Mr. Ooi Kok Hwa

13 September 2014, Golden Screen Cinema, One Utama

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The Speaker

Mr. Ooi Kok Hwa is currently the Managing

Partner of MRR Consulting, dealing mainly with

Business Appraisal, Investment and Financial

Training. He is a CFA charter holder and also a

licensed Investment Advisor by Securities

Commission of Malaysia. He is specialized in

offering business valuation for private limited

companies.

Value vs Growth Investing

Market Oriented vs Small Cap Investing

Fundamental Analysis

4

Agenda - Stock-Picking Strategies

Value vs Growth Investing

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is concerned with the current price and the price component of the ratio.

cares much less about the future earnings growth of the company.

Look at low PER. Reason:

perhaps due to an overly pessimistic assessment of the companys future; and

The PER will revert to normal or market levels when others realize that prospects are not as

bad as thought.

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Value Investing

Look at lower price-to-book and low price-to-sales ratios

Rely on movement in price, rather than earnings, to be the reward.

Anticipates PER will rise with no increase in earnings

Risk:

The stocks cheapness is misread

The markets concerns about the company are indeed correct

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Value Investing

Value 3 Substyles

3 YIELD

2 CONTRARIAN

1 LOW PER

Low prices relative to current, normalized or discounted

future earnings

Focus: defensive, cyclical or out-of-favor industries

1 LOW PER

Low valuations relative to their tangible book value

Depressed cyclicals or firms with no current earnings or

dividend yield

Hope that a cyclical rebound or companys earnings turnaround will result in

substantial price appreciation

Quality of companies is usually below average because

earnings are depressed and

financial leverage is relative

high

2 CONTRARIAN

The most conservative value managers

Focus: companies with above-average yields that

are able to maintain or

increase their dividend

payments

3 YIELD

is concerned with the earnings component of the ratio.

Anticipate higher companys future growth rate will contribute to higher earnings higher stock price

(assuming the PER remains constant)

Attempt to identify companies with above-average growth prospects

Focus: growth not reflected in the current price, regardless of the current PER

Growth Investing

Focus:

higher-quality companies, an emphasis on

consumer, service, health care and technology

stocks; lighter weightings in deep cyclicals and

defensive stocks

The key risks:-

the future growth does not occur as expected

the PE multiple declines for some unanticipated reason.

Growth Investing

Biosensors Intl Group

(US'mil) 2007 2008 2009 2010 1H11

Sales 34.35 44.32 118.96 116.18 156.59

PBT -35.05 -27.96 8.86 33.68 49.10

ROE

(%) -52.41 -32.03 -1.08 22.16 11.43

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Growth

Consistent growth

Emphasize high-quality, consistently growing

companies

Business have very predictable earnings and

extensive records of superior

profitability, valuation multiples

are frequently well above the

market

Choose consumer-oriented industries and underweight

cyclicals

Earnings momentum

Prefer companies with more volatile, above-average growth

Purchase companies in anticipation of earnings

acceleration

Choose companies in any economic sector as long as the

equities offer the best potential

earnings growth

Value investor is the earlier buyer of a stock

This may or may not be accompanied by earnings increases

As the price increases, the value investor becomes uncomfortable with and sells. Now the growth

investor has noticed the improving fundamentals of

the company.

The growth investor will purchase the same stock the value investor viewed too

expensive

Price and Earnings Pattern:

Value vs Growth

Below shows the different buying and selling

signals for value and growth investing

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Table 1 provides the key differences between

value and growth investing

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Table 1

The historical earning per share (EPS) of

Company A and Company B

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EPS Average

Price

PER EPS Average

Price

PER

(Sen) (RM) (Sen) (RM)

2001 9.9 1.49 15.0 26.2 3.67 14.0

2002 13.6 2.18 16.0 24.6 3.44 14.0

2003 15.2 2.58 17.0 15.3 2.20 14.4

2004 18.2 3.09 17.0 -3.5 1.00 NM

2005 20.2 3.64 18.0 12.5 1.88 15.0

Past 5-year

average 15.0 15.0

Company A Company B

Market Oriented

vs. Small Cap Investing

Market-Oriented

Do not have a strong or persistent preference for the

types of stocks emphasized in

either value or growth

portfolios

Portfolio characteristics are closer to market averages

over a business cycle

Market-Oriented

4 substyles:-

Value bias or Growth bias

Have portfolios with a tilt toward either value or

growth

But not sufficiently distinct to put them in either the

value or growth styles

Market-Oriented

4 substyles (cont):-

Market-normal

Construct portfolios with growth and valuation characteristics that are similar to the broad market

over time

Make bets in growth or value stocks but no continued preference toward either

Growth at a price

Seek companies with above-average growth prospects selling at moderate valuation multiples

Do not offer wide diversification in portfolio structure

Small-Capitalization

Focus on small companies which are less followed by

institutional investors

Characteristics of the portfolio:

Below market dividend yields

Above-market betas

High residual risk relative to broad market indexes

Thin following by analysts

3 Subtypes within Small-Cap

3 MARKET-ORIENTED

2 GROWTH

1 VALUE

Seek under researched small

companies that sell at low

valuations relative to assets,

earnings or revenues

Focus on less seasoned companies

with above-average growth

prospects

Focus on small companies that over

time, exhibit growth and value

characteristics similar to the broad

small-cap marketplace

Stock-Picking Strategies -

Fundamental Analysis

8 Key Criterias

1. Price Earnings Ratio (PER)

2. Dividend Yield (DY)

3. Price to Book Value

4. Growth in EPS

5. Past 5-Year Price Range

6. Past 12-Month Price Range

7. Debt to Equity Ratio

8. Net Cash Per Share

3 Main Yardsticks

Potential Growth in Price

Health of the Company

Economic Analysis Industry Analysis Stock Analysis

focus on individual stock regardless of market

outlook

Valuation Process

The top-down, three-

step approach

The Bottom-up, stock

valuation, stock

picking approach

2 General Approaches

Fundamental Principles

Buy undervalued stocks

look for quality in earnings Good management Good profit margin

(use EBITDA margin)

look for growth and stability

Focus on: Stability and Growth rate

Growth in

sales

earnings

Attention on EPS growth

Look for stability and growth rate

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Price Earnings Ratio (PER)

PPB Group

Normalised PER = (16.8+22)/2 = 19.4 Intrinsic Value = 19.4 x 85/100 = 16.5 = 19.4 x 90/100 = 17.5

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Dividend Yield (DY)

Price-to-Book Value

1) Net Tangible Assets (NTA) per share

NTA per share =

2) Price to Book Value

= Price / NTA per share

Selection:

a. reflect owner's cost

- No owner will sell to you at below NTA per share except

for certain reasons that you may not aware

Number of ordinary shares

Net Tangible Assets

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Liquid asset/share

Liquid asset = cash, bank balances and deposits

Liquid asset/share implies how much cash or cash equivalent the company has based on per share basis

Selection: higher number implies the company is cash rich and has the ability to pay dividend

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Debt/Equity (D/E) Ratio

D/E measures the ratio between the amount of

interest bearing debt a

company has and the

amount of shareholders equity

Selection criteria: D/E

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