Monday 28 December 2015

Mudajaya (2)

With Multiple Assets Maturing, Risk Is On The Upside

Author: Icon8888   |   Publish date: Mon, 28 Dec 2015, 05:16 PM 




1. Introduction

I first wrote about Mudajaya (Part 1) on 6 March 2014. However, I suggest you ignore that article as the information was quite outdated.
http://klse.i3investor.com/blogs/icon8888/47896.jsp

When I wrote that article, Mudajaya was trading at RM2.70. Now it is trading at RM1.14.



The collapse of Mudajaya's market capitalization over past 18 months was caused by delayed commissioning of its power plant in India (still not fully resolved) as well as a series of quarterly losses.  

Quarter Result:
F.Y.QuarterRevenue ('000)Profit before Tax ('000)Profit Attb. to SH ('000)EPS (Cent)DPS (Cent)
2015-12-312015-09-30108,15116,78914,3362.66-
2015-12-312015-06-30105,566-10,358-12,272-2.28-
2015-12-312015-03-31165,226-18,440-19,661-3.65-
2014-12-312014-12-31188,745-109,379-99,709-18.48-
2014-12-312014-09-30208,6577,9691,0740.20-
2014-12-312014-06-30278,9976,9133,3460.623.00
2014-12-312014-03-31366,40631,76325,0554.613.00

On 22 December 2015, Mudajaya announced that it has secured RM220 mil contract from Petronas. This is the third job win in a matter of 3 months.

That aroused my interest. After undertaking a quick study of the group, I decided to add it to my portfolio. 



2. Balance Sheets

Based on net assets of RM1,092 mil, interest bearing debts of RM600 mil and cash of RM106 mil, net gearing is 0.45 times.

Strictly speaking, Mudajaya's gearing is not low. The bulk of it is the RM360 mil Medium Term Notes issued in first quarter of 2014.



As shown in table above, Mudajaya was in net cash position back in December 2013. What caused interest bearing debts to balloon to RM600 mil ? Should we be concerned ? 

In order to understand the origin of these debts, I studied the Group's historical cashflow. The following is extracted from the Group's FY2014 cashflow statement. It seemed that a total of RM123 mil was tied down in working capital (-RM14.2 mil - RM0.98 mil - RM31.3 mil - RM76.6 mil). 



The 9 months ended September 2015 was not any better. As shown below, approximately RM123.8 mil was tied down in working capital (-RM218.9 mil + RM2.53 mil + RM0.36 mil + RM92.24 mil). 



These two periods alone, working capital tied down approximately RM246.8 mil of the Group's cashflow. No wonder they need to draw down borrowings to plug the gap.

In contrast, capex did not take up a lot of cash. In FY2014, net amount spent was RM56 mil.

 
During the 9 months ended September 2015, net amount spent was RM42.4 mil.



Now that we have figured out how the debts arise, the question to be ask is "what is the potential source of repayment ? "

According to September 2015 quarterly report, the group has receivables of RM446 mil and "other current assets" of RM527 mil. 

    

These items are huge. What are they ? How should we view them ? 

When come to receivables, the major issue is whether they will turn bad. In my opinion, it is unlikely. The following are some of the reasons :-

(a) Almost all of Mudajaya's projects are in Malaysia. According to my experience, overseas customers carry higher credit risk (disputes, government intervention, etc). Local debtors are usually easier to manage.

(b) Mudajaya's clients are reputable and established entities. So far, there are no news of them getting into financial troubles. Please refer to table below.



(c) In FY2013 and FY2014, Mudajaya's bad debts was RM0.597 mil and RM0.607 mil respectively. For the first 9 months of FY2015, the amount is zero. The low level of bad debts is indication that there is proper risk management mechanism in place.

What about "other current assets" of RM527 mil ? What are these items ? The September 2015 quarterly report did not provide details. However, according to FY2014 annual report, approximately RM234 mil are amount due from contract customers, which are essentially receivables. I have addressed this issue above.

Another RM168 mil (FY2014) are contra properties. According to the company, those are payment in kind by a customer who has difficulty making payment.

 
I am comfortable with those properties. Since they were acquired through negotiations, I am sure they must be backed by proper valuations by professionals.

After digesting the above information, I have a better feel of the group's financial position. In my opinion, there is no need to be unduly worry about its gearing. High working capital requirement is a common feature of construction companies. Many of Mudajaya's debts will be extinguished when they sell off the contra properties and / or receive payment from customers.       



3. Historical Profitability

Mudajaya used to eat shark fin soup and abalone everyday. However, since 2014, they can only afford peanut butter and white bread.

From net profit of RM151 mil in FY2013, the Group's performance nosedived to report losses of RM70 mil in FY2014. The losses continued in first half of FY2015. Construction division was the main culprit.



In September 2015 quarter, the Group finally turned around. Construction division's profitability improved to RM15.9 mil.   

Is this one off or the beginning of a new chapter ? The sections below will take a closer look at the group's various divisions.



4. Construction Division

The losses of the construction division over past 3 quarters was due to :-
(a) cost overrun; and
(b) timing differences : cost has been incurred for Variation of Order but unable to bill clients yet.

There is no excuse for the poor performance, but I am not complaining though. Without those losses dragging down earnings, I would not have the chance to buy at current price. In any event, the worst seemed to be over already as the division has returned to the black.

Apart from the losses, one of the main reasons Mudajaya spooked analysts and investors was its inability to secure any contract for the most part of 2015. 

The dry spell finally ended in September 2015.


According to Hong Leong Investment Bank, its outstanding order book should be approximately RM1.6 billion. That should be sufficient to last the group 1.5 years (based on FY2014 construction revenue of approximately RM1 billion).

In FY2013, the group's construction division reported net margin of closed to 10%. However, that was mostly due to the IPP project in India, which was a concession project.

For contracts secured through competitive bidding, net margin of 5% is more realistic. For the purpose of modelling, let's assume RM50 mil net profit from this division in FY2016 (being RM1 billion x 5%).  



5. Chhattisgarh IPP Project

Mudajaya holds 26% equity interest RKM Powergen Pte Ltd, which has been building a 1,440 MW coal-fired power project in Chhattisgarh, India. The project comprises four generating units with a nominal capacity of 360 MW each.


Chhattisgarh is a state in central India. It is the 10th largest state in India, with an area of 135,194 km2. With a population of 25.5 million, Chhattisgarh is the 16th most-populated state of the nation. It is a source of electricity and steel for India, accounting for 15% of the total steel produced in the country. Chhattisgarh is one of the fastest-developing states in India (Source : Wikipedia)


Mudajaya was accorded VIP treatment in India. They sang and danced until they forgot that shareholders were waiting for them in Malaysia to switch on the power plant. The following is a recording of one of the business trips to Chhattisgarh to negotiate with local authorities.https://www.youtube.com/watch?v=-ijfNEF7-JY

Supposed to be commissioned in 2013, the power plant has faced one delay after another. The last I heard, Mudajaya has been telling shareholders that the power plant is targeted to be commissioned by early 2016.

However, this round, it seemed that things are happening faster than expected. According to a document posted on the Mudajaya thread by forum member greddym3, Unit 1 of the plant achieved COD (Commercial Operation Date) in November 2015.   




According to a separate table in the document, Unit 2, 3 and 4 are targeted to be commissioned by March, May and August 2016 respectively. 




Now, we are finally seeing light at the end of the tunnel. But exactly how much profit can we expect from the IPP project ? 

According to an article dated 3 March 2014 in The Star, Mudajaya's CEO expected the IPP project to contribute approximately RM70 mil to Group profit. Was he referring to EBITDA, PBT or net profit ? If I am not wrong, according to accounting standard, associate contribution is booked in at Net Profit level. As such, it is likely that the RM70 mil is referring to net profit (Accountants please chip in here).  



However, there is still one loose end to be tied up. Over the past 18 months, currencies have been on a roller coaster ride. How would that affect the IPP project's contribution to Mudajaya ? The 3 March 2014 article shedded some light on this issue as well. 



First of all, let's have a feel of the movement of Rupee vs Ringgit. When James Wong mentioned that Rupee was weak, it was back in March 2014. During that time, one Rupee can get you 0.053805 Ringgit.



However, in 2015, Ringgit has depreciated substantially against the Rupee (Malaysia is a net oil exporter while India is a net oil importer). As at 24 December 2015, one Rupee can buy 0.064287 Ringgit, 19% more.



There is one more hurdle to clear. India does not have a strong power equipment manufacturing industry. As such, it is likely that the IPP needs to import the equipment and parts. We have all known by now that if you import anything, you need to pay US Dollars. Bearing in mind that the Rupee has depreciated against the US Dollars, how much  USD debt does the IPP have ? Will all the advantge gained from strengthening of Rupee vs Ringgit be offset by the Rupee vs USD depreciation ?

Luckily, according to the 3 March 2014 article, both the IPP's revenue and debt are denominated in Rupee.

It seemed that we have a winner - no USD adverse impact, but strong Rupee will boost profit contribution to Mudajaya. Nice.


   
6. Other Power Projects

Apart from Chhattisgarh IPP project, Mudajaya has also invested in the following power projects :-

(a) Gebeng Solar Power

In 2014, Mudajaya acquired 60% equity interest in Special Universal Sdn Bhd ("SUSB"), which owns a 10 MW solar farm in Gebeng, Pahang. SUSB achieved Commercial Operation Date for 5 MW each in December 2013 and April 2014 respectively.

The investment allowed Mudajaya to gain exposure in renewable energy. However, profit contribution is not much. In the first 9 months of FY2015, operating profit was approximately RM4 mil. Based on annualised operating profit of RM5 mil and 25% tax rate, PAT should be approximately RM4 mil. 60% stake should result in net profit of RM2 mil.

(b) Sulawesi Coal Power

On 5 May 2014, Mudajaya anounced the proposed acquisition of 70% equity interest in PT Harmoni Energy Indonesia ("PT HEI") for cash consideration of RM18.5 mil. PT HEI was developing a 2 x 7 MW coal fired power plant in Sulawesi. The plant was backed by concession of 25 years with initial tariff of USD0.1185 / kWh.

Based on back of envelope calculation, annual revenue should be approximately RM50.9 mil (2 x 7,000 x 24 x 365 x 0.1185 x 3.5).    

In March 2015, Mudajaya announced that it has completed the acquisition of 46% equity interest in PT HEI. The remaining 24% to be acquired at later date.

Recently, Mudajaya announced that PT HEI has achieved Commercial Operation Date on 29 October 2015. The COD of PT HEI qualifies Mudajaya to pursue opprtunity to develop a plant of larger capacity in the vicinity.

The Sulawesi project is not huge. For modelling purpose, let's assume net profit contribution of RM3 mil per annum (for the 70% stake).

(c) Cebu Wind Power

On 26 October 2013, Mudajaya acquired 40% equity interest in Amihan Energy Corporation ("AEC"). AEC has been given the right to make use of the wind power on 18,225 ha of land in Cebu, Philippines. The wind energy project has full capacity of 200 MW. However, only 50 MW will be developed in the first phase.

In August 2014, Mudajaya announced that it has secured USD119 mil EPC contract from AEC. According to terms of contract, works will commence by October 2014 and complete within 18 months. As such, targeted completion date should be April 2016.

There is no information available on how much profit Mudajaya's 40% stake in AEC will generate. However, based on Gebeng's case, my guess is that 50 MW should generate net profit of approximatey RM20 mil (for 100%).

For a 40% stake, net profit of RM8 mil ?     



7. Property Development

Traditionally, property development did not contribute much to group revenue and profitability. The group's main project is in Kuching, which generated net profit of approximately RM5 mil to RM10 mil per annum. 

In 2013, the group entered into a joint venture with sister company Mulpha Land Berhad (recently renamed Thriven Global Bhd). Mudajaya owns 49% of the JV entity. The JV entity owns a piece of land (6 acres) in PJ, which was acquired from Tropicana Corporation Bhd for RM115 mil.

The development project, Lumi Tropicana, was recently launched with GDV of RM700 mil. Due to its strategic location (next to LRT 3 train station), it received favorable response from potential buyers. For more information, please refer to the article below (The Star).

Due to the small size of the project, I do not want to spend too much time on profit projection. Based on Mah Sing's past three years' average net margin of 12.7% and GDV of RM700 mil, I arrived at total net profit of RM89 mil. Mudajaya's 49% share will give it RM43 mil. Spreading over a period of 4 years (target completion by 2019), annual profit contribution will be approximately RM10 mil.

Note : I choose Mah Sing as a proxy as that group's business model invovles buying development land from land owner at high cost (instead of relying on long held cheap land bank). The Lumi project shares this similarity.



8. Concluding Remarks

As most of my readers would have noticed, I rely heavily on prospective EPS to guard my investment decision. As such, to cut a long story short, I have put the various divisions' POTENTIAL earnings into a financial model :-  



Can they deliver the profit as shown above ? I think the key is the Indian IPP. If the information of Chhattisgarh going COD turns out to be correct, Mudajaya should be able to report pretty good profit in FY2016.

With multiple assets maturing at more or less the same time, it seemed that the group is approaching inflection point.

With limited downside risk and good potential upside, I don't mind taking position now to wait for durians to drop. 

As usual, before I end this article, I would like to qualify that as an armchair analyst, I have limitation on how accurate my earnings projection can be. I have disclosed in full details how I arrived at my projections, and I did that without manipulating the figures. If you make money in the future by investing in Mudajaya, there is no need to thank me. However, if you lose money, please don't blame me either.

You walk into the deal with your eyes wide open.







Sunday 27 December 2015

Comintel (2)

The Day I Stormed Through 3 Traffic Lights

Author: Icon8888   |   Publish date: Sun, 27 Dec 2015, 02:03 PM

We are now closed to the end of the year. As I look back, Comintel ("Comcorp") is considered one of the most happening stocks that I have ever written about.  

On 17 December 2015, Comcorp released its quarterly report. The result was excellent. In that evening, I couldn't sleep well, my whole mind kept thinking of how I wanted to sapu as much as possible the next day.

   

The next morning, I jumped out of bed the moment I heard the cockerel crowing...


Market finally opened at 9 am. I was mentally prepared to sapu ALL THE WAY UP TO 50 sen.

I couldn't believe my eyes when drove of sellers started emerging at 40+ sen.

I could feel my heart palpitating. With my trembling hands, I keyed in one order after another to absorb as much as possible. 

Luck was with me that day, I managed to buy all I wanted with average cost of 43 sen.

Finally, it was time to take a break. I made myself a cup of coffee and started writing my Blog article.

I also took out sea cucumber and chicken thigh from the freezer to defrost. I planned to braise chicken thigh with sea cucumber for dinner.

The recipe was simple : you just stir fry the sea cucumber and chicken thigh with garlic, onion, soya sauce and spices (Star Anis and cinnamon sticks) until they caramelize. After that, you just add in water and simmer it for few hours until the sauce thickens.

Hmm... lovely.. I can feel my stomach groaning...

While waiting for the ingredients to defrost, I went back to my writing. By the time I was half way through, it was already 1 pm in the afternoon. Market has closed. I ate some biscuits for lunch (great meal coming in the evening, slurp.....)  

I tried to finish the article and publish it as soon as possible. Not that I am so kind hearted and wanted my readers to benefit as early as possible (I am not Jesus Christ lah, I am just an ordinary old man longing for a pot of braised sea cucumber).

The reason I was in a hurry was because I don't want another fellow to beat me to write about it first. It might sound silly, but the urge to be ahead is strong and genuine. It is like a researcher wanting to publish his finding after making an earth shattering discovery. You will understand me if you have been in a situation like that before.

Well, the timing is just nice. The plan is to spend the next 30 minutes stir frying my sea cucumber and chicken thigh, simmer them in a pot and return to my writing. By 2.30 pm, I should have my article completed and ready to publish. Perfect.

However, as I stepped into the kitchen, I noticed something horrible ...  

I RAN OUT OF DRIED SQUID !!!!!!

Ladies and gentlemen, I am not a fussy eater. But it is VERY IMPORTANT to add dried squid to braise sea cucumber pot. 

Without dried squid, the taste of the braise sea cucumber and chicken thigh will be AT LEAST 50% NOT SO NICE !!!!
(Comcorp is big money, but I ran out of dried squid. Comcorp first or dried squid first ? Which one more important ?)

I was totally disoriented. I stood in the kitchen for two full minutes. My mind kept asking the same question, "Comcorp or dried squid ? Comcorp or dried squid ?? Comcorp or dried squid ??? WHICH ONE MORE IMPORTANT ????"

I finally woke up from the state of paralysis. I made a dash to my 1970s Volkswagen, went full throttle and headed towards the nearest grocery shop, which was 10 munites drive away. 

(I stormed through traffic lights so as to return with a pack of dried squid before market reopens)

Luckily that day the traffic was not heavy. I stormed through three traffic lights, reached the grocery shop within 5 minutes, bought what I wanted and headed home.

I did what I need to do with my braise sea cucumber pot, and returned to my desk to finish off the article.

I publsihed the article at 3.12 pm, full 45 minutes after market reopened. 

I regreted the delay, but on the other hand, I am happy that the sea cucumber pot has been done properly. 

At 6 pm, I sat down to have my dinner. The taste was out of this world.

I am sure my readers will forgive me once they found out the reason it took me so long to release the article.  

Bon appetit !!!
(The end product was out of this world. The sauce alone can make me finish two big bowls of rice. What is the point of making money from Comcorp if you can't add dried squid to your pot of braised sea cucumber ?)

Friday 25 December 2015

* 2 Million Pageview For Icon8888 Blog *

Author: Icon8888   |   Publish date: Fri, 25 Dec 2015, 08:45 AM 


On 11 July 2015, I reported that my blog in i3 achieved 1 mil pageview. It was achieved through 147 articles. Average readership was 6,802 per article. 

I first started blogging in March 2014. As such, the first one million pageview was achieved over a period of roughly 1.5 years.

Today, I am happy to report that on 24 December 2015, my i3 blog pageview reached 2 mil.

During a period of roughly 6 months, I published 48 articles. Average readership was roughly 20,000 per article. 

I would like to thank all my readers for their support and wish everybody a fruitful 2016.

Merry Christmas !!!

My External Blog

Author: Icon8888   |   Publish date: Thu, 24 Dec 2015, 09:45 AM


All this while, I blogged by using klsei3investor. However, I notice that it is very difficult for forum members to access my old articles. If you go to my i3 profile and click on "Blogs", you will be able to access the latest few articles, but not all.

As a result, I have decided to create an external Blog to house all my old articles. 


In the future, I will continue to blog by using i3. All new articles will be first released on i3, only at a later date will I post at my external blog for archiving purpose.

Thank you.

Wednesday 23 December 2015

RGB (2) - UOB KayHian Sets Target Price of 21 Sen, Expects Higher Dividend

Author: Icon8888   |   Publish date: Wed, 23 Dec 2015, 04:58 PM 


I bumped into this Analyst Report by UOB KayHian. Hopefully they don't mind I post it here.




Clash of The Titans (1) - Traders vs. Investors

Author: Icon8888   |   Publish date: Wed, 23 Dec 2015, 12:45 PM 




1. Introduction

Recently, I wrote two articles about the stock market :-
(i) "Three Ways To Punt The Market"; and
(ii) "Punting Stocks In The Information Age". 

I am sure some of the sharp eye readers would have noticed the use of the term "Punt" instead of "Investing".

If you think that the use of the funky term "Punt" is to make the articles more down to earth and entertaining, you would have got me wrong.  

Many of you must have thought :-
"I am sure what Icon8888 meant is Three Ways To Invest In Stock Market and Stocks Investing In The Information AgeWe are not Traders. Traders are those fellows that buy and sell based on Technical Analysis. We read financial statements, we buy and sell based on balance sheet strength, profitability and cash flow. WE ARE INVESTORS, VALUE INVESTORS"

I am sorry to burst your bubble. In my opinion, you are not necessarily an Investor. You are very likely a Trader, a Value Trader. 

In that regard, the neutral term "Punt" was deliberately used so as to avoid accoding you (as well as myself) the status of Investor.   

Let me explain.


2. Shocked Me To The Core

Many years ago, I spoke to a friend of mine, who has been in the market for a long time.

Icon8888 : "I am an investor too".
Friend : "On ya, that is nice. What stocks do you buy ?"
Icon8888 : "I look for stocks with low PE Multiples, hold them for two, three years and aim for certain percentage of return."

My friend was shocked !

Friend : "What ? Two, three years ? I have been holding my stocks for more than twenty years. I never sell them. My stocks such as Public Bank, BAT, Telekom, had grown by many hundreds of percents".

I WAS SHOCKED THAT HE WAS SHOCKED !!!! 

All this while, I have treated myself as an Investor. To be told that I was NOT, really shocked me to the core. 

I was confused. However, at that time, I lacked the knowledge, information and wisdom to really figure out the contradiction. Just like many other things in my life that I don't understand, I shelved it, kept it in my mind, and moved on with my life.    

I only began to understand the nature of that issue until I started participating in forums like klsei3investor. 


3. A More Holistic View

As mentioned in my previous article "Punting Stocks In The Information Age", I benefited a lot from Cyber platforms like klsei3investors. For the first time in my life, I am able to interact with market players from all walks of life. Some use charts, some spread rumours, some pray to Snake God, some buy and sell based on fundamentals. All kinds of people. 

There is an abundance of information for me to tap into : historical datas, analysis, opinions, articles, etc etc...   Over the course of several years, I soaked myself in the forum and slowly digest the information. 

I benefited a lot from bloggers like KC Chong, Uncle Koon and various articles regularly posted by Tan KW. I also benefited a lot from observing the market behavior of fellow forum members like Ooi Teik Bee, Rosmah, Er Kong Seng, Calvintaneng, Kakashit, YiStock, Noby, and many many others.

After taking in all these information, a clearer picture gradually emerges, and I began to have a better understanding of the contradiction that arose from that fateful conversation I have with my friends many many years ago.     

I arrived at a stark conclusion - even though many of us buy and sell based on fundamentals, we are not actually Investors. 

If that is the case, who are the Investors ? What constitutes Investing ?


4. Investing

There are many books out there about investing. Warren Buffett's books are my favorites. I also like Peter Lynch. But compared to KC Chong, I read substantially less. Instead, I spent most of my time researching individual stocks (need to make a living mah. Lonely old man cannot rely solely on pension, right ?).

As such, KC's articles discussing the various Gurus' styles of investing are truly a gift for me. Unlike books, the articles are short and easy to understand. Very convenient. I consume them like eating fast food.   

After eating many Mc KC Burgers, I gradually formed a view of what constitutes Investing.

Among all the Gurus, Joel Greenberg's way of looking at Investing has the biggest impact on me. The key points are as follows (here is your Mc Icon Burger) :-

(a) Great fortune can be made by compounding over an extended period of time. Compounding involves reinvesting profit back into business so as to continue to grow. A company that has opportunity to reinvest will be able to become a great company, thereby creating significant value for its shareholders.

(b) However, due to intense compeition, not all companies can register compounding growth. Only company that has moat can do that.


(A moat is a deep, broad ditch that surrounds a castle. It defenses against invaders. Companies that have "moat" are those that have competitive advantages that differentiate them from rivals. Companies with "moat" usually will do well)

In short, according to Joel Greenberg, Investing is about identifying companies that have moat so that you can hold on to their shares for many many years. The Investors will reap huge capital gain as the company's profit keeps growing.

THAT, is Investing.


5. Trading 

How about Traders ? Who are the Traders ?

First of all, there are the TA Traders. As we all know, they buy and sell based on charts and other technical readings. I am not really familiar with TA. As such, I don't want to comment too much about TA Traders.

Then there are the Value Traders. These people buy and sell based on fundamentals. They used tools like PE Multiples, Enterprise Value, Price to Book Ratio, etc.

Sounds familiar ? Dudes, that is because the so called Value Traders are You and Me, ha ha.

One of the major characteristics of Value Traders is that they hop from one stock to another. 

Investors are like Zen Masters. They stay calm irregardless of what happens. They hold on to their stocks for decades. They let moat and compounding do their magic. Traders are different, they are always on the look out for leads. 

Investors can afford to be calm because they are guarded by moat. Traders aren't protected by moat. As such, they must constantly adjust their positions so as to capitalise on the latest trend / avoid beng swallowed up by trend reversal.       

Based on my experience in Bursa, trends usually lasted for multiple years. For example, property boom over past 5 years, oil and gas boom over past 10 years, palm oil boom from 2009 until 2014, and the latest export stocks boom that have already lasted 12 months and potentially can last for few more years.   

As a result of the long cycles, Value Traders can have holding period of multiple years (which induces them to mistaken themselves as Investors).


6. Too Compliacted ?

After reading what I have written so far, some readers might begin to wonder, "Not too long ago, Icon8888 wrote about how Anglers, Drift Woods and Surf Riders play the market. Now he is introducing Investors and Traders into the picture. Isn't he creating too many identities ? I am beginning to get confused."

Don't be confused. All these characters can actually be accomodated under one Grand Unifying Theory.

Surf Rider is definitely a Trader (Value, not TA). There is no need to explain much. It is in their DNA.

Angler is also Value Trader. It takes position in a stock with the hope of ultimately flipping it when certain events occur.

Drift Wood is a bit tricky. It does nothing and hold long term. That indeed sounds like an Investor. However, it is more complicated than that. Drift Wood's inactivity is not because they play the moat game. It is mostly due to their inability to look into the future. When the opportunity arises, Drift Wood might not hesitate to offload and cash in. They don't give a hood whether the company has moat or not. That, makes them a Trader. (If they dumb dumb hold, they can call themselves an Investor, I have no objection to that, ha ha).   

(In romance, Surf Rider is gold digger. Angler at least pretends to invest in a relationship. Surf Rider is only interested in courting rich widows, women that are available and widely known to have plenty of wealth.   
As for Drift Wood, she is the plain looking girl sitting quietly in a corner watiing for Prince Charming to arrive.
Of course, the above is purely for humour. In world of finance, no one method is more moralistic than the other)


7. Why Split Hair ?

The question now is why I bother going into such details segregating one group of players from another ? There are few reasons.

(i) I have long noticed the existence of tension between two main group of players.
One group is very well defined, they are the Value Investors. As mentioned above, they are guided by Investment Philosophies of famous Gurus.
The other group is not well defined. But their presence can be felt everywhere. In this article, I give them a name, "Value Traders".
By giving clear identities to these two groups, I hope to eliminate the confusion that have so far plagued the investing intellectual space.
Now there is no more need to debate about whose method is right or wrong / more superior. These two groups live in paprallel universe. Both are real and legitimate.

(ii) Investment theories started developing in early 1900s (correct me if I am wrong). Benjamin Graham was the pioneer. After more than a hundred years of development, the theories had matured and are now well established.
However, there is a void when come to Value Trading. People like Ooi Teik Bee is definitely no Benjamin Graham disciple (Benjamin Graham would be turning in his grave if he sees the way OTB trade stocks like eating kuachis). However, OTB's success is indisputable. More research is needed to understand this phenomenon.   
My article is hence an attempt to fill the abovementioned void. I am hoping that it will create a framework that can further the development of Value Trading theory.
Can Value Trading one day stand as a separate pillar that can compete with Classical Investment Theories ? Many people will benefit if that happens.     

(iii) For Newbies, the stock market can be a daunting place. One of the biggest headache is that there are so many different views, you don't know who to listen to.
For example, a Newbie is making some money in the market by following OTB's advice. However, he has many questions unanswered : Is what I am doing correct ? Is my method sustainable ? Is there any other methods that is better ? What about TA Trading ? What about Warren Buffett ?
I hope this article will provide them with better clarity of where they are in the market value chain. Hopefully, that will help them to position themselves better when come to committing their capital.      

(iv) Retiring early from workplace and trades at home has been many people's dream. I once posted an article and it attracted many readers.
http://klse.i3investor.com/blogs/icon8888/80703.jsp  
However, so far, the only way people can think of doing it is by way of TA Trading.
Through this article, I want to sow the seed in their mind that they can also trade based on fundamentals.
If you want to retire early, no harm picking up an accounting textbook now to try to understand financial statements. You can trade based on TA. But FA is your friend too. It can also help you to achieve what you want.  


8. Concluding Remarks

First of all, I would like to clarify that I do not take a stance on whether Value Investing or Value Trading can produce better results.

I don't champion one method over another. I am merely documenting my observation of the various behavior currently existing in the market.

However, before I end this article, I would like to take the opportunity to highlight one major flaw for each of the method. 

For Value Trader, the biggest headache is reinvestment risk. You made tonnes of money trading a stock. However, there is a risk that you will lose it back when you use the money to buy another stock. The boom bust cycle can be very frustrating. 

For Value Investor, the major headache is identifying companies that REALLY have moat. You have been courting this girl for 5 years, only to discover at the eve of the wedding that she is an Ah Kua, hoo hoo hoo.



Merry Xmas !!!