SMU E.y.E - FA   

Welcome to SMU E.y.E Fundamental Analysis !

joeyhops,

Thanks for sharing your opinion.

At the moment, opinions are just that (opinions).....there is no right or wrong........a diversity of opinion is always welcome and useful food for thought.

Only time will decide the outcome.

cheers!!! : )    : )

 

Hi Shyplayer,

Thanks for posting the question, it has definitely got me thinkin, for an investment holding company, how do u assess its compentency and its competitive moat ?  I  tend to have difficulty  thinking of a competitive moat for such companies which dont' produce goods or services. Also, for the increase in CH Offshore, i guess the potential is fully realised thanks to blasting oil prices now. But if the other competitors are doing well too, then the real value will lie in the industry, not so much of the company...

 Just my own idea, do feel free to correct me if i'm wrong... =)


Cheers.

 Joeyhops



 

 

Hi BusinessLike,

Thanks for your response.

Perhaps I can share with you where I am coming from. As an FA practioner, I try to look for undervalued stocks with good business models and sound management.

Taking Chuan Hup (CH), it owns (direct and deemed) 32.11% of CH Offshore.

As of 30 Jun07,

NAV of CH is US cents 32.84 => SG cts 49.9 (using 1.52 xc rate)

NAV of CHO is US ct 17.11 => SG cts 26.0

Without going into the detials of the calculations,

the value of CH stake in CHO based on CHO NAV is S$58.87mil

vs

CHO market value today of SG 82cts is S$ 185.65 mil

The difference in thase two values is S$126.78mil which works out to be about 11.6cts per CH share.

Today, CH is trading at 35.5 cts. which is undervalued to its NAV of 49.9 cts. If we add this 'market value' of its stake in CHO, CH's value should be at 61.5 cts.

CH management has declared that all their assets are 'available for sale'....which means, when they find a buyer, we should see the unlocking  of the value of CH.  

 

Hi shplayer, it's my pleasure and it is good to see you on the forums.

I think it is hard for me to comment on a better way for I hardly calculate or use NAV. I just use the balance sheet number actually if I really have to. You must ask if the effort to value Co. B and then revaluing it on A's Balance sheet commensurates with the payoff. Will it really make a material difference?

 I am so sorry I cannot answer your qn better. Regards

 

 

BusinessLike,

Thanks.

For scenerio B....20-50% - it will be difficult for retail investors to ascertain the value of Co.B in Co. A's NAV. So, will it be correct to say that, in lieu of a better estimate, using the proportionate NAV of Co. B will be the a 'simplistic but workable' solution? OR, appreciate your suggestion of a better way.

In particular, I am referring to companies such as Chuan Hup----CHO/PCI.

Thanks

 

Listed Co. A holds shares in listed Co. B.

When Co.A calculates its NAV, is its holdings of Co. B based on the market value OR on the NAV of Co. B

 If you are going to use pure accounting numbers, without trying to do your own adjustments to the accounting numbers to calculate Co.A's NAV, then it really depends on how much of Co.B stock Co.A holds.

 If Co.A holds 0-20% of the B's stock, it will be adjusted to market value on the balance sheet date, with unrealized gains or lost going through the income statement or through retained earnings depending on classification of the type of investment: short term trading or long term holding.

If Co.A holds 20-50% of B's stock, it will be recorded on the Balance Sheet at Cost + Share of profits - Dividend paid. Definitely not market value. I don't think NAV is accurate either.

 If Co.A holds >50% of B's stock, it will be totally consolidated as they will essentially be treated as one whole economic entity. i.e. Co.A's NAV would already contain all of Co.B's assets and liabilities, including an account for goodwill and minority interests.

 I know it is a lot of accounting but it is the crux of your question I think. Hope this helps.

 

Regards



 

 

Itvalue,

Scenerio:

Listed Co. A holds shares in listed Co. B.

When Co.A calculates its NAV, is its holdings of Co. B based on the market value OR on the NAV of Co. B.

Thanks

 

 

jkbk007, according to FRS, it is not compulsory. The repayment of loan is a balance sheet item, not income statement, thus only the interest payment will affect the Income Sheet.

hi fancymask, when we say fundamentally sound, i believe that it's both the company that is chosen to be a sound business, in addition, the investor him/herself invests based on a sound framework. Perhaps it could mean not mixing up speculative activity with investing activity.

To answer ur qn, our research directors have came up with a preliminary guide bk to assist new members to start investing in a rational and businesslike manner. It will be covered over the next term

 

How are you doing it? You plan to cover stock by stock or shortlist those companies that meet your fundamentally sound criterias?

 

Thanks Itvalue, Is it compulsory for companies to perform annual valuation? In the case of debt repayment, will it be reflected in the income statement and hence affects the company net profit?

Taking the example quoted, says Company A is required to repay the loan in 4 years, i.e. $250K. How will this in reflected in the income statement?

 

Buildings (Non-current asset) will be recorded at cost of  $1mil, and debt will increase also by $1 mil.

The next financial year, if a valuation of the building is done and appraised at $1.5 mil, the $0.5 mil will be taken as a gain of the asset value, brought through the income statement.

A (not so current) example could be UIC's huge income gain last year largely due to the revaluation of it's Marina Square property.

 

 

If I recall correctly from my financial accounting. The building has to be reflected as a fixed asset of $1 000 000. As for the debt, its reflected as 1 000 000 on the balance sheet as long term debt. Value of fixed assets are recorded at purchase price.

 

If company A purchase a property at a discount of say $1 million and the property has a market value of $1.5 million. The purchase is made with a 100% loan from a bank.

How would this be reflected in the financial report?

 

Hello Everyone!

As part of SMU E.y.E, the very core belief of  the  Fundamental Analysis Research Team is that investing is best done in a business-like-manner. Some of our goals are as follows:

• To learn safe and structurally sound methods so as to make a decent return over inflation
• To understand and appreciate contrarian concepts which don't change with time
• To apply these concepts in the most relevant manner as student investors
• To pass these concepts on to other people

We believe that everyone should get a chance to pick up the idea of investing, which is why, like Warren Buffet, we prefer to discuss things in layman terms as oppose to speaking in complex financial jargon.


On a practical note however, we might bring in some accounting terms and principles where newbies (students or public members ) might need to do a little reading up. But the newbies need not worry, like the ole saying goes, " Ask and you shall receive", if you don't understand anything, regardless of how minute it might seem, please ASK! =)


 Cheers,

 Joeyhops