Hi Faith, sorry for the delay in my response regarding your questions.
Below is a quick answer to your questions.
1. How do i value a company?
Answer: i normally use the price earning ratio (p/e ratio) for valuation. However p/e ratio can be tricky because p/e ratio reflects pass performances. More important is whether the company can maintain or improve on its profit. To get to this, i read the company's annual report, the mgt commentary n other relevant write outs (if Any) n draw a conclusion. I also take note of the nature of the profits, whether its a one-off type or normal operating profits. If it is normal operating profits then its ok.
Pls note that different sectors command different p/e. For example healthcare sector is able to command a higher p/e often above 20X and more as it is deemed to be a growth sector. Banking n property also have different modes of valuation.
The median p/e in the Singapore market is around 16.1 X. As a norm i will invest in companies w a p/e of less than 10 X and are showing growth in top n bottom line.
2. Regarding Chasen n JEP Holding.
Chasen.
Sold most of my Chasen shares when it hit 11.0 cts. as i deem it to be fairly valued with a p/e of more than 10X. But have bought back quite substantially when the shares backed down to 6 plus cts. The reason for the buy back is that the share is now quite 'cheap' n has p/e of less than 5 X. I also noted that the last quarter results were exceptionally good n if could be sustained, the company will be producing another set of excellent result for current year. The management is also quite positive about the company going forward.
Note: my original entry point for Chasen was 3.3 cts.
JEP Holding.
Entered JEP Holding on turnaround expectation. It was clear that JEP Holding could turnaround given the various initiatives that the company had taken the pass few years. True enough it did turnaround though the profit was not much to shout about. I entered at near bottom price. With the Singapore Aerospace Show n the expansion in production area plus adoption of Smart Factory concept I expected the company to show much improvements. However the latest results did not show up to be what i expected and the p/e was around 100X I decided to sell off my shares at around 7 cts per share.
I did not expect JEP Holding shares to hit 7 cts. My original target was around 4 cts but thanks to UMS coming in as a controlling shareholder, the share price shot up beyond my imagination.
In conclusion, JEP Holding was a "gift from God", a blessing and not bcoz of stock pick skill.
3. Risk management
As a norm i do not have a cut loss policy as the shares i pick are after careful considerations. I look at a number of factors ... the p/e ratio, debt against borrowing, historical high n low, nta, dividend, top line n bottom line, management comments etc etc. Most of the shares i picked have low p/e and improving top n bottom line and are trading at near historical low or exceptionally low p/e with the exception of turnaround companies. If the story line stay positive n share price drop, i am more likely to take up a bigger position by averaging down. However if my assessment is wrong n the story line turn negative i will just sell off my position n take a loss. Meaning i take loss only in situation where my analysis is wrong n the story line turn negative.
Hope above answer some of your questions.
Note - I am mostly in under valued stocks or turn around companies
Last edit: 6 years 4 months ago by josephyeo. Reason: wordings
Chasen's result should be out around mid August.
Its likely to be another set of good results, quarter to quarter.
Currently company is capitalised at S$26.2 million w a S$5.5 million profit
in last financial year. This work out to a p/e of 4.7X. With improving profit
the p/e will be lower. On a p/e of 8Xm the share should be around 12.0 cts.
The balance sheet looks ok to me and the nta is 18.3 cts. With all sectors
showing improvements, it is likely that the company will do well this year.
Thank you for the detailed reply with the supporting examples. It has been helpful.
I remember reading in one of your old posts that you take a long term view in your investments and tend to invest in a company for at least 3 to 5 years. If I understand what you shared earlier correctly, does it mean you only hold long term for company that shows constant improving top and bottom line and preferably with its PE staying reasonably low or close to fair value of 16? Once these conditions are breached and the PE runs up too high too fast, you will sell the holding? Does that also mean then that you don't really look at the business the company is in? Are there any sectors you will avoid investing in?
Thanks again for taking the time to share your knowledge.
