using key financial ratios on analyzing stock, particulary haio

Financial ratios are tools for interpreting financial statements to provide a basis for valuing securities and appraising financial and management performance. It provide an apple to apple comparison for the various listed stocks.
All the while i have being interested with using financial ratios onto the stock i follow. Before i buy a stock, i look at their ratios, particularly Return on equity (ROE), dividend yield (DY), price earning ratio (PE).

Actually there are many more ratios. Many of them i also never use and don't know how to use them. For Malaysian stock, how do we get such ratio?

PE is rather straight forward. It is Price/EPS. All newspaper will publish the PE of a stock. As such getting it is straight forward

Many newspaper also publish DY. However, at times i found that it differ from paper to paper. Some publish wrong info. so it is good you have alternative source for this.

ROE is bit difficult to get, relatively. I used to get my ROE from www.osk188.com.my , my stock broker website. But now i find it pretty tedious to go through its pages, in addition its data not very accurate either. Another nice way i like is to look at Dynaquest data book, however it is belated by few months when it gets to the rack. Since 2 years ago, we have another alternative for printed data, in the form of Stock Investor, which is a monthly digest. One can also calculate the ROE himself, i use the variant of EPS/NTA. There are different model available

If one attend a CFP class, he will learn about using some financial ratios to value stock, and learn about DDM. In malaysia, the more complicated DCF (discounted cash flow) is not taught but you get to learn a little bit of the theory. Most analyst uses DCF. I've chosen not to use such a complicated DCF model, not only because it is tedious to work out the model, but it involves some presumptions which i think is adding a lot of inaccuracies and uncertainties to the model. To me, DCF is at best a little bit better, if not worse, than simpler DDM or even the simple purchase based on ratio. My friends who studied CFP and CFA have shared with me what they have learnt.

i think in future it may be worth for me to use slightly more ratio onto my stock. For example, i think i am gonna look at the sharpe ratio of my entire portfolio. I'll share the outcome and the steps in future.

PS: my title reads ... haio, but haven't touched anything on haio. i think i touch it in next blog. basically want to compare it with other stocks in my portfolio to see how good/bad it is. by the way, today Haio is RM6.61. seems like my move last trading day is not too bad, at least short term wise

using Dividend Discount Model (DDM) onto Haio

as can be seen from previous post, haio dividend growth is pretty high. however, to be slightly more conservative, lets take the dividend growth rate,g=0.05 (means 5%)
my required return,r=10%=0.1, D0=current dividend=RM0.42

using this
price=D0(1+g)/(r-g)
=42*(1+0.05)/(0.1-0.05)
=882

so Haio is worth RM8.82 :)

if taking r=15% (a more realistic value)
price=RM4.41
but this price might never reach.

the beauty and ugly part of the model is that there is presumption
so, let's change again
PV=42*(1+0.08)/(0.15-0.08)=42*(1+0.08)/(0.15-0.08)=6.48
if haiO next year cant give me 8% growth,
then I will sell the share if i buy now

means final div + interim div is 45.36 cent
and eps growth at least 8%*1.2 = 9.6% with 20% buffer

today, haio up 6% so far, reaching as high as RM6.7

just now i was haste, i thought it might not go to RM6.48 again, so, i buy in at RM6.59 if it turns out i am wrong and the stock plunge again, i take same approach, wait until it is up again, then consider buy in or not

using dividend growth calculation onto Haio

since the price has drop to RM6.2 level today. i should update the table i posted before this.
in the cash flow,i, presuming i buy in now at RM6.2, presuming dividend grow at 5% whereas stock price up by 10% , the positive net cashflow simply means it is worth investing into the counter. Take note that there are 'presumption' made. It may or may not happen
the NPV@15% is just a targetted 15% annual return and not used in calculation

Forecast Best - Dividend growth 5% p.a with share price appreciation 10% p.a
	Final Div	Interim Div	Total Div	yoy total Div growth	yoy Interim Div growth	Cash Flow,i	Cash Flow,Div	Net Cashflow
2003	0.04		0.04	25.00%	25.00%
2004	0.05		0.05	140.00%	20.00%
2005	0.06	0.06	0.12	-33.33%	33.33%
2006	0.08		0.08	62.50%	62.50%
2007	0.13		0.13	207.69%	146.15%
2008	0.32	0.08	0.4	5.00%	0.00%
2009	0.32	0.1	0.42	-20.00%	5.00%	$ (6,200.00)	420	-5780	$389.97	NPV@15%	Ok
2010	0.336		0.336	5.00%	5.00%		336	336
2011	0.3528		0.3528	5.00%	5.00%		352.8	352.8
2012	0.37044		0.37044	N.A	N.A	$8,252.20	370.44	8622.64	$593.10	NFV@15%	OK

stock price movement- sentimentally driven or fundamentally driven?

stock price is sentimentally driven, that is what i think
yesterday my friend sean compile some fundamental analysis on haio. i paste his calculation here.
i believe now, the price movement is more sentimentally driven than fundamental, so any calculation won't work. Today my chartist friend told me that from chart it shows very likely will drop to RM5.7.

so, barring the presumption that there is no account irregularities for haio, and no news that we are unheard of , the decision is to hold it.

	Final Div	Interim Div	Total Div	yoy total Div growth	yoy Interim Div growth	Cash Flow,i	Cash Flow,Div	Net Cashflow
2003	0.04		0.04	25.00%	25.00%	-590	40	-550	$2,771.36	NPV@15%
2004	0.05		0.05	140.00%	20.00%		50	50
2005	0.06	0.06	0.12	-33.33%	33.33%		120	120
2006	0.08		0.08	62.50%	62.50%		80	80
2007	0.13		0.13	207.69%	146.15%		130	130
2008	0.32	0.08	0.4	5.00%	0.00%		400	400
2009	0.32	0.1	0.42	N.A	N.A	7160	420	7580	$6,410.31	NFV@15%
Forecast Worst - Maintain Dividend at no share appreciation
	Final Div	Interim Div	Total Div	yoy total Div growth	yoy Interim Div growth	Cash Flow,i	Cash Flow,Div	Net Cashflow
2003	0.04		0.04	25.00%	25.00%
2004	0.05		0.05	140.00%	20.00%
2005	0.06	0.06	0.12	-33.33%	33.33%
2006	0.08		0.08	62.50%	62.50%
2007	0.13		0.13	207.69%	146.15%
2008	0.32	0.08	0.4	5.00%	0.00%
2009	0.32	0.1	0.42	-23.81%	0.00%	-6650	420	-6230	($979.90)	NPV@15%	No go
2010	0.32		0.32	0.00%	0.00%		320	320
2011	0.32		0.32	0.00%	0.00%		320	320
2012	0.32		0.32	N.A	N.A	6650	320	6970	($1,490.31)	NFV@15%	No go
Forecast Best - Dividend growth 5% p.a with share price appreciation 10% p.a
	Final Div	Interim Div	Total Div	yoy total Div growth	yoy Interim Div growth	Cash Flow,i	Cash Flow,Div	Net Cashflow
2003	0.04		0.04	25.00%	25.00%
2004	0.05		0.05	140.00%	20.00%
2005	0.06	0.06	0.12	-33.33%	33.33%
2006	0.08		0.08	62.50%	62.50%
2007	0.13		0.13	207.69%	146.15%
2008	0.32	0.08	0.4	5.00%	0.00%
2009	0.32	0.1	0.42	-20.00%	5.00%	$(6,650.00)	420	-6230	$341.12	NPV@15%	Ok
2010	0.336		0.336	5.00%	5.00%		336	336
2011	0.3528		0.3528	5.00%	5.00%		352.8	352.8
2012	0.37044		0.37044	N.A	N.A	$8,851.15	370.44	9221.59	$518.80	NFV@15%	OK

Haio is dropping

Haio has being continuing decline to RM6.52 today. After factor out the dividend received, my last investment into the counter will have about 10% loss. The magnitude of the fall has been out of my expectation. However, its PE has dropped to 10.73 and dividend yield of 6% after this saga. At such valuation, i still think it is worth holding onto. Since i've actually endured even heavier fall last year on my stocks thanks to global crisis, i should hold through this period for Haio. As such i will just shut off my senses on it and keep holding.

There is however a thought on whether i should buy in more. i think probably not as i have set my target to diversify into other stocks. I'll keep my option open for the moment.

ex-date and arbitrage

today is hai-o ex-date for its 32cent dividend. as such it has dropped to RM7.22

prior to this i have being thinking whether i should sell out before the ex-date and after it drop down buy in again. I would be able to earn an arbitrage of the drop. Actually not sure if it is called arbitrage at all.

for this case, if i sell out at RM7.99, and buy in again now at RM7.22, and presuming my buy in price is RM7.5 previously, i would earn RM0.49 at least, which is higher than the RM0.32 dividend. the difference between is 2.26% earning over RM7.5 purchase price. However, after minus off the extra brokerage involved, it doesn't sounds that great. So, the conclusion since i had wanted to hold it long term anyway, it would be better not to target this arbitrage. After all, it won't 100% drop after ex-date.

the point that i should be considering is still the business earning of Haio. Look at the financial results below. EPS has been increasing 28% in the last quarter compare to previous quarter.
This has the effect to bring down PE over long term. So this is one reason i hold the stock.

Recent Financial Results

Announcement Date		Financial Yr. End		Qtr	Period End		Revenue RM '000		Profit/Lost RM'000		EPS		Amended
29-Sep-09		30-Apr-10		1	31-Jul-09		148,572		18,519		22.17		-
26-Jun-09		30-Apr-09		4	30-Apr-09		132,845		14,734		17.80		-
27-Mar-09		30-Apr-09		3	31-Jan-09		102,129		12,409		14.64		-
18-Dec-08		30-Apr-09		2	31-Oct-08		87,292		11,152		13.06		-

Secondly, even the dividend is improving over the years. holding this would be good enough

Company

Particulars

Date announced

Ex-Date

To those registered by

To be paid on

Total for yr so far

Total for prev yr

HAIO	Final 32¢	02-Oct-09	19-Nov-09	23-Nov-09	07-Dec-09	42¢	40¢
	Interim 10¢	26-Feb-09	12-Mar-09	16-Mar-09	26-Mar-09	10¢	38.35¢
	Final 32¢	03-Oct-08	27-Nov-08	01-Dec-08	10-Dec-08	40¢	13¢
	Interim 8¢	19-Feb-08	12-Mar-08	14-Mar-08	28-Mar-08	8¢	18¢
	First & Final 6¢	04-Oct-07	29-Nov-07	01-Dec-07	12-Dec-07	6¢	5¢
	Interim 5¢ TE	15-Jan-07	23-Feb-07	27-Feb-07	13-Mar-07	5¢	8¢
	Final 8¢	27-Sep-06	29-Nov-06	01-Dec-06	12-Dec-06	8¢	6¢
	First & Final 6¢	04-Oct-05	29-Nov-05	01-Dec-05	12-Dec-05	6¢	5¢
	First & Final 5¢	13-Aug-04	29-Nov-04	01-Dec-04	10-Dec-04	5¢	4¢

The banks in Malaysia

HSBC Malaysia, which is not listed in Malaysia, reported a drop of net profit for nine months ended Sept 30.

This has spur my interest to look at the banking stocks in Malaysia. pbbank currently has PE 14.2 and DY of 5.0%. Other local banks have a ratio pale in comparison to pbbank, to and extend that i need not compare them side by side with pbbank at all.

again perhaps i should compare it side by side with regional banks such as dbs, uob and ocbc

Haio wait for dividend

After my last purchase at RM7.5, on paper i still make a gain as of today, when its price is RM7.99
i think i won't continue buy in for now. Will wait till after ex date and observe. After all, after the buying spree, it has becomes the heaviest stock by weight in my portfolio. I would probably start to invest in other stock again.

So, as of today, these are the key ratios of Haio. Generally, they are major points i consider for a stock
ROE: 31.71859 %. anything above 15% is worth considering. take note however ROE can be manipulated on book. But if a management is good enough, they don't do such stipulation. Yesterday a friend of mine says his relatives had worked for Haio chairman before as legal advisor and believed that he is a honourable man.

PE: 12.79 i think the stock is already somewhat fully valued. it is in fact more expensive than public bank at the moment. However, let see whether the earning of the company can continue the fast pace as before. Let's see also if there is any growth in dividend. The same dividend rate has been maintained for the past 2 years.

dividend yield: although buffett doesn't favour dividend payout, i do. i hardly sell my stock, so other than enjoying capital gain on paper, high dividend payout is the only real $ that i get to receive from stock. currently haio dividend yield about 5%

some of my friends who have seen the stock soars but didn't buy has start to provide reasons to the stock phenomenon surge, citing reason in its new product such as the infra red stuff. Seriously i do not pay too much attention to that (may be i should). I have prior to that try to observe its core MLM business growth for few quarters before deciding that its business is good enough for me to buy in and hold. Provided the management didn't do anything stupid that cost degrade in the business, possibly i will just let it lie that. This is the 'passive income' way that i advocate: let the money growth by letting others manage it (in this case the management manage the listed company)

other stock i interested in near future:

uchitec , public bank, digi