As the author I expect readers to comment and query sensibly. Here are my answers to the query submitted on my previous article about Jaya Tiasa:
The test of the pudding is in the eating. As you know the market index has been dropping and since I recommend you to buy JT has the price dropped and have you lost money?
What will happen to all your other shares in your portfolio if the market continues to drop for another few months?
1. If JT is so good why should Koon tells everybody to buy? Is he sincere?
Most of my wealth is from the stock market and I am giving away almost all my money to charity. When you click open the Malaysia Finance blogspot site or Lim Kit Siang blog, you will see my advertisement ‘Koon Yew Yin Scholarship’ offer. I must thank Dali and Kit Siang for putting up the advertisement free of charge. Up to date I have helped about 150 poor students to complete their degree courses. You may like to know my philosophy in doing charity.
The amount I acquired is not important. The amount I give away that matters.
The knowledge I have acquired is not important. The knowledge I share with you that matters.
I am very good in making money from the market and I want to share my knowledge. I am sincere and whether you buy or not will not benefit me but I would feel happy to see my recommendation come true and you have made more money. It is another form of charity I do.
2. Why should you buy JT when the profit for the last few years is so poor?
Most professional fund managers and punters consider current EPS & P/E ratio are the most important. That is why they all do not want to buy JT. As a result the share price has been depressed around Rm 2.00 for almost a year. Since it is on cheap sale, why don’t you buy?
Fund managers and people who buy shares just basing P/E ratio must examine their performance record. Can you beat the market index? Can you double your money in 2 or 3 years? Statistics show that more than 80 % of fund managers and most investors cannot beat the index.
3. Avoid JT because it has too much borrowings:
The total borrowing is very small compare with their assets. JT is the largest producer of plywood and sawn timber. They have used the money from the wood business to plant 62,000 ha planted of oil palms. They have also planted tens of thousand hectares out of 235,000 ha of forest with fast-growing tree species such as Eucalyptus and Kelampayan and they are continuously planting. It takes 12-15 years for the trees to mature before they can use them for their plywood manufacture. All the cost of planting is from their timber business and they are saving the profit for the shareholders. It is like buying raw material in advance for their plywood manufacture. That is why JT is not showing much profit.
Do you know how to value this large tract of land which is about twice the area of Singapore?
To borrow money to do business or buy shares is a smart way to make more money. As long as you are confident to make more than the interest rate, you should borrow.
How to become a super investor?
The best way to show you how to improve your method is by explaining why I believe I can double my money in 2-3 years buying Jaya Tiasa.
Sustainable Profit Growth Prospect Is Most Important Criterion
It is easy to master all the basic fundamental principles in stock selection. Most fund managers and investors consider the current EPS is the most important, but I disagree. They believe the current earning will support the share price. What happens when the shares they bought show a reduced EPS in the next quarter? The share price drops and they would lose money.
The most important criterion, in my opinion is ‘good profit growth prospect’. I will not buy a stock which does not have this quality. In other words – buy on solid evidence of good profit growth and not on the basis of speculation or hot tips!
I will never buy any stock however cheap it is in term of P/E ratio if I am not sure of its sustainable profit growth in the next few years.
You must remember that when the current earning is good, everyone can see it and you cannot buy it at a bargain price. Jaya Tiasa has very poor current earning and most people cannot wait or foresee its fantastic profit growth prospect. That is why the share price has been depressed in the last couple of years and you can buy it at basement sale price. You may have to wait a little longer before more investors see the real growth potential of JT.
To illustrate this important point of long term profit growth prospective, I have extracted the following figures from its annual reports.
Being a leader of the timber and plywood industry, it has not been showing much profit because they have used the cash from the timber business to plant oil palms. It started planting oil palms in 2002 aggressively and the following tables show the planted area and it’s FFB production.
The total planted area and the FFB production have been increasing rapidly since 2005. The palms are physically growing and producing more and more fruits every year. I can foresee that JT will have sustainable growth in the next 10 years. I was told that when the palms start to bear fruits, they cannot capitalize the expenditure. That is why the profit is so poor because most of the palms are young. Look at the palm age profile and FFB production charts below.
When the palm is 4 years old, it produces 7.7 ton per ha per year. When it is 10 years old it produces 27.7 ton which means that the palm increases production about 3.6 times in 6 years and the additional production cost is only for plucking the additional fruits.
Considering that the company continues to plant more palms every, it is safe to assumed that the FFB production can increase at least 3 times in 6 years. Even if CPO price remains unchanged, its profit from its plantation alone should increase 3 times in 6 years.
You must bear in mind that they have cut down the trees and sold the timber products and use the proceeds to plant oil palms aggressively which are continuously growing and appreciating in value.
The jungle land has turned into oil palm plantation which also must be appreciating in value over the years.
I understand that according to accounting rules the assets cannot be revalued simply to improve its book NTA value. If you buy JT now, you are really buying the most undervalued stock I know.
The devaluation of Ringgit: Recently our Ringgit has been devalued about 8% in comparison with US$. I can foresee that JT will make an additional profit for doing nothing extra because almost all their palm oil, plywood and sawn timber are sold in US$.
Spin off Timber and Plywood business: In the coming AGM, I will propose that the company spin off their timber and plywood business to benefit the shareholders.
Finally I am obliged to tell you that my family members and I have been buying most of shares transacted in the last 6 months and we have accumulated more than 35 million shares. I have never been surer to make money before in my life than now in buying Jaya Tiasa.
Please google my name if you want to know more about me.
by Koon Yew Yin