My 5 simple steps will lead me to simple but effective value investing. My way to minimise the risk and maximise the gain.
Step 1: Check the PNL. Profit? Potential turnaround to profit?
Aim the bull: SCH business is trading quarry machine and equipment. Last year due to stonger USD and GST impact, the sales seriously affected. However, the company still able to maintain profitable.
Score : 1 due to still profit despite business slow down.
Step 2: Check the cash flow. Where is the money generate? Where is the money go?
Aim the bull: Cash and debt about equally same. But still able to pay dividend.
Score: 0 due to not a net cash company.
Step 3: Check the Balance Sheet. Is it only left the shit (e.g debt)? Cash status? Retained earnings for potential bonus issue? NTA vs price? Fair value vs price vs NTA?
Aim the bull: Manageable debt but risk of cash flow if business continuely no improvement. High retain earning but partly offset by merger deficit.
Score: 0 risk of debt default if business continue slow down
Step 4: Check the price status? Which wave? Uptrend? Downtrend? Consolidation? At peak? Measurement of margin of safety?
Aim the bull: Price still at bottom level, no sign of recover. If you noticed the history movement, it will rebound after touching 0.20.
Score: 1 due to better margin of safety.
Step 5: How is the outlook of the existing business and any potential sales pipeline?
Aim the bull: Below is my outlook which will lead to better performance or turnaround:
1. Stronger MYR able to import machine and equipment at better price.
2. GST impact slowly realignment to demand.
3. Mega infrastructure projects kick off soon e.g. Pan Borneo and MRT 2 projects will lead to higher demand of capital and operating spending for quarry operators.
Score: 1 due to "wind will change"
If score 1 or 2 points...forget it
If score 3 points...monitor closely
If score 4 points...collect slowly
If score 5 points...full force...sai lang
Overall 3 points...the risk is the wind still stay no change i.e. USD continue rise up and slow implementation of the mega infrastructure project.
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