Investing Mistakes and Making a Loss: PC Partners Group (Hkex: 1263)

Its not very often you see blogs talking about making mistakes and losing money. So here's one post of such.

PC Partners released an undesirable full year results on friday. The result definitely missed my estimates.

Key Highlights

-Revenue came in at 9122.3 million for Full year. 2H was 3583.9 million, 35.8% lower than 2H of previous year.
-Gross margin came in at 6.4% for 2H, one of its lowest margins ever since its ipo. Included was 120m provision for inventories(Due to markdown of value and obsolete inventory provisions)
-2H recorded a loss of roughly 70m hkd or 10 hk cents per share
-As a result, no dividends has been declared for 2H results.

Personal estimates

-Revenue to come in at 20-30% lower than last year 2H however this has missed as revenue came in at 35.8% lower. This estimation was made after looking at other graphic card manufacturer's sales.

-Gross profit margins to come in at roughly 8%. This was a miss as well as gross margins came in at 6.4%. The estimation was made after observing a sharp 30% drop yoy in gross margins of fellow graphic card manufacturers.

-All in all i had expected the company to record roughly 20 hkd cents of profit.

Had the provision and exchange loss been not accounted for, profit before tax for 2H would have came in at 70 million or 19 cents per share. Though that's not how investments research and assumptions should be done.

Personal thoughts

-My inability to account for such provisions and estimate earnings accurately has definitely result in a costly investment decision.

-I have decided to exit the investment at an average price of 2.467 hkd per share. Having made small gains from 'buying and selling' this counter back in 2017 and early 2018, this results in an overall loss of 27104 hkd from this investment. With most of losses already recorded prior to the sale, the impact of the sale is a decrease of networth by 12474 hkd

-Its easy to say these losses are only worth a few thousand sgd but from the perspective of mr working adhoc earning 1k a month, its safe to say this is one mistake i will remember for a long long while.

-One saving grace was that the value of the counter has already tanked so much that it only stood 12.88% of the portfolio and 9% of total net-worth. Which means if it was 0 value, it would mean that i would only lose 9% of my money.

-The decision of selling was a result of 2 causes. 1) Inaccurate estimations meant that the current method i have used for researching on this stock is useless and therefore it would be really pointless to continue researching. 2) This would allow me to take my mind off things and focus on other stuffs.

Thoughts on PC Partners moving forward

-Moving forward i believe the company will still have to clear the inventory of old graphic cards (finished goods is double of last year's numbers)

-The first 2 months of revenue in 2019 of a fellow manufacturer has been 34% of its 2H 2018, which seems to indicate that similar trend is very likely to continue.

-A profit warning will likely occur given how high the barriers have been set in 1H 2018.

It remains to be seen how the leasing servers joint venture will turn out.

Personal actions to take

-Safe to say estimating earnings has been more of a bane than a boon for myself. Producing more undesirable results than desirable ones. I would be better to stick to other methods such as special cases and book value investing more.

-Probably use whatever is left from the 'cut loss' to enjoy life more (e.g watch concerts or buy k-pop merchandise that i really wanted to buy but on many occasions i have been holding back to build up money to invest)

In life there would be times you hit and times you miss. Times you smooth sail and times you crash hard. There could be 101 other reasons that resulted in a crash or just simply one is incapable which resulted in the crash. 

My own takeaway would be how i approach my next venture out again and what i would do to prevent similar mistakes from happening again.