When the time is up you should know exactly whether this stock should continue to be in your portfolio as you have a batch of better MOS stocks resting at your spreadsheet.

3. Ask why did you invest it in the first place? Alright, because there is a decent margin of safety, lesser downside and more upside. So the central idea of value investing is on margin of safety or the stock by itself? Sorry I’m not asking a rhetoric question. What I mean is you do invest in the idea that when something traded below its fair value, some day you don’t know when it will revert back to the mean isn’t it?

In this case, it happened to be stock.

So now, one stock appeared that have higher MOS than the least one you own in your portfolio. Which mean you found a stock that can better fulfil the idea of value investing. So you substitute the least MOS stock to a one that has much higher MOS of which will make the transaction cost worthwhile. So you got it. When a better opportunity arrived.

4. When in need of money, this one shouldn’t appear because you should have an emergency fund before you even invest in stock hence you are able to tap on your emergency fund should anything happened. Yes, I know I’m a bad example of this.

5. Actually I deliberately make up this point so that I can have 1 more point . This is the direct opposite of point 1. which is the stock fundamental deteriorates to a point that MOS shrank – fair value of the stock is kissing its market price ass. And a tongue sticked out.

6. When your original thesis was wrong. Ah… this reminds me on my global testing stock.

[CY09]

Hi Giraffe,

Good answer. Hence after doing a detailed analysis of Kingboard and discovered it is an absolute net net, with zero debt to equity, adjusted NAV with an MOS of 101%, low P/B and many other low things, will you consider investing in it comparing to the many other companies which you have analysed? and reasons to why will you invest/not invest in it.

[Raks]

Thanks GiraffeValue for you reply.

Just sharing my thoughts:

When I bought shares I do not intend to let go even if MOS becomes zero - recognized business will command a premium - higher PE or PB. I like to think that I own a share of a good business. I buy business - a mentality that is usually ridiculed by friends . Hence dividend is important to me.

About rights issues and warrants, they actually gave an investor a chance to make a bumper harvest if the investor knows the company well enough. Private placements could let a company gets money faster and at a lower cost - but yeah I hate them usually. In a start up, there would be rounds of funding and early investors usually get their shares/senior issues at much lower price (cos higher risk at that time) and would make high return when company go IPO - sometimes "new investor pay old investor" like. I think rights issues and warrants is similar to that if the company intends to raise fund for expansion.