Recent Portfolio Actions. New Initiation?

 It wasn't that long ago that i wrote and updated my portfolio back on 9 April.  

(The HSI has increased by close to 8% since 9 April)

The returns then was 10.77%. Many things happened since then and now we are in June. The returns this year at this point is actually pretty similar to last year if i remember correctly......which is good. Last year in the second half of the year there was not much sizable movements or additions.

This year, I had intended to take a more wait and see approach as well....but i have decided to make some changes to the portfolio nonetheless

(All Guns Blazing, Lets Go)

I added a new stock to the portfolio. I am not sure if i could say this is a 'New Addition' because I have held this stock before and I have made money and lost money in the stock before......

Based on the game above, i am not sure if you can tell what company it is.......but perhaps the picture below will give you a better idea.

Yup i am welcoming back an old friend / joker. That is IGG (Hkex:799). It is a stock that i have been keeping tabs on for maybe 1 year plus even after i divested it at a loss back in 2022.

The thesis right now is different from when i bought it in 2021. Right now I think that it is a stock that has a new source of business revenue, some revenue diversification as well as usage of AI to cut cost. At a forward Estimated PE of less than 6, it is a stock that has interested me.

Some current details of the stock. Its Market Cap is currently 3.5 billion.

1) FY 2023 looks not impressive but 2H 2023 showed good profitability. 

Net Profit for its Core Business 

FY 2023: 17 million

1H 2023: -360 million

2H 2023: 373 million

Revenue

FY 2023: 5.265B

1H 2023: 2.499B 

2H 2023: 2.766B

This return to profitability can be attributed to reduced selling and distribution expense and lower cost of revenue.

It is worth noting that the 2H Profitability is done when Lords Mobile recorded a lower revenue of 1.45b in 2H 2023 compared to 1.65b in 1H 2023.

When we add that the revenue in 1Q 2024 is 1.4 billion , I think there is a good chance of this earnings being sustained.

2) App Business 

A shining spot for its recovery in revenue is due to its APP Business. Which IGG said on its earnings release presentation that it was 10 years in the making and it is still confidential and as such not much details are given on what are the apps apart from the revenue is being generated via ads.

App Business Revenue

1H 2023: 0.189B Average 33 million HKD

2H 2023: 0.390B Average 65 million HKD

However, management reviewed that they have decided to remove some apps that are more susceptible to regulations and are also less profitable in Jan, this has led to a change in focus and business model of the types of apps the have as well. This has led to the January 2024 App Revenue to fall to around 39 million HKD. In March 2024, the business has shown good recovery and recovered to 62 million HKD. In April 2024, it is close to 78 million HKD.

As such, it will be interesting to see how it does in May and June and as a whole the trajectory.

It is also worth noting that despite lower revenue in 1Q 2024, the company's revenue still is much higher.

3) Use of AI

The company has also mentioned that they have been using AI in their work to reduce the research and development cost as well as operating cost.

For example, computer art is now done by AI and development of apps can be done by 10+ people instead of 60-70 previously thanks to AI.

In terms of operating , it has cut down the amount of customer support required and helped in translations and coding. 

Similarly Operating Expenses has came down as well compared to 2022. 

4) Other Business Supporting

2 Games that have done decently in 2H 2023 would be Doomsday and Viking Rise.

Dooms Day

1H 2023: 0.249B

2H 2023: 0.428B

Viking Rise

1H 2023: 0.122B

2H 2023: 0.285B

Management guided that Doomsday has hit 100 million revenue in March 2024. As such, it would be interesting to see the growth trajectory as a whole.

Conclusion

I believe profits should be better than the 373 million unless too much of the revenue is spent on aggressive marketing. Nevertheless, Doomsday has continued to grow and the APP Business might surprise on the upside as it does not have the 30% distribution of its revenue unlike its gaming apps which will continue to contribute better gross profit.

A Positive Profit Alert is almost guaranteed but how much the amount will likely decide the share price movement.

A Citi Report gave a TP of $4 with a full year profit of 696 million in 2024. I believe there is a good chance that the company will earn above this amount.

I have been wrong before so yeah, sometimes i question if i have to pick up this stock but i have decided to trust my research and go for it.

However, given that I am actually not cash-rich, i have divested some Huationg Global to allocate into this position. 

Previously i have added more Huationg at a relatively high price in an attempt to enter the top 20 shareholders in the annual report for my own yaya papaya pride. Now that portion is over as the annual report is already out long ago, i have decided to trim slowly back to the initial core holdings and observe the business developments.

I could have made a decision when i see the results in August but it was just one of the few rare moments when i decided to go punting to get a better return this year. 

Currently i am capping the exposure at 10% of the Portfolio

However, if the market fluctuations gets much more and start swinging the IGG Share Price to a larger downside amount before the profit announcement or if the H1 profit is much higher than 410 million but the share price remains depressed, then i would be keen to add more %.

Although that would mean by then I will have to rethink the allocation of other stocks based on the economic conditions then.

Time for some K-POP Picture Spam

And Finally for anyone interested in the current returns as of 11 June.

Wee Hur (SGX: E3B) An attempted analysis

 I tried to look at Wee Hur the past few days. Perhaps i will write the verdict first.

At current price of 0.215 as of date of writing (7 June) , i think the student accomodation segment will have to grow its profits massively by at least 40 million to around 60 million operating profit for this company to be worth the risk. The workers dorm portion might not do as well. As such, the gamble will be on the revenue expansion and margin expansion of the student acco segement.

Introduction

Wee Hur is a construction company that has expanded into various fields of operations. As such, it can be broken down into these 5 business segments mainly.

1) Building Construction

2) Property Development 

3) PBWD Operation

4) PBSA Operation 

5) Fund Management 

 At price of 0.215, it represents a market cap of 201 million and a book value of 0.326.

I will be looking at various segments of it individually. 

1) Building Construction

Looking at the above, it does not look good for this segment as we have seen losses in the past 2 years.

Management says they forsee a turnaround in the segment in the near future.

But for the conservative sake, lets just assume this segment will record -5 million in 2024.

2) Property Development.

In this portion, there are 3 things that are on-going. 

(i) Mega@Woodlands, Completed but 96% sold. As such, around 4% (20 units) is left to be recognised. 600k looks to be an average price. As such, this segment is probably 12 million of revenue left to be recognised.

Looking at the margins of 37.5% in 2021 for property development when Mega@Woodlands is the only project, i think around 4.5 million can be recognised from this segment.

(ii) Bartley Vue, TOP in 2025/2026 with 90% Sold. The margins for this segment is slightly lower. Coming in at around 20% based off my estimates. According to annual report, around 123 million is left to be recognised. As such the profit coming in from the next 3 years is estimated to be around 24.6 million.

Considering TOP would have higher recognition, i would probably think that year we would see 8-10 million being recognised while the rest in latter years.

(iii) Mixed Used Development in Australia. Not being valued as details vague at this point.

As such, this year we should see hopefully. 12 million in profits.

3) Workers Dormitory

Now we are getting to the 'fun and interesting' part of things

The company has a 60% stake in the 15744 Beds Tuas View Dormitory

If we take a look at the rental income and expense, this segment contributed around 48 million in 2023. 60% will mean 28.8 million.

59m in rental income but only 10.8m expense

If we use the rate of $500 per bed per month that i have seen for Tuas View Beds Price, this 15744 beds equates to a revenue of 94.4 million in 2024. 

Assuming Margin of 80% as seen above, we can get 77 million profit. 60% will be 46 million.

Wow What an impressive amount. Lets go buy Wee Hur and it can go to the moon already.....oh wait i mentioned in the conclusion that the workers dormitory might not do as well. 

Firstly, there has been an extension of lease at November 2023...........

So is there new terms or are they on the old terms? I mean this is like the golden question since Wee Hur getting the chicken wing or the half chicken matters.

Unfortunately, it does not look good, seems like they have to pay 36 million a year. This means that even at 94.4 million revenue, their profit will be around 58 million at best. Well it is unknown what are the fees or structures involved in this. But if i were to wild guess, probably another 8-10 million in operating expenses.......this will mean a profit of around 30 million at 60% ownership.

As such i guess i will attach 30 million profits. In anyway, my expectation is that it is likely to be lower than what is earned in 2023.

4) Student Accommodation in Australia (50.1% Ownership)

This segment is definitely expected to outperform in 2023 compared to 2022 due to demand factors and students in Australia this year is at record high

2023 Revenue: 77.7 million 

2023 Operating Profit: 20.6 million

Number of Beds: 5662

Implied Revenue Per Bed Per Week: 263 

Centurion 1Q 2024 Revenue Per Bed for Aus Acco: 368

Implied Full Year Wee Hur PBSA Revenue: 108,348,032

Current Occupancy: 90%. Assuming some improvement to around 93%   

Implied Revenue: 100,763,669

Implied Operating Profit Range: 26.6 million to 48 million

What are the things to look out for that might affect the profitability?

(i) Whether the rentals keep increasing, after all there are 2 school terms and this might be a difference maker.

(ii) Number of Weeks being rented out and the Price of each accomodation accordingly. This will depends on how deep the research and diving will be 

(1 of Wee Hur's Student Dormitory Y Suites on Regent, Sydney)

If we based on this, then 47 weeks of AUD 659 or 590 SGD is sold out. This translates to a rate of 533 SGD actually and will result in a much higher revenue and profit estimate.

Bed Minimum Available Prices can range from A329 to A559 depending on locations......which makes the overall of estimating by each area tough due to the wide range in prices.

As such, I think a good estimate will be 40 million SGD Profit. 50% ownership translates to roughtly 20 million SGD.

5) Fund Management

Contributed 2.4 million in profit in 2023 while it was -2.3 million in 2022. As such a safe estimation of 3 million from this segment as this is largely dependent on whether any increase in management in the FY,

Conclusion

-5+12+30+20+3 = 60 million. 4.5 million interest expense in 2023. Borrowings doubled so assume 9 million interest expense

Total profit of around 51 million

Looking at current PE, it seems like it is trading at 4-5 PE. But there are just many things that can go wrong from the calculations. 

For example, workers dormitory might not increase revenue as much in 1H 2024. 

Also my main concern comes from the revenue increase of the student accommodation (too wide to estimate) and the increase in lease payments and whether operating expenses of dormitory will affect.

Of course there are some factors that needs to be credited, the ability to have the scale of 5000 beds and to sell the ownership to reduce leverage and make it profitable in 2023 is laudable. The fair value revisions have been good as well although it is unsure if this would become realised profits.

Like mentioned earlier, there has been a recent increase in share price probably due to some media coverage. I would be more comfortable with a gamble for the upside at around 3 PE as i believe there are too much holes in the analysis above.

Which implies an entry price of around 16 cents. But it still has made my imaginary portfolio nevertheless.

For my own portfolio, I guess i will just wait for the fish to appear at the right price before considering taking a bite