10-baggers in 4 years - my case study

If i invested $100k into this company in Feb 2013, my investment would have grown to be $1mil today.....is this possible in stock investing as if investing in a business?


Innovalues was incorporated in 1997 and listed in SGX in 2001.

Innovalues specializes in the manufacturing of customized precision machine parts and components, including automotive components, printer rollers, mechanical devices, and sub-assemblies, as well as surface treatment services such as electroless nickel plating, zinc phosphating and hard anodizing. The Group’s products are mainly produced for the automotive and office automation equipment industries, with its automotive products geared towards fuel efficiency, environmental protection and vehicle safety (taken from Innovalues' AR 2015).

Innovalues' share price was traded at about 10cts in February 2013, and now it is trading at 99.5cts as per my writing today. It was offered at $1.01/share by Northstar Equity Partners IV Limited to acquire all the issued ordinary shares in the capital of the company in October 2016.


Below are some basic financial information of Innovalues's from FY2011 - FY2015:

(1) FY2011 (share price was traded at about 7-8cts/share):
- revenue: $87.7mil.
- incurred loss from expenses due to flood in Thailand -->$13.6mil.
- cash inflow from operation -->$10.6mil.
- debts: $26.1mil.
- AU sector remained strongest contributor to the group's revenue: 53% of total revenue of FY2011.
- gross profit margin: 12.8%.
- dividend of 0.6cts/share.


(2) FY2012 (share price was traded at about 9-10cts/share):
- revenue: $91.8mil (up by 4.6% from FY2011).
- net profit of $15.3mil - mainly ($12.5mil) was from insurance claims arising from floods in Thailand.
- cash inflow from operation -->$25.6mil.
- debts: $23mil.
- AU sector remained the main contributor to the group's 2012 revenue: 67.2% of total revenue.
- gross profit margin: 14.9%.
- dividend of 1.2cts/share.


(3) FY2013 (share price was traded at about 14-15cts/share):
- revenue: $97.6mil (up by 6.3% from FY2012).
- net profit of $8.6mil - $2.2mil was from insurance claims arising from floods in Thailand.
- excluding insurance claims for both FY2012 & FY2013, net profit has increased by 129% from 2.8mil in FY2012 to 6.4mil in FY2013.
- cash inflow from operation -->18mil.
- debts: $12.5mil
- AU sector remained the strongest contributor, 76.5% from total revenue in FY2013.
- gross profit margin: 17.2%.
- dividend of 1.2cts/share.


(4) FY2014 (share price was traded at about 60cts/share):
- revenue: $108.4mil (up by 11% from FY2013).
- net profit of $15.8mil.
- net profit increased by 146.1% from FY2013.
- cash inflow from operation -->$24.3mil.
- debts decreased to $8.9mil from 12.5mil in FY2013.
- AU sector remained the strongest contributor, 80.9% from total revenue in FY2014.
- gross profit margin: 26.6%.
- dividend of 2cts/share.


(5) FY2015 (share price was traded at about 80cts/share):
- revenue: $113.7mil (up by 4.8% from FY2014).
- net profit of $23mil.
- net profit increased by 45.5% from FY2014.
- cash inflow from operation -->$27mil.
- debts decreased to $3.8mil from 8.9mil in FY2014.
- AU sector remained the strongest contributor, 78.7% from total revenue in FY2015.
- gross profit margin: 30.7%.
- dividend of 3.8cts/share.



All above data clearly indicates Innovalues' business has been in growing phase since the business recovered back from floods in Thailand in 2011.

The best return in stock investment is investing in a growth company with high barriers to entry business and run by good management. Although, it is always easier to be said than done, however, stock investment provides opportunities for every entrepreneur to be a millionaire.

But of course, in investing, it requires our entrepreneurship to be able to understand business and management's quality, the gut to take the risk based on our data analysis, and the faith we have in the business we invested in.


Above are only my personal views and it is solely for my personal references/case study. The accuracy or completeness of the information provided in this blog cannot be guaranteed. Readers should carry out independent verification of information provided.



   

My 6 years of Investment in Stock Market

Six years ago, I was introduced by a friend of mine about investing in stock. Prior to that, i had a very ugly impression in stock market. When i was young, i always watched Hong Kong movies, and some of the movies shown about speculating in stock market. Stock market was all about gambling, pure speculation - that was all in my mind.

But thanks to my friend for introducing me about value investing and even asked me to read investment books like "One Up On Wall Street" by Peter Lynch and "The Zulu Principles" by Jim Slater.

Since then, i started to read many investment books. So far the book i really like the most are "Common Stock and Uncommon Profit" by Philip Fisher and "Intelligent Investor" by Benjamin Graham. I bought "Security Analysts" 3 years ago and until today i have not finished reading the book yet. I think I have been having much difficulties in interpreting the contents in the book :(  I guess my investment knowledge is really very little. 

There were times when i stop myself totally from learning about investment. If my memory serves me right, i skipped reading financial reports in 9 months from June 2015 to March 2016. I picked up reading the financial reports again in March 2016 and at that time i found 2 companies which i really liked: Best World & Cogent. I bought Best World in April this year @$0.53 per share and Cogent @$0.41 per share. Too bad i sold my Best World somewhere in June at about @$0.78 per share and my Cogent at about $0.50 per share in May. I managed to have $10k profit from Best World and $1.5k profit from Cogent. Actually i was not supposed to sell these 2 stocks earlier. I sold Best World as i heard this stock was in restricted stock from one of the broker's list - so i was not able to transact Best World online (if i wanted to buy/sell i had to call the broker). I was not really comfortable with this news, so i sold all my shares. I realized my decision is a fool. The fundamental of the business was still good and i still liked the company. It means clearly that my decision was wrong and my investment knowledge was really very little. If i did not sell my Best World's share from my initial purchase, my paper profit would be $43k now (my initial capital was $20k). I bought back Best World at about $0.71 per share and i am still holding it now. The same story goes to Cogent as well. But i had decided not to buy back Cogent for certain reason.

I like the way Warren Buffet buying stock - is like buying a business. I hope i can be like him to be able to hold my stock in a very long period of time along with the business grows. I am doing my best to focus on the company in my investment.

I started my investment with the capital of $2k six years ago. Along the way, i have made a lot of mistakes, countless mistakes which i should had avoided them earlier. In fact, i keep repeating the same mistakes again and again.

However, i feel thankful i am still able to see my capital appreciation of a high five-figures.

Although i am very sure i will make many more mistakes in future, but i do hope my mistakes will be much lesser.

Let's work harder to keep learning and always decides based on the data (not assumptions). Ganbatte!

My Portfolio Update as of 14th December 2016

I had added a new counter to my Portfolio: Tai Sin Electric.
This company is a good growth company with paying regular dividend. 
Will elaborate more next time......

Below are my latest Portfolio update as per 14th December 2016:

(1) Sunningdale Tech: bought @$1.02/share
(2) Best World: bought @71cts/share (ex-cludes Bonus Share of 4 to 1)
(3) Global Invacom: bought @12cts/share
(4) Avi-Tech: bought @28.85cts/share
(5) 800 Super: bought @78cts/share
(6) Innotek: bought @24.4cts/share
(7) Tai Sin Electric: bought @38cts/share

My Portfolio Update as of 5th November 2016

Below are my latest Portfolio update as per 5th November 2016:

(1) Sunningdale Tech: bought @$1.02/share
(2) Best World: bought @71cts/share (ex-cludes Bonus Share of 4 to 1)
(3) Global Invacom: bought @12cts/share
(4) Avi-Tech: bought @28.85cts/share
(5) 800 Super: bought @78cts/share
(6) Innotek: bought @24.4cts/share

Investing is all about searching an undervalued growth company with good balance sheet and holding it.....

Investing in stock market....in my own opinion:

Investing is all about searching an undervalued growth company with good balance sheet, holding onto it, until the business matures or until we have found another company in a better bargain & higher growth rate.

Investing is not about wanting to make quick profit, more profit, much profit from stock trading (in my own thoughts).

When we bought into company, after a short period of time, says one week - the price of the share has already rose to 20% from our purchase price. The question i always ask my self is: SO WHAT IS NEXT? Am i going to sell all my shares? Sell partial of my shares? Am i supposed to be happy? Satisfied? Proud? Or selling all my shares and looking/moving to other company to start like what i did on this counter before? Or keep my cash to wait for opportunities to come?

All these are tough questions when we face them in real life. As a human being, we are filled with emotion: happy, sad, greedy, satisfied, competitive, proud, self-esteem, scared, regretted, giving up, etc etc... It is not unusual our emotion has taken over our mind in our daily life. This applies to investing in stock too. I would say most of the time, it did. At least.....to me!

(1) I will sell all of my shares and hold the cash, how can i assure myself not to buy back this shares again? Or will i buy into another company in a similar way of investing? How can i guarantee that this company is better than the previous one? If the previous one's share price has been moving up while my new company's is not, how can i control my emotion?

(2) I will sell partial of my shares with the price of 20% above my profit, will keep the balance of the shares. Will i use this cash to buy another counter in similar way or keep the cash? If the share price has been moving up after my partial selling, will i be greedy to add in some shares? Or will i feel just satisfied and keep holding the balance shares? Will i have the urged to sell the balance shares since the price has been corrected many times even though it is in the up path?

(3) When the price of my shares has been moving up by 20% from my purchase price, will i be happy for that? So what should i do next? Will i have the urged to add more shares? Or to sell partial/all of the shares?

(4) I will be satisfied and proud to myself, so what is next? If i always feel satisfied and proud to myself, it might be the beginning of a disaster of my financial failure in investing in stock market. When i feel too confident on myself, i might think i am good enough, i know enough, i do not need to study more or continue to study. This will be a real DISASTER.

(5) As long as the fundamental of the company remains intact since my first research and the price is not overvalued, i will keep holding the shares. This is the key in investing - continue learning and focusing on the company's fundamental analysis, stay away from the market's noise!

Bought Innotek --- why?

I bought Innotek last week at the average price of $0.23 per share.

Will add in some shares next week. With the addition, my cost might go up a little bit (about 6%).

Why am i investing in Innotek:

(1) Trading below NAV of 52.9cts per share (2.3x against of my cost of 23cts per share)

(2) Cash per share: about 9.8cts per share (0.42x against 23cts)

(3) Negliable debts of $77k

(4) It has turned around since the first Quarter of this year under new management lead by the Group's Executive Director/Chief of Executive Office of Mansfield Manufacturing Company Limited, the group's operating unit: Mr Lou Yiliang:

1. 1. Gross Profit margin improved to 21.9% from 4.6% (Q32016 to Q32015) and 18% from 5.1% (9M2016 to 9M2015).
2. 2. New management has been working on improvements in performance and margins follow operational changes – to reduce costs (lower cost of material, lower salaries & wages, lower depreciation & PPE, maximise inhouse production to reduce subcontractors), increase productivity and strengthen customer engagement.

(5) The management is optimistic in the higher demand of Automotive & TV sector, while maintaining good relationship with existing top Japanese brand from Office automation sector.

Bear Market, Panicked Selling ----- as a Business Investor, what should i do?

Bear market can happen in yearly season such as starting from May in most of a calendar year, the peak of the bear can be in October/November as these were the months majority market crashes happened in the past. It can also happen because of many reasons/events happening worldwide: Brexit, currently US Presidential Election, in 2017 we will have many presidential elections including Germany and French. All these events eventually might affect the market reaction.

As a long term investor, i should not try to predict the market from all these events.

What i have to focus on are:

(1) The fundamental of the company i am investing in, to read through their financial reports every quarter and yearly, if possible to do some scuttlebutt approaches.

(2) To keep accumulating my war chest ready, either by keeping money from my sold shares, dividends, or from the injection of capital.

(3) Stick to my current holding which i deem they are still undervalued in terms of their business value, whilst waiting for the bull market to takeover.

(4) When the bear market has really seemed to be bottom, e.g. the share price of my current holding has dropped to 30% below my initial cost, i should make use of this opportunity to load more shares using my war chest. But i should add in bit by bit.

(5) I should NEVER liquidate my portfolio right away once there are many noises in the market calling for selling off and to seek for fixed income instruments, such as fixed deposits. It will be DISASTROUS to my way in accumulating wealth as a business investor.

(6) I should be disciplined and persevere with the plan.

When should i start selling my shares in a company?

I bought G Invacom's share in 2012 at about 16.8cts/share. I bought 214,000 shares at that time. The share price went up all the way to the highest of 57.5cts/share in the early of 2014 (about 2 years from my purchase). If i had sold my shares at one of the peak point say 52cts/share, i would had made about 200% gain or $72k from my $36k capital.

Too bad i did not do that. I only managed to sell about 30% out of my total holding, and the remaining shares went down all the way to about 10cts in the early of 2016.


This is a good lesson learnt for me:


(1) I should have started to sell the shares when the company started to report less profit in 2 consecutive quarters (for quarterly reporting company) or 2 consecutive half years (for semi annual reporting company). G Invacom started to report less profit in their FY2014 result.

(2) I should only be focused on the fundamental of the company, not on my investment return.

Does share price always reflect to true earning of the company?

At any point of time, no one can tell for sure if the market price reflects the actual valuation of the company.

Share price can be traded to be historical high and climbs higher. This happens along with the growing of the company's earning. However, the ratio between the share price's growing rate and the earning's growing rate is a big question mark and have to be found out by a value investor through a throughout study & analysis.

Shall we always invest in a company with high dividend yield?

With a dividend issue, share price can be adjusted wrongly if the companies give lower dividend and the share price is penalized.

"The share price of these shares should be higher rather than lower on account of the fact that profits have been added to surplus instead of having been paid out in dividends.
Most frequently, however, the stockholders derive much greater benefits from dividend payments than from additions to surplus; This happens because either the reinvested profits fail to add proportionately to the earning power or they are not true "profits" at all but reserves that had to be retained merely to protect the business. In this majority of cases the market's disposition to emphasize the dividend and to ignore the additions to surplus turns out to be sound" - quoted from Security Analysis by Benjamin Graham.

Should we consider investing in a company with debts?

When analyzing a company to invest, we should look at the amount of debts.

A company with some manageable debts (not negligible debts) can be a good company to invest provided the company has recurring income. 

On the other side, we should AVOID companies with heavy debts but without recurring income/profits.

So recurring income is very important. 

My Portfolio Update as of 10th October 2016

Below are my latest Portfolio update as per 10th October 2016:

(1) Sunningdale Tech: bought @$1.02/share
(2) Best World: bought @71cts/share (ex-cludes Bonus Share)
(3) Global Invacom: bought @12cts/share
(4) Avi-Tech: bought @28.85cts/share
(5) 800 Super: bought @78cts/share

Oustanding Companies - market leader - One of A kind

(1) Companies with any of the Four Types of Economic Moats:

     1. Low-Cost Producer: companies which can deliver their goods or services at a low cost, typically due to economies of scale, can offer lower price to their customers, thus can win over their competitors. E.g. Wal-Mart.
     2. High Switching Cost: companies which cause their customers to have difficulties in switching from their products/services to other suppliers as when they do, they will be to pay a one-time inconveniences/expenses. E.g. mortgage loan from one bank to the other
     3. The Network Effect: companies which have many people using their product/service which cause the value of their product/service increases for both new and existing users. E.g. facebook, google, amazon.
    4. Intangible Assets: companies which have advantages over competitors because the unique nonphysical or intangible assets (patents, trademarks, and copyrights) they have. E.g. Coca Cola, Gillette.

(2) Companies which are able to maintain Consistency and having a good System in all their products/services including all franchising - easy in expanding & monitoring.

(3) "We want to be a large company that is also an invention machine" Amazon's CEO.

(4) Companies which generates much cash in-flows to the companies every year and while the cash is idle, they use the cash to invest into other potential business to generate more cash.

Positive, Neutral, or Negative Working Capital?

What is Working Capital?

Working Capital is the different between Current Assets and Current Liabilities. Currents Assets include Cash & equivalents, Inventories, and Account Receivables, while Current Liabilities includes Bank Loan, Account Payables, and other Finance Leases.

Positive Working Capital is current assets is more than current liabilities.

Neutral Working Capital is current assets is equal to current liabilities.

Negative Working Capital is current assets is less than current liabilities.

Which is the best option in selecting a company to invest?
I personally prefer a company with Positive Working Capital. As this can prevent the company goes bankrupt. However, there must always be a through out study and analyzing about the company's financial reports and its future prospect. E.g. When a company has a high account receivables is not always be a good sign. A higher account receivables means the company is having a longer credit terms to her customers, and while a lower account payables mean the company is not able to have a longer credit terms from her suppliers. And this may indicates the company is not able to make use of supplier's credit terms to benefit in growing its business in the longer term - the company might need more financing facilities along with the growing of its business.

Higher inventories does not always mean positive as well. The movement of inventories has to be analyzed by an investor. In other words, the investor has to really study a complete situation of a financial report and some qualitative aspects in analyzing the company, including positive, neutral, or negative working capital.

What are Catalysts?

In investing, catalysts are very important as it unlocks the value of the shareholders.

1. Earning rate with much higher than its normal rate.

2. Merger & Acquisition

3. Launching of new products

4. Secondary listing

5. Spin offs of slower growth or no growth business

6. Recapitalization/refinancing, especially from well-known business investors/funds/companies

Revenue Trend, Earning Trend....do these help in analysing a company?

According to Benjamin Graham, investors not to look too seriously at the company's trend in earnings because, while mathematical, it's really psychological and quite arbitrary. Nobody can judge how far the trend will continue but investors often try, leading to vastly over or undervalued stocks.

While the trend may not be a sound basis for valuation, the company's past track-record should be used as a rough guide to the firm's future. Benjamin Graham suggests that we place a lot of value on a stable past record when evaluating the earnings record since business stability suggests an ability to withstand external events to a greater degree, and this allows us to more easily assess what the firm could possibly earn going forward.

Is Dividend an Important criteria in my Investment?

Dividend is a portion of company's earning distributed to the shareholders, declared by the board of directors. Normally dividend is quoted in cents and dollars. Dividend can be quoted in other form besides cash, such as scrip dividend (form of shares), or optional dividend (between cash and shares).

Why does board of directors decide to distribute dividend to the shareholders?
Board of directors will analyse a few aspects before deciding to distribute dividend to the shareholders:
Financial balancing, to balance between the cash needed to support daily business operation, current & future growth of the company, and to reward the shareholders:
- Current growth and future growth: the board of directors will work out the projected amount of cash needed for current business plan, future expansion including any merger & acquisition and organics growth.
- Daily operation of the business: operating cash flows/operating expenditure (Opex)
- Capital expenditure (Capex): any purchasing of assets/machinery & equipment, R&D
- Financial obligations if any (short term & long term debts)

When the board of directors have done a detailed analysis of the above, and they have concluded that the cash portion is no longer benefit sufficiently by reinvesting their profits, they will usually distribute the excess cash to their shareholders in form of cash dividend (payout).

Companies that pay regular dividend to their shareholders (quarterly, half yearly, or yearly) usually (but not always) receive a higher valuation and better appreciation from the investor. But it is provided the dividend payout duration is there for at least 5 years and it is increasing in a stable growing payout rate.

Long Term Business Investor & Short Term Trader - two personalities?

I always want to remind myself, "If i want to be a long term business investor, i should not do some short term trading to make quick profit!".

Why?

The principle and philosophy of a long term business investor and short term trading are very different. Long term business investor always sees investing in stock as purchasing some part of a company to be a shareholder of it. So investor will hold on to his/her investment for a long period of time, ride through the many business development cycles with the company - either up or down, until the business matures. In other words, it will not bother the investor much if the share price is down so much as long as the fundamental of the company remains intact. When the business matures, investor will keep the business so that it will generate a handsome return in a form of dividend paid yearly. Alternatively, after a detailed study on another company/business and the investor thinks this business is much undervalued than the current business he/she is owning now, the investor will consider to sell off partially or all of his/her shares to purchase another business.

Short term trader tends to make quick profit and monetizes it asap. Normally a trader will be willing to sell his/her shares as fast as it turns profitable, trader set an up limit, e.g. 20% up from the purchase price then he/she will sell off the shares. On the other side, if the price of the shares drops and continues dropping, the trader will also set a down limit, e.g. 10% down from the purchase price then he/she will cut loss and sell all his/her shares.

I am not sure if above principles are applied to other people, but for me, it does not work to be two personalities in investing. I will always prefer to be a long term investor. Being one type of personality, it enables me to to manage my portfolio much easier and allows me to have much more time to do a detailed analysis on the companies (either my current holding or new target companies).

My Stock Selection Criteria - Free Cash Flow!

There are many methods in evaluating a business's valuation, evaluating the company free cash flow is one of the example.

Free Cash Flow is the total cash inflow generated by the company under its operating activities less the cash it needs to fund capital expenditures (capex) and net working capital needed to maintain current growth of the company.
Energy and transportation companies are the 2 examples of business require high capex as they need substantial capital investments in equipment for R &D, retrieving of natural resources (energy - oil & gas) and replacing their fleets of aircraft (transportation).
On the other side, food & beverages and health products are the 2 examples of business require less capex as they do not need high capital in replacement of their equipment. What they require is a strong branding with a good centralized system to standardize their products while maintaining the value proposition in the business.

That is the reason, it is very important for a business investor to invest in a company/business which requires less capex and net working capital, and the same time it generates higher cash from operation. The left over cash is the free cash flow to the company and it can be used to pay dividend and equity buy back. It is not uncommon also, some management of the business uses this free cash to purchase other businesses to generate more free cash flow. This is the kind of business an investor should really invest. 

My learning journey - Concept of Investing (part 2)

In investing, we should not be influenced by short term or day to day movement of stock price and we should not be influenced by market.

We should be the one taking full control of our own decision. No intervention of other people or market in our decision of buying, selling, or holding. This is the safest and easiest way in investing. 

The key is only one: search for growth stock with undervalued number & growth prospect for the business valuation from market. Get to know in and out of the business, the whole business and corporate issues. Follow up on every updates of the company, analysis should be based on data, not personal assumption. Stick to the company until it matures. 

Buy slowly, make sure our subsequent buying price is much lower than our earlier purchases. Along with its business growth, similar buying price is ok.

Catalyst & Investment Return in total length of holding period

Share price normally will go up more than usual if there is a catalyst to drive up the price. And this happen normally in a very short length out of total length of holding period. 

Value investing by Ronald Chan quoted “where one of the studies shows that 80% to 90% of investment returns have occurred in spurts that amount to only 2% to 7% of the total length of the holding period. The rest of the time, stocks' returns have been minimal” .

I have missed the 5 baggers stock! I regretted I had sold it too early...

We have thought of buying abc stock. Or we have bought abc stock @10cents for example, but had sold it @15cts which was before the business matured.

Now abc share price has gone up from 15cents to 50cents. 

When we know this 5 baggers and we do not own them, we should not be proud of ourselves nor being sad or regretted. We should be happy that it is possible to make much money in stock market. And ONLY with good study and analysis of the company we invested in, enables us to achieve this. We should not be proud to ourselves that we are capable of picking abc stock in the first place and now has turned to be 5 baggers. 

What is the point of being proud but we do not own them and ride through the rising price? Movement of share price to 5 or 10 baggers is possible and happening and it will happen again and again. 

Afterall, stock price does not always reflect the actual value of the company or business. Our job is to find a good bargain stock and to stick holding to the stock/company until the business matures regardless of the price of the stock along the way. We should buy in slowly when there is opportunity to buy at marked down price or when Mr Market goes crazy.

Why am i investing in Avi-Tech?

Avi-Tech is a total solutions provider for Burn-In Services, Burn-In Board Manufacturing and PCBA Services, and Engineering Services for the semiconductor, electronics, and life sciences industry.

It was incorporated in 1981 and listed on SGX in 2007.

- Avi-Tech achieved ISO 13485 certification at the end of 2009 which confers recognition on her comprehensive quality management system in the provision of medical devices and related services.
- Avi-Tech had her good years in highest revenue record of 70.4mil in 2007 & 74.3mil in 2008 with a net profit of 15.5mil & 11.9mil.
- Avi-Tech started to make a loss since Q3 of 2011 when she incorporated two new subsidiaries in the USA, Verde Designs, Inc. and Aplegen, Inc.
- There are 3 consecutive years of loss making since 2012 to 2014 mainly caused by the two subsidiaries as mentioned above.
- At the end of 2014, Avi-Tech initiated to liquidate both subsidiaries which Aplegen, Inc's  liquidation was completed in Q42015 and Verde Designs, Inc's in Q22016.

Possible Merits of Avi-Tech:
(1) Strong balance sheet (as per June 2016)
      - NAV: 45.3mil
      - Working capital: 30.9mil
      - Total Asset: 52.7mil
      - Total Liabilities: 7.4mil
      - Bank borrowing: 1mil

(2) Consistent higher Profit from loss making in 2014
      - 2014, net loss of $9.9mil
      - 2015, net profit of $6.6mil with operating profit of 3.7mil (discontinued operation profit 2.8mil)
      - 2016, net profit of $6.2mil with continued operation profit of 6.4mil (increased by 73% from 2015)
   
(3) Consistent higher Revenue since 2014
      - 2014, revenue: 23mil, revenue from continuing operation: 15.1mil
      - 2015, revenue: 28.4mil (increased by 23.5% from 2014) - revenue from continuing operation 26.9mil (or 78% continuing operation's revenue increased from 2014)
      - 2016, revenue: 33.9mil (increased by 19.5% from 2015) or (26% continuing operation's revenue increased from 2015)

(4) Consistent higher Gross Profit Margin (GPM) & Net Profit Margin (NPM) since 2014
      - 2014, GPM = 14.3%, NPM = -
      - 2015, GPM = 24.3%, NPM = 13.7% (3.7mil/26.9mil) - from continuing operation only
      - 2016, GPM = 32.3%, NPM = 18.9% (6.4mil/33.9mil) - from continuing operation only

(5) Giving consistent dividend for the past 2 years
      - 2015: 1.3cents
      - 2016: 1.8cents
      (dividend story is a bit too short to conclude as normally will prefer to have at least 5 years of dividend story).

(6) Management is the majority shareholder
     - The CEO, Mr Lim Eng Hong is holding 33.8%

(7) Management is confident with the future outlook of the company.
 

Possible Risks of Avi-Tech:
(1) The revenue trend for the past 10 years is not very consistent, so future's revenue is not very predictable.
      E.g:
      - From year 2007 revenue has increased of 92% revenue growth from $36.6 million in FY2006 to $70.4 million in FY2007,
      - From 2007 - 2008 increased by 5.5% from 70.4mil to 74.3mil,
      - From 2008 - 2009 decreased by 137% from 74.3mil to 31.3mil,
      - From 2009 - 2010 decreased by 5.5% from 31.3mil to 29.6mil,
      - From 2010 - 2011 increased by 14.6% from 29.6mil to 33.9mil, etc

(2) Avi-Tech is in semiconductor, cyclical industry.



   

What is Chairman's Message & How Important it is in my company selection?

Chairman's Message is a letter from the chairman of the board to shareholders reporting on company's condition including summary of company top and bottom lines for the full financial year, the last whole year activities have been taken by the board, ongoing and going forward activities by the board (including any restructuring, merger & acquisitions), and personal perspective of the company in future. This has to cover the positive and negative (if any) outlook of the company.

It is the first few pages of Annual Report (normally after business vision & mission part) and it only has about 2 pages.

This Chairman' message is one of the most important criteria in selecting a company to invest.

Chairman's message presented has to be in candor and honest manner as this will at least explains indirectly about the integrity of the chairman and the board in the company. Having honesty and integrity are one of the most important qualities of great leadership in business. Good leaders give promises carefully with much thinking and consideration, and once they have given that promise, they follow through on the promise without fail. And they always tell the truth - even though the truth is negative. The reality of principle is seeing the world as it really is not as we wish it to be. When leaders make mistake, they also admit their mistakes. Leaders have to be confident but they also have to be open to any possibilities of their decision could be wrong, or even totally wrong.

Good chairman of a company always respect the people around them: board of directors, staffs, business partners, and they treasure the hard work of each of them. Leaders learn and are guided from the people below them under the organization chart too.

Good leaders/chairman have the courage to face fear with confident and good preparation.

I am learning to access company with one of the important criteria as above, to look for those which have a candor and honest chairman's message.

My Stock Selection Criteria - to avoid commodities & property stock

In selecting of company to invest, normally i will avoid commodities (oil & gas, steel, gold, etc) and property companies.

Reason being is because i do not understand about the business cycles at all. I will do my best to only invest in company i am a little more familiar with, or at least i can interpret most of the information provided in its financial reports.

This is to assure i have a peace of mind and can sleep well at night.

Valuing a company based on Current State (CS) & Future State (FS)

When we are talking about investment in stock market. The major thing we have to know is about valuing a company on current state and future state.

(1) Current State: how is the current state of the company?

Looking at its Financial Statement for the past 5 years (at least): Profit & Loss, Operating profit, Gross & Net Profit margin, Balance Sheet, Account Payable & Account Receivables, Debts, Inventory, Cash & Equivalents, Cash Flow, Net Tangible Assets, etc. 

When all numbers are good then we have to look at its management team, majority shareholders, number of shares, Price Earning Ratio. 

The connection of management words from one financial report to the subsequent reports. 

So number is always the beginning of a business valuation of current state of a busines/company. Good number shown can ensure our purchase price is good enough to protect our capital when the business prospect does not run smoothly according to its vision.

(2) Future State: business vision & mission, business strategy & business objectives, management team and management way to keep its business strategy.

Will elaborate more .......

Warren Buffet's 5 Life Tips

Warren Buffet's 5 Life Tips:

On Earning: “Never depend on a single income. Make investments to create a second source.”
On Spending: “If you buy things you do not need, soon you will have to sell things you need.”
On Savings: “Do not save what is left after spending, spend what is left after saving.”
On Taking Risks: “Never test the depths of the river with both of your feet.”
On Expectations: “Honesty is a very expensive gift. Do not expect it from cheat people.”

What is a Value Proposition and how important it is in selecting a company to invest?

A Value Proposition is a business or marketing statement that a company uses to summarize why a consumer should buy a product or use a service. This statement convinces a potential consumer that one particular product or service will add more value or better solve a problem than other similar offerings. (Source: Investopedia).

In selecting a good and sustainable company to invest, we should select company with a value proposition.

To add value proportion to a business: Understand and analyse the 3D:

• Discontinuous Innovation, 
• Defensible Technology, 
• Disruptive Business Model.

(1) Discontinuous Innovation: offer transformative benefits by looking at problem differently.

(2) Defensible Technology: offer Intellectual Property that can be protected to be economic moat over the competitor and unfair competitive advantages.

(3) Disruptive Business Model: yield value & cost rewards that help catalyze the growth of a business.

Can i simply buy a counter without careful thinking of it?

Searching for a company and decided to invest in it is a tough decision an investor should takes as once invested, it will physically influence the investor emotion and arguments. 

When he/she invested in the company, the price goes down for example he/she sells. 

After selling, the price goes up. Will he/she be thinking of buying back? 

After he/she bought back, price goes down. Will he/she be thinking of selling off?

How often his/her emotion is shaken by stock price? 

Will he/she be losing all of his/her capital?

My learning journey - Self Discipline -controlling myself!

"In investing, we should control & lead ourselves, not let the market controls & leads us."

"Thus, Self-Discipline is very important in investing."

The ability to find out good company is equally important. However, the latter's competitor is everyone who can access the available data worldwide, while the first's competitor is ourselves which involves human emotion and is harder to conquer.

Who am i in the market?

Who am i in the market?

I am just me. But i can make a different result and outperform others. I have a principle and i will stick to my principle. I do not let other people to influence me.

My competitor is not only you, my friend. My competitor can be many people in the market. My competitor can be big boys, funds managers, analysts, bankers, investment groups, etc. They have been in this industry for decades and some of them are in a team of experienced people. I am just me, myself. Have only gotten to know about stock market for 6 years.

But i can make a different by studying the fundamental of the company thoroughly: both qualitative & quantitative aspects.

"You are right not because you think you are right or people think you are right but because your data is right" - Warren Buffet.

Well, i am still learning and a long way to go for me. I just want to keep reminding myself :)

My learning journey - Concept of Investing (part 1)

Understanding the concept of Investing is all about in investment.

The philosophy of value investing is buying the share of a company based on its business fundamental, our understanding the business development cycle in the time frame required. When we can get all this right, a double bagger is possible we will get in return.

In investing, picking a good company is not much a problem. An average Joe will be able to do the right pick based on data or financial reports provided.

However, without a good understanding of the business, the good pick can be a not so good pick when we are not sure when the business is matured enough for us to sell our shares.

Something to remind myself.....

(1) When we get it right then we get it wrong, it is better not to get it right at the beginning. But it is actually better to realize we have gotten it wrong before getting it right.

(2) Sometimes, market valuation reflects the company actual earning at that point of time. So when the price moves up, it moves up consistently with an improved earning for the coming financial year = short term future earning.

Company earning is hardly to be double or triple in a short period of time (it is possible but in a certain types of business, especially those business with economic moat).

If the company's revenue & earning are not consistently going up, the stock's price that moves up a lot maybe by double or triple, it could probably led by market overreacted for certain catalyst, then the price will drop back to be adjusted to its short term future earning or to current earning in a short period of time.

(3) A disaster happens when after doing some M & A, the company reported a significant lower revenue, or higher revenue but with significant lower earning.

11 Pieces of Investment advise from America's greatest investor (Warrent Buffet)

The Pieces of Investment advise from America's greatest investor (Warren Buffet):

(1) It's far better to buy a wonderful company at a fair price than a fair company at a wonderful price.

(2) Rule No.1: never lose money; rule no.2: don't forget rule No.1.

(3) Our approach is very much profiting from lack of change rather than from change. With Wrigley chewing gum, it's the lack of change that appeals to me. I don't think it is going to be hurt by the internet. That's the kind of business I like.

(4) Try to buy stock in businesses that are so wonderful that an idiot can run them. Because sooner or later, one will.

(5) The stock market is a no-called-strike game. You don't have to swing at everything – you can wait for your pitch. The problem when you're a money manager is that your fans keep yelling, “Swing, you bum!”.

(6) Price is what you pay; value is what you get. Whether we're talking about socks or stocks, I like buying quality merchandise when it is marked down.

(7) Never count on making a good sale. Have the purchase price be so attractive that even a mediocre sale gives good results.

(8) If you understood a business perfectly and the future of the business, you would need very little in the way of a margin of safety.

(9) We have long felt that the only value of stock forecasters is to make fortune tellers look good. Even now, Charlie (Munger) and I continue to believe that short-term market forecasts are poison and should be kept locked up in a safe place, away from children and also from grown-ups who behave in the market like children.

(10) We don't get paid for activity, just for being right. As to how long we'll wait, we'll wait indefinitely.

(11) Managers and investors alike must understand that accounting numbers are the beginning, not the end, of business valuation.

Why am i investing in Sunningdale Tech?

SUNNINGDALE TECH LTD

Business Vision: 

To be recognised as a leading Asian tooling, plastics injection moulding with decorative finishing processes and precision assembly company supplying to the global market. 

5 Pillars of Excellence: 

(1) On time delivery 

(2) Pro-quality mindset (doing right at the first time everytime, no need rework) 

(3) Cost saving attitude 

(4) Continous learning of new work processes & technologies 

(5) Team work 

4 Business Segments: 

(1) Automotive 

(2) Consumer/IT 

(3) Healthcare 

(4) Tooling/Moulding 

HQ: Singapore 

- more than 200 designers and 10,000 sqm of mould manufacturing area in Singapore & China. 

Manufacturing: 

Guadalajara, Mexico 

Sao, Brazil --> part of organic growth 

Riga, Latvia 

Batam, Indonesia 

Guangzhou, China 

Zhongsan, China 

Suzhou, China 

Tianjin, China 

Shanghai, China 

Hongkong, China 

Rayong, Thailand --> part of organic growth 

Johor, Malaysia 

Chenna, India - new foot print achieved from acquisition of First Engineering Limited (FEL) 

Acquisition of FEL was completed in Nov 2014:
(1) Creates one of the largest precision plastics engineering companies with combined revenue of $636 millions, with presence in Asia, Europe, North & South America.
(2) Highly complementary in three major business segments: Automotive, Consumer/IT, and Healthcare/
(3) Expand blue chip customer base & products offering.
(4) Increase technology & best-in class capabilities across entire value chain.
(5) Provide immediate to Indian market and strengthen the existing footprint.
(6) Achieve higher efficient in corporate support & operational.

(+) things about Sunningdale:
(1) Improving of net profit margin.
(2) Generating good cash every quarter.
(3) Management is prudent in operation & having good system.
(4) Trading below NAV.
(5) Giving dividend for the last 3 years.
(6) Did an acquisition of FEL which seems to have synergistic in production efficiency and offering broader product mix & customer bases which in turn can improve top & bottom lines for the group in the coming financial years.

(-) things about Sunningdale:  
(1) Their business highly depend on good economy condition, and strengthen of US dollars will benefit them as their customer bases are mostly in US & UK.
(2) The gearing level is quite high, thus, the company has to prove to the investor by maintaining generating consistent cash inflow every year.

Total number of ordinary shares: 186,705,736

Year	R(1Q)	NP (1Q)	NPM (1Q)	NP-EI (1Q)	R (2Q)	NP (2Q)	NPM (2Q)	NP-EI (2Q)	R(3Q)	NP (3Q)	NPM (3Q)	NP-EI (3Q)	R(4Q)	NP (4Q)	NPM (4Q)	NP-EI (4Q)
2012	110.6	3.3	2.98	3.7	106.4	2.2	2.07	2.7	120.8	1.5	1.24	3.1	113.4	2.6	2.29	2.6
2013	110.1	2.3	2.09	2.3	123.1	3.5	2.84	3.5	121.2	3.8	3.14	4.2	121.7	4	3.29	3.7
2014	105.7	8.5	8.04	3.7	114.5	4.4	3.84	5.6	120.5	3.6	2.99	5	135	11.2	8.3	8.3
2015	154.5	7.1	4.6	6.2	165.4	6	3.62	5.5	176.5	15.9	9	5.8	178.1	13.2	7.41	13.4
Financial Year Ending 31 December
Year	FYR	FYNP	FYNPM	FYNP-EI	FYNPM-EI	NAV	Cash	Debts	Dividend
2012	451.2	11.2	2.48	9	2	-	-	58.6	1.2
2013	476.1	13.7	2.88	9.8	2.1	-	-	59.8	0.7 (3.5)
2014	475.7	27.7	5.82	21.5	4.5	-	-	137	0.8 (4.0)
2015	674.5	42.2	6.25	29.4	4.4	1.77	121.1	120	5.0
R = Revenue = Top Line = Sales (million) NP = Net Profit = Bottom Line (million) NPM = Net Profit Margin (%) 1Q = First Quarter 2Q = Second Quarter 3Q = Third Quarter 4Q = Fourth Quarter FYR = Full Year Revenue (million) FYNP = Full Year Net Profit (million) FYNPM = Full Year Net Profit Margin (%) NP-EI = Net Profit excludes Exceptional Items (million) FYNP-EI = Full Year Net Profit excludes Exceptional Items (million) FYNPM-EI = Full Year Net Profit Margin excludes Exceptional Items (%) NAV = Net Asset Value per share (cent) Cash = Total Cash (million) Debts = Bank borrowing & debts securities (million) Dividend = Payout dividend per share (cent)

3 Types of Company in my Investment

There will only be 3 types of company i am looking to invest:

(1) Moderate growth and stable company: dividend story has been stable or increasing in the last 5 years. Normally the profit margin is low. Gross profit margin below 15% and net profit margin below 7%. I will add more to this company along the way. I SHOULD NOT sell some of this shares first to buy 2nd type of company when i need more capital. E.g. Sunningdale Tech.

(2) High growth potential with excellent balance sheet: paying dividend for the last 3 years but the amount of dividend is not consistent/stable. Gross profit margin is above 30% and net profit margin is above 15%. E.g. Best World & Avi-Tech.
I will invest with maxium capital of 30k and normally will buy in a single time of entry point.

(3) High growth but with moderate balance sheet and low price to NTA/NAV. So this is more to Asset Play with potential High Growth Stock. The cash portion is not significant, so there is some risk involved (E.g. Issuing new shares to raise funds). The industry of this stock should be in Medical, Food, Telecommunication, etc. Global Invacom is one of the the example. Down side is protected by the Economic Recession FREE. I will invest with a maximum of 30k and in a few entry points.

My Portfolio Update as of 12th September 2016

Below are my latest Portfolio update as per 12th September 2016:

(1) Sunningdale Tech: bought @$1.02/share
(2) Best World: bought @71cts/share
(3) Global Invacom: bought @12cts/share
(4) Avi-Tech: bought @28.85cts/share

My Stock Selection

I prefer small cap counter as the financial reports are easier to read and interpret.

My investment approach is more to value investing in growth companies.