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Sendai P/E 8 why buy and not Hengyuan P/E 2

I often see more criticisms than praises for my writings on i3investor forum. I also notice that my critics will perpetually find something unpleasant to say. They are egoistic. They think by running me down they want readers to think they are so clever. If they are really so clever they should write a full-length article for people to criticise.

Whenever I write about any counter, my critics would always say that it was time to sell because I wanted people to buy to push up the price for me to sell to make money. Based on what they said they would have sold all their Sendai shares at 70 sen. That is why I do not see so many critics now. They must be bleeding and leaking their wounds.

Fortunately, I often see the few who would faithfully defend me. I am sure they would have made a lot more money by believing me.

Why should I care about what people say?

At one time or another I have been guilty of caring too much of what people might say or think. I hesitate to be more innovative, creative or speak up because no one wants to be told that his idea or plan is wrong.

If I cannot overcome my fear of criticisms, I would not be so successful in whatever I do. I am an entrepreneur and I am willing to accept criticisms and to take calculated risk in doing business or buying and selling shares.

Current debate is “why buy Sendai P/E 8 and not Hengyuan P/E 2”

Now I can see on the i3investor forum that many people are debating on this interesting question.

Why should I bother to share my opinion?

I am willing to offer my opinion because I like to share my knowledge

and I am not afraid to see criticisms

Let me tell you what I know about P/E ratio. It is an easy and quick guide for share selection. P/E ratio is largely based on investors’ willingness to take the risk to buy the share. If you buy Sendai at P/E 8, it will take 8 years to get back your money if the company gives out all its earning to shareholders. Currently many rich Funds are buying Sendai because they believe the company can increase its earning as time goes by. If the company can increase its earning, it will naturally take a shorter time to recover their cost.

A good example is Nestles which is always selling at around P/E 40 and if you buy it and assuming the company gives out all its earning, you will recover your cost is 40 years.

Another good example is Public Bank which is always selling at P/E around 18 and if you buy it and assuming the Bank will give out all its earning, you will recover your cost in 18 years.

Small short-term investors will not buy these shares at such high P/E ratio. Only rich Funds, EPF and Insurance companies will buy these safe shares with long proven track record of making increasing profit.

Talking about Sendai, as you can see, the daily traded volume is so massive that no individual including I do not have so much money to buy so many shares traded daily. Rich Funds are buying aggressively because they believe the lift vessel will pass the sea trail and the buyer Tan Sri A K Nathan will be able to secure bank loan to pay the company soon. The price is moving up on auto drive and I hope it will go above the previous peak at Rm 1.40 per share soon.

The rapid rise in the share price is proving my critics wrong.

If you look at Hengyuan price chart below, you can see that it has been dropping from Rm 18 to close below Rm 8 per share in the last 3 months. The company announced its earnings per share was Rm 5.90 for last year. The current price is Rm 8 which means that it is selling at P/E less than 2. Even at such low price, I will not buy it because the company will definitely make less profit this year than last year. The refinery has to shut down for about 2 months to upgrade its refinery to produce higher grade oil and the company has also to pay tax for the profit it made last year.

 

As I said many a time, profit growth prospect is the most important catalyst for pushing the share price up. Never buy the share of any company if the company cannot make more profit in the current year than in last year.

Generally, investors are quite smart. They will not buy as they can see that Hengyuan cannot make more profit in this year than in last year. Nevertheless, I know there are still a few stubborn investors who would not admit their mistake and cut loss.

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