Tuesday, 31 March 2020

Considerations of buying stocks in recent times

It definitely has been an unprecedented past 2 months with prices fluctuating largely day in day out amidst a longer downwards trend since the start of the year. (The picture above probably describes long-term participants in the market somewhat)

In such times, i do get the rare few messages that ask about buying stocks and I take that as a sign of people paying more attention to participate in the market.

Before actually buying stocks there are a couple of considerations that I feel are more essential to answer before making the final move. I would try to give my personal inputs although these are just my thoughts only and could be very wrong or subjective.

Q1) Timeframe. Are we buying for the long run or are we buying for a short-term trading position?

A1) If it’s the short-term then the person possibly already has an aim in mind, if he/she does not then its advisable not to execute.

If it’s the long-term then the person has to ask him/herself if that amount of money that the person has put in will not be touched in the foreseeable future despite job loss or any crisis. If say you only have 10k cash but you do not have the job security then its more advisable to not put that 10k in stocks. Putting into something less volatile like Singapore Saving Bonds would be better.

Q2) Choice of Equity. Assuming Q1 did not deter us from investing, should we buy an Index ETF or a specific counter.

A2) It’s a tough question to answer personally, I feel that if you are ok with market returns an Index ETF is always safer as it’s a basket of stocks and it won’t go bankrupt unless the whole basket of stock bankrupts.

Specific stock picking always entails a higher risk and most specific stocks require monitoring as well. Which is why when people ask me about Singapore individual counters, my general advice is that apart from Banks in the STI, the rest would require reading of its financials and news related to the counter.

To cite a biased backwards example of STI ETF (ES3) vs a bank stock DBS (D05) vs a well-known household name Sheng Siong (OV8)

1 Feb 2016
31 Jan 2020
Dividends Collected
Total Return*
Simple Average Return per year
DBS (D05)
Sheng Siong (OV8)

*Assumes that the user is like me who spends the dividends on leisure and anything he/she likes apart from investing it back.

The point of the example is to show that returns largely differ between individual stocks and index etfs but that’s because the risk is different as well.

Say if I had bought DBS/Sheng Siong in 2016 instead of the STI ETF, I would probably be still somewhat more comfortable currently.

Q3) Sizing. How much should I be firing into assuming this amount of money I have decided that its definitely safe and not affected by other factors?

A3) Sizing is an art, personally I feel that this really depends on how a person perceives loss of money vs gain of money in the mental state of mind. In reality when you lose a dollar vs when you gain a dollar it should be -1 and +1. But a lot of us including myself are not as mentally strong yet for a variety of reasons. Example: Lack of investing experience, Aversion to loss, Thrill of gains.

If your ‘lose a dollar’ is more than a -1 to yourself and you know it, its better to break the amount into 3-5 parts and slowly purchase at every 10% it falls. Sure, enough you might not get to fire everything but at least you don’t feel that bad when your first few purchases start losing money.

Do bear in mind how many counters you are holding because sometimes you might start having to average some of them and you might realize you have run out of money more quickly than you have expected.

Q4) What are the SGX counters you have been looking at?

A4) Just looking of course. Will list down the counters I’m looking at and short 1 liner explanations.

Sheng Siong – Should it fall even further by another 20%, it should be quite interesting

SBS Transit- Already fell like 50% from its peak? The upside is winning the bus packages in 2H of 2020 but the downside is lockdown. Ridership is expected to decrease in this period but assuming 1 quarter brings in about 6-7 cents eps the fall in profit should not trigger such a huge sell down.

Tat Seng Packaging – Considering some foolish sense of averaging and buying back into China just seems a little safer at the moment.

SingHoldings- With Parc Botannia TOP likely in 2021, this counter will most likely be cash rich which does not reflect its current valuations although there is risk of buyers defaulting and lack of visible projects that will affect its earnings in 2021 and beyond. As of end March 727 units seems to have been sold, that leaves 8 units left assuming 735 units on the internet is accurate.

Powermatic Data- When in doubt, a cash-rich company and really good balance sheet company like Powermatic Data is always a solid pick.  

Saturday, 7 March 2020

Tat Seng(Sgx: T12) 4Q Results write up – A good 4Q but cut in dividend remains puzzling

(My reaction after seeing the dividend declared)

Tat Seng released its full year results on 27 Feb 2020, I appreciate the 4Q results but it seems like the price has continued to slide after the release of the results

-4Q profit came in at 5.898 million compared to 5.516 million last year. That is an improvement of 6.9%. This is commendable as corrugated paper prices have been higher last year and traditionally Tat Seng shines in the 2H of the year.

-Adding to that, the depreciation this year has been significantly higher than last year, Q4 2019’s depreciation came in at 2.736 million while in Q4 2018(which had lousier results) only had depreciation of 1.762 million. This means that the additional investment had been able to generate better profit and margins to overcome the depreciation of the capex.

-4Q 19 Gross and Net Profit Margins came in at 20.6% and 7.75% respectively 4Q 18 Gross and Net Profit Margins came in at 18% and 6.68% respectively. Selling more (Higher revenue) in 4Q 18 has not seen higher gross and net profit in terms of both margins and actual figures.

-In terms of liability to asset ratio and current ratio. As of 31 December 2019, the ratios are 0.46 and 1.72 while in 31 December 2018, the ratios are 0.54 and 1.48. Clearly the company is in better financial health.

- Borrowings have greatly dipped across the year. As of 31 December 2019, the company had borrowings of 57.477 million while in 31 December 2018, the figure was 87.169 million.

-Lastly sales volume increased 3.2% from 2018, 4Q definitely recorded a larger than 3.2% volume increase as the 1Q to 3Q increase was 2.1%. The growth is encouraging.

-Final Dividend of 1 Cent, no explanation was given for the cut in dividend. The only reason I could have thought of would be fears of Covid 19 might drive down results and its better to keep more cash in the books. Otherwise it might be that the cash might be required to fund its new factory equipment in Hefei.

You would have to go back to 2015 the last time it paid 2 cents of dividend for FY 2014 which it earned 9.6 million. In contrast, the company earned 14.8 million this year.
Also, a dividend of 3 cents was paid in 2016 for FY 2015 when it earned 13.1 million. So it made really little sense why the company is paying 2 cents this year apart from Covid 19

-Cessation of Quarterly Reporting, while such reporting might incur more cost, the scrapping of the reporting is bad in my point of view as this means that retail investors would have more lag time and unable to ascertain how the company is doing particularly when Covid 19 is affecting china and there is no mention of whether the China Operations have resumed or have been halted since the outbreak.

Final Words
If there is no delay to the AGM this year, it would be one that I have to attend at there are a lot of question marks after the results was released. I believe the current headwinds should they continue, should drive the price of the shares down as operations continue to suffer.

Meanwhile the company trades at 4.25% dividend yield, PE of 5.15, PB of 0.55. 

Sunday, 23 February 2020

Dynamic Colours Limited (SGX: D6U) (Dynamic results with decent value?)

Dynamic Colours Limited(SGX: D6U) posted its results on a Sunday Morning (strangely enough)

Profit came in at 107.3% higher than previous year, with 1 SGD cent dividend declared

Valuation in Numbers based on closing price of 0.179
PE: 9.72
Dividend Yield: 5.5%
Price to Book: 0.8
Cash per share: 13 cents
Cash per share net of liabilities: 6.4 cents

With more than 1/3 of its current market cap being cash, the business is trading at low valuations.

Counting in only continued operations, the net cash PE comes at 7.6.

With core earnings coming in at 1.5 SGD cents, I believe the company has the ability to pay the dividends of 1 cent as well.

Looking at the cash flow statement, it has performed tremendously well.
The depreciation is high and the capex is low, which means cash flow generation has been good. Though there is still a need to keep a look out for future capex.

The key value comes in the announcement that their china plant and land has been compulsory acquired by the government

From the announcement, it has stated that the company will receive $12 million USD and  the estimated gains will be $5.8 million USD or 3.9 SGD cents per share.

From its cash flow statements, it has received $5.1 million which means there is half of the gain to be recognized.

Adding that to the cash it already has, it should mean that at current price at least half of the market cap is cash.

That to me is a really cheap business, though we would have to keep an eye on the Polyethylene Packaging business which had lumpy earnings

A key reason i believe for the lumpiness will be the price of Polyethylene

It has decreased in 2019 and probably has lead to a better bottom-line.

Closing Thoughts

  • It is a company i have been tracking since September last year but there really isn't much selling going on for me to purchase it. 
  • It is a cheap company as of now but as its FY 2018 and 2019 results have shown, it is susceptible to fluctuations
  • Though the recent compulsory acquisition would definitely have added more cash to the company and made it a much safer and value buy. 
  • It is worth noting that the company has given out special dividend before back in 2016 when they disposed their factory in Yishun.
  • Pulling the trigger is not the issue, the issue is would there be one for me to pull?

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.

Buy Amount(SGD)
Sell Amount
Net Buy (Sell)

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.