YTL Power's share price has never been so cheap PE wise more recently. It is trading at potentially below 10x both historical and prospective PE based on its earnings potential.
A blogger friend who has been one of the early reader of my blog has written a well researched piece titled YTL Power - value share or value trap? (please read it)
Detailed information have been provided on the company but what many investors could not explain on YTL Power is how is it that the dividend return from the company is on the decline.
I looked back at my one post entitled Is YTL Power running out of ideas? and reconsider back whether the same situation still applies. As in many investors, I am not sure what are the decisions as I can only speculate. However, looking at the situation the company is in, I have mentioned of the challenges YTP Power is facing with the impending renegotiation of the sweet IPP contract (if any) come 2015 and the net cash position of the group. My own prediction is that the group is preserving cash to meet the coming situation in the near future.
At this moment, YTL Power is cheap valuation wise. I do not think it is a value trap but neither is it exciting as there are some uncertainties facing the group with regards to future income stream. Certainly Seraya Power is the main income generator but competition is getting strong as well which is why we are seeing lowering of margin despite the rise in revenue. To me, YTL Power is certainly preparing for the future with some of its future income becoming more uncertain while necessarily hoping to see a turn for its telecommunication business.
However, I certainly am not so sure of its privatisation as in some of the rumours that are circulating - to me the immediate challenge faced by the management is moving the company forward - i.e. to turn it into a growth company again.
Saturday, January 5, 2013
Thursday, January 3, 2013
Always look out for good quality companies
It is good that my blog has some traction and in fact some have started to email me - which is good. I will try my best if I can to provide my opinion. When I started this blog, I wanted to sort of be different. My personal journey into stocks have brought me to like and trying to understand companies, financials as well as the intricacies of beautiful businesses.
Beautiful businesses can be very hard to find. Many have sort of asked opinions on all kinds of sectors. Sorry to say that I am no expert in many sectors in fact although I am learning by the day. No one can know all industries. All I can say is that my journey into world stocks especially US have provided me with a steeper and faster learning curve. It is actually tougher than Malaysia as we probably have the least volatile market.
Anyway, one should always be on a lookout for healthy fantastic businesses. They can be overpriced though - which we should avoid. One may ask, why good quality businesses and not just look for cheap ones which are undervalued? After all Benjamin Graham's principles have been to look for that moat, margin of safety. If a company we find after our valuation is worth RM1 billion for example, the margin of safety of 20% will cause us to buy at below RM800 million valuation.
Well, let me take out a company which I do not buy but it is a beautiful business nevertheless. I do not buy it because it is expensive and I think I can find better value elsewhere - Maxis.
Let's just pullout the latest balance sheet. See below - imagine yourself looking at the balance sheet without knowing the name of the company. If I do not show you the name of the company, you would probably be thinking that it is insolvent!!! Intangible assets at RM11.13 billion while equity at RM7.246 billion. If we are doing a debt / (equity - intangibles), what would your result be? The NTA is actually negative (RM7.246b - RM11.13b)
Look at the cash to borrowings. The borrowings is close to 6x its cash. Again, imagine if you do not know it is Maxis. But yet, people are valuing the company today at almost RM50 billion - i.e. one of the Top 10 largest company in Malaysia??? It is not that overvalued. Look at the borrowings, it is still growing. Which bank would lend to a company with this balance sheet. But yet it is borrowing more than RM6.7 billion with a negative NTA.
Still, I think the CFO has one of the easier job in Malaysia. He is probably only worried whether the dividend amount is sustainable but definitely not losing sleep over the debt number... Why?
Again cashflow and the predictability of the cash that it can bring in. The second part is more important - predictable cashflow. And bear in mind, Maxis is paying more than RM2.5 billion dividends a year. Only consistent cashflow and the predictability of it can pull that out. Imagine a business that generates free cashflow of RM2.5 billion in one year and another year it generates negative cashflow. What would a bank (or bond subscribers) do?
Now ever wonder why a quality company with good consistent cashflow is important. It does not need to keep the current portion of the cash in fact - and people still believe in the company.
Beautiful businesses can be very hard to find. Many have sort of asked opinions on all kinds of sectors. Sorry to say that I am no expert in many sectors in fact although I am learning by the day. No one can know all industries. All I can say is that my journey into world stocks especially US have provided me with a steeper and faster learning curve. It is actually tougher than Malaysia as we probably have the least volatile market.
Anyway, one should always be on a lookout for healthy fantastic businesses. They can be overpriced though - which we should avoid. One may ask, why good quality businesses and not just look for cheap ones which are undervalued? After all Benjamin Graham's principles have been to look for that moat, margin of safety. If a company we find after our valuation is worth RM1 billion for example, the margin of safety of 20% will cause us to buy at below RM800 million valuation.
Well, let me take out a company which I do not buy but it is a beautiful business nevertheless. I do not buy it because it is expensive and I think I can find better value elsewhere - Maxis.
Let's just pullout the latest balance sheet. See below - imagine yourself looking at the balance sheet without knowing the name of the company. If I do not show you the name of the company, you would probably be thinking that it is insolvent!!! Intangible assets at RM11.13 billion while equity at RM7.246 billion. If we are doing a debt / (equity - intangibles), what would your result be? The NTA is actually negative (RM7.246b - RM11.13b)
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| Asset and Liability portion |
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| Equity portion |
Again cashflow and the predictability of the cash that it can bring in. The second part is more important - predictable cashflow. And bear in mind, Maxis is paying more than RM2.5 billion dividends a year. Only consistent cashflow and the predictability of it can pull that out. Imagine a business that generates free cashflow of RM2.5 billion in one year and another year it generates negative cashflow. What would a bank (or bond subscribers) do?
Now ever wonder why a quality company with good consistent cashflow is important. It does not need to keep the current portion of the cash in fact - and people still believe in the company.
Wednesday, January 2, 2013
Americans are masters at dramatizing issues
Firstly, the term "Fiscal Cliff" is not a Cliff actually...it is a slowdown, and to leave it to the very last hours or leaving it until 1 January to pass the deal (by both Senate and House) knowingly the market will only reopen on 2 January is actually I thing pre-planned so that it sounds dramatic.
By the way, here is a video I like which explains the fiscal cliff pretty well. You should subscribe for APM marketplace - funny and he (Paddy) is quite good at simplifying complex financial issues. Those who would like to understand financial issues happening around the world should watch his videos.
We will see a big jump in today's US market which is good ....about time. There have been too much drama. Remember the big sell on banks like there's no hope anymore for US banks. Remember Warren Buffett calling on Bank of America with the idea while having his bath. Who is laughing to the bank now?
By the way, here is a video I like which explains the fiscal cliff pretty well. You should subscribe for APM marketplace - funny and he (Paddy) is quite good at simplifying complex financial issues. Those who would like to understand financial issues happening around the world should watch his videos.
We will see a big jump in today's US market which is good ....about time. There have been too much drama. Remember the big sell on banks like there's no hope anymore for US banks. Remember Warren Buffett calling on Bank of America with the idea while having his bath. Who is laughing to the bank now?
Tuesday, January 1, 2013
What lies ahead for Malaysian stocks
Despite not being a superstitious person, I like the number 2013 for whatever reason. While 2012 was a really good year for some consumer stocks especially, I just think that this year we may not see a repeat. Consumer stocks normally do well when people are rushing for defensive play. The notion that everyone need to eat no matter what caused people to rush to stocks that are associated with food, drinks, liquor, tobacco etc.
For 2013, it will be slightly different. Of course most already know that for the first quarter of the year, election will be a key determinant factor for investors pick. To me, that is not a factor as for quite a while now, my investment mindset has always been to avoid government related stocks - even before 2008. I have already seen or experienced enough of Renong, UEM, Idris before the turn of last century. Even after the experience of change in PM twice in my investment lifetime, I have not touched companies like Scomi, CIMB (even this) or any stocks that to a slightest of my mind are related to any portion of the government.
You may then ask what about UMW, Malaysia Airport etc. which I have invested in. These are GLCs (yes, I know CIMB is also a GLC) and no matter what happens most GLCs will remain to be GLCs and owned by government whether there is change of leadership. Companies like Sime Darby, Maybank, RHB Capital etc. will remain to be a GLC knowing that it is too difficult to even move the ownership.
Investments in other stocks market for example US is different. Even after the so-called bailout where for a time, the Federal Reserve was owning a substantial portion of AIG, Citigroup and still owning GM - the ultimate focus is to dispose them off at any instant of them with opportunity for disposal.
Malaysia is much different. If I am not wrong, EPF as a fund its involvement in Bursa is way more than even Singapore's CPF in SGX as I have read before somewhere (may be wrong) - perhaps we are the only country which is seeing this phenomenon - one or very few funds having such large influences over one single market. With inclusion of KWAP, PNB, Khazanah and Tabung Haji, it makes the Malaysian market to be quite unique I should say. If I happened to be wrong and Singapore's government related funds in fact is much heavily invested than Malaysian government controlled funds, both of them have to relook at this I should say as these really stifle entrepreneurship.
As an investor, if I still want to be in the Malaysian market, nothing much I can do as there is no point whining over it - just have to be smart. As such value alone sometimes does not mean much in Malaysia. There are so much element that we have to know to be a successful investor. I realize many uses ROE, PE and so on to judge how cheap some stocks are. Not wrong, but I guess we have to do more. Investing in Malaysia, there are just not enough looking at stock price, earnings, assets, balance sheet. Sometimes we have to even look at the Top 10 or 30 investors. Who are behind that company we are investing into...
A Malaysian company stock scenario can be as such as the owner manager may own 50% of the stock, while another 30% to 40% may be owned by Top 3 local government controlled funds while remaining 10% to 20% are invested by retail. Who has much more say over here?
Hence from there, 2013 will just be no different from 2012. It is just a number. As long as situations as such remain, the Malaysian market scenario can actually be quite calm despite all the noise that occurs overseas especially for large blue chips stocks. EPF has 25% to 30% invested into the equity market. The asset portion (and so will investments) will continue to grow as more and more savings are contributed to the fund size. It just has no choice unless to go overseas or to invest more in Malaysia. Overseas however we will see much more volatility. Cannot control the market or one single stock anymore...As a result, contributors have to be prepared for volatility in the yearly dividend income - which to me something the current government is not prepared to face or explain if needed be.
For me, there are still many more opportunities in the Malaysia market as I just have to continue with my work of avoiding something when I am not too sure of - while there are volatilities in some stocks for me to grab opportunities from. There are still many good companies with proven management. There are companies in some sectors which does not need much of a license to operate their businesses in. Even if they need the licenses, competition will take its course to judge the winner. (Ever wonder now why sometimes I like companies in hugely competitive environment.) Is Malaysia market still a good place to put my money in? The gist of things are, I am born, bred, have my education here in Malaysia and Malaysia is what I know best.
Now, these are things which I will continue to watch out for and stay tuned!
For 2013, it will be slightly different. Of course most already know that for the first quarter of the year, election will be a key determinant factor for investors pick. To me, that is not a factor as for quite a while now, my investment mindset has always been to avoid government related stocks - even before 2008. I have already seen or experienced enough of Renong, UEM, Idris before the turn of last century. Even after the experience of change in PM twice in my investment lifetime, I have not touched companies like Scomi, CIMB (even this) or any stocks that to a slightest of my mind are related to any portion of the government.
You may then ask what about UMW, Malaysia Airport etc. which I have invested in. These are GLCs (yes, I know CIMB is also a GLC) and no matter what happens most GLCs will remain to be GLCs and owned by government whether there is change of leadership. Companies like Sime Darby, Maybank, RHB Capital etc. will remain to be a GLC knowing that it is too difficult to even move the ownership.
Investments in other stocks market for example US is different. Even after the so-called bailout where for a time, the Federal Reserve was owning a substantial portion of AIG, Citigroup and still owning GM - the ultimate focus is to dispose them off at any instant of them with opportunity for disposal.
Malaysia is much different. If I am not wrong, EPF as a fund its involvement in Bursa is way more than even Singapore's CPF in SGX as I have read before somewhere (may be wrong) - perhaps we are the only country which is seeing this phenomenon - one or very few funds having such large influences over one single market. With inclusion of KWAP, PNB, Khazanah and Tabung Haji, it makes the Malaysian market to be quite unique I should say. If I happened to be wrong and Singapore's government related funds in fact is much heavily invested than Malaysian government controlled funds, both of them have to relook at this I should say as these really stifle entrepreneurship.
As an investor, if I still want to be in the Malaysian market, nothing much I can do as there is no point whining over it - just have to be smart. As such value alone sometimes does not mean much in Malaysia. There are so much element that we have to know to be a successful investor. I realize many uses ROE, PE and so on to judge how cheap some stocks are. Not wrong, but I guess we have to do more. Investing in Malaysia, there are just not enough looking at stock price, earnings, assets, balance sheet. Sometimes we have to even look at the Top 10 or 30 investors. Who are behind that company we are investing into...
A Malaysian company stock scenario can be as such as the owner manager may own 50% of the stock, while another 30% to 40% may be owned by Top 3 local government controlled funds while remaining 10% to 20% are invested by retail. Who has much more say over here?
Hence from there, 2013 will just be no different from 2012. It is just a number. As long as situations as such remain, the Malaysian market scenario can actually be quite calm despite all the noise that occurs overseas especially for large blue chips stocks. EPF has 25% to 30% invested into the equity market. The asset portion (and so will investments) will continue to grow as more and more savings are contributed to the fund size. It just has no choice unless to go overseas or to invest more in Malaysia. Overseas however we will see much more volatility. Cannot control the market or one single stock anymore...As a result, contributors have to be prepared for volatility in the yearly dividend income - which to me something the current government is not prepared to face or explain if needed be.
For me, there are still many more opportunities in the Malaysia market as I just have to continue with my work of avoiding something when I am not too sure of - while there are volatilities in some stocks for me to grab opportunities from. There are still many good companies with proven management. There are companies in some sectors which does not need much of a license to operate their businesses in. Even if they need the licenses, competition will take its course to judge the winner. (Ever wonder now why sometimes I like companies in hugely competitive environment.) Is Malaysia market still a good place to put my money in? The gist of things are, I am born, bred, have my education here in Malaysia and Malaysia is what I know best.
Now, these are things which I will continue to watch out for and stay tuned!
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