Sunday, 2 February 2020

Stocks on my watchlist are not cheap enough for me yet...



It has been a very bad week for investors who are vested.

To me adding is always an art because you have to balance with what you have in stocks already and your cash levels while thinking if repeated adding would be effective against your portfolio. Of course how fast you replenish your cash levels matters as well.

The urge to add more has always been there this week but its really not cheap enough yet.

HSI as of 1 Feb 2019 was  27930
HSI as of 31 Jan 2020 was 26312.

Going by rationale the 1 year performance would be roughly down about 5%

Will go over the watch list vaguely




China Property Coys (KWG Grp), Cement Coys (Conch Cement, Asia Cement)
- Its not anywhere near its 1 year lows yet.

Macau Concept Stocks (Galaxy Ent, Shun Tak Hold)
-3% down from 1 year price is not really an attractive entry for Galaxy Ent
-Shun Tak being a holding coy of SJM, is not near its 1 year lows as well.

Counters that I already held (1100, 610, 2686, 8502)
-610 not at 1 year low
-2686 is at a 1 year low but having added through out the past 12 months, would probably want a lower price to add more
-8502 only initiated in past 2 months
-1100 being the only counter i would want to add as it has really corrected in the past 12 months. The only reason i have not added is because the 3 months return and the 1 week return difference is roughly 4% which i feel the 'virus' effect has not kicked in on this counter.

NWS Holdings (44% down in 1 year)
-This is quite interesting as the company has found a new low once again. Being a mid/large cap definitely does have its implications of moving with the market trends and industry trends.
-Its possibly one of the companies that you would buy if you bet that the virus and protest are short term problems.
-Roads (Likely traffic affected due to lesser travels and possibly companies stopping work)
-Aviation( Plans to tap into the China Leasing Market a real bane as air travels in China should be at an all time low)
-Duty Free Shops, Convention Centres (Tourism double whammy, Virus + Protest. Possible cancellations of Exhibitions, Concerts and Shows)
-Transport (Some operations affected such as Macau HK connecting buses and Ferries Operations)e
-Construction (Should be fine but order books under threat if prolonged situations result in lesser expansion)
-Insurance (Should be fine as well but have to see the numbers.)
-Logistics (Likely affected due to lesser business activities by companies resulting in lesser demand for ports and storage operations)
-Environment (Should be fine)

The headwinds are plenty for this company. The impacts are most likely going to be reflected in its full results in September instead.
Though the results briefing in Feb for its half year and its reports should give some clue.
Estimating the impact is quite difficult for this company such that one has to just keep averaging if the long term belief is things will be better.


I believe the upcoming week should see some purchasing opportunities. I would be terribly surprised if i don't see any.







Friday, 17 January 2020

Let the blog talk about BreadTalk






















BreadTalk(SGX:CTN) released its profit guidance  on 16 January 2020, citing 3 main reasons for its net loss for the FY 2019

1. Widening of losses at the Bakery business in China and Thailand,

2. Widening of losses across several brands within the 4orth Division, i.e. Wu Pao Chun, Song Fa, Tai Gai and Nayuki, due to challenging operating environment, and

3. Significant deterioration in the financial performance of the Group’s businesses in Hong Kong across both the Bakery and Food Atrium Divisions due to the social unrest in the region.

Let's take a deeper look into the company and its recent results
-Breadtalk made 5.2 million in profits and 2.8 million to shareholders of the company, this means that it has incurred a loss of likely above 5.2 million on the whole or at least 2.8 million to the share holders of the company

-Hong Kong accounts for only 7.9% of its total revenue with non-current assets of 3.6%. Therefore I believe that the fixed cost should be low. Having said that, I remain puzzled how somewhere with only 7.9% of revenue can cause such a big loss when only a small amount of assets are there.

-As for the widening of losses in bakery division, part of the reason would be due to leases expense accounting that has made the results bad, the other half will be its poor operating margins that sink into negative level in the current financial year.

-Meanwhile for its 4orth division, I can't be too surprised with its poor results. The close substitutes to this segment would be companies like Japan Food, Old chang kee, R&S holdings. The results of these companies have been mixed and with lease expense accounting kicking in, the loss on the bottom line is expected. I reckon the restaurants have not hit a level where they are operating on a break even yet as the brands are still relatively less known apart from songfa and might take time to generate more recurring customers.

 What's next for the company?
- With a negative cash flow and net liability position, things have to turn quickly if they were to avoid a crisis themselves.

-They have 29% interest in Chijmes which they can sell for cash if really needed. Alternatively the tongzhou investment(5% interest only though)  will likely be completed in 2020 and 2023 which could provide some cash flow if successful.

-Alternatively there is always a chance to issue rights

Is BreadTalk a buy now?

-It's a Buy only if you believe in the brand story and its ability to expand overseas.

-Personally I do not think it is a buy as I believe that the overseas expansion story might have been a failure. Expanding food brands overseas is always a big risk and while everyone wants to be a Haidilao, not every company ends up being as famous.

To cite a personal example, I have seen toast box outlets in Hong Kong, but apart from the Singapore Selection foods like Laksa that I feel would be special to the customers in Hong Kong, I do not think that there is something else that I would not be able to find it in a normal hk style tea restaurant.

Perhaps building economies of scale in reducing cost via technology and consolidating its position as a leading bakery, food court and restaurant operator in Singapore would have been a much better plan. 

After all the food courts and restaurants have been the shining light of the company. Which is why i would also prefer food court operators like Koufu.

In expanding overseas,  I believe the cost saving synergy is not there and it would probably require a lot of outlets and investments for economies of scale to be reached.

Another possible pit hole to consider will be Wu Pao Chun's expansion in China, with the political results in Taiwan recently, it remains unsure how much Taiwan brands will be supported in China. Especially for those with many substitutes like bakeries.  

In other words, i think that the bread did the talk overseas but was unable to do the walk.

Tuesday, 31 December 2019

2019 Portfolio Review





2019 has been a relatively lucky year as I have done very little compared to recent years yet the returns was the better one.

Perhaps laying low and doing little was a correct call after all especially how bad the 2nd half of 2018 has been.

On the other hand, I attended more concerts than the previous years as well. In 2020, I hope to attend more than I have done in 2019.

Year
Buy Amount(SGD)
Sell Amount
Net Buy (Sell)
2019
42,804.68
36,190.07
6614.61
2018
117,229.86
127,703.72
(10,473.85)
2017
71,013.40
56,843.11
14,170.28

On the bright side of things, as a whole I still pumped money into the portfolio.

2019 Returns vs STI ES3
The HSI represented by tracker fund of Hong Kong (HKEX: 2800) has returned 12.78% this year.

My thinking would be that 2020 would likely be a year with returns much lower than 2019 and I have to be mentally prepared.

Since I have hit a target I have set midway this year, I would have to agree with what I would do if I hit the target....and that is to continue another year.

I can't say if it's a good or bad thing to continue for at least another year, time and hindsight will tell the story in due's time.

At the same time I would have to source for some new ideas and review some of my past ideas and assess if they should be added into the portfolio.

Many thanks to readers of the blog as well as those who have showed their support to me this year. I wish everyone a happy, prosperous and healthy 2020 ahead.

Saturday, 21 December 2019

3 Companies on my watch list with YTD 20%< loss, should I buy them?


Starting the post with a k-pop picture first.



In a year where the index has recorded a positive returns year, one would possibly consider bottom fishing for counters that have done badly this year.


I will be sharing my thoughts on 3 counters that have done badly this year, each having a year to date return of at least -20%



1)  SFK Constructions (Hkex: 1447)


·        YTD returns: -65.89%
·        A construction company based in Hong Kong, the company had seen tough business conditions which lead to its margins being eroded.  Gross profit margin fell from 4.28% to 2.5% while net profit margin fell from 2.2% to 0.47%
·        Various reasons were quoted in its profit warning announcement. Mainly replacement of non- performing subcontractors, unexpected prolonged period of inspection of works done and certifications of payments resulted in higher financial cost and lastly projects of higher margin were completed in the period resulting in lesser contributions

Q: Would I be interested in this counter as it trades at 0.78 of book value and 3 PE ?

A: Nope, personally I am not a fan of construction business in general as the margins have always been low. To quote Build King's annual report, to achieve a profit margin of 3% will have been remarkable, SFK has been unable to do it which represents a risk.
Furthermore, the announcement seems to indicate that the order book for SFK will have lower margins going forward unless it secures higher margins projects.
Given its revenue trends, the company probably has an order book worth of 1.5 to 2 years. With a lower profit forecast, the PE is not a safe measure.



2) NWS Holdings (Hkex: 00659)


·        YTD returns: -26.88%
·        Followers of my portfolio might find this counter familiar as i have briefly held it for a period of time(2017 Sept to 2018 May). Bought at HKD 15 and Sold at HKD 14.48 with HKD 1.43 dividend.
·        A conglomerate with business based mainly in Hong Kong and China, it has segments in roads, aviation, construction, facilities management and transport. Its most recent acquisition includes purchasing of FTLife Insurance a insurance company in Hong Kong.
·        Some of the more notable to public names would be management of Hong Kong Convention and Exhibition centre in Wan Chai, New World First Bus, one of the 2 largest bus brands in Hong Kong. The other being Kowloon Motor Bus (KMB) which is also listed as Transport International.



































Q: At the current price of HKD 11.26 and a dividend yield of 5.15%, would I be interested to buy this counter?

A: If I have a time frame of 3 years at least, I would be tempted to purchase this counter. The reason is that most of the company's segments are doing fine and the new acquisition of FTLife at a purchase price of 50% of its market cap would prove to make or break the company.
However, the transport and facilities management sectors have raked in increased losses and in the near term i foresee it is likely to continue. With increased wages, fuel cost and  the hk protest, revenue would be affected for its bus business while capex would be required to maintain the vehicles. Also its duty free and convention centre are likely to suffer from reduced visitors into Hong Kong and the accessibility of exhibitions during weekends. Coupled with increased agreed capex into the convention centre as part of a new operation agreement, the headwinds are definitely there.
In conclusion, if the timeframe is at least 3 years, I would definitely be keen to buy it. But in my own portfolio management there is more to ponder about adding a position into the portfolio apart from it being a good idea in the long run.




3) Bauhaus International (Hkex: 483)


·        YTD returns: -24.84%
·        Clothes retail outlet operator in Hong Kong, China and Taiwan
·        A company which has consistently shown losses in the first half of its results (from March to Sept). It has recently shown losses in the second half of its results as well, something that was not seen in the previous year. The explanation for a usually better 2nd half results is due to Christmas and Lunar New Year period. 过新年, 买新衣带新帽.

Q: At a dividend yield of 6.5%, would this counter be a good counter for bottom fishing?

A:Its quite a straightforward No.
1) Earnings are negative.
2) Retail landscape for Hong Kong is bad and I would worry if they would be able to pull through the current chaos having recorded bad results even when there was no chaos.
3) My memory of their outlets in Hong Kong is that they have been doing discounts and are not crowded.




Sometimes bottom fishing is never an easy thing to do. One has to think if the company is able to do well in the long run and assess carefully. Furthermore if 1 is on board a company which has fallen 30-50% in a year, a lot of work has to be done to decide if averaging down or cutting loss is the more appropriate actions.

With this i end off with a quote.

You look god-like if you had averaged down and subsequently you make over 50% as it rebounds over 100% but you look like an idiot if it continues to fall another 50-60% after a 30% fall. Whether you are able to do the former on a more consistent basis would be key. But then again no one wants the shares to keep falling after you had bought it. Unless you did not buy enough initially then subsequently any upside would not please you.






Saturday, 23 November 2019

Recent actions and thoughts





Actions

-Added SingHoldings
Ø  Relatively safer stock pick
Ø  52 weeks closing price of 37.5 cent to 41.5 cent, fluctuations of roughly  11-12% is not volatile
Ø  Will be cash rich after Parc Botannia project which is 95% sold is done.
Ø  Lack of projects moving forward a key risk, but trading at 0.6 of book value even with Parc Botannia not fully recognized yet is too attractive preposition.
Ø  1 cent to 1.375 cents dividend equate to 2.5% to 3.4% yield.
Ø  Recent buying of shares by owners at 37.5 cents could be a sign of a price floor

Sold half of Uni- Asia Group
Ø  Totally dumb decision in portfolio decision making sense as it's a loss making position and I sold half of it only.  Dumb decision make as a result of personal reasons but still dumb from portfolio management basis
Ø  When the position its loss making on the portfolio, usually I should have done 1 of the 3 options. 1) Hold and as the stock's financials are okay. 2) Add more if the financials are acceptable and the current price is an attractive buy. 3) Sell all of it as the results/prospects might not be as ideal as to what you have researched. I ended up doing none of the 3.
Ø  Results wise 3Q was decent as Hotels reached new occupancy rate and the absence of fair value losses resulted in a profitable quarter albeit barely. Cash flow remains strong and debt to equity has gone down.
Ø  4Q estimations perhaps -1 million to 1 million in bottom line. Equating to roughly 1.2 cents of loss/ profit. Key upsides that might affect earnings will be improve in hotel operations and closing of more marine related deals. Key downsides that might affect earnings will be a sharp drop in dry bulk rates and impairment losses of dry bulk vessels.
Ø  Personally after making a dumb decision, I am not sure what unpredictable action I might do with this counter.

Added Shinvest (a company that has rise by 200% this year)
  • -Fair value I think would be at least $3, though the main factor affecting valuation will be the decision of management in handling their investments
  • -Hopefully I would have time to attend the agm and hopefully they would be willing to share their plans moving forward.
  • -Always a psychological barrier for myself to add a counter that has ran so much this year but there will always need to be a first time to overcome such barriers.



Thoughts

KSH Holdings
-Results showed improvement in results which is good but cost of construction as a percentage of the construction revenue actually increased again.
-This leads me to believing that some project margins might not be profitable at all.
-As such there will be heavy reliance on Gaobeidian and the local projects that are in the form of associates and joint ventures.
-Affinity @ Serangoon looks like the best in margins. Thought I have some reservations about the margins of Rezi 24.
-A good amount of income also comes from loans to its joint ventures and associates.
-Ultimately the decision not to add this stock into my portfolio came from the really poor and deteriorating construction margins.

Tat Seng Holdings

-Cash flow generations remain excellent in 3rd Quarter
-Results although poorer than 3Q previous year, but that was to be expected as corrugated prices have been at lower levels as well.
-On closer look, depreciation this year is higher by about 900k while results was only poorer by 600k hence there has been an improvement in the business despite last year having higher corrugated prices.

The year has been kind to me, very thankful for that. Since one of the aims was met this year, its time to think about the year ahead...





Saturday, 2 November 2019

Thoughts on 5 years of investing


November 2019 actually marks my 5 years into investing. 5 years of trying different methods of investing. 5 years of doing the same thing....is definitely not easy.
Happy 5th Anniversary!

(What a 5th anniversary could look like)

(What these 5 years actually looked like to me)
(Credits to lovelinuscom)

Will be sharing some thoughts to what I have seen, felt and observed in these 5 years. Do note that these thoughts are definitely biased and might be wrong as well.

1) It's possible to be investing for 5 years and still be unable to encounter a take-over offer or a rights issue.
The former is probably due to luck and the latter would be picking companies with high levels of cash and low debt. Avoiding reits would also help in avoiding a rights issue

2) People who are awaiting a 'crash' like 2009 are probably still huge in cash since I have started investing.
Unfortunately, the STI has not reached the 1500 levels (1594 in 2009) from 2014 to 2019, the lowest it ever went while I was investing was about 2629 in 2016. Hence people who thought that in 2016 the oil price crash and the china penny stock crash was actually gonna send the STI to 2009 levels would probably be still logging in to their bank accounts on a regular basis thinking how much of it should go into SSB and telling themselves the crash is definitely coming as its long 'overdue'

3) Power of compounding > Waiting at the right time
This point has been illustrated many times online on a numbers basis. However the psychology of losing money is too strong for some people. For others, it's about whether they can compound well. Index funds have decent past results but naysayers would always say 'Past performance does not guarantee future results keke'. Ironically it's also some of the naysayers that say the 10 year once crash is due and mocking those that say 'this time it's different'

Year
5%  Compounding
10% Compounding
15% Compounding
20% Compounding
25% Compounding
2% Bank Interest Compounding
1
1
1
1
1
1
1
2
1.05
1.1
1.15
1.2
1.25
1.02
3
1.1025
1.21
1.3225
1.44
1.5625
1.0404
4
1.157625
1.331
1.520875
1.728
1.953125
1.061208
5
1.215506
1.4641
1.749006
2.0736
2.441406
1.082432
6
1.276282
1.61051
2.011357
2.48832
3.051758
1.104081
7
1.340096
1.771561
2.313061
2.985984
3.814697
1.126162
8
1.4071
1.948717
2.66002
3.583181
4.768372
1.148686

18%
41%
57%
68%
76%


The last % is the amount u would have to lose in a market crash to lose to 2% Bank Interest Compounding which we all know is just a layman assumption as interest rate falls, it's difficult to find a pure play deposit and obtain 2% interest in each month.

4) For stock-picking, idea generation is important.
I have probably came across roughly 40 stocks in just 5 years that I have bought and sold some. So it's safe to say each year I probably need to have about 8 stock ideas that I would execute. The number of ideas would definitely fall when one is being more concentrated. I would say 5-6 ideas a year is pretty good already.
Another thing would be that you cannot expect all ideas to do well, it will not. There will be some hits, some misses and many more refining and going back to the drawing board to redo the process again.

5) Attending Company Agms are important even if not all Agms are particularly useful.
That is one way I seek some confidence in holding stocks that are relatively less known and those that I have quite some losses in. In particular to those that are in deep red, attending agms would allow me to gather some thoughts to if I should average down and when I should.
My thoughts would be that
If one would buy insurance to cover the risk of yourself falling ill or be unable to work, why would you not seek some form of insurance to your own investments even if it's not fool-proof.