Thursday 10 October 2013

il buono, il brutto, il cattivo

The Good, The Bad, The Ugly

This week, in the coming issue of The Edge, I write about three companies listed on Bursa Malaysia. Borrowing from the epic 1966 Italian movie starring Clint Eastwood, Lee Van Cleef and Eli Wallach, the plot revolves around three gunslingers looking for buried gold. One died and one rode away a hero. As for ugly, he lost his bullets and got half the money as charity.

The GOOD is a company trading at half the industry’s valuation, and with substantial cash in the bank. It pays 7% to 9% yield at current stock price. The business model is defensive as demand for its products are sustainable even in economic slowdowns. New developments will further enhance demand, and provide opportunities to increase prices.

The BAD is a company that has yet to account for the lost of almost 90% of its cash balance. What else is there to say.

The UGLY was a beautiful swan. It was much loved and had a fantastic business model that generated growth in sales and profits for over twenty years. It pays good dividends, while accumulating huge cash in the bank. From an underdog, it became the Establishment.

Then everything changed. It began losing its appeal.  Changes to technology and lifestyle preferences began to chip away the very business model that made it successful. Going forward, it will get worst.  More changes to technology and new players will reduce further its value proposition. What works in the past will no longer work going forward.  I wonder if the management is aware?

I hope you will enjoy reading this as much as it was fun for me to write. And if you disagree, I won’t be offended.

By the way, I do not own any shares of the above companies, either directly or indirectly.


  1. It has been ages I dont read The Edge, it is used to my favorite before I start trade in NYSE, Nasdaq & CBOE. Somehow, I get what you means, those 3 types companies exit everywhere, not only in KLSE. 1st type. Starbucks, SBUX; (even dividend yield is low, it is reccession proof, it has 220, 000 outlets worldwide with only 3 in India. Sbux not conquer coffee market but as well as juice n tea, valution is high but future growth clearly justify it). Type 2. Plenty, not interested looking in it, waste my time. Type 3. Intel (INTC) & Coke (KO); dividend yield is good with options strategies easily can reach double digits. I agree once lifestyle n technology change, if the management still think like old dogs, stay away from it. (Disclaimer: my portfolio cover all this 3 stocks & options, I will hold SBUX at least for another 5-10 years, or forever depend on the development)

    1. Forgive my english, I am just a trader,

    2. The good news is when u trade in US, u sleep well at night even the market collapse. With proper combined stocks n options strategies; one can make money regardless the market direction. I am not a big shot who afford take over a company, to me CASH is always KING. If u worry your USD dive, hedge the cash position.

    3. Congrats...Whats yur average ROI?

    4. SBUX has around 20k stores worldwide and NOT 220k, it has just open up his first Teavana store in Manhattan last week. 2013 Q3 EPS $0.63 beat $0.03
      My MTM performance varied from 30-200% last year for variuos porfolios. Overall portfolios are still very small so able achieve high return for certain portfolio.

  2. Very clever advert for weekend the Edge, new business proposition.

    Let see can strike a jackpot by this wild guess. Good - insas ; bad - silverbird ;ugly - star

  3. Hah ha - hah... it is conjectured that before a star goes supernova it turns red, well it's still debatable so I think I'd still sweep some of the debris. A janitor's work is really boring. Saturdays have been quite delightful these days.. Well looking forward this coming weekend. Hmmm ... better back up the truck tomorrow to load up Fatima's stuffs, hopefully no one wants them. Btw, thanks for the music. It's been the back ground music whole night... driving everyone crazy !!

  4. My best guess:

    Good: Wellcall
    Bad: Silverbird
    Ugly: Insas

    1. This comment has been removed by the author.

  5. Wow, replied the post when google Malaysia got hacked:

    hope the account still safe.

  6. Ugly = Star

    Note your interest in MCA, that's what happens when you let the lunatics run the asylum. MCA will do well to sell themselves down before its too late.

    BTW, you ought to watch out for Focus Media. I beg your pardon, who's the Establishment now?

  7. I always look forward to Saturday morning when The Edge is delivered to my home. Even more so now.

  8. Hope it's not like the article on CSL which was just a cut and paste effort (meaning no effort for a position as yours).

    And I must express myself that this sort of teasers are quite annoying as it's so cheap-direct-sales approaches that sort of insult value-of-communication among people. I see great direct-sales-spirit in a helpful-minded basis, that's very touching and that should be what direct-sales should be originated from.

  9. Mr. Tong
    i am the edge subscriber till 2016. I really hope that you can tell you editor to do more write-up and research on companies listed in Bursa. At the moment, the edge weekly are more towards re-printing research from investment bank which to me is useless.
    Subscriber like me will prefer the edge weekly own view and perspective. Your previous writer whom are now at Kinibiz is doing a real good job.
    Hopefully to see more changes from the edge.

    Maybe, Mr. Tong can become the edge weekly regular contributor.
    You had started with CSL which is a great article and this week another 3 companies. If every week 3 companies, one year 100++ can be covered with your opinion. Isn't that value for money for the subscriber????????

    1. I agree with you that The Edge really needs to have their own sound. It should NOT be just another newspaper. It suppose to be a financial journal for professionals.

      I cannot see new inspiration/new facts finding in that CSL article. I am curious to hear which part of it that you think was great? Please enlighten me and share with me. Maybe I am too dull and insensitive to read between the lines. Thank you!

    2. steve,

      i enjoy reading what Mr. Tong write in the edge. It seems that he is contributing more to the weekly paper. I got more insight from his article.
      on CSL, the one that really shown something is wrong is the huge cash is only getting 0.++% interest yearly is real potential sign of trouble. it helps investors to gauge the danger of this company

    3. I appreciate your reply, LG. Thanks!

      You see, we are not interested to hear all the questions all over again from the "experts". We want to hear the answers. These experts should attend the AGM or contact the management to look for answers. Ask them why why why, then only based on their answers and write the article to give perspectives. Otherwise, what's the point for having an expert? What's the point to raise all the question marks over and over again? That doesn't benefit readers at all.

  10. Currently The Edge lacks original content, one of the comments above states it is rehashing and quoting articles from reputable financial publications. People choose to buy your publication for your hopefully original insightful views, we do not want to read a summary other financial publications' article or views (some of which is available online for free).

    Your pioneer readers have grown more financial literate but the articles you are dishing out have not kept pace. In some of the issues you have padded the content with lots of tables and financial data we can obtain online, the bulky advertorials we can still tolerate.

    I have since discontinued my subscription of your publication.

  11. Similarly, the 1 racist party, the communist parties and many NGOs start well by first engaging with the people, reflecting the average citizens' aspirations. Once they grow to be successful, human greed come in and the second and third generation supporters usurp the original founders’ good intention and turn these organizations into corrupt, dictatorial regimes to benefit their own self-interest. Over time, the people resist and rise up and overturn such regimes. Then the cycle repeats. itself. The fundamental cause is due to uncontrollable human greed and lust for political power.
    p/s: Clint Eastwood was my favorite actor
    Eric CL Gan: Facebook

  12. You’re spot-on about The Star. I stopped buying the newspaper several years ago. My daily doses of political and businesses news were from online news portals or picked up a free daily on a sunny day. I only read The Star when a free copy is available at the roadside stall I patronage each morning or when I visited my mom over the weekends. She has the newspaper vendor delivered to her daily. I told my family members that nobody reads The Star because there’s nothing to read!

    Yes, The Star screwed up on some of the acquisitions. Cityneon was expensive and a disaster.

    Yes, The Star top management changes when the other top changes.
    Heck, one even went off to focus on his own weekly after a short stint. That’s how heat-ed it is.

    Yes, The Star circulation and readership based on samplings are dropping.

    Yes, you’re right. The Star was getting so ugly in its valuation that I had to look into it. So …

    one fine Saturday, I saw they had a new Bizweek section. Looked interesting enough for me to picked it up and flip to see anything good.
    So far so good. The Star needs to improve on content and it will easily challenge any other financial weeklies because of marginal cost. More news analysis and dissection of worthy affairs that help readers make a judgment come Monday is what readers want. Instant gratification these days is just too long.

    Then they came out with a subscription package which was even cheaper than the print and they threw in online access to boot. Damn! I had to sign up for it after all the print still get delivered to my mom and I can still read it for free, technically.

    The Star might have stumbled on some acquisition but there are some potentials too. I went Perfect Livin exhibition few times a year and once I wanted to complaint about the crowded aisle. I thought they should make it wider. Perfect Livin I think is good and will get better, bigger. Red Tomato, is delicious and has great potential.

    But what is crucial are the advertisers.

    Ever wondered why they have billboards? Some billboards are so big that they shaded half the earth. I guess that it isn’t the same holding my 8 inch tablet and see the Royal Mint Gardens advert compared to the print version. I can hardly see The Shard on the screen.

    I think that there is still a place for prints. And The Star will lead. Though its nearest competitor might claimed to have higher circulation, it is still marginal. Even at 30sen to your doorstep, it can’t sell without giving it away. The roadstall that I get my free reading of The Star? I had to wait for others to finish off before jumping for it. Look around, do you see any unattended copy of The Star?

    On nationwide reach, The Star Metro is undervalued. No other dailies have 4 different coverage of Community news. I wonder why advertisers haven’t milked this area yet.

    From the circulation figures, between 2005 to 2012, the attrition was 1% per year. Hardly surprising when looking on the onslaught from online portals and alternative channels. Coupled with weak editorials, I thought The Star could have done worst.

    Buffet. Hmm… everyone loves buffet. It seems every publication wants to have a section on business, politics, lifestyles, property, opinions, gossips ..and so on. Why? I guess because its marginal cost.

    It would be interesting to see what Jeff Bezos would do with Washington Post.

    As Buffett says, “Buy a business that even a fool can run, because someday one will.” I thought it has happened.

    Is The Star the proverbial business that is facing a temporary setback? What do I know? Might as well continue sweeping things up that nobody wants.

  13. this song is very cute and funny, do anyone of you know the name of this cowbow song ?

  14. The Sun newspaper is like eating one pack of instant noodle and it couldn't satisfy your stomach.
    NSTP...another buffet restaurant next door, no comment since hardly anyone around me goes to that restaurant.
    Finally don't forget The Star online reader is increasing.
    At the end of the day, it is not that ugly after all.

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