Hey pal,

Just 2 days ago u said was too conservative n now u changed your mind :) I' m not laughing at u, from the way you poised your question to me I know u have not read last ten years of DBS financial reports, most likely u have not even read its 2015 report, m I right :) it is becos u have lack of understanding of past DBS performance in term of its management managing it' s credit risk u are easily shaken when a new piece of info is presented to u. Thats the reasn y most investor bcome very fearful when they are occupied with negative news n rumour of the company n they start to panic n dump their share (becos they dont read financial report). As an investor or analyst we must thoroughly understand the operating history of a company becos it will tell us how the management run the company n how they respond during the bad time.

Reading the last ten years of financial report only tell u about the performance of a single bank, u will need to read the last ten years of financial report of rest of the banks in order to know the impact to the banking industry given an economic shock like this oil n gas crisis. I have spent about years to read all these financial report from sg banks, hk banks n some prc banks listed in hk. Thus I can see the impact of the global shock to the regional banking industry n the different magnitude of impact to every individual bank. The more u read the more u will understand the banking industry n u will be confident of the provision u provide in your valuation n u will not b easily shaken. Thus there is lot of hardwork to be done n not simply just inputting the numbers n tap your calculator n u will get your valuation. You can only do this after u have put in your effort to scrutinize the financial report otherwise u will not be confident of what u r doing n u will also not able to understand the logic of your own valuation.

At this moment i will not tell u my view on the provision to the oil n gas becos what I say is not important becos it will not register in u (I can' t transfer all the info which I read to u like a computer). Most important is u know whether will the provision be enough n if it is enough y is it so, likewise if u think is not enough y is it so? U will only be able to conclude after u have put in your hardwork n this is a process u must go through if u want to apply value investing, there is no short cut. All I can tell u now is everyday I can wear a sunglass at home, blowing whistle, eating pop corn while watching tv n totally not affected by the oil n gas.

Of cos this provision is not going to be a one off provision, it will be adjusted in every quarterly report becos there is no way to be 100% accurate by just giving a one time provision n expect the ultimate outcome to be in line with my own estimate. Everything has to be done step by step. To provide a reference to your eps, my adjusted eps for 2015 was sgd2.10..u r welcome to come back for question relating to the calculation but for question relating to credit risk n others I will still strongly recommend u to read..no easy way out.

Thank you n good night :)

 

Before I wrote to u I took a look at my spreadsheet, my valuation as at Q1 result (latest result) is sgd12.70..sgd8 plus is the preferred entry price..

Tourisim is a very income sensitive demand. When economy is slow corporate client will cut back their travel or travel economy instead of business class. Consumer will also cut back their number of holiday per year or choose to go to those nearer destination for their holiday. Thus a slow economy will affect the number of flights n the quality of the customer taking these flights. 

Although airline industry faces inelastic demand just like telco however they are difference in the sense that airline industry earn their revenue through per ticket basis (every new trip consumer can choose to travel with different airline by comparing their prices). Where else consumer in the telco industry just continue to pay their monthly subscription to their existing operator, in addition becos the   subscription amount is not significant as compared to an air ticket thus consumer r less price sensitive in the telco industry.

Thirdly becos consumer can compared prices with different airline each time they travel, operator will compete with each other on pricing n this is bad for inelastic demand becos it' s revenue can b affected significantly. Although sia n Cathay pacific tend to price their ticket with premium due to their strong branding as compared to other airline, it will still present a certain degree of impact to their bottom line.

Sia Q1 result showed that it' s operating profit continue to grow but it' s CEO commented " to prepare for tough time ahead" ..as for Cathay pacific it' s half year result showed deteriotion in its operating earning due to stiff competition in the prc mkt. thus it is important to be watchful to the performance of other airline becos it will tell us more about the industry. although oil price have fallen, airline will still be affected if the economy continue to slow. Thus if the result for the coming quarters become soft, valuation can be adjusted downward n past magnitude of decline can happen again..

Becos the nature of the industry is volatile it is better to safeguard our capital by taking a thick margin of safety. When a company operating profit is volatile it' s share price will also tend to follow, do be careful..

Thank you :)

Meanwhile the European-Mediterranean Seismological Centre (EMSC) measured the quake at a preliminary magnitude of 5.7.

Subject: Net Profit (NP) (Part 2)

Today I would like to share on how non recurring item distort our valuation n I have the followings for your leisure reading

assuming an employee who is generating a net cashflow of 50k from his employment also owned a property worth 500k. He sold his house n profited 200k from the transaction. The sale proceed of sgd500k (incusive of 200k profit) will be credited in his balance sheet as cash. At the same time, The 200k profit will be recorded as extraordinary item in his income statement (hk reporting will record as sale of property). Hence his np for that particular year will be 250k (assuming no other revenue or expense for simple illustration).

When we apply the valuation model of net asset + future cashflow x 10 years (ignore discounting n growth factor for simple illustration) we will realize that the valuation is overstated by 2mil (valuation should only increase by 200k) if we use np as a measurement.

Likewise it will also distort the pe ratio due to an increase in np that pushes down the pe ratio n thus mislead investor (low pe indicate a stock as cheap) to buy. There are many items which we need to adjust in the financial statement to reflect the true value of a company becos most of these items are overlapping each other in the balance sheet n income statement due to book keeping purposes. Thus basic accounting knowledge is important to perform the task.

Few days back news reported that EU has ordered the Irish government to collect an omitted tax of 14.5 billion from apple. If it materialise, this amount will be a non recurring expense to the company, thus those who like to invest in apple may have to provide provision for this amount on your own first for conservative reason. Up to this point some may begin to understand y I said it is not necessary to pay attention to macro factor that will only stir emotion n create volatility to the short term stock mkt but it may not have any impact to the fundamental of a company. News that is concrete n have a direct impact to a company fundamental will be viewed importantly.

Thank you :)