The Shanghai Preview & Pillow Talk

Just a little preview of my fantastic trip tomorrow until 31st May =D Shanghai is a metropolis in eastern China and sits at the mouth of the Yangtze river. Shanghai is the world largest cargo port now and has a population of around ~20 million people with GDP per capita of USD11,000. It has undergone massive development over the past 15 years after economic reforms under Deng Xiaoping. Imagine whole people of Malaysia packed into a city but they earn more than the average Malaysian. Malaysia still can Boleh?

Highlights

Day 1 and 2 to the oriental water town Suzhou a.k.a Heaven in Earth / Venice in the East. No pretty chicks as this is heaven ok. The city is renowned for its beautiful stone bridges, pagodas, and meticulously designed gardens which have contributed to its status as a great tourist attraction. Since the Song Dynasty (960-1279), that's why the place looks so "Song", Suzhou has also been an important centre for China's silk industry and continues to hold that prominent position today.

Historic Canal Street like Venice

Suzhou Lion Grove Garden

Rui Guang Pagoda

Suzhou Museum of ancient Chinese art, ancient Chinese paintings, calligraphies, and hand-made crafts.

Day 3 and Day 4 into downtown Wuxi (The Romance of Three Kingdoms City), a city split into halve by Lake Tai. The city is also known as "Pearl of Lake Tai" because it's built on the shore of Lake Tai with beautiful sceneries. Soon then to Hangzhou, 180 kilometres away from Shanghai. As one of the most renowned and prosperous cities of China for much of the last 1,000 years, Hangzhou is also well-known for its beautiful natural scenery, with the West Lake as the most well-known location.

Lake Tai Scenery in the morning

The Giant Buddha in Mt.Lingshan 88 metres high and weighing 700 tons.

Inside Brahma's Palace (Fan Gong)

In Hangzhou, Meijiawu Dragon Well Tea Farm, tea of dragon well most famous tea in China. Drink and breathe fire. Place is just like Malaysia's Cameron Highlands.

Will be passing along Nanshan New Place and Qiantang River Bridge too.

Day 5 get to cruise along West Lake for panoramic scenery which includes visit to the Fish and Flower Harbour Park. Get your DSLR ready.

Wuzhen Xizha and stay over in traditional-style lodges.

Bo lat lio (tired) but still got Day 6 to Wu General Temple & ShaoMing Academy before to Shanghai City.

Taste Shangha Xiao Long Bun in Nan Xiang Bun (Mantou). Can't resist touching those soft heavenly buns. Did I say touch?

Shopping street in Nanjing Road, Oriental Pearl TV Tower and The Bund.

The Bund refers to the buildings and wharves on this section of the road, as well as some adjacent areas. Building heights are restricted in this area just like some areas in Paris and recently Penang Unesco lor.

Day 8 and Day 9 is World Expo 2010!! What is the World Expo? To promote the exchange of ideas and developments of the world economy, culture, science and technology. With its 150-years history is also regarded as the Olympic Games of the economy, science and technology. Too many to see in two days so will Ting Tong Tiang which pavilion to visit.  It is the most expensive Expo in the history of the world's fairs, estimated at USD58 billion. The Shanghai World Expo is also the largest World's Fair site ever at 5.28 square km. See the grand opening pic below. Now you see why Malaysia tak Boleh?

Duration: May 1 to Oct 31, 2010 (You are never too late to go!)

Expected Visitors: 70 million

Expected participants see below

China Pavilion

France Pavilion

Malaysian Pavilion because I need to cinta negara (patriotic)

Singapore Pavilion, kiasu people make theirs nicer than us, I admit it is nicer.

Taiwan Pavilion

I will of course graciously put in my pictures when I'm back =D For now enjoy this simple sneak preview. Astala Vista! Will be back in June.

Consumer: Dutch Lady Milk Industries Bhd

Introduction

Stop looking at the babe=p From its humble beginnings in 1963, to be listed in the Stock Exchange in 1968, Dutch Lady used to be known as Dutch Baby, now grown up liau ma become Aunty. D Lady operates principally in one major business segment and is one of the most simplest corporate structure to be listed in Bursa as they have no subsidiary or associates.

D Lady manufactures and sells a wide range of quality dairy products and fruit juices for the home and export market. Their strong consumer brands names are well known to most people in Malaysia which includes Dutch Lady, Frisolac, Friso, Completa, Omela and Joy. DLady Malaysia is the market leader in key milk categories such as UHT milk, Sterilised milk and Growing-Up milk and is believed they control 19.4% share of dairy product market in this country.

Its holding company is Royal FrieslandCampina with a 50.1% stake, a Dutch multinational corporation and also one of the largest milk companies in the world. They employ close to 21,000 people with 100 productions lines and sales locations in 25 different countries and still growing. Permodalan Nasional Berhad is the 2nd largest shareholder for the company with ~20% stake.

Fundamental

1. Does the company have an identifiable durable competitive advantage?

I won't say it is totally durable, market leader with 19.4% share shows you that there is some competition with the likes of the giant Nestle & Fonterra. One thing for sure, D Lady does holds a niche when it comes to milk, Starbucks uses D Lady full cream milk if you observe carefully. Even the condensed milk segment, they are 3rd with 14% share competing stiffly against the best selling F&N Carnation.

2. Do you understand how the product works?

Dairy products are needed by people of all ages; growing children, family and young adults. Enriching source of nutrition and calcium for strong bones. A product that is constantly needed everyday.

3. What is the chance that it will become obsolete (KO) in the next twenty years?

It will happen when all cows suddenly die from Mad Cow Disease or comes 2012?.

4. Does the company allocate capital exclusively in the realm of its expertise?

Yup because it operates in one major business segment which is dairy products. In 2009, they launched Nutribus to reach out to as many people as they can to understand their needs. It has been very promising with over 500 visitors a day per location. D Lady's 70% target audiences are of family with children. Dairy nutrition awareness in the rural areas remain lagging and this is where they want to reach. You need to go to Kampung to see the bus lor.

5. What is the company's financial history and status?

• Net Profit Margin is on the rising trend over the past 10 years with the exception of 2008 due to dramatic increase in raw materials prices, a year where almost every commodity is overpriced.
• Return of Equity which means how much shareholders get in return of investment has also improved dramatically over the last 5 years, noticeable via educative marketing, repackaging and launching of new products since then onwards.
• Revenue Growth Rate has their ups and downs owing to shaky market conditions such as material costs. Nevertheless the growth rate performance over 10 years is 8.55% and last 5 years is 10.74% shows again improvements are being made. Dip in 2009 owing to lower consumer spending sentiments.

• Earnings Per Share & Dividend Per Share is on the rising trend over the past 10 years. You can see that the company does not tend to overpay their dividends. Management is very conservative and at that same time being generous by rewarding faithful shareholders year after year.

6. Is the company conservatively financed?
Balance sheet is pretty decent: ~RM41mil in cash (2009) and no debts.

7. Is the company actively buying back its shares?
No, they reward shareholders via dividend payouts. They did a one time bonus issue of 3 for 1 in early 2002. Since then the number of share has remained at 64,000,000.

8. Is the company free to raise prices with inflation?
Yes, it has recently done that to increase their profit margin by passing on the part of the higher cost to its consumers in the year 2008.

9. Are large capital expenditures required to update plant and equipment?

D Lady projects that they need more capacity expansion and factory upgrades. They have committed to invest RM100mil to RM120mil over 2009-2011 period at their current site in Petaling Jaya. This will increase capacity by a hefty 50%! I see this as an one off expense and not always a reoccurring large capital expenditure. 

Discounted Cash Flow Analysis

DCF treats a company as a business rather than just a ticker symbol and a stock price which most blind people think that price only matters. It requires you to think through all the factors that will affect the company's performance and gives you an appreciation for what drives stock values. Go to Investopedia.com and learn.

I have estimated that D Lady's revenue growth rate is at 10% averagely, with 91% operating cost margin, 25% corporate tax, no re-investment but a growing working capital in tandem with revenue growth at 10% for the next 5 years. Having computed all these in my opinion it is fair to buy..

D Lady at RM9.22 to RM10.24 for ~15-13% discount rate. Of course with some risk la, the higher price you pay, less returns you get but with more risk.

Observe the magic NOW. D Lady has grown from RM2.50 in 2000 to RM 12.00 in 2010. That's a whooping 17% returns per annum! Again fundamental shows you why it can perform so well and is reflected in the stock price. People might argue D Lady is a boring stock I totally agree, it is not traded a lot & often by investors everyday. BUT hot stocks are usually the one that go up so fast you can't catch the train and go down so fast you can't breathe until it is too late. A BORING stock does not MEAN it cannot do well!!

A boring share price can go up because they company is growing the shareholder equity via retained earnings. A hot share price goes up because impatient greedy people keep pumping in money which is their money to grow the equity. Think about that. Do you want your share to keep growing because people pump it? That's not sustainable.

What Do I Think? 

I like D Lady because it is simple. They are going all-out to increase dairy consumption in Malaysia by creating more awareness of the goodness of milk as a strategy to boost sales. Asians particularly still have very low consumption per capita. Ask yourself, do you drink milk a lot after 10 years old? The dairy market in Malaysia can still grow but the extend would be down to consumers' health awareness, increasing income (NEM!) and western influences on Asian diet like yogurt and skimmed milk. Also the trend now is into health and wellness, proven by the ever growing industry and expected to reach the trillions in the next decade.

In nutshell, D Lady is a good stock to own. Remember buying must happen at the right place. The bull run now has saturated and losing steam. Buying now would mean buying at peak prices. Taking a little risk buying now is IMO still OK if you dare to take the risk with the discipline that you hold it long term >5years and not to sell when panic comes. You will profit! 

Some will ask: DLady so expensive how to buy?

DLady

RM1200/RM12 = 100 units (1 lot)
with 15% returns = RM13.8x100 = RM1380

Stock A

RM1200/RM1 = 1200 units (12 lots)
with 15% returns = RM1.15x1200=RM1380

Tell me the difference? Throw away the price mentality. Lesser units doesn't mean lesser returns. Now it is time for me to drink milk and go to zzzzz.....

Everyone Must be A Millionaire (Power of Compounding)

The Word Millionaire

You must have clicked to read because of the word 'Millionaire', most people do anyway. But let me tell you why everyone must be a millionaire. Because if you don't have that amount you will mostly likely be not able to enjoy your retirement days. If don't have, how ah? Everyday eat rice only and hope you die sooner than later...touch wood yay.

Why do I need a million just to survive? Assuming you retire at age 55, you should anyway; don't want to be working all your life. And you die at the age 80 (thanks to advancement in medicine & hard working doctors). You will have RM40,000 to spend each year for 25 years! You might say RM40k is too much but let me show you a comparison. A Char Koay Teow cost RM3.50 now but in 30 years later assuming 3% inflation, it will cost you RM8.50! Not just CKT, everything will go up eventually due to inflation. Now you tell me, true or not?

Concept of Compounding

So how can compounding help me? What is compounding in the first place? It simply means the ability to generate earnings which are then reinvested to generate even more earnings. Okla more simple, make money work for you. Does that sound nice? When you money into Fixed Deposit, you are doing just that. But they are more ways than just FD. Some might argue that putting it in FD & depending on EPF (Early Pre-Retirement Fund) is enough. Let me show you a BIG NO.

Let's assume for simplicity sake you get RM12,000 per year for EPF (6% returns) and you can save RM10,000 per year for FD (3% returns). You begin this routine at age 25 until age 55 when you retire.

Begin      $22,000

Year 5    $154,039

Year 10  $320,667

Year 15  $531,978

Year 20  $801,224

Year 25  $1,145,847

Year 30  $1,588,841

Congratulations! You are a millionaire at the age of 50. In reality not many people can do this, WHY? Some take their EPF account 2 for housing, some can't save RM10,000 per year, they have kids then start to blame life is not fair or tough. Some need money for family emergency and all sort of excuses. This is TRUE, simply ask the government, KWSP's recent survey show that most people retire with their EPF funds with less than RM200,000. What to do? Eat rice nia lor...or sell CKT.

This is why everyone should pick up investing, it's a life learning process. It used to be for the rich people but now it is a necessity for everyone and investing has been made more accessible now in our time of life. You can invest in stock trading, property, publishing, internet marketing, network marketing & franchising. I'm going to take stock trading as an example. If you can save RM100,000 in your first 5 years of working (20k each year) and get 15% returns per annum you will NOT be a millionaire BUT a multi-millionaire.

Begin      $20,000

Year 5    $158,085

Year 10  $317,965

Year 15  $639,542

Year 20  $1,286,348

Year 25  $2,587,305

Year 30  $5,203,994

The magic number is to use 72 divide by your returns % to know how long it takes to double your investment. In stock trading's case 72/15 = 5 years. If you compare to FD, 72/3 = 24 years. Remember that you need to follow the strict routine of saving RM10,000 per year x 30 = RM300,000 just to be a millionaire for retirement if you choose FD. Isn't it better to save RM100,000 and let money work for you and get RM5mil?

15% is achievable if you know where to put your money into. Read my previous posts on how I analyze stocks and value a company and you will see that investing is not hard, you just need to pour some time and less TV. Did I say TV?

How to Save RM100,000?

• Pay yourself first. Put aside as much as you can for savings in investment, be kiamsiap (stingy), in better words don't succumb to spending. People spend because it makes them feel rich or the feel good factor, a person can look to be rich with a lot of possessions but behind got big bank loans, this is very common. You are saving to create wealth not save to spend! 30%-50% of your salary is a good figure if you can manage. This should be easy for graduates who just started work but quite difficult for parents, try to save 10%-15% then.
• Don't commit to a house yet unless you got other streams of income. Having a house is a big and heavy burden until you pay off those heavy installments. Rent a place or stay with your parents, I'm sure they will be happy to see you. If you are buying one, installment should not cost you more than 1/3 of your salary so you still have headroom to save some. 
• Don't buy an expensive car. If you can buy a Honda City for RM80,000 and pay installment for 5 years, I wonder why you can't save it instead? Some say no transport, then buy a cheaper car la or car pool with colleagues or take Bas Kilang. Don't always think BUY or NO BUY, I'm sure you have plenty of other options in getting around.
• Be creative, they are many other ways. Like me, I park for free whenever I can if I drive myself and walk instead. I cannot do that if I were to fetch girls :) in case I scare them away. Eat or drink sparingly and minimize expensive food when possible. Follow the rules so you don't get summon, I learn this the hard way. Do you income tax properly and get back every single RM you can from the blood sucking government. The opportunities to save are endless, that's my point.

Last Words

If you think saving is hard but spending is easy, your life will become hard eventually and you will work hard and everything becomes hard believing this motto of life: Work Hard, Play Hard....Die Hard?

Most of the time after people reading this, they will say yala yala you are the boss BUT I'm still young not even 35 yet and you are talking about retirement. Let me ask this, if you don't start now then when? When you grow older or when you make more money? By that time, you have more commitments for sure, fact of life, no escaping. Making money is easy, work harder nia lor but building your wealth (retirement) takes time.

Wealth means the number of days you can survive forward when you stop working right now.

Starting it young makes the tough easier, if you start at 35, you need to retire at 65. By then I would have shaken my leg for 10 years already and wake up naturally everyday, no need alarm clock. Whether you believe in the power of compounding and investing is entirely up to you, don't say you never heard of it after this.

*Special thanks to AhYap's blog for insights into compounding as well as Ho Kok Mun, local writer of investing books.

BTW, I love this movie..

Consumer: Mamee-Double Decker (M) Bhd

Introduction

Everyone probably ate Mamee Monster in their childhood days from sundry shops or from the 'Roti Man'. It was a family business started by Datuk Pang Tee Chew and his father Pang Chin Hin with the concept of eating noodles as it is without boiling it, interesting. Incorporated in 1971 and is now listed as a public listed company.

Datuk Pang Chin Hin is still alive at the age of 78, God bless him and is the Executive Chairman but his sons Pang Tee Chew and Pang Tee Nam are the real ones running the show as Executive Directors. They all have a combined substantial stake in the company ~40%.

Their champion products include Mamee Monster, Mamee Noodles, Mister Potato, Double Decker and Nicolet Swiss Herb Candy. The instant noodles account for 25% market share and have a leading position in chips and snacks, capturing some 30% of the market share. Exports account for 30% of their revenue across 70 countries worldwide.

Fundamental

1. Does the company have an identifiable durable competitive advantage?

Well YES, they are the only company selling noodle snack. When you think of chips, you first think of Mister Potato too and when you do that you will also think of buying Double Decker, well sometimes. My point is, these are products hold a certain oomph when you think of snacks.

2. Do you understand how the product works?

Snacking is the people's favourite past time activity, we snack while work, we snack in school, we snack while we catch a movie/series, we snack while waiting for someone or something or waiting to die.

3. What is the chance that it will become obsolete (pupus) in the next twenty years?

Are you joking! If Mamee were to become extinct it will make a lot of kids unhappy. Snack food is here to stay and will always be.

4. Does the company allocate capital exclusively in the realm of its expertise?

Yes in F&B. Though they have also venture outside of snacks like beverage via Cheers brand and Nutrigen cultured milk, how successful it is remains to be seen. On the snack front, they have relaunched their Mister Potato and introduced the new Rice Chips & CornToz, very unique I would say. Go and taste it la!

5. What is the company's financial history and status?

• Profit Margin is on the rising trend over the past 10 years. Above 10% is always good if they can maintain it.
• Return of Equity which means much shareholders get in return of investment has also improved towards 15% -20% range over the last 5 years.
• Revenue Growth Rate has their ups and downs owing to volatile market conditions such as material costs. Nevertheless the growth rate history over 10 years is 8.52% and 5 years is 8.27% showing good management in containing volatility.

• Earnings Per Share & Dividend Per Share is on the rising trend over the past 10 years. This is a signal that the company is still growing and making more profit year after year. WHY a big dip in 2007? Rising raw materials cost & exercising warrants diluted the EPS and DPS (same pie but smaller pieces so you get less share size lor, makes sense right).

6. Is the company conservatively financed?
The balance sheet is strong: ~RM45mil in cash and RM53 in quoted investments in unit trusts and money market.

7. Is the company actively buying back its shares?
Yes, in the year 2009 alone, they purchased back 596,500 shares because they think it is undervalued at that time. Total treasury shares now stands at 5,333,100. An impressive figure indeed. Treasury shares can be used to create extra cash when it is needed, seeing Mamee is now with surplus cash, don't see they need more cash.

8. Is the company free to raise prices with inflation?
Yes, it has recently done that to increase their profit margin by passing on the part of the higher cost to its whole sellers and distributors in the year 2008.

9. Are large capital expenditures required to update plant and equipment?

Mamee does spends regularly on capital expenditure particularly on investments in their subsidiaries.This is expected as they are focusing on growing their exports. Not an alarming figure, only 1%-2% of their total revenue.

Discounted Cash Flow Analysis

DCF treats a company as a business rather than just a ticker symbol and a stock price which most blind people think that price only matters. It requires you to think through all the factors that will affect the company's performance and gives you an appreciation for what drives stock values. Go to Investopedia.com and learn.

I have assumed Mamee's revenue growth rate is at 8.0% averagely, with 87%-85% operating cost margin, 25% corporate tax, 1% re-investment and 15% working capital growth for the next 5 years. Having said all these in my opinion it is fair to buy..
 
Mamee at RM2.17 to RM2.66 for ~15-13% discount rate. Of course with some risk la, the higher price you pay, less returns you get but with more risk.

See how steady it has grown from 2001 to 2010. Fundamentally as mentioned earlier it shows you it is doing great and you can see it reflected in the stock price. At RM0.80 in 2001 with 15% per annum you should be at ~RM2.80 in 2010. Well, except 2009 downturn but if you knew fundamentally a company is doing great as in Mamee's case, the price will certainly bounce back to it's correct value when the sell panic subsides. And best of all, it will still keep growing provided it remains fundamentally sound. So your job after this hard initial analysis of the company is to monitor, read newspaper everyday especially business section la EASY.

What Do I Think? 

- The company has announced that they are focusing on growing their domestic:export from current ratio of 70:30 to 50:50. We can see this with the group's investment into plantation in Indonesia to complement their F&B sector and in Myanmar, Mamee has become part of the Top 3 brands of instant noodle in the country. Things look good as they are expanding across the other regions too such as Thailand, Vietnam and Australia instead of the tight domestic market. They have also finally decided to get out of China after 18 years of pretty much no success and cut losses due to high competition.

- Financial figures of the company's history has shown that they are poised for further growth prospect and with their committed dividend payout policy of 50% announced in 2010 shows how confident they can make profit in future and reward shareholders. A good choice for a defensive company with future growth.

- Company also announced that they are planning to double revenue from RM410mil in 2009 to RM1bil in the next 5 years. Historical performance shows that this might be tough to achieve with an average growth rate of 8.0%. They would need ~14% rate to achieve the RM1bil mark. I'm crossing my fingers on this goal.

- In nutshell, I could buy Mamee seeing there is potential in them if I had an extra 3k. Again it boils down to buying at the correct price. Right now it is too expensive & with the price being pushed up slightly over RM3.00 in anticipation of dividend distribution on 1st June 2010. What goes up when must come down, so just be patient.

Consumer: Carlsberg Brewery Malaysia Berhad

Introduction

Incorporated in 1969 and started brewing the Green Label in 1972, having grown over the last 40 years to be the No.1 beer brand in Malaysia. The Malaysian company is 51% owned by the Carlsberg Group and has made its presence via subsidiaries in other places of Sri Lanka, Taiwan & very recently Singapore (in 2009).

Carlsberg Malaysia not only does sell their beer only, they have seven top international beers: Carlsberg - Malaysia, Tuborg - Denmark, Corona - Mexico, Stella Artois - Belgium, Foster - Australia, Beck - Germany and Budweiser - Official Beer for World Cup 2010 in South Africa. They also have SKOL beer, Jolly Shandy brand and non-alcoholic Nutrimalt drink.

How do you sell beer in a country where ~60% of the population is Muslim and forbidden by the government to buy it? Just drink lor and hope 'tak kena tangkap', in July 2009 a Muslim model was caught and supposedly caned but it did not happen and changed to community service. WHY? Punishment is not a solution it is repression. Whatever it is, Malaysia is not the only Muslim-majority country where alcoholic sales is increasing. Turkey and Egypt are too. Our friend Indonesia how ah? I dunno so I ask you.

Fundamental

1. Does the company have an identifiable durable competitive advantage?

In its own way YES, it has a commanding 50% overall beer market share and 20% of the domestic stout market via Royal Danish Stout market. Their main rival is Guinness which has 40% and 80% respectively. Carlsberg has a more competitive advantage in the field of brand awareness and popularity. It has won Reader's Digest Trusted Brand Gold Award for 11 years in a row even though they are No.2 in total market share.

2. Do you understand how the product works?

Buy and drink nia la, you have to feel to know how it works.

3. What is the chance that it will become obsolete (pupus) in the next twenty years?

When everyone starts to dislike beer over coke or the govt suddenly decide it is haram for all Malaysians, IMPOSSIBLE, chances are near zero.

4. Does the company allocate capital exclusively in the realm of its expertise?

Yes, they market Carlsberg rigorously. In mid-2007 they imported new high-end beer Jacobsen for premium restaurant niche market and also the new Tuborg to woo younger generations. In mid-2008 they launched Carlsberg Gold. As you can see they focus on one thing, to make profit from selling more BEERS across different segments!

5. What is the company's financial history and status?

• Profit Margin is being squeezed and consistently getting lower over the past 10 years.
• Return of Equity which means how much shareholders get in return of investment has stabilized at ~20%
• Revenue Growth Rate has their ups and downs thanks to the govt who kept on raising excise tax because govt is poor and in debt, people take time to adjust to new prices, see below:

• Earnings Per Share & Dividend Per Share has also being in the downward trend over the past 10 years.
• Div payout in 2009 was specially low due to acquisition of Carlsberg Singapore Pte Ltd at RM360mil and they had to give less dividends to recover cash flow back.

6. Is the company conservatively financed?

Of course, it has ~RM118mil in cash and has no debts.

7. Is the company actively buying back its shares?

Only once in Sept 1999, but still they have bonus issues 4 times in the 1990s but only one share split in 2000s. This is very good for long term investors who invested before the 1990s until now. 

8. Is the company free to raise prices with inflation?

The company has no problems with inflation but the ever raising excise tax. Malaysia is broke but the govt can buy useless submarines at the expense of the RAKYAT's purchasing power and company growth.

9. Are large capital expenditures required to update plant and equipment?

Not really, their current brewery plant utilization is 60% and is hoping to increase it to a more optimum or higher level with the acquisition of Carlsberg Singapore. All SG-bound products will be made locally here :) Malaysia Boleh..

Discounted Cash Flow Analysis

Not going into details but this analysis method was introduced by a friend of mine. Thanks to him, I have abandoned my old way of "relative analysis & safety of margin" method. DCF tries to work out the value of the company today, based on projections of how much money it will generate in the future.

Boh meng pek (don't understand) la..well DCF treats a company as a business rather than just a ticker symbol and a stock price which most blind people think that only matters. It requires you to think through all the factors that will affect the company's performance and gives you an appreciation for what drives stock values. So what factors do I look at (for the next 5 years)?

• Forecast sales revenue using historical data and current market conditions.
• Forecast free cash flow, that is after deducting operating costs, working capital and re-investment.
• Factor in corporate taxes + debt repayment if any + market risk (beta).

Based on all these factors I have assumed Carlsberg's revenue growth rate is at 7.5% averagely, with 90% operating cost margin, 25% corporate tax, almost free of investment and working capital growth for the next 5 years. Having said all these in my opinion it is fair to buy..

Carlsberg at RM3.70 to RM4.50 for ~15-13% discount rate. Of course with some risk la, the higher price you pay, less returns you get but with more risk.

First you can see quite a very gradual depreciation of share price from 2002 to 2007 and fundamentally you know this because of the downward trend that I have just mentioned earlier. Intelligent shareholders know this and smart money (professional money) is not going to inject more money thus no increase in share price. The recent downturn has made Carlsberg very attractive in price and they might be buying for profit taking in the short term. Will Carlsberg's entry into Singapore entice investor to pour in money for the long term is something unknown for now. If you think you can digest that unknown then buy at the appropriate price level to minimize or compensate your risk.

What Do I Think?

-I do not like the company's financial history performance over the last 10 years. It seems that they are finding it increasingly hard to balance between ever raising excise tax and to pass on the cost to consumers. If Najib's NEM can fly and double our income in 10 years this would not be a problem because the RAKYAT can spend more to party or celebrate but the fact remains that this task is quite insurmountable.

-On the other hand, the company's div yield is between the 4% to 6% range for the last 10 years. They had also just announced that from 2009 to 2013 the payout ratio will be 50% to 70% of net profit thus you will see roughly 2.5% to 4.5% only.

-Good news is Carlsberg realised that they have to grow outside of Malaysia and recent acquisition of Carlsberg Singapore is a good sign the company is trying to turn things around before it is too late.

-In short, I will not buy into Carlsberg seeing there is some uncertain risk and with their financial downward trend. It was a good stock to own if it was in the 1980s or early 1990s. Sorry man, but I still love your beers & models :)

The Ugly Truth of Unit Trusts & Mutual Funds

Funds or trusts were created largely for the public looking for the benefit of diversification with a small pool of money while enjoying the chance of higher returns compared to conventional savings (e.g. fixed deposit). One big misconception I have observed is that many people think the diversification of some of these funds means less risk in investing so most people just close their eyes and simply pick the best. And the best has always comes to looking at the returns/popularity first. This is in reality speculating when you think you are investing.


Almost all the time an agent ask what is your risk level and then proceed to tell you this fund is good because it has good returns + being popular and all sort of nonsense. No offense to agents reading but there are a few which I personally know which are good in financial advise but the fact is the majority are not and are looking for quick closure to get commissions. A classic example of those working for making ends meet, working for passion but there is a new breed like me sharing to help others. 


The idea of giving greater incentives to agents who get the most investors have led to a phenomenon that quantity is better than quality. People are greatly misinformed because they don't know what to ask and they believed the agents are these so called 'experts'.

"Do you prefer to let people screw up your hard earned savings for investments, or prefer to spend some hard time (one day in weekend) to understand where and what risk you are putting that money?"

Aboi has a few strategy you can use when choosing funds. I have greatly simplified it in 5 rules (no, it is not a Law yet unless I can prove it scientifically) and to show you good illustrations and real-life examples whenever possible. 

Rule no1

Avoid choosing big sized popular funds! If you have RM1bil to manage, you cannot dump them into 30 different stocks as they will be too overvalued. What they do is they spread it out vastly on more companies like 300 which make them look like their are the stock market itself - and probably end up spreading the fund manager's attention too thin. Like the example below, biggest Malaysia equity fund (RM1.7 billion in total size).

Warren Buffett, the world’s most successful investor (the #2 richest man in the world) who runs Berkhshire Harthaway that is worth over USD 200 billion ($200,000,000,000) owns less than 50 stocks! So for a typical mutual fund that is worth RM1 billion to diversify as much as 300 stocks is meaningless. Do you know all the stocks your fund owns right now if it has 300 over?

Top 5 biggest Malaysia equity funds are all from Public Mutual (sorry to hamtam you), it shows you how popular they are BUT their 5 years returns are not even in the top 10. One can argue they still give better returns than the benchmark but another example below (2nd biggest fund) over a 10 year period only manages to give a 5.49% annualized return. Heck you can even get that close % from a balanced fund which has 5 times less risk than an equity fund. 

High risk comes with high returns says Mr.Agent. How can you get high returns when the fund itself acts like the stock market? Are you telling me that KLCI can go up to 2000 points when there is a bull run like now? Please don't sell a fund to me because it is popular.

The one and only good performing equity fund is iCap (closed-end fund). iCap owns around 20 stocks, its performance will not rely too much on what the overall market is doing therefore less correlation. A mutual fund that holds too many stocks will not be able to outperform the market in the long run. But an intelligent investor who focus on a few well researched and strong performing stocks and easily outperform the market by a large margin. In iCap's case 20% annualised returns since launching.

If you have a heart in investing in equity, do it yourself or look at unco Tan's iCap. I am 100% sure that if you put effort in time and research wisely you can easily get 15% annualised returns. The only fund I have is less risky balanced fund & fixed income fund, they are some good ones out there including Public's offering. Don't let others screw up your investments, why don't invest in aboi's Mutual Fund 2009 haha.

Rule no2

Compare fund expenses! This is overlooked by a lot of people and even agents. Did they ever tell you about the impact of the fund's expenses on its returns? The higher a fund's expenses, the lower its returns. Also the more frequently a fund trades its stocks, the less it tends to earn. (goes back to rule no1). It often costs more to trade stocks in very large blocks than in small ones; with fewer buyers and sellers therefore it is harder to make a match. A pure equity fund (~100%) and especially the big ones have to trade very often thus reducing your actual returns.

At first glance, wow they punish people by actually taking more risks (equities) by imposing higher service charges. At 5.5% service charge and ~6.5% annualised returns, plus the other fees you get nothing in the 1st year and you need subsequent years to catch up on your no returns for 1st year. Compared to a balanced fund, you still have a return equal to a FD rate in the 1st year PLUS the fact they don't trade a lot because they invest mostly in bonds with fixed maturity and defensive stocks with high dividend yield like unco Tan's iCap style.


It all goes back to commissions, the higher service charge is used to offset commissions to agents and this is WHY they like to recommend equities FIRST and made them so popular. So who is stealing your money then? High returns are temporary in volatile stocks while high fees are nearly as permanent like granite. If I had God's power, I would have changed the structure that these agents get what their clients get in return. Instead of they get what the clients are willing to put their hard earned cash in. 

Rule no3

Information on the fund manager! It is not important to know who is handling your money? If you had the choice to choose between Warren Buffett and your fund manager you would choose Warren. Then why is it that many are unknown about their manager's reputation and investment track record? Because the public people are being bombarded by ads on the best mutual company, best returns by this company, awards that they get and etc. This company is famous and popular, it doesn't matter which fund you invest just put it in this company and you can rest well!

A rule of thumb is to ensure that the manager's reputation is good, has good track record in his current investment holdings and also his previous fund that he manages (if he is that old). You can easily ask this through the company or even try googling if his name appears. Even better if he is holding some units himself as his is likely to manage your money as if it were his own.


Beware that they are some very good managers but they have a history of jumping ship to other rival companies once they are offered better salary & incentives and another Ah Beng will come and take over your fund. I don't know of such jumping in Malaysia but it has happened in the US many times (their investment fund history is way longer than us here). Do a little bit of research on the fund's manager and it will pay off.

Rule no4 and no5

Good funds don't advertise. They don't appear constantly on papers boasting their awards or their No. 1 returns because they don't want to get popular and manage too much money.


Most people look at past performance > riskiness of fund > manager's rep (some don't) > fund expenses > popularity of fund. You should as an intelligent investor look from the opposite direction and do your filtering from there.

Know When to Fold Them
Once you own a fund, how can you tell when it's time to let go? If the principles of the fund stand do not lock yourself out by selling and miss the recovery. Then when should you sell? 

1. swift change in fund strategy: suddenly the balanced fund 'hiong hiong' go load up in up & down technology stocks or try to be bullish (follow market which means follow emotions rather than being logical)
2. an increase in expenses: the fund manager decided to have more pocket money for him and his family of 'experts'
3. sudden erratic returns: as when a conservative fund generates super big loss (or even produces a giant gain). You don't expect this kind of fund to give you 15% returns per annum
4. large and frequent bills: generated from excessive trading (a cue that the fund is growing bigger and bigger each year), you can get this from their yearly report 

To sum it up
My philosophy of intelligent investing in funds is to put some exposure on fixed income securities (balanced funds or fixed income funds) as part of my portfolio's conservative side. I could also buy iCap as a defensive selection but really not other equity or aggressive funds. The Americans have shown us that there is no such a thing as "too big to fail".


In the long run you will be able to get decent returns without a heart attack or sleepless nights. Each time the market crashes both iCap and the balanced fund will leap ahead of the equity fund. This is why they will outperform the equity fund eventually. 

Remember, investing means trying to get the most of your money with the least risk as possible. I hope you get my point here. It took me 4 hours to write this..eyes so blur now :)

*Special thanks to the book Intelligent Investor by Benjamin Graham, father of value investing.