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Monday, October 31, 2016

S&P: M'sian banks capable of cushioning against downside risks, ratings affirmed

By Adela Megan Willy / theedgemarkets.com | October 31, 2016 : 6:55 PM MYT

KUALA LUMPUR (Oct 31): S&P Global Ratings has affirmed the ratings of seven Malaysian financial institutions, including Malayan Banking Bhd (Maybank), Public Bank Bhd (Public Bank), CIMB Bank Bhd (CIMB), CIMB Investment Bank Bhd (CIMBIB), RHB Bank Bhd (RHB), RBH Investment Bank Bhd (RHBIB) and AmBank (M) Bhd (AmBank), as it believes Malaysian banks are on the right track towards buffering downside risks.

"We affirmed the ratings because we believe [they] are in a position of strength and have sufficient buffers against downside risks in our base-case scenario," it said in its statement today.

The credit ratings on Maybank was A-/Stable/A-2, Public Bank (A-/Stable/A-2), CIMB Bank ( A-/Stable/A-2),CIMB Investment Bank (A-/Stable/A-2 ), RHB Bank ( BBB+/Stable/A-2), RHB Investment Bank(BBB+/Stable/A-2), and Ambank(BBB+/Stable/A-2).

S&P base-case assumptions are made based on the minor economic growth of 4.3% in 2016 and 4.5% in 2017, as well as an accommodative monetary policy and low unemployment conditions, which will continue to support private sector debt repayment.

It also opined that although the banks' asset quality is likely to deteriorate slightly and their revenue growth has continued to decelerate, the deterioration is expected to be manageable.

"The Malaysia economy has lost some momentum due to a weak energy sector, tighter domestic spending, and weaker global demand. However, our ratings incorporate normal credit cycle turns, nonperforming loans (NPLs) are coming from a low base, and loan-loss reserves are strong," it said.

According to S&P, bank profitability has been affected by two factors — increasing credit costs due to weaker asset quality, which affect banks exposed to emerging markets such as Indonesia; and the introduction of more stringent liquidity requirements under Basel III, which ignited a wave of deposit campaigns, leading to higher funding costs.

"Malaysia banks have adopted a defensive strategy against these headwinds. We expect loan growth for the industry to slow to just 3% to 5% for 2016, from 8.1% in 2015, which would offset downward capital pressure from lower retained earnings," S&P said.

"Banks have tightened underwriting standards and decelerated regional expansion, particularly into emerging markets such as Indonesia. In our view, Malaysian banks will continue to focus on cost control and asset quality preservation in 2017, to ride out this cyclical downturn."

Kumpulan Perangsang Selangor to acquire 71.4% stake in Century Bond for RM150.03m

By Wong Ee Lin / theedgemarkets.com | October 31, 2016 : 5:55 PM MYT

KUALA LUMPUR (Oct 31): Kumpulan Perangsang Selangor Bhd has today received its shareholders’ approval for the proposed acquisition of an approximately 71.44% stake in Century Bond Bhd, through its wholly-owned subsidiary Perangsang Packaging Sdn Bhd (PPSB), for a total consideration of RM 150.03 million.

In a statement, it said Century Bond is involved in the manufacturing of cement bags and holds a 60% market share in Malaysia, as well as having a presence in Indonesia, Singapore and Thailand.

The proposed acquisition and a Mandatory General Offer (MGO) for all remaining Century Bond shares not already owned by PPSB post-acquisition, were met with shareholders’ approval at an extraordinary general meeting (EGM) today. The EGM also discussed a proposal to include manufacturing businesses for diversification of Perangsang Selangor Group's existing principal activities.

“Backed by the mandate from our shareholders, we are excited to complete our third acquisition of the year, as Century Bond meets all desired investment criteria we have identified, as part of our business strategy,” shared Perangsang Selangor Chief Executive Officer Ahmad Fariz Hassan at the EGM.

Fariz mentioned in the statement that while Century Bond has a long track record with its customers and has established itself as a market leader in Malaysia, the business has further potential to be unlocked, given that capital expenditure on infrastructure in the ASEAN region, especially in Thailand and Indonesia, is expected to grow exponentially over the next decade.

We believe that Century Bond is ideally positioned to capitalise on these opportunities, while allowing Perangsang Selangor to diversify our revenue generation streams, thus reducing our dependency on domestic market performance, he said.

“Based on the positive outlook that we have on this investment, we are optimistic that Century Bond will be able to contribute more than 25% to the total net profits of the Perangsang Selangor Group in the coming financial years,” Fariz added.

The company has a varied investment portfolio with assets involved in trading, infrastructure and utilities, licensing, oil and gas, as well as telecommunications.

搭分享经济列车.GoGoVan驶进大马物流界

搭分享经济列车.GoGoVan驶进大马物流界
Author: Tan KW | Publish date: Sun, 30 Oct 2016, 09:25 PM
2016-10-30 19:22

Airbnb和Uber是大家耳熟能详的共享经济品牌,这两家新创企业都在全世界各地掀起了程度不一的行业颠覆风暴。但你知道吗?一家被誉为物流界的“Uber”的后起之秀,GoGoVan即将进军大马物流界。《投资致富》近期访问了该初创企业的创办人——林凯源。且让我们来听听他的创业甘苦以及公司未来方向。


林凯源会先了解市场需求,看清楚目标后,就坚持往那个方向走去。

与大部份初创企业家形象相差不多,林凯源背着一个背包,身穿牛仔裤和T恤,一副大学生模样。若不说,你根本不会知道,他是一家获得国内外多个大型机构注资,外界估值3亿美元(约12亿令吉)的初创公司GoGoVan的掌舵人。

香港屋邨之子

林凯源并非来自富裕家庭,自小成长于香港屋邨。据他的说法,其居住环境就像香港蛊惑仔电影主角“陈浩南”成长环境一样,多栋组屋住宅林立,周边基本上没有什么资源。

但这并不能阻挡他迈向未来事业成功之路。中学毕业后,他重考了一年才考上中六,但一次的美国旅行,改变了他的世界观。

“我有一位亲戚,邀请全家人去美国探访他,去过美国过后我才发现原来世界是这么辽阔。于是,我买了一张单程机票,报读了美国社区大学。”

“这只是一个开始,后来我在当地中餐厅打工,筹集基本生活费用,算是解决一些生活衣食问题。”

“在餐厅打工不只可以赚生活费,同时也解决了3餐问题。

我也会把餐厅卖不完的食物,带回去和室友分享。”

竞选学生会主席

后来,林凯源为了在课外活动有所表现,决定竞选社区大学的学生会主席。一开始,身边所有人都不看好他可以当选,一位外国留学生,连英文都不流利,怎么可能当选学生会主席呢?

“但我的个性就是这样,别人告诉我不可能,我就偏偏证明给别人看我行。我和同学聊天,尝试去了解他们不投票给我的原因。然后,我逐一回应别人对我质疑,就这样当选了学生会主席。”

后来,他凭藉着优异的平均累积记分(CGPA)4.0成绩和学生会主席经历,进入洛杉矶加州大学(UCLA)。

“你要知道我好不容易挤进了UCLA,但我家人只是住公屋,根本没有钱供我读书。”

赚第一桶金筹大学学费

“当时全世界都为了一只没有按钮的手机疯狂,那就是第一代的IPhone。我把银行所有存款买了第一只苹果手机。”

“我买手机的目的不是为了炫耀,而是要研究如何将之‘越狱’,并转卖给非美国‘果粉’。我大概卖了1000多只手机吧?过后,我就靠着这第一桶金筹足了大学学费。”

毕业后林凯源回到了香港,但是2009年适逢全球金融危机,他找不到合适的工作。

“完成学业后,回到香港,运气不好,遇到了金融危机,那时我又爱挑工作,最后只好选择创业。后来,我在美国的几个死党也陆续回港。”

“他们说连你都找不到工作,我们更不用想了,于是我们就一起做了一门饭盒生意。真的只是卖饭盒。”

在饭盒上打广告

林凯源和几个朋友创立一门在饭盒上打广告的生意,这类似免费报纸概念。他供应免费饭盒给餐厅,再向广告客户收取广告费。

“我们在饭盒上印上不同公司的广告,再向他们收取服务费。其实这门生意还不错,一开始还能赚到养活自己的钱。”

“有一次我打了好几个小时电话,联络数间电话召车服务中心,但找不到汽车。于是,我亲自下去找司机,发现楼下有一大群空闲的司机。”

“那时我就想到成立一个司机和客人之间的联络平台。我收集了一些司机电话,并利用Whatsapp,成立数个司机群组。

当我接到运货要求时候,就发给群组里的司机,第一个接到订单的司机,订单就让他送。”

“两年前,通讯软体的群组仍不可以超过20人,那时一些一直接不到订单的司机就累积了很多不满,甚至被人用粗口‘问候’了好几次,就这样他们萌生了创造GoGoVan这个念头。”

父亲支持.打响口碑

GoGoVan一开始只用了2万港元的资本,租了一个小隔间,林凯源和几个朋友就一个窄小的单位开始了这门生意。

创业资本
仅2万港元

开始创业时也遇到许多问题,但是父亲的支持,是他走下去的关键。

他说这和“饮茶的故事”有关。

“我父亲是一位装修承包商,每天早上他都会去饮茶,饮茶时,他就开始打电话,找司机运载他的装修工具到指定地点。”

“找司机的过程,真的很靠运气,快则10分钟,慢则一两小时。有一次,我看到他找司机找得那么辛苦,我就主动帮他找。

不到一分钟我就解决了他的问题。”

“他一脸惊讶地看着我,认为我正在做的事情大有可为。在他大肆和同行宣传下,一传十,十传百,GoGoVan的口碑于是就这样打响了。”

创办两年
200万人使用

GoGoVan是一家在香港发迹的物流中介平台,在2013年创办,短短两年多,该公司应用程式就有高达200万人下载,目前已经完成了近2000万宗交易,其成交总值更达数亿美元之多。

GoGoVan在2014年进军新加坡市场,并收购与了当地两家召车服务中心。目前已经在多个国家和地区,如韩国、中国、台湾营运。最近考察的市场包括印度、东南亚各国等区域。

筹获数千万美元

截至现在GoGoVan已经完成了3轮募资,许多国际知名大集团皆看好该公司未来表现。当中注资入该公司者,投资方包括新加坡投资机构Seasoned Hedge Fund和Brian Brille、中国社交媒体人人网以及阿里巴巴及阿里巴巴香港创业者基金等人。估计其目前筹募到资金高达数千万美元。

不是物流界的“Uber”

由于都是属于媒合司机与服务使用者程序平台,因此很多人认为该公司的概念缘起来自Uber,但林凯源则表示他们和Uber有很大的不同“GoGoVan并不是物流界的Uber,我们顶多算是一家共享经济下的一家科技企业,只是我们选择在物流界发展。”

“我认为公司和Uber相似的地方,是我们都搭上分享经济的列车。”

“物流业是一个很庞大行业,我们并没造成任何颠覆,主要是改善了货车物流业者和客户的沟通。因为我们出现,香港有几间召车中心倒闭了,不过整体物流情况仍没有太大影响。”

询及该公司是否会遇到类似“Uber”遇到不同国家的监管单位刁难事情。他说,其实物流业并没有类似计程车遇到的问题,其监管条件也没有那么多。他们主要是和一些小物流公司合作,增加生意订单。

以公里数和货车总类计费

GoGoVan以公里数和货车总类计费,客户可以通过用手机程序马上获得报价,愿意接单的司机就前往该地区接单。

“通常有物流需求的人不会是一般消费者,而是相关企业。我们主要还是倾向B2B模式。一些做生意人,他们的物流需求不是一天两天,而是经常性需求。”



未达收支平衡

林凯源认为经营GoGoVan最大的挑战,是每个市场都有其独特的商业生态以及在地文化。因此,他们必须针对不同市场做出调查,针对当地的生态而提供服务,例如:他们在台湾就推出摩哆送货以及代缴账单服务,在去年GoGOVan进军了台湾,并推出该公司在香港没有的摩哆快递服务。

坚持自己方向

他说面对同行竞争的方法就是,做自己。他常常对旗下员工说,公司就是一条船,如果一条船经常看左看右,那条船无法走快。他会先了解市场需求,在看清楚目标后,就坚持往那个方向走去,别人做什么不要太在意。

目前未有盈利

虽然GoGOVan的营业额已经达致数千万港元之多,但是目前仍未开始有盈利,因为平台一开始为了吸引司机,采取的是免费的形式。但今年6月开始,100港元以上订单,该公司抽取9%佣金,作为其服务费之用。

当开始实施收费政策的时候,的确引来部份司机不满,原因是他们认为该公司收费比传统召车中心来得贵。

针对其收费模式,林凯源表示,公司基本上也有自己客服中心,为了长远经营,收取费用是必需的。

严格挑选司机

GoGoVan对于司机认证程序仔细,申请成为GoGoVan司机,必须呈交其身份证资料,货车车卡,甚至需要驾着实际车子前往该公司的指定的地点进行验证。

万一司机不小心载送了违法物品,GoGoVan会如何处理?林凯源回应,公司会将所有客户的资料呈交给有关当局,因为每一笔交易都有完成的记录,如果司机没有从事违法的事情,相信他们也不会有问题。但截至目前,公司还没有发生过类似的事情。

行销手法新颖

由于GoGoVan的员工很多都是年轻人,他们行销方式也十分新颖,GoGoVan拍摄了很多不同的短片来推销该公司的业务。其中一条借用了陈果导演概念的《那夜凌晨,我坐上了大埔开往旺角的GoGoVan》更获得了121万点击率。此类新颖宣传手法十分受到年轻用户的喜爱。

传递幸福感

他强调,GoGoVan的公司宗旨是传递幸福感(Deliver Happiness),帮客户解决生活上的物流的困难,将消费者需要的东西送到他们的手上,司机和客户脸上都绽放笑容,这是他最高经营目标。

另外,从前人们对于货车司机的既有的概念是十分不信任,认为他们并不可靠,GoGoVan打算改变消费者对于司机想法。他们是一群有理念的人,一群使命必达物流翘楚。

他最大希望是GoGoVan可以成为百年大企业,得以永续经营下去。为了达到这个目标,他认为公司还有很远路要走下去。

进军大马前须做研究

询及是否已经定下进军大马时间表,林凯源表示,其实并没有具体的时间表,在GoGoVan选择进军一个国家前,都会花很长的一段时间做研究,通常是几个月到半年不等。

“大马我只来了两次,目前仍在研究这个地方整体生态环境。但和一些本地新创企业者交流后,我觉得大马是一个充满活力的地方,许多年轻创业家都十分积极乐观。”

为什么会选择大马?

“尽管也有人提这里最近发生一些政治变动,但比较起来这里的大环境和基础设施,在区域中算是不错的地方。”

他指出,根据数据,大马在2020年就可以达到先进国国民收入的可能性很大,这表示大马经济仍持续稳健成长。

多元文化环境也是一个大马吸引他前往这个市场的原因,大马常常会出现各种让人觉得惊艳点子。

文章来源:星洲日报‧投资致富‧一盘生意‧文:傅文耀‧2016.10.30

Tek Seng says it’s still full steam ahead after layoffs

By Gho Chee Yuan / The Edge Financial Daily | October 31, 2016 : 9:32 AM MYT

Teck Seng’s solar cell production facility located in the Penang Science Park. It currently has seven production lines with a total capacity of 490mw, or 70mw per line.
Loh: We are still waiting for the relevant approvals, including securing the electricity supply from the government, for the three new production lines.

Teck Seng’s solar cell production facility located in the Penang Science Park. It currently has seven production lines with a total capacity of 490mw, or 70mw per line.

This article first appeared in The Edge Financial Daily, on October 31, 2016.

KUALA LUMPUR: When a company undertakes a retrenchment exercise, it is never good news. What more when it is coupled with an expected slowdown in the industry the company is operating in.

This is what Tek Seng Holdings Bhd is facing. It laid off 200 staff in September, right after the global solar industry was predicted to see a 10% fall in new installed capacity next year due to policy turmoil in several of the largest solar markets in the world.

Orders in hand for its solar business, its star performer this year, are also set to be depleted by year end.

Its group managing director Loh Kok Beng acknowledged in a recent interview with The Edge Financial Daily that the solar cell market is already entering a softer period and that Tek Seng itself has experienced up to a 20% slowdown in sales in recent months, and many contractors are waiting for solar cell prices — which have fallen about 10% in that period — to drop further before buying.

Having said that, he shared that Tek Seng is set to close a RM40 million deal soon with clients from China and Taiwan, which explains why Tek Seng, which is in the midst of expanding its production capacity, is not slowing down.

Instead, the Penang-based polyvinyl chloride product manufacturer turned solar cell maker will continue with the addition of three more production lines to its solar cell production plant.

“We are still waiting for the relevant approvals, including securing the electricity supply from the government, for the three new production lines,” Loh said, adding the new lines are likely to commence operations next year.

Currently, Tek Seng has seven production lines with a total capacity of 490mw, or 70mw per line, running at a utilisation rate of between 60% and 70%. The three new lines will add another 210mw to its existing capacity, raising it to 700mw.

“With 10 lines in full operation, our capacity per annum will climb to 700mw or about 156 million pieces of solar cells, which will have a market value of US$234 million (RM982.8 million),” Loh said. Tek Seng’s solar cells are sold mainly to Taiwan, China and Eastern Europe.

Taiwan and China currently account for 80% of Tek Seng’s total solar cell sales.

The anticipated new contracts from Taiwan, said Loh, are driven by the announcement of new feed-in tariff (FiT) schemes for renewable energy projects by the government there for 2017. Under the scheme, solar photovoltaic projects that fulfil certain criteria will enjoy original FiT rates plus a 6% or 15% bonus.

“The contracts are likely to kick in next year to support our earnings,” Loh said.

Meanwhile, its current financial year ending Dec 31, 2016 (FY16) is set to be a record earnings year for the company, despite slowing solar cell sales.

Already, its first-half FY16 net profit of RM31.31 million has surpassed the full FY15’s earnings of RM21.27 million, thanks to contributions from its solar cell business; revenue surged 111% to RM290.81 million from RM137.83 million.

As for the recent retrenchments, Loh said those laid off were originally brought in to work on two production lines for a Taiwanese client. They were let go after being deemed unsuitable by the company. All those affected have yet to be confirmed in their positions, he added.

“But we will compensate each with a one-week salary,” he said. The total payout amounts to RM180,000, which will be covered by the Taiwanese clients. “Following this, the two production lines will be operated by about 40 Taiwanese,” he added.

On Sept 27, a news report, citing an internal memo from Tek Seng, indicated that the retrenchment was due to “redundancy of productivity”.

On the same day the news broke, UOB Kay Hian Research downgraded the stock to “sell” and trimmed its earnings forecast for Tek Seng by 13% for FY17 and 17% for FY18. It assumed an average selling price of 30 US cents to 32 US cents per watt on its solar cells from 34 US cents to 35 US cents per watt previously.

It also cut its target price on Tek Seng to RM1.05 per share from RM1.24, though its analyst Yeoh Bit Kun noted that the weak solar cell price could be partly offset by the strengthening ringgit.

Since then, Tek Seng’s shares have been pushed below RM1 apiece. From RM1.27 on Sept 26, Tek Seng’s shares plunged 20% to 97 sen on Oct 10. It settled at 99.5 sen last Friday, giving it a market value of RM344.92 million.

AffinHwang Capital upgrades Globetronics, raises target to RM4.88


By theedgemarkets.com / theedgemarkets.com | October 31, 2016 : 9:32 AM MYT


KUALA LUMPUR (Oct 31): AffinHwang Capital Research has upgraded Globetronics Technology Bhd (Globe) to “Buy” with a higher target price of RM4.88 (from RM3.58) and said it foresees a strong turnaround in Globe's sensor division in 2017, as a major new product is underway.

In a note today, the research house said there seems to be much better visibility and certainty this time round in terms of product rollout, as its customers keep a close watch on product development.

“We expect the new sensor to fuel the bulk of the 160% y-o-y EPS growth we forecast in 2017, although we also expect production for a second sensor which has already been commercialised to ramp up once issues in the supply chain are resolved.

“We think the risk-reward has turned favourable and we upgrade Globe to Buy from Hold with a higher target price of RM4.88. Yields at circa 7% also look compelling,” it said.

2年售3房产征营业税.若报产业盈利税.征45%价差罚款

2016-10-30 17:04

内陆税收局指出,无论是个人或公司户头,若在短时间内频密的交易房地产,将被税收局归类为商业活动,须缴交营业税,而不是产业盈利税。

(吉隆坡、槟城30日讯)内陆税收局指出,无论是个人或公司户头,若在短时间内频密的交易房地产,将被税收局归类为商业活动,须缴交营业税,而不是产业盈利税。

税收局发言人对星洲日报说,该局将重新检视在2年内出售3个或以上房地产的纳税人与公司的报税户头,将他们原来按“产业盈利税”(RPGT─Real Property Gain Tax)来呈报的房地产买卖,按其“频密性、贸易性质、融资模式及盈利”4大主要因素,改征营业税(BusinessTax),税率按个人及公司所得税征收。

由于错误缴税,凡是缴交产业盈利税的频密房地产交易者,将被税收局征收高达45%的价差罚款。

发言人说,这并不是新的税率,这是税收局用来区分“普通房地产买卖”及“商业性质房地产买卖”的大原则,也是用来决定一个纳税户需在房地产买卖中,缴付产业盈利税或营业税。

“产业盈利税是为了控制炒房现象而征收的税率,但如果太频密,以及有明显商业交易性质,能赚取盈利的房地产买卖活动,就需要缴交营业税。”

他建议被征收营业税的纳税人,向税收局查询或提出上诉,该局将胥视个案情况为他们讲解。

被追税者:被指售房“超额”
税额加罚款逾10万

槟城一名不愿具名的被追税者向星洲日报透露,他在年中收到税收局的来函通知,指他在过去几年间出售的房产“超额”,必须缴纳营业税及高达45%的价差(盈利)罚款,总数超过10万令吉。

他说,他在完成产业买卖程序后,都有按规定缴纳产业盈利税,并非以企业方式销售或转让房产,既然不是产销人,那为何要报缴营业税?

“根据税收局官员的解释,只要在特定期间内转让或出售房产频繁度达到一定的次数,就被视为‘投资’或‘生意’,必须缴纳营业税。”

他坦承不满此解释,他与税收局官员沟通后,当局同意将他此前已付的产业盈利税用来抵销部份的欠税,但也要他签下同意书,承认自己欠税与逃税。

他说,根据了解,那些试图与税局抗辩的人,可能被征收更高的补税,这还不包括税务谘询、税务分析及报告书的收费。税务顾问的收费将视个案而定,介于1万至4万令吉。

税收局扩大追税对象
锁定雪隆槟新山

消息人士对本报指出,内陆税收局扩大追税对象,凡是在2011至2014年期间,转让或出售房产次数超过一定数量的人士,须缴付营业税,并予以重罚。

消息说,税收局锁定雪隆、槟城和新山,在这些屋价高企及房产交易频繁的地区,展开更严格的查税行动。

首波对象医生律师艺人

一名税务顾问说,近期的追税案例以涉及房产买卖居多,被追税的对象都是那些在2年以内,出售3个房产单位或以上者。

据了解,税收局向这批人追讨回来的补税加罚款,动辄每人10万令吉,或更多。

税收局是从今年开始,展开有史以来最大的追税动作,第一波对象是医生、律师及艺人,现已扩及其他领域。

消息说,市面流传“槟城很多有钱人”,因此当局将槟城视为追税重点区。

内陆税收局于3月1日推出“欠税罚款优惠措施”,只要在今年12月15日前缴清个人所得税、石油税、产业盈利税或预扣税欠税,罚款可获折扣。

至于那些尚未提交往年报税表、或已提交报税表却没有正确呈报收入、出售产业但没有在规定限期内呈报者,主动自首可获不同幅度的罚款折扣。

文章来源:星洲日报‧特别报道:许俊杰、陈嘉盈‧2016.10.30

Saturday, October 29, 2016

In Search of excellence in Bursa kcchongnz


Author: kcchongnz | Publish date: Sat, 29 Oct 2016, 05:06 PM



Buy companies with good products, services, and good management and the investment returns will come. This is a story that you have heard over and over from the most impeccable sources. As with other investment stories, this one resonates because it is both intuitive and reasonable.

What is a good company?

It is difficult to get consensus on what makes for a good company since there are so many dimensions on which you can measure excellence. There are some who believe that good companies have managers who can fry (manipulate) the share price of the company for the shareholders to make money numerous times in a year. They think the CEO must be a high profile and a talking head in the press.

Many people think that good companies must often carry out corporate exercises such as bonus issues, share split and free warrant to “reward” their shareholders like those companies mentioned here:

http://klse.i3investor.com/blogs/kcchongnz/106438.jsp

Why not? This is what your shareholders want; if the management “fries” the share and always give freebies like those in the link above, the share price will always go up, and they as shareholders will make tons of money, so it seems. Really? From where?

Of course, you can’t forget that there are many investors who think that a good company must have higher profit this quarter than the next, and the next better than the next, etc. One quarter of reduced profit will be disqualified as a good company and the share must be sold.

If one reads i3investor, we can’t ignore that there are also many who think that a good company must be owned by fund managers, EPF, analyzed and written by investment bankers and professional analysts, owned and constantly promoted by big and high profile super investors etc.

Uh, there are also some who believe that a good company must have huge amount of debts as cost of borrowings is cheap. They think that the management is doing a horrible job if there is huge amount of cash in its balance sheet.

There are also investors, me included, who think that a company which gives good and rising dividends are good companies.

http://klse.i3investor.com/blogs/kcchongnz/103906.jsp

Generally, many believe the management of a good company frequently listen and respond to their shareholders’ best interests. Finally, there are still others who believe that good companies respond not just to shareholders but also to other stakeholders including their customers, employees and society. For those who are trained as accountants, remember the “Balance Scorecard”?

What are my criteria of a good company? Has investing in good companies in Bursa provided exceptional return? what are the evidence if it has?



In Search of Excellence

My criteria of a good company are a well-run company with credible management and good corporate governance; no unfair related party transactions, independent board of directors. A more measurable metric for good company is its financial performance; a durable business, better if it is a business with wide moat, quality growth in its business in the long term, a return on invested capital (>10%) higher than the cost of capital, good cash flows which on average, close to net profit, and positive free cash flow, and a healthy balance sheet. Good and increasing dividend of course is also one of my criteria.

However, research has shown that investing in good companies is not necessary a winning strategy. This is because the market has built into it these expectations. The biggest danger is that the firm will lose its lustre over time and that the premium paid will dissipate. It is only when markets underestimate the value of firm quality that this strategy stands a chance of making excess returns. There is a strong tendency on the part of companies to move toward the average over time, or mean reversion. So even though a company may be a good company, we try not be pay lofty prices with PE ratio not more than 25, and Price-to-book less than 2.5.

I wrote an article in i3investors on 25th May 2013, before I started my blog within i3investor, giving my thoughts on searching good companies to invest in with reasonable prices.

http://klse.i3investor.com/servlets/forum/900255072.jsp

Many forumers posted me questions on their stocks in the above link whether they are good companies to invest in. Here is one of those questions.

[Posted by joe2703 > May 27, 2013 06:11 PM | Report Abuse

@kcchong, I'm your fan and I learn a lot of things from you, you have given a lot of useful information and advice. Thanks.
What do you think about TA Global ? Need your advice.]

Another regular contributor, Tan Kian Wei, summarized what my thoughts were and tabulated those stocks which I had expressed my opinions answering questions about if they were good companies selling at good prices.

http://klse.i3investor.com/servlets/pfs/19821.jsp

A total of 16 stocks were commented by me as good companies selling at reasonable prices and hence were considered as good investments as shown in Table 1 summarized by Tan KW in the Appendix.

How has the performance of those stocks been?



Return of investing in good companies

Three and a half years has passed since then. Table 1 in the appendix shows the up to date total return as on 28thOctober 2016 of the 16 stocks chosen from 25th May 2013. The portfolio comprises of companies from various industries, but unfortunately a little concentrated in plantation. The prices were adjusted for all corporate exercises and dividend distributions and as provided by Bloomberg.

Almost 90%, or 12 out of 16 stocks outperformed the broad KLCI index. The average total return of the 16 stocks was a whopping 225%, with a median return of 72.2% in the three and a half years’ period, compared to the negative return of -1.5% of KLCI. The excess return, alpha, is a whopping 226.5%. RM100000 invested in May 2013 becomes RM325000 three and a half years later, compared to a small loss if invested in the broad market index.

Ignoring the extremely return of the outlier of Technic which returned 1900% after its corporate exercise, the average return of the remaining 15 stocks is still way above 100%.

There were only two losers in SOP (-32.2%) and TDM (-10.5%) with relatively small loss. This was unfortunately due to the low palm oil prices for the last 3 years as almost all palm oil stocks have suffered losses during this period. Surprisingly, there are two other palm oil related counters in the list of stocks; Kim Loong, still with high gain of 81%, and MBL at a small gain of 9.2%. That is the power of choosing good companies even during the down cycle of the industry.

There were only two other stocks with single digit return; P&O at 9.2%, and Perak Corp at 8.6%. But they are still producing relatively good results compared to the drop of the market during the same period.

The rest of eleven winners are all double-digit and triple-digit winners, with six of them in the triple digits; Technic (+1900%), Eforce (+470%), Gadang (+301%), Magni (+278%), and Thong Guan (+185%).



Conclusions

The above value investing strategy of investing in good companies at reasonable prices worked well for the mid and long term in the past in Bursa Malaysia by providing extra-ordinary returns for investors. Just like other fundamental value investing I have been discussing, this strategy also produces high extra-ordinary return for a substantial number of stocks, but minimal number of underperformer and negative return, and when negative return, the quantum is small.

The interesting phenomenon of this value investing is the repetition of the Dhandho Investor;

"Heads, I win (big)! Tails, I don't lose that much!"

The beauty is, this value investing strategy is not difficult. One just needs to spend a little time to learn, and check qualitatively and quantitatively if those companies are indeed good companies, and that they are selling at reasonable prices. The metrics can be easily extracted and computed from the three important financial statements; income statement, balance sheet and the cash flow statement. It is just a matter of whether you are willing to spend some time and effort to learn and do some homework before investing?



In your quest of building long term wealth, haven’t you got tired of losing money all this while listening to rumours and hot tips in the stock market? Or you still believe there is tooth fairy in the stock market?

If you think you have been in the “wrong path” in your investing journey, and wish to do something positive about the future of your financial wellbeing, you may contact me at

ckc14training@gmail.com

K C Chong (28th October 2016)



Appendix



Table 1: Return of investing in good companies from May 2013 to end of October 2016