Saturday, July 31, 2010

The Worst Customer

I am perhaps one of the most unwanted customer by brokerage firms. I can remember a kind of my broker drove down through the lunch hour jam and skipped lunch just to open a new account for me. And my yearly transaction was like 2. Yes, 2!. Okay it is not because I don’t like the service (in fact she assisted me pretty well on some difficulty I faced when I first use the service plus I even get stock advise), but that’s the only two investment idea I had. Paisei ha…but that is the way it is. If I can’t find a good investment, I wouldn’t touch it and it is not easy to get one.

Well I'm not an active trader, I always have this practice to not having too many trades as much as possible. Well it may not seem costly as online brokerage rate is roughly from 0.21% to 0.7% that if the total your transaction fee exceeds minimum of RM8 or RM12. That is more than 0.21% or 0.7% in terms on percentage if you trade under minimum transaction fees which is why I always advise people to at least trade at RM3000 or the amount that place yourself into the online brokerage rate.

Online trading has made trading pretty easy and convenient - a few clicks you buy and a few clicks you sell. Just like what Li Lu's have said, the market isn't design for value investors, that online trading tool isn't design for people like me either. Anyway I like to use it for convenience. Buffett had once mentioned about the amount of wealth shareholders had lost to brokers or investment bankers just for participation in active trading. I think he has very good reason for that.

I have work out few tables that shows the amount one would have paid for active trading - which I call profits leak. However, this is only a rough guide so I have made an assumption in these tables:
  • Every sale is made on a same price that one buys. e.g: Buy RM1 sell at RM1. Do note if one able to sell it at a higher price which in terms making profits, the profits leak would be higher and of course vice versa.

If you make 12 trades per year or monthly, this is how your profits leak might look like


If you make 24 trades per year or once a fortnight, this is how your profits leak might look like


If you make 52 trades per year or weekly, this is how your profits leak might look like


If you make 365 trades per year or daily, this is how your profits leak might look like


What do all these means? Lets just say you have RM10K as initial capital to invest for this year and you are those who actively involves in trading every week, you are expecting yourself to make at least 11% gain per year from initial capital just to break even (assuming brokerage rate of 0.21%). And if you do it every day, it'll at least 76% annual gain!. One has to be helluva investor to achieve that kind of rate. 

Or I can say, you have RM10K to trade and your total wealth growths to RM17665 (excluding brokerage fees) after a year, you actually make NO gain at all.


Now I can see Mr.Buffett's concern. 

Thursday, July 29, 2010

First Look: XingQuan International Sports Holdings Limited

Puuh...that's a long name. This is my first ever look at the China's related company listed here which have never caught my interest before. One just have to be skeptical to them for few very good reasons:

  1. They are either IPOs or just listed for a year or so. Chances are they might cook the their earnings
  2. Why of all places they pick Malaysia when listings Hong Kong or Singapore generally tend to get better valuation (higher PE)
  3. Chinese companies are known for fraudulent accounting


And I have no answer to any of this question. So it is Unrated. But it is hard to ignore the cheap valuation they are getting: XingQuan (PE 4.62) and Multi Sports (PE 1.92) as the time of writing. XiDeLang is just listed, so I don't have much interest on this one. Sinotop is what we called back door listing, so I'm even more skeptical on them. Multi Sports is pretty much covered ahYap's Blog, so I'll turn my attention to XingQuan who looks to me have a little more history.

If you read The Edge cover story a year back (You can still find it on Google), this business started with initial capital RM255 producing 20 pairs of shoes in the early days.  Then blah blah blah..it has grown to what it is today, listed in KLSE and pretty sizable for Malaysian market as well. XingQuan's factory is located in the province of JinJiang who according to Mr Wu Qing Quan a "City of Shoes" in China which is also known for its sweatshop factory condition. Then the listing story goes blah blah blah...but one thing to take notice though "SC and Bursa have offered some incentives to Xingquan to expedite its listing here" ....."They (SC) had also undertaken to approve our IPO within one month". Okay listing incentives is normal for foreign firms to list here but I'm not quite sure about the one month approval. Sound like confirm approve to me.

Products
They make shoe soles, outdoor/indoor sports and leisure shoes as well as apparels. They started as OEM manufacturer and within 5 years they begins manufacturing for FILA, Spalding and Prince before establishing their very own brand Addnice. Did I say about brand name that doesn't work. Imagine, "Check out my new Nike shoes" or "my new Adidas", my new Addnice? Erm...Adidas + Nike = Addnice? Anyway, most their products are currently marketed in China. I never been to China to check out one of this AddNike, but I presume quality wise they are up to standard considering they're making shoe soles to the likes of FILA, Spalding and Prince. 



Fundamentals
Let's compare XingQuan's fundamental versus their almost direct competitors Multi Sports and against the likes of Nike, Adidas and Li Ning. A look at the sales and earnings growth the Chinese companies do look to live up to their "explosive" reputation. All three of them manage not just double digits growth over the last 4 years but are above 30% while Nike only manages a single digit growth despite its exposure to China's market and Adidas....dismal.



Brand name does seem to play a part on the gross profit margin where all three well-known brands manage higher margin as compare to those two. However when it comes to net profit margin, the little XingQuan and Multi Sports go back to the top by having more than 20% margin over the years. I would guess the "Big Three" despite having a better brand, they are using a lots of money to promote their brand (except for Adidas which seems to have management problem). Another reason why XingQuan has a stronger net operating income ratio is because it has better cost management through its integrated model where 




On the balance sheet, Nike prove to be stronger and more prudent over the years where it gets more than 1 on the super stress test (Current Asset - Inventories - Receivables: Current Liabilities). However, product based companies like these have wider diversification so it is unlikely they'll have too much trouble collecting most of their receivables. In this case, XingQuan has an >1 ratio an even in the Super Stress it is close to 1 in FY2009. So liquidity wise they look okay to me.   



I would have thought all these half sport half fashion company could struggle to turn their inventories into sales especially the lesser brand ones. But I am proven wrong. They turn out better than expected. Both XingQuan inventories turnover take roughly a month and Multi Sport could do it in less than a month where as the Big Three take roughly a month or two. I am guessing their OEM business makes them able to manage their inventories better and whatever they produced would go straight to their customer. That's the reason why we could see Multi Sport takes shorter time than XingQuan because the latter have the brand and products of their own while the Big Three who fully owns their product takes even longer. 

On receivables turnover, if we were to take these 5 as industry standard, XingQuan does look slower than industry average and high on receivables. It is not particularly worrying but it does raise a little bit of concern. They are few reasons that might have contribute to XingQuan quick inventory turnover 1) bi-annual sales 2) they don't operate any retail store. I'm not sure how they are able to do by annual sales without operating a store but what I know is, if they don't do retailing, they don't have the problem of inventories pile up. They just past it to the retailers. 



So all in all, financial wise, Xing Quan is okay. From its gross profit ratio, its management has prove pretty resilience considering they have not just maintain the profit ratio but increase it as well in FY08 when raw material prices hit historical high that time (XingQuan FY ends in June). But all these figures are pre-listing figures except for FY09. Are these a fraud? I'm afraid I can't answer that..




Fraud aside, there is one thing I like about this kind of apparels businesses is that they are able to increase the price without people noticing it. XingQuan annual report tells you why – by introducing new models or range. It is still limited however by the strength of its own and other brand. Targeting only the middle class would not be feasible in the long run, so to break free from this, it has to make its brand to be at least among the Big Boys and there couldn’t be any better opportunity than now. Adinice is not as big as Li Ning yet, but it could leverage on current economic boom in China. Assuming their chairman statement is correct “this segment of middle class is expected to increase to 700 million by 2020”, it’ll not provide both long term and short term growth potential to the industry but also buy time for XingQuan to build a bigger brand name maybe.

So far on its report, it looks to have progress well capturing the middle class market and seems getting more appealing. I've never been to China to check this brand out. So....I'm not sure. 

Their OEM business - not so good. Why? Competition and low barrier of entry. From Multi Sports IPO prospectus, there is an estimated 3000 shoes manufacturer in Jin Jiang. THAT IS 3000! If 10% of them are making shoe soles, that'll be 300. I guess the reason they've not cannibalized each other is because of the current China's market demand. You can see from many reports. It's massive. So it is just a matter of time before that eventually happen. So it'll be interesting to see how XingQuan stands out. 

XingQuan is also tapping into outdoor sports segment competing against the likes of Timberland and Columbia. Perhaps I should do the comparison against them one day. This is a less crowded market but I'm not sure about the size. Despite having the ability to increase the price invincibly, apparels business also has its own problem - fashion and trend. They have to increasingly monitor the current as well as upcoming industrial trend. A miss gives a season of bad sales or worst brand damaging. One thing good however, the market they are targeting is not as headache as the women fashion one. 

The current shoe soles production is already fully utilized at 100%. Although shoe production is not fully utilized, it is limited by by its fully utilized shoe soles factory. So any future sales growth will have to wait for the new factories to operate which is expected to complete by 2011. However, they could still use the existing shoe soles if they ever store any in the inventory. 

All in all, XingQuan has a lot of growth potential not only on the short term but also the longer term. Will I buy into the business now? No - for now. There are still more to look at especially most figures are pre-listing figures. Nevertheless, this company is worth a closer look. I think I'll wait for it to operate for at least couple of years or so before placing it into The List. 

This comment is based on my personal thoughts, opinions and my risk tolerance. It should not be considered as an investment advise. Please consult your financial advisor or do some research of your own before making any decision. You might have your own thoughts. I would love to here from you. You can always place your comments here and or email me privately at luzeeker@gmail.com


Monday, July 26, 2010

Bali (Unedited) - Day 3, Day 4, 1/2 Day 5

Day 3
We purposely wake up earlier today to enjoy the morning scenery of paddy field. Well, the main reason I book this room. I have the better view of the Balinese design of this room and the owner does seem to put the effort to keep it as Balinese as possible while trying to blend in electrical electrical appliances (I have trouble finding the air cond at first). We order our breakfast to our room's balcony, eating while watching farmers and 'bebek' working their farm - just to be spoiled by some dudes blasting what I guess "Indonesian Idols" so loud.






We went to get some souvenir at the Ubud market. You gotta love the price war here. Things are really cheap there IF you know how to bargain. Bargaining using my mouth isn't my best attribute but I can say my bargaining skill have improve a lot after the visit. Anyway, it is really essential if you were to avoid getting ripped off and their appetite aren't small neither. There is a guy who tried to sell me some carvings for RP600,000 initially before I eventually bought them for RP30,000. That's 20X! So be warned :). Anyway, I stop by the entrance of someone else's house to take the picture of this magnificent carving. This must be "somebody".





We stop by at 2 silver craft shops and a Batik shop to shop for more souvenirs. If you shop at UC Silver, you'll get a short silverware factory tour before moving on to the shop. However, we didn't buy any silverware - guess they are a little too expensive i suppose. Nevertheless, we are amazed with the fine details of craftsmanship touches. However at the Batik shop, I get a hand drawn T-shirt. I pick the picture of Barong and she drew it the on the spot for me. Drawing is free but I gave her some tips. 





After having a series of unsatisfying buffet lunch, we asked Pak Karya to take us for some local food and he took us to a Warung with a cute name, Warung Manalagi. He recommended Soto Kambing (Mutton Soup) and Sate Kambing (Mutton Satay)...and....it was EXCELLENT!. The soup is excellent and the mutton is so tender. This is the best meal I had by far in Bali. According to Pak Karya, the mutton served in most warungs are fresh. Live goats are slaughtered every morning and distributed among the warungs. I was so satisfied with the meal that I treated Pak Karya this lunch. He was really a nice guy anyway.




We miss the sunset at Tanah Lot, but we did not miss the one at Uluwatu. It would have been a pretty romantic spot if not because of those monkeys. Pak Karya was kind enough to accompany us to the temple and shield us from the monkeys as well.





Almost every one who visits Bali goes to Jimbaran Beach for dinner. Well, I don't think it is a dinner meant for a couple as you can't really order the premium seafood else it'll be too much, too expensive that you can't finish them. So we order the couple set and yeah...this was the most expensive meal we had. 



Day 4
Today is a free and easy day so no driver service, we then took a taxi to Kuta. I'm not sure is it because my Crocs sandals but I don't feel tired walking in those pairs. Not that I like shopping but it works. We shopped at Matahari in the morning and walk to Discover Mall later that evening. There are many D&G shops as we walked along and the big "Jeans for RP100000" pulled me into one of those. D&G for RP100,000? Nah. I was right indeed. They were fake. How did I know? I saw two Versace and Armani Exchange jeans with the exactly same design selling at the exact same price. Confirmed fake. 

We get to watch sunset again at the beach next to Discovery Mall. This time without the monkeys. It was.....





Day 5
Our flight back to KL is at 6.00am. All I have to say is...THANK YOU AirAsia for having the 6.00am flight...and Thank You for placing me at the right side of the plane although you don't intend to.....for this WONDERFUL sight....


Travel Itenary:
Day 0 - arrive Bali airport then transfer to the Tune Hotel Kuta.

 Day 1 - Depart from Hotel, we visit Barong dance, arts villages then kintamani, from here we can see
 Mount Batur or the Volcano and having lunch, then visit coffee plantation here we can taste Bali coffee
 and also coffee luak. after we visit Holy spring temple, rice terrace then shoping at Ubud Market.
 check -in at ubud Hotel.

 Day 2 - depart from Hotel, we visit Taman ayun temple, Tanah lot temple, then Bedugul to see
 the lake temple, having lunch then back to ubud, you can go for spa at verona as it's located in Ubud.

 Day 3 - afternoon depart from Ubud Hotel, visit Uluwatu temple, dreamland beach then dinner at jimbaran
 then check-in at Kuta hotel.

 Day 4 - Free and easy at Kuta.

 Day 5 - Transfer back to airport.

Tour Guide/Driver Info:
Nyoman Karya
Tel: (0361) 947360
HP: 081933115755

or you can email his friend: sutarman_83@hotmail.com

Sunday, July 25, 2010

Bali (Unedited) - Day 0, Day 1 and Day 2

Writing this somehow reminds me of those days when I use to write a "karangan" about a trip to some places.
We hired a friendly local driver, Pak Karya beforehand for about RP 1,500,000. I wouldn't call him a tour guide because we choose the places we want to go ourselves and he kindly plan them for us. Honestly, I use KampungBoyCityGirl blog as my guide - mostly.

We got this free ticket from AirAsia promotion sometime last year, well exclude those service charges of course but still cheap though. Well like many typical AirAsia story my flight got delayed an hour and we were greeted with a little inappropriate advert when we got onto the flight.



I wouldn't consider the day when we arrived Day 1 because it was already 9.30 at night and there isn't much activity we could do. Even then we manage to check out street across Kuta before we check into Tune Hotel and it is happening to be honest, pretty much like Batu Ferringhi on ecstasy. There isn't much to talk about the hotel, but I manage to grab a can of Bintang. And mind you, it taste better than any beer available in Malaysia. In fact, I like it so much that I even bought a T-shirt with their logo on it.


Day 1
We were greeted by traditional Balinese dance, Tarian Barong narrating the eternal fight between good and evil. It started at 9am and lasted for an hour. It is entertaining and interesting although I may find it a little difficult to understand if it wasn't because of the guide they gave us. 






After the dance, we off straight to Mount Batur in Kintamani. On the way, we took a detour to have a look at Denpasar, the capital of Bali. I have to be honest, before I came to Bali, I thought it is an over developed island with architecture which are very similar to our Malaysian ones - I was wrong. Almost every building, government building, offices, police station and every house are decorated with fine Balinese hand carving. Yes, EVERY HOUSE. And I ask the driver how could they afford such expensive design. He told me it is their custom to have such exotic architecture for their home and it used to be exclusive for those who are "berpunya" which mean "kaya" in Malaysian. But now they can "afford their dream home with help of Banks". Hmm....Nevertheless, it is an interesting culture. I was also told that every house in Bali has a "little temple". 

Along the way, we stopped at a Batik factory/shop and manage to get few Batik made purse/bag (I still find it difficult to differentiate a purse and a bag). 



We had our buffet lunch on Mount Batur. The food is ordinary but the sight...oohh....


We head to coffee plantation where I get the chance to taste the famous Balinese coffee (FOC) and Kopi Luwak (RP30,000). If you wonder what kopi Luwak is, it is the most expensive coffee in the world especially the wild ones. Wild? Yea, wild. Because the beans is processed via Luwak's (a kind of cat) "digestion" system. The coffee smells really really nice better than any beans I could get from Starbucks - maybe because of the "extra ingredient". 




We had our dinner at Bebek Bengil (Dirty Duck). We ordered the "chiu pai" Bebek Bengil and pork ribs. Mind you, the pork ribs is the best I've ever tasted. The tenderness and the taste is unimaginable. Excellent. Guess what, it isn't even expensive, both are below RP60,000 each. 







We checked in into Greenfield Bungalow, Ubud. I have to say, this is the most satisfying stay in Bali and I plan to stay here the next trip. This time Tegar Sari then Greenfield. Prices are reasonable, staff are friendly and the rooms are cleaned. We stay in Bale Bunga the first night and Bale Adat the second. Bale Adat is WAY WAY too huge for two person. 

Day 2
We start our tour by visiting Taman Ayun, a place where one of the Balinese king have his leisure in the olden days. We got off to Bedugul after. It is a one and a half hour drive and I wasn't bored thanks to the amazing architecture and scenery all along the way to the mountain. The aren't much historical value to the temple in Bedugul. It was build there because it is a nice place to rest. 




We are then off to Tanah Lot where there is a temple build on the sea. According to Pak Karya, this is the first temple build before Hinduism reaches the island. So this is where it all started. We are suppose to watch the sunset in Tanah Lot but we have our spa appointment at 6pm. Nevertheless, it was a beautiful sight to behold.




The spa we had in Verona Spa is pretty good and reasonably priced if not cheap. We had Lulur which cost RP150000 each with 75 minutes of massage, body scrub and flower bath. It is a private room but it is open facing the paddy field. If I had knew this, I would have plan to have this spa in the broad daylight although I might want to pray that no one is actually working on the field that time. 

To be continue....