Value Investing 01 (May 08 - Dec 08)

[iam802]

actually, from TA...we can say...May 07 is the last peak...after which ...we see lower highs...

so, it is downtrending... (maybe we can use this and compare to the distribution days that MM use as well, ... does it occurs around this time?)

[financecaptain]

Good PER chart. I assume they depited historical PER.
Interestingly, after the Asian crisis, PER shot up. But that is due to severe earning decline rather than market bull run. You see PER is near historically low in 2007 also when market was in a state of bull last year. That was because earnings were all time high rather than market was down.
Hence, for fundamenal evalution of market valuations, it may be more helpful to look at market P/B rather than PER as a firm's book value is less volatile from year to year. Alternately, dividend yield is also a good garge as dividend payouts are more stable than earnings.

[chaibu]

It may just not be a good idea at this point in time to use dividend yield as a gauge. It's historical and if I am not wrong 2007 was a year of bumper dividends.

[Musicwhiz]

Rather than market analysis, we should focus more on company analysis. This thread is about value investing after all - so market PER I feel is not a good measure of individual companies' PER and whether or not they are considered "cheap".

Just my 2-cents.

[financecaptain]

Dividend policy of a firm is generously stickly. Hence, they do not correlate highly with earnings as you may think. In exceptionly good years, Company may announce additional special dividends but keeping the basic annual dividneds more or less unchanged.

[fclim]

wow... so many value investors around... i dun feel so lonely liaoz...

anyway, this week i 'cut losses' (abt 30% loss) on some of my 'previously superb value finds' and started to nibble on my 'next superb value finds'.... anyway, i continue to amaze myself how i lose moneies and find reasons to comfort myself... but that's another topic...

ok, back to value investing... let me throw in one more thing about finding good companies to invest in (pls read with discern... do i have to remind you that i just made a huge loss...)

one of the other qualitative factor i look is the management...
- is the board acting above board? do they appear to be a 'honest' lot? hee...
- is the senior mgt competent? do they bring value to the business? what's their background?
- does the board award options simply and easily? *options dilute per share value and is generally bad for investors, unless used cleverly as a tool to retain top talents*
- does the board / mgt have a substantial ownership? *and thus more likely to ensure the business do well?*
- is the mgt investor-friendly? e.g. distribute cash when the biz cant make more with retained earnings, pay regular predictable dividends...
- does the mgt adapt to the ever-changing enviornments, gov, market, technology, etc.
- is the mgt well-connected / respected in their industry?

have fun,
fc

[la papillion]

Is it time to buy local banks now? Someone wanted to invest a substantial amount of money into OCBC, so I thought I would do a little research to see whether it makes sense. I do not really know how to valuate banks and will not attempt to do so here. Rather, I'll just dig into the past number and let the reader do the rest of the legwork, if they are interested.

My source for these information comes from Shares Investment book (340 issue) and the respective banks' website.

Here is the brief overview of their segmented business data. It shows the revenue incurred from various segments as a percentage of the FY07's revenue.



We can see that OCBC derived a substantial portion of their revenue from dividend and rental. I suppose that rental means they have, under their holdings, certain properties. DBS has more percentage in terms of interest income and fees/commission. UOB is quite similar to DBS in that aspect, though I'm curious to know what constitutes the 'others'.

Below shows the ratios that I've done for the three local banks from FY03 to FY07. Do pay attention to the * portion below each table, as I noted the assumptions I made when calculating the figures.



Based on annualised 1H08 earnings for the three banks, at current closing of OCBC @ 7.160, DBS @ 16.920 and UOB @ 16.800, the forward PE for FY08 (estimated) and Price/Book are:

Banks-----------PE------------P/B
OCBC ----------10.7-----------1.6
DBS ------------10.2-----------1.3
UOB ----------- 11.2-----------1.6

I've browsed through the Singapore Country Book prepared by Deutsche Bank around May 2008. They mentioned that OCBC and DBS are well positioned to benefit from double digit loan growth and a rising net interest margin environment. The report seems quite bullish about the loan growth, saying that it is expected to be the second strongest year after Asian crisis. I've nothing much to comment about this, since I'm not in the know. They did cite factors such as strongth growth in business lending (particularly building and construction, property area) and in housing loans (particularly the mass to mid-market private residential, and HDB) as catalyst to push up the loans growth in the local banks.

This is for future reference:

OCBC

http://2.bp.blogspot.com/_3qF-4FCPF1I/S ... 9_ocbc.gif


DBS

http://4.bp.blogspot.com/_3qF-4FCPF1I/S ... 29_dbs.gif


UOB

http://3.bp.blogspot.com/_3qF-4FCPF1I/S ... 29_uob.gif


So which provides the most value? Price is often illusory, because the cheapest in price need not be the cheapest in value. Need to do more research.

[fclim]

Hi la papillion,

I think wait till it goes to nearer their NAV... from my last count, i think OCBC is the nearest to its NAV...

But hor, to be safe, I think will split the investment and buy into all 3 local banks, e.g. OCBC - 40%, UOB - 35%, DBS - 25%. personal preference why I like OCBC... prob coz I read a few chapters on its founder... and that it is the first bank in singapore, actually, its first bank was a branch of its parent... can't remember the OCBC HQ was setup where ... then UOB over DBS coz of my impression of UOB mgt is more connected in the business world... why DBS then? coz its backed by ah gong...

and i guess i would plan the purchase over a period of time, e.g. split the purchase over 3 times for each bank, mth 1 (25%), mth 4 (35%) and mth 7 (40%)... if the price go up or go down, psychologically also dun feel so bad... dunno why also...

eh... the above is just my (often wrong) opinion...
pls kindly correct if you spot any mistakes hor...

have fun,
fc

[la papillion]

Hi fclim,

NAV = book value in my table. As such, the P/B for DBS is the lowest amongst the three, at 1.3. This might be because DBS had the most global exposure, and perhaps the most amt of toxic assets in its balance sheet as well. I was chatting with a few others in my chatbox and realised perhaps a better instrument (for that person who wanted to buy into OCBC) is preference shares. I say that because the person is 50++ yrs old, semi-retired and have a horizon of 3-5 yrs. Not too sure if equities is the right instrument for that person.

Gng to do some research on it first and post it up

[HengHeng]

for a person 50++ .. my suggestion just set aside some amount of money for retirement and the rest use to punt in futures would be a better bet .. LOL

Waiting for value to regain its value i thnk they lack the time horizon already. LAte.