Thursday, March 21, 2019

TVB vs Netflix

Recently, I did a poll on InvestingNote. It was an exercise to (1) remove the bias of choosing a company based on brand names and (2) choosing a company to invest in solely using financials.

InvestingNote Screengrab as of 21 March 2.20pm
Without the company name, most investors stated correctly that if solely based on the financials, value investor will choose Company A. Growth Investors will choose Company B.

Overall, it seems that more investors prefer a stable company than one is burning cash. But I have a feeling if I reveal the names of the companies, things may change?

Nevertheless, did I carry out this exercise so that I understand more about investors? NOPE. 

I was actually looking to invest into TVB due to their recent share price drop and negativity news.

Thus, I was looking for a competitor to compare its financials and I picked Netflix.

Many may disagree that they have the same business model. But in my opinion, their strategy as stated below are probably having over 60% similarity.

TVB Strategy

Pros: 

  • Established actors and actress in HK (Some are very famous overseas as well).
  • Stable Base in HK
  • Advertising Revenue 
  • Consistent upbringing of new actor and actress.

Cons:

  • Famous actors and actress leaving for China (Eg Charmaine Seah)
  • Seem to have a reducing base in Asia
  • Does not appeal to westerners.
  • Streaming websites

Uncertainty:

  • Switching to Internet TV
  • The growth into China has always seem to be a roadblock. 

Netflix Strategy

Pros:

  • Use lesser Known Actor and Actress to act as lead, Cheaper.
  • Cheap production + Good story-line
  • Opening up to international audience (Turkey, Korean)
  • Consistent upbringing of new actor and actress to fame or fame again.

Cons:

  • Not getting into Apple TV Service
  • Yet to get into China. 
  • Streaming websites
  • The significant number of dramas on-going - to increase cost

Uncertainty:

  • Short seasons, if the season get more popular, will the actor and actress be willingly to work for less.
  • How long can good story-lines continue to increase?

In Short

After comparing their strategy and their financials, I decided to ignore both companies and move on.

Firstly, I ignore Netflix simply due to its cash burning business and increasing debt. I am uncertain if their business is for the super long hual.

Secondly, I ignore TVB due to their recent negative scandals. Basically, they invested over HK$800 million in SMI Holdings Bonds in order to get more access into China. Since SMI Holdings had to be suspended and restructure, the bonds took a HK$500 million impairment. This resulted in the company having losses of $200 million. 

Although the last sentence do indicate that TVB does have $300 million of cash profit for 2018, but I will have prefer if their impairment was the full impairment of HK$800 million. This is because in this case, I will not need to worry about them taking a second impairment in future. 

On the other hand, I do believe SMI Holdings will recover from the setback and TVB may end up have a controlling stake in SMI Holdings. But these are assumptions with huge uncertainty and significant risks involved. 

Therefore, there seems to be too much uncertainty at stake and I choose not to invest in either company.

Please do your own due diligence before you invest in the above counters.

If you are interested in these fundamental investing discussion, do join us at our Fundamental Scorecard Telegram Group

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Thursday, March 7, 2019

Analysis of Singapore Banks and Finance Firms

As a fundamental investor, I always look at financials statement to analysis if a company is good enough to invest in. However, there is always 2 types of balance sheet we need to take note – The regular one and the Financial Institutions (FI) one.

Normal Balance Sheet
FI Balance Sheet
In the past, if I want to invest in a FI, I used to tell myself – I don’t know how to analyze their financials, let’s skip them!

But as days, weeks, years went past, and you realise that there are numerous financial firms in of Berkshire Hathaway picks, that’s probably an indication for me to start to learn how to analyze a FI financials.

After jotting down a list of criteria and factors, I reduce it to these 4 criteria.

1. Return on Assets (ROA)

Formula: (Net Profit - One-time Gain) / Total Assets x 100%

In my opinion, Return of Assets is the most powerful ratio of them all to calculate the performance of a FI. I believe it is mention by Warren Buffet before (lost track of the write up) and a good indicative ROA is 1%.

For the calculation of ROA, I will remove the one-time gains, such as gains from disposal of subsidiaries or fixed assets, from the earnings figure.

2. Price to Book Ratio

Formula: Share Price / Book Value Per Share

To analyse a stock, I do believe there should be a criterion that relates to the share price in order to indicate if a FI is a good investment at that point in time.

Price to Book ratio is chosen because it looks at the liquidation value of a company.

In the aspect of a financial firm, their assets tends to be more liquid than other companies. Thus, this should be taken into account.

3. Allowance For Doubtful Debt (ADD)

Formula: Allowance For Doubtful Debt / Total Loans & Advances & Receivables x 100%

ADD indicates an FI ability to underwrite the loan applications for its customer. A higher percentage could meant that the credit review for the loan applications is too relax in order to gain market share!

Some companies may not have ADD, and it is not because that their companies are doing really well, but it maybe due to the company's ability to reverse previous years' doubtful debt.

In this case, the ADD is not explicitly stated and we will probably require the annual report to be released before getting the actual information.

4. Net Interest Margin (NIM)

Formula: Interest Income - Interest Expense x 100%

This formula is similar to the Gross Margin and looks at FI's ability to charge more interest to their clients despite providing an almost similar product. This formula relates to a FI's competitive advantage against it competitors.

If you are interested in fundamental analysis as shown above, do sign up for our latest AIM-SG course HERE where we will discuss fundamental investing theories and many more!

The companies selected for review are the following firms:

Banks: DBS, UOB, OCBC
Consumer Finance: Hong Leong Finance, Sing Investment & Finance, Singapura Finance
Diversified Finance Services: IFS Capital

*Do note that Pawnbrokers, IFAST and Net Pacific Financial Holdings are ignored due to their business model.

FI Analysis

From the analysis above, there are a few observations:

1. Higher ROA result in Higher PB ratio. 

I consider ROA to be the most important criteria, but I did not knew it was inversely related to PB ratio.

2. Higher Interest Income Do Not Result in Lower NIM. 

In terms of maths calculation, I thought NIM will definitely be higher if the FI has a lower interest income, but this is not the case.

3. 1-Year Analysis Is Not Sufficient

An analysis of 1 year result is not sufficient to clearly indicate a company's strength or its weakness. More results will be required.

4. ADD % not Significant

There is not much significant difference between the ADD % for the selected FI. A deeper analysis will be required once their annual reports were released.

In Short

Despite the short exercise above, it actually reveals significantly the difference between FI and their target markets.

However, this is just a preliminary review and more analysis will be required if one intends to invest in any FI stated above.

If you are interested in discussing about various fundamental investing thesis, do click HERE to sign up for our latest AIM-SG course. We will also be discussing about various companies selection ideas that we have and many more!

The author is vested in one of the FI discussed above. 

Please do your due diligence before investing in any FI above.

Oh... and do remember, please like our Facebook page (T.U.B Investing) and follow me on InvestingNote.

Sunday, March 3, 2019

Take A.I.M. - The Singapore Market Version!

With the success of "A.I.M.- Actionable Ideas Movement", Simple Investor and I had decided to conduct a similar course for Investors of the Singapore Stock Market.


I can never say enough. But once again, I will like to say a BIG THANK YOU to everyone that attended AIM. You made the event a success! 

What is A.I.M. – SG Version?

This is an extension of the newly design course – Actionable Ideas Movement – within the Singapore Market.



The main AIM for this course is to:

(1) introduce new investing methods to the Singapore Investors; and
(2) by the end of the course, we hope participants will be able to invest in Singapore Markets with comfort and the right mindset, regardless of the macro environment.

This course also AIMs to provide what participants want such as the following:

1. The course will allow participants to ask questions beforehand. These questions will be answer during the course. (An email will be sent to the email address you registered with eventbrite for the questions you will like me to talk about during the session.)

2. Participants will be allowed to provide and discussed stock ideas in the SG market during the small group discussion facilitated by TUBInvesting and Simple Investor!

3. TUBInvesting and Simple Investor will also come up with the stock idea for the year each for discussion!

4. There will also be a weekday evening FOLLOW UP SESSION 6 MONTHS LATER to review on all the ideas that was discussed (No extra payment required).

Highlights of the Course:

- The revelation behind “Big Ideas Investing Theory” by TUBInvesting

- Moat Investing/Own Business Not Stocks by Simple Investor

- A Explanation of a Step by Step Investment Process

- Answering Your Questions Given Beforehand

- Small Groups Discussion for Ideas Generation

- TUBInvesting Idea for the year!

- Simple Investor idea for the year!

- Get to participate in the next AIM – HK/US version for just $20!

- A booklet of the slides and a simple packed lunch will be provided!

- There will also be an Investment Game at the end of the course!

If you are interested in this event, do sign up via this LINK. I will only be limiting the course to a maximum of 20 pax (Left 15 now!).

A little note to those interested in the Investment Style of Warren Buffet and Charlie Munger, I look forward to meeting you at the event!


Oh... and do remember, please like our Facebook page (T.U.B Investing) and follow me on InvestingNote.