Wednesday, March 4, 2015

How I research on companies

My post is inspired by B. Realised instead of rambling over there I think I do a more detailed post here.

I will not go into the number parts, which I think B already did a wonderful job, and I shall not parroted it.

1) Now, it's good to know the numbers of competitors too. But how do we know the competitors. There are 2 sources: 1) prospectus and 2) analyst reports.

The problem with prospectus is if company is listed for donkey years, things might have changed, but they provide information on customers and suppliers too. 

Most analyst reports compare competitors, some good ones give customers' info, the really quality ones give cost analysis, supplier info. Yet to see such a report that has all three. 

When you compare metrics like margins, roe, PE etc, it is Important to ask why there is a difference. Here u need to read qualitatively their review of the business in both AR and QR. Some differences are justified. For example, LEE metals is becoming less and less of a steel stockist and more and more of a manufacturer. It's more accurate comparison will be BRC asia. Also ST AEROSPACE And SIA ENGINEERING are not good comparison. Although they have overlapping MRO segment; they have different other differeny segment too, for example ST Has AMM segment and its overseas markets are different from SIA ENGINNERING. 

2) Read the footnotes of AR, maybe not every single one, but those info on interešt cost, maturity and segmented results together with SSH AND DIRECTORS' remuneration are important. I need to compare it over time.

3) Read the last 5 years announcement. Pay attention to their Coporate actions. Fund raising, their acquisition, their disposal, their expansion plans. On hindsight, check if management has the foresight to navigate the industry. When you cannot make sense of their Coporate actions, do visit valuebuddies forum, most probably It is discussed there. After reading, you can then make up your mind better.

4) Next, read the most recent quarters carefully and scrutinized their upcoming plans and events unfolding. For example, I genuinely think Parkson retail Asia is getting really attractive, until I read about them closing the outlet at Hanoi. I am happy that they closed the outlet as it has been a letdown for too long. Also, in the prospectus they assume 1year of operating loss for newly opened stores before sales get ramped up. Hanoi struggle has been highlighted for more than1 year, so it also provide some certainty how long they are willing to bite the bullet. Until I google Their hanoi outlet and shocked to see the manner the "eviction" is carried out and after researching  on the NLA of that store and the potential compensation in terms of rent they have to pay and it's very clear the  amount they set aside is grossly not enough. That is how I hold back from any potential purchase. I email IR and the reply did not satisfied. Do question IR and email them to get info, but it might not be always forthcoming.

4) Read industry news. I have recommended sites for some industry news under the recommended reads tag.  It is better to understand whether the industry is cyclical or not, and if it is, where is The cycle you are at. We are definitely not at peak of shipbuilding cycle, in fact,we might be nearer to bottom as many shipbuilders have collaspe and consolidation has taken place in China in terms of the white list of ship builders. How about O and G? Definitely not near the bottom because simply, have u read of any smaller players going bust so that demand and supply can rebalance? Removing of Rigs does not count. steel industry might be further away from peak than o and g is from peak. But that does not tell us if a company is a good buy. YZJ good time to buy is before the white list. Again no one can timed the market but it is good to have a feel of the industry cycles.

In conclusion, there is plenty of qualative research you can do in conjunction with the number crunching. 

For example, if DCF, if we assume 3% growth, how do we know if we are conservative or liberal if we do not do qualative analysis. How do you know the discount rate is enough??

7 comments:

  1. Hi SI

    Thanks for sharing.

    One thing I found interesting recently is the shareholdings. Like you said its going to be tough predicting what the major shareholders are going to do next will have a big impact on the share price. It can be a catalyst or damper in return.

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    Replies
    1. Hi B, we cannot predict indeed if someone will buy or sell. Most prob if we think something is undervalued, and director buy, it support our thesis, and we feel better at ease.

      The reverse of "chow kuan"
      Like Andy of UMS. Is a very sianz annual event

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  2. Hi SI,

    Sometimes, share investing or product specific forums can be useful to get a gauge of how market feels about the company, I also read technical or industry blogs that touches on those companies and lastly may speak to some people within the industry to get a better feel of the key promoters and other industry insights

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    Replies
    1. Hi Joyce,

      where do get those industrial blogs or industry specific forum? Google around? You have any specific to recommend

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    2. Sorry I don't save the links. Now I can't use company resources anymore so Google has become my best friend :)

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  3. Hi, Joyce,

    No problem at all. Take care ... Google is very friendly to all.

    ReplyDelete
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