Global Disruption Only Brings Good Buying Opportunities

Several news are coming out that there is an ongoing military ‘movements’ in the South China Sea.


U.S. sent a Navy destroyer (guided-missile destroyer) near one of China’s man-made islands in the South China Sea.


Google Image

The nine-dash line

According to Bloomberg, “foreign Ministry spokesman Lu Kang said that the USS Lassen had “illegally” entered Chinese waters and that “relevant Chinese departments monitored, shadowed and warned the U.S. ship.” China has “indisputable” sovereignty over the Spratly Islands and surrounding waters, Lu said.”

USS Lassen (DDG-82), Wikipedia picture

USS Lassen (DDG-82), Wikipedia picture

In addition, Lu had said, “the Chinese side expressed its strong discontent and firm opposition.”

Well, it’s already hard to determine the intrinsic (fair) value of a company, much more determine possible outcomes of this initial military ‘event’ that had just happened.

As a value investor, I would rather reread what Sir John Templeton had said in page 17 (his last RULE) of his 1993 article 16 Rules for Investment Success about such related events:

“And now the last principle. Do not be fearful or negative too often. For 100 years optimists have carried the day in U.S. stocks. Even in the dark ’70s, many professional money managers—and many individual investors too—made money in stocks, especially those of smaller companies.

There will, of course, be corrections, perhaps even crashes. But, over time, our studies indicate stocks do go up…and up…and up. With the fall of communism and the sharply reduced threat of nuclear war, it appears that the U.S. and some form of an economically united Europe may be about to enter the most glorious period in their history.

As national economies become more integrated and interdependent, as communication becomes easier and cheaper, business is likely to boom. Trade and travel will grow. Wealth will increase. And stock prices should rise accordingly.”

We may not feel any trepidation in the markets yet with this initial knee-jerk Chinese reaction. But, it is better to be prepared.



link to 3-minute Bloomberg video (


Link to CNN Youtube video (; published in May, 2015.


Reuters video (

Nevertheless, here is S&P500’s and DJIA’s performance during those ‘dark times’:


Or.. Maybe there won’t be such ‘happening’ at all.

Happy investing.

Mark Y.


SBS Philippines has a GOOD Business, but..: A review

First, let us CLARIFY things

Being subscribed to numerous foreign newspapers kept me from reading any local (Philippine) business newspapers; only recently when I read about a writing done by Mr. Emeterio Perez of the Manila Times entitled “Paying debt with other people’s money” that was published on Oct 22, 2015 (take note of the date)

Quoted on para. 15:

Really? Why didn’t SBS use the net proceeds of P829.3 million for, among others, “product expansion,” as it said so in its posting on the website of the Philippine Stock Exchange? It would appear to the public that the company needed the money only to be able to pay its debt with BDO which, at five percent interest per annum, “carried higher interest rates compared to other credit facilities.”

Further, para. 19 and 20:

“The public investors should not be satisfied with SBS’ own presentation because they should have been told that the company had yet to deduct P22.1 million, which it chose to defer to the “last quarter of 2015.” By proceeding with their own computation, they would arrive at net IPO proceeds of P807.22 million.

Here are two questions that the public stockholders of SBS should ask: How much of the IPO money did it invest outside the company? What happened to the purpose of the offering?

First, his title seems to have a buried intention to somehow discredit SBS. (Correct me if I’m wrong)

Second, his last query about ‘what happened…’ had already been answered by the company had he reread SBS’ 158-page prospectus that was published on July 24, 2015. If not, maybe just browse through the company’s Powerpoint slides published on July 27, 2015.

This is page 41 of SBS Corporation’s prospectus indicating the use of the IPO’s proceeds:1

This is slide 41 of the company’s Powerpoint presentation:


So I do not give weight on this writing of Mr. Perez about questioning ‘where’s the money now, SBS?’

One more thing, para. 18 of his article:

“In April last year, SBS Philippines sold to the public 420 million shares at P2.75 each. From this public offering, it grossed P1.15 billion. Minus “IPO-related expenses” of P42.75 million, the company had P1.11 billion in net proceeds. After paying BDO P282.9 million, it still had P829.3 million left.”

April last year (2014) he said. I know I live with CST (Central Standard Time) in Texas, USA with 13-14* hour delay, but I am pretty much sure that SBS enlisted their share in the PSE (Phil. Stock Exchange) on August 10, 2015.

Here is the proof video with their enlisting and ringing the bell and so on that was held on August 10, 2015 and NOT April LAST YEAR.


Link (

Okay, enough of this refuting. I apologize to Mr. Perez, but sometimes, the public take the headline as it is and with added information may judge a company instinctively as what was said in the paper.

Now, Why I said SBS has a good business.

Warren Buffett once said, “I am a better investor because I am a businessman and a better businessman because I am an investor.”

Let us try then to look at the business or fundamental aspects of SBS’s business.

I hope I had simplified this as much as possible. Nevertheless, it took me at least an hour and a half to read the company’s prospectus and presentation and had gotten some of their numbers to form my fair value.


Here is the company’s history in one slide:


Okay, long history of business is a plus.

Here is the management team:


Consider this as a family business now willing to ‘share’ their future profits with the public at the same time asking for the public’s money to fund their operations as well. Thus, the IPO-listing happened.

There are only four things how a listed company is able to payback its shareholders (at least from what I mostly consider):

  1. Dividends
  2. Share repurchase (not well practiced in the Philippines)
  3. Continued earnings (net profits) growth
  4. Capital appreciation of its stock price

The company included this slide showing their competitiveness:


Finally, this is their business model:


Okay, I do not very much try to understand what’s going on inside the company… as long as it shows continuous profits and shareholder return.. so let’s just label these stuff as ‘GOOD TO KNOW’

Let’s go ahead and dissect its numbers and see why it is a ‘good’ business

(An important note: you see, SBS only can put in their prospectus whatever they’ve had during the filing. So, for this year’s (2015) total amounts—I relied on a conservative approach by multiplying its declared earnings by March 31, 2015 by the number 4. Why? A year has four quarters: Jan-Mar, Apr-June, July-Sept, Oct-Dec. So this is my way of estimating its revenue that other analysts may have other ways. Nevertheless, I believe this is conservative given SBS ‘fluctuating’ numbers.)





Safe to say that the company will be in line with its previous years’ revenue of about 900 million peso range. I personally require a company to grow their revenue annually and consistently. SBS’ appears to be ‘flat’. Maybe we can wait until it announces its financials this year end to judge whether my estimates are ‘in line’. Besides, SBS said that they’re on track to reach 1-billion-peso sales.

Okay enough chatting for now, we will run through other metrics I include in my screening process.

Next, Gross Profit Margin (GPM, suggested >40%)


With almost half a century in the business, I believe the GPM should at least somewhere be near 40. Buffett also requires 40 or more with this metric. SBS seems to be hovering in the 20-30s area suggesting it is in a competitive business.

Next, Net Profit Margin (suggested >8%)


Amazingly, SBS not only met my personal requirement of 8%, but removing my 2015 estimates, it already met it last year (2014). The only thing I want in this metric for SBS to fulfill is for it to be CONSISTENT at >8%. This metric indicates that a company is profitable or not.

Okay, those were the good signs. Now let’s go some of the prospectus’ warning signs.

SBS stated in their business risk that there is inventory risk.

SBS defined it in page 26 of their prospectus as, “The Company is exposed to inventory risk that may adversely affect its operating results on account of limited product shelf life, new product launches, and changes in consumer demand and consumer tastes affecting industries and market sectors supplied by the Company.”

This just means that the company needs to have a good Asset turnover ratio to boost their revenue as well. The more they sell, the better the revenue. Thus, the higher the asset turnover ratio, the better a company does.

Asset turnover ratio


It appears that SBS is again in line in this ratio. But, having access to foreign stocks, I chose to compare it with other similar companies located in Canada and the U.S. Nevertheless, this comparison may undermine SBS’, but at least it would help me decide if the company is doing well in this metric.

To be conservative, we’ll use SBS’s 2012-2014 and exclude the estimate and compare it with 10-year averages of three foreign companies.


Looks like my $ would be better serve elsewhere with this comparison. Okay, not to take anything away from SBS, SBS stated its competitors (p.24 of prospectus) namely: Himmel Industries, Inc., Neco Philippines, Inc., Alysons Chemical Enterprises, Inc., and subsidiaries of key global chemical distributors such as Brenntag Ingredients, Inc., DKSH and Connell Brothers and chemical producers such as BASF and Dow Chemicals.

I am not sure, but I don’t think not one of those competitors is listed in the PSE. Nevertheless, a related business would be D&L Industries as it is engaged also in food ingredient manufacturing and so on.


Wew, now, let’s compare them side-by-side.


I pretty much think that despite SBS not stating that D&L is a competitor, otherwise a customer as shown in their slide:


SBS still has some catching up to do.

One last metric I want to compare SBS with D&L’s is Inventory turnover.

This metric is more specific to what we’re looking for (higher = better).

Being conservative, I used SBS’ 2012-2014 average, same as D&L’s.

Here’s the graph:


Let us make the graph speak for itself.


Okay, so how much do I think each SBS share should cost or what is its intrinsic value?

We’ll try to incorporate the PE valuation discussion before see this link

Remember SBS stated that they would want to offer 2.75 per share to the public. Take it or leave it. The company also stated their method of valuation in page on page 49 of their prospectus:


TMI (Too much information)? I guess so. Okay, let’s just play with numbers.

Offer price (Market price): 2.75

Earnings per share on March 31, 2015: 0.06; multiplied by 4 = 0.24 (2015 Estimate EPS)

So the company is plainly saying that they are offering their company to the public at a PE ratio of ~11 (2.75/0.24)

2.75 is indeed of a GOOD VALUE. Benjamin Graham likes a company priced <15 PE.


But as of 23:59 ET on 10/25/2015, the company has a market price of 6.47 per share.

That makes a PE of ~27. Overvalued.

If I will apply the simple PE average valuation I used in the blog before:


I’d arrive with a value of 2.88 per share. Well, that’s less than half of what the current price is at right now.

This valuation is very conservative—one may say, so I’ll include an EBITDA (earnings before interest, tax, depreciation and amortization) approach type of valuation.

The only required numbers that you need to get the value per share are the following:

The company’s EBITDA, multiple, and shares outstanding.

This is easy; we just have to get the company’s EBITDA, which is found on page 20:


Where is 2015? Well, SBS is still trying to work on that currently (it’s still 10/25/2015 at this time of writing).

So, conservatively speaking, since we don’t know 2015’s EBITDA yet. We’ll just use 2014’s EBITDA, that is 247,710,236.20

Next is shares outstanding, at this time the company has 1,200,000,000. This value can be found on p.53 of its prospectus:


So what do we have:


What is the Multiple?

You’ll be the one to decide what multiple you’ll use.

**An important note: I derive my intrinsic value using 41 different models, and a couple of those are discussed here. Here is a sample of my 41-different models at work:


I was trying to evaluate a U.S. oil company during that time.

Going back..

So, I do not say that performing the two valuation methods above would be enough for me to value SBS, but it would just give me an idea how much I would be willing to pay for each SBS share.

So what multiple? I see the number 9 as a conservative multiple. One can modify this and make it less or higher, it depends on you.


EBITDA x 9 = 2,229,392,125.80

To get the intrinsic value per share using this approach, we just have to divide that huge number with shares outstanding:

2,229,392,125.80 divided by shares outstanding 1,200,000,000 = 1.86 per share.


Wow, such a very low value.

Okay, let us try to be less conservative and use 15 instead of 9. (Remember, I am strict on using 9, but we’ll just modify it here)


We arrive with 3.10 per share.

So, for the first valuation we have 2.88 and now we have 3.10. Averaging them both would give 2.99 per share. Compare this with its current share price.

*I hope I could spend more time and running SBS’ numbers through my 41 different model, but given its limited historical data (such as cash flow from operation, etc.)–I wouldn’t waste my time estimating other inputs in my models.

Going back to the basic PE valuation, 2.99 would give a PE of 12.45. This is still acceptable with Benjamin Graham’s valuation of PE <15 before engaging with any stock purchase.


You judge, if you’d want less math. Just multiply that EST. 2015 EPS with whichever multiple you like and get your own fair value–that’s how I’d do it.

Now, the worrisome picture

*we’re almost done by the way

Funds From Operations

I always take a look at a company’s cash flow if it really does produce positive cash flow from its operations.

Page 19 of its prospectus gave these numbers:


In table, this is how it looks like:


I always look forward to a company who can show a consistent positive cash flow for the past decade. In this case, negative cash flow is a bad sign for me. In addition, SBS has a limited (just 3 years) historical data that is available.

Nevertheless, the company appears to have a good result in this metric in 2014.

Debt to Equity

This data can be found on p.20 of its prospectus


I usually prefer <0.5. In this case the company placed it there as %, we just have to divide those numbers by 100 and have a decimal representation instead. Thus, it will be like this:


SBS did not meet my requirement.

One last thing, management compensation (p.117 of its prospectus):


Take note: *the majority of the current senior executives of the Company did not receive salaries from the Company prior to 2015.

I believe the company has been doing a good job over the years, why it will last for almost half a century if it has not done so?

Regardless, paying appropriate bonuses and salary is a must to facilitate competent business operations (better to compare with other companies—but I don’t find it worth the time to do it as of the moment). Rather, I would demand for the management to engage in full blast to produce more profit and enhance its asset turnover to increase shareholder return as a result.

*Note: I did not discuss the company’s decision on its dividend policy-another thing to consider.

In addition, it’s not bad that a company of just 87 people (page 95 of its prospectus) can produce a revenue of ~900 million pesos annually. The question is.. when will they show MORE GROWTH.

Doing simple math, each employee is earning ~10,344,827.59 pesos for the company.


In summary, SBS Philippines has a GOOD business, but I would not purchase its shares right now.

Maybe this IPO will help the company better its operations therefore rewarding future buyers of its shares.

“If you don’t have that self belief then fear will take over.” Novak Djokovic, the number one tennis player in the world today (mentioned by Howard Marks in his recent letter)

Disclosure: I am long Potash Corporation of Saskatchewan. I would not receive any compensation for doing this article. I am not a professional financial analyst. This is just a hobby. Lastly, my work is not error-free, but I strive for it to be. Do not consider as a buy or sell advice. Invest at your own risk.

If you are interested in this similar approach to investing and would seek updates, I wish to invite you to this Facebook group SEEKING VALUE (

Happy investing.

Mark Y.

Warren Buffett and 11 Book Picks from His Bookshelf (WSJ)


Warren Buffett book picks includes the following (According to a Wall Street Journal article):

The Intelligent Investor, by Benjamin Graham

Security Analysis, by Benjamin Graham

Common Stocks and Uncommon Profits, by Philip A. Fisher.

Business Adventures: Twelve Classic Tales from the World of Wall Street, by John Brooks.

Where Are the Customers’ Yachts?, by Fred Schwed.

Essays in Persuasion, by John Maynard Keynes.

The Little Book of Common Sense Investing, by Jack Bogle.

Poor Charlie’s Almanack: The Wit and Wisdom of Charles T. Munger, edited by Peter Kaufman.

The Most Important Thing: Uncommon Sense for the Thoughtful Investor, by Howard Marks.

The Outsiders, by William Thorndike Jr.

Dream Big, by Cristiane Correa.


Warren Buffett (some highlights):

-85 years old

-Net worth of $62.8 USD Billion (As of 10/18/2015, world’s third richest man)

-Bought first stock at age 11: three preferred shares of Cities Service

-CEO and largest shareholder of Berkshire Hathaway

-Berkshire Hathaway (company worth $329.7 USD Billion; World’s 5th largest company)

-Berkshire Hathaway has class A and class B shares, class A is currently priced at $200,469 USD per share

-Berkshire Hathaway currently has ~60 companies (wholly owned), while it has numerous other publicly listed companies that it has invested in. I only included here top ten publicly listed companies Berkshire Hathaway owns (including its % in the portfolio).

1 12

-Berkshire Hathaway just celebrated its 50th anniversary on May 2015 in Omaha, Nebraska (sharing some pictures me and wifey had).

2 1 12 1 12

(and that will be hedge fund manager Whitney Tilson of Kase Capital (3rd picture) with ~$55 USD million total fund value and has at least ~$3.1 USD Million invested in Berkshire Hathaway; I just got lucky and was introduced by a good friend Ron-who is now running his own investment firm).

-You can become a shareholder of Berkshire too by buying its class B shares at today’s price of $133.81/share, only if you have access to U.S. listed shares (I personally think it is currently fairly valued right now).

-Berkshire Hathaway has never given any dividend since Warren Buffett took over. Warren Buffett claims that he can put Berkshire’s money at work and earn better return than just giving it back to its shareholders.

-True. If you’ve invested $1,000 USD with Buffett in Berkshire in 1964, that $1000 would have become $10,501,000 by 2014.


A quote to go by

“Only buy something that you’d be perfectly happy to hold if the market shut down for 10 years.” Warren Buffett

Disclosure: Long Berkshire Hathaway. Prices and value of certain data mentioned are as accurate as of 10/18/2015.


Berkshire Hathaway


Business Insider



Wall Street Journal

Book pictures from Amazon

Difference between a speculator and an investor by Benjamin Graham

Benjamin Graham (by
“The most realistic distinction between the investor and the speculator is found in their attitude toward stock-market movements. The speculator’s primary interest lies in anticipating and profiting from market fluctuations. The investor’s primary interest lies in acquiring and holding suitable securities at suitable prices. Market movements are important to him in a practical sense, because they alternately create low price levels at which he would be wise to buy and high price levels at which he certainly should refrain from buying and probably would be wise to sell.” — The Intelligent Investor by Benjamin Graham 4th Revised Edition, 1973, Chapter 8, the Investor and Market Fluctuations, pgs 204 — 205.

Markets are at PANIC LEVELS (Credit Suisse) and Value Investors are Underperforming (for now)



Global risk appetite dropped to “panic” levels for the first time since January 2012, according to Credit Suisse’s Global Risk Appetite Index (article published on 10/2/2015).


The index reached panic state around the onset of the 2008 financial crisis, after the Sept. 11, 2001 attacks on the U.S., during the dotcom bubble and after Black Monday in 1987.

That (panic territory) came as investors feared a sharp slowdown in China’s economy and a collapse in commodity prices.

But here’s for the good news: panic equals buying opportunities. The Credit Suisse analysts said panic usually is an overreaction to short-term events, providing a chance to buy risky assets at a cheaper price.

By Sara Sjolin (Marketwatch)


The concept of buying stocks that appear to be undervalued by the market was pioneered almost a century ago by author and professor Benjamin Graham, who lit a torch that’s been carried by the likes of Warren Buffett, Seth Klarman, David Einhorn and many others.

Using indexes of “pure value” and “pure growth” stocks in the S&P 500, the difficulty for value-oriented investors is easy to see this year. The pure growth stocks have returned more than 1 percent including dividends, outperforming value stocks by 9 percentage points.


Seth Klarman’s $28.5 billion Baupost Group it had posted a 1.4 percent loss in the second quarter and was close to flat for the year.

David Einhorn’s Greenlight Capital was down 17 percent in 2015 as of the end of last month

Warren Buffett’s Berkshire Hathaway shares are currently down 13 percent year to date.

Value investors often operate under the mantra of staying true to your thesis and riding out times of hardship like this with confidence that your picks will eventually deliver. But as the losses pile up, it’s looking like it will be a harder and harder mantra for investors in these funds to stomach as the wisdom of the managers is called into question.

By Michael P Regan (Bloomberg)



Philippine Stocks: A Great Hedge Amid Emerging-Markets Woes (Barron’s)



“The recent emerging-markets rout solved much of that problem by taking Manila’s shares down more than 16% from their April peak. One reason Philippine stocks sold off is that investors fleeing emerging markets needed to sell their most liquid and best stocks.

Now trading at just 15.5 times next year’s earnings, the Philippines clearly doesn’t look too expensive, argues Alfred Dy, head of research for CLSA in Manila.

“The disappointments were in casino-related stocks,” notes Dy. China’s crackdown on corruption and conspicuous consumption has hurt Manila casinos as much as those in Macau.

As a big oil importer, the Philippines benefits from cheaper oil, which also keeps inflation low and a lid on local interest rates.

CLSA’s Dy likes conglomerate Ayala (AC.Philippines), Banco De Oro Unibank(BDO.Philippines), and food and beverage giant Universal Robina (URC.Philippines).”


What are the companies included in the Philippine Composite (30 companies)?


More information on this link (


In India, Which Company has a Good Recent Performance of Handing out Dividends

Okay, investing in India may be difficult for foreigners who are not an Indian citizen. Anyhow, this may serve as a comparison to those previous countries I have discussed. As a foreigner, you can invest in India through purchasing either of the following: American depositary receipts (ADRs), exchange traded funds (ETFs), and/or mutual funds.

Anyhow, let us start.

Using the topyields website (, I was able to pick these four companies.

Remember: this is not how you should start researching for a worthy stock investment, but it helps to get a general ‘feel’ on how a limited group (4) companies in a foreign exchange is performing in terms of their annual/quarterly payouts.

Please see this link in a new tab for me to explain the importance of considering dividends when purchasing stocks (

I am writing this as of 9/26/2015.


Coal India looks appealing at this early stage with a high 6.50% yield. Whereby it just means that the company is giving 6.50% of its earnings to its shareholders.


Dividend Payout Ratio. This is how much a company gives back to its shareholders from their earnings. There are two ways to get this value. First, dividend per share over earnings per share. The other is retrieving the total amount of dividend provided and divide it with the company’s net income. I’ll use the latter. I prefer this number to be <80%.

*sifting through different financial statements, I cannot seem to locate Vedanta’s numbers. After researching, it appears that Vedanta is merging with Cairn India. So I had to replace Vedanta with the next top yielder Steel Authority of India with 3.77% dividend yield (lower than Oil and Natural Gas company).


Coal India appears to be overpaying their shareholders with >100% (red flag) of their earnings being given away. Interestingly, it gave 242,430 million INR or 3,664 million USD in 2014 while ‘just’ having 2,074 million USD in net income.

Did Coal India gave too much to its shareholders that time?

Yes, 1 Billion USD over its 2014 earnings.

All the others met the <80% metric.


Dividend computed annual growth rate (CAGR; Past 5 years). As an investor, I want to put my money where a company can grow its dividend consistently and has a previous track record. There are only a few (I think) companies in the Philippines who are able to do this when compared to stocks in the U.S. or Canada.

For example, Coke Cola (KO) has been giving dividends year in and year out, recessions, booms and bust, for 52 consecutive years. Royal Bank of Canada (RY) has been paying dividends to its loyal shareholders since 1870’s. Over time, their dividends had grown.


Well, it appears that both CAIRN INDIA and OIL and Natural Gas Company had not given any dividends 5 years ago (2011)-at least according to my research.

Anyhow, Coal India gave a tremendous growth, which supports my assumption that it ‘over-provided’ to its shareholders recently. Steel Authority of India, on the other hand, showed a 6.12% CAGR decline.

Nice to know information: Coal India had given a 5-year average of 2,139 million USD to its shareholders, while Steel Authority Of India had given a 5-year average of 133.84 million USD.


The Debt to equity ratio (D/E). Yes, we see this again. I personally require DE to be seen most of the time in several of my metrics. I would require <0.5. the lesser, the better.


D/E ratio revealed that both Cairn India and Coal India would not need to worry very much about their debts. Furthermore, all of the four companies actually pass the <0.5 metric.

Nice to know information: Coal India has a total debt of 60.74 million USD, while Steel Authority Of India has 4,346 million USD.

Okay, I guess we’ll stop here. If you are interested in learning about companies giving dividends in the Philippines or Hong Kong, click on the next parts of this blog.

A quote to go by

“Do you know the only thing that gives me pleasure? It’s to see my dividends coming in.” – John D. Rockefeller

Disclosure: I do not have shares in any of the companies mentioned in this article and don’t plan to initiate purchase within the next 24 hours. I would not receive any compensation for doing this article. I am not a professional financial analyst. This is just a hobby. Lastly, my work is not error-free, but I strive for it to be. Do not consider as a buy or sell advice. Invest at your own risk.

If you are interested in this similar approach to investing and would seek updates, I wish to invite you to this Facebook group SEEKING VALUE (

Happy investing.

Mark Y.

Part 1: Which Company Shares I Should Buy, Now that the Fed Kept Rates Unchanged?


Part 2: S&P500, Philippine Stock Market, Hong Kong, India, and the Fed Funds Rate.


Part 3: In the Philippines, Which Company has a Good Recent Performance of Handing out Dividends.


Part 4: In Hong Kong, Which Company has a Good Recent Performance of Handing out Dividends.