Thoughts on Mainland Holdings (Hkex 1100) Results

If this post gets released, it means that i had a favorable week and is in Korea having passed my pcr test. Which means that i will be sharing something 

(Image from its Interim Report of its Interior in the Factory)

(Image from the outside)

(Bird's Eye view of the Factory)

Mainland Holdings released its results back in August. In what was a very favorable result. I was expecting the revenue to be decent but it definitely has outperformed what i expected.

What is impressive on the initial look of the results will be the revenue growth that has managed to contribute to the bottom line as margins were stable and the cost increase were not as significant compared to the gross profit increase.

Dividends have been maintained at 3 cents per share. However, for a shareholder that held the shares previously, there has been a bonus issue of 1 share for every 20 shares held hence total dividend amount actually increased by 5%.

What has been particularly impressive is actually the manufacturing segment.

Management has attributed this jump in segment profit (89 million in 1H 2021 to 141 million in 1H 2022) as it manage to fufill quick turn around orders and had better customer relations (will talk more about this later).

In comparison, 2H 2022 had a segment profit of 85 million. Therefore, the jump is actually over 50%.

As for the trading arm, while it has continued to disappoint, i believe that it might have in roads with regards to securing partners or customers as well as providing a more integrated service.

It is worth noting that although management does put manufacturing in the segment, they are also able to customize and come up with designs for the customer as well.

Prospects Moving Forward

Management has talked in a podcast(in Cantonese) about orders still being full and what the customer wants is beyond what they can produce. 

Also, they have mentioned about how they were able to strengthen relationship with their customers (for e.g during covid times where they did not receive orders, they actually allowed major customers to order and owe them for up to 180 days with 0% interest charged.). Such actions allowed the major customers to put mainland headwear as priority supplier when demand resumed subsequently.

In another youtube video that was published in Jan 2022, i only came across that video last month and was a bit too slow and laid back in keeping up with the research in the company.

From the video, we got to learn of the experiences of the Managing Director of the Company. She took the lead herself to head to Bangladesh to set up a factory via acquisition of a company there, continued her charity deeds there and help transform a rural place to a bustling village thanks to the 7000+ jobs that her factory has given. 

(A by-product of the factory, a village becoming bustling)

This foray overseas is also part of the One Belt One Road plan by China. An opportunity that she came across when she was chosen as a Hong Kong Deputy to the 12th National People’s Congress in 2013.

A key thing that i noted is that she believes that when one expands out of China(走出去), how much one can succeed is based on own abilities but the chances of failure will not be high. Her expansion in Bangladesh method is actually learned from China Gov as well. Which featured three 2-year plans.

1st 2 years: Build up capacity, hiring and setting up fondations

2nd 2 years: Technology Transfer, cultivate local talents from the ground

3rd 2 years: Digitalized Management, making productions more advanced.

Also, we get to learn of some of her charitable actions which has not been in the public media and how her deeds in Bangladesh managed to spread words among the people and to a wealthy person which managed to know of her problems of not being able to get reliable electricity. In turn, helped set up a grid that connected to her factory in 45 days and allowed her to get reliable electricity and operate the factory 24/7. This in turn resulted in more people being hired and allowed to work (earn more and support their families).

The plans will be to improve the Bangladesh Factory productivity by setting up a new factory and improve production volume by 20%. Then they would attempt to implement a more digitalized and upgraded manufacturing system. If such implementation is a success, they would look to replicate such model in Mexico as it is closer to their customers in USA.

Worth noting points is that the lady boss did spend time in Bangladesh in 2022 as well, which means that she is on the ground and spent some time managing onsite and overseeing progress.

(Lady boss spotted in the factory )

Will i be adding it now?

This is a tough question because i do not feel that there is any hurry to add as i do not have a huge amount of cash lying around and my cash to stocks proportion has always been in the similar range that it has been for years. 

Perhaps something that i would want to monitor will be its announcement with regards to supply of products to a substantial shareholder (major customer) and its proposed caps. As the announcement to deliver the final circular has been delayed twice, i would want to wait to see if there is any updates as this would form up a huge chunk of their revenue (36% in 2021).

If the announcement turns out to be the same as previous or better, i would be somewhat inclined to add.

A small cap company that seems to have most of the boxes ticked (Respecting Govt Policies, Training the ground up and increasing productivity, Future Expansion plans in place, ability to improve segment profit by 59% while increasing revenue by 40%, Doing Good Corporate Social Responsibility via its Social Goodwill Deeds, Ability to strengthen relationship with key customers).

Valuations wise, it is trading at around 5 PE and its BV of 0.83 and there is no known listed hat peers to compare to. To add on, there are a lot of possible values that is not reflected in the book value such as the good deeds and reputation of the company as well as the potential value of its china factory's plot of land which it has held since IPO (which its china factory staff has been decreasing year on year).

Of course there are some black swans to be aware of as there might be unforeseen events in Bangladesh e.g. political unrest or invasion while it is important to note that on the demand side events that relate to its customers might occur as well. E.g loss of exclusive rights, demand in caps fall as customers are not interested in wearing caps or purchasing caps related to the sporting events etc.

But do beware that such black swans can be copied and pasted into different companies as well.

I hope the post has allowed one to gain some insights into the Company. 

Personally i think this post is one of my top 100 post.

(August 2022 Results) How i would invest in the singapore stock market if i had 100k of spare money

 

August 2022 Returns: 2.50%

Year to Date Returns: -9.34%

Since Inception (9 Sept 2020) Returns: 54.52%

The STI has rose by around 0.31% in August. Companies like UMS did well in August while China Sunsine has rebounded back on its stronger results. Uni-Asia has also recorded higher profits while companies like Hotel Grand has missed my expectations.

A point to consider is that whether there are changes to be made to the portfolio. After some considerations, i have decided to streamline the portfolio by a bit.

I have decided to remove Uni-Asia Group and Hotel Grand from the portfolio and put the proceeds into Powermatic Data.

Hotel Grand's rev par in its latest result was disappointing and my own estimates did not really work in predicting the company's results. As such i would be divesting it.

As for Uni-Asia, the broad market conditions suggest that 2H 2022 will underperform 1H 2022 and although the demand and supply conditions in the longer term is beneficial, i believe that there will be huge price fluctuations in the near future and it is likely to be negative rather than positive fluctuations. As a whole, results was good but prospects remain very challenging.

For Powermatic, the increase in cash position, clean balance sheet and a bonus if the property is sold or value realized makes it a no brainer to add as the business is being valued very cheaply considering the cash it holds. Adding it is something that makes sense to me and is something i want to do as well for some time.

As such the portfolio will look like this.

FB Page Open

 

I have decided to open a FB Page which will have some of my shorter thoughts on certain stocks as well as to include my thoughts/ rants and all the random what not.

Do check it out if you have time at this link here

Is Singpost (SGX: S08) a buy at 0.62?

Following recent social media postings on Singpost, the company has been in the eyes of some retail investors. 

From some of the comments i read, most would stay away from Singpost.

However, is that really the case?

I decided to take a look at it to determine if it would be a buy at current price of 0.62 as of 19 August 2022.

For Disclaimers, i used to owe some shares of Singpost as my 4th or 5th stock i purchased back in  2015 at around 1.7 and i sold it at 1.3 in 2017. Since then i have not really looked at the company closely.

Pros of Singpost

1) Internal Promotion of CEO. Following a long history whereby we had Ceos that did not really do well since 2015, the company has finally turned to promoting one of their own and not parachuting in anymore. They have promoted a CEO from the Postal Services Business to be the Group's CEO.

2) Strong Shareholder Backing. Its major shareholders include Singtel and Alibaba. With Singtel as a shareholder, it can be said that the company should be able to raise finances for a considerable acquisition should such chances appear.

3) Unreplaceable Moat. For the longest period, Singpost has been in charge of putting the letters and small parcels into the letter box of various households. While we used to get some flyers but in recent times these are getting far and few as the top of the letter boxes are being locked and as such its the Singpost man that has the access to the letter boxes. As such, it is very unlikely that anyone will come in and replace Singpost in doing these postal businesses.

Unfortunately, that's all the good things i can probably think of. Moving to the cons

Cons of Singpost

1) CEO has been in company for 2+ years. The promoted CEO (Mr Phang Heng Wee Vincent) has been in the company since April 2019 and his first position is already the CEO of the Postal Services. This meant that its not like he had worked up from the grounds or had a considerable amount of time being in the company to understand the processes from the bottom up etc. 

To add on, he has a Masters in Aeronautics and Post Graduate Diploma in Flight Test Engineering as well as Advanced Management Program from Harvard. While the management program would definitely help him in his leadership abilities, i am not sure how aeronautics and flight test engineering would be much help to a logistics company.

To quote an example , YTO Express International 's CEO has over 20 years of experience in logstics field and even so, the market cap of the company is only around 900 million HKD compared to 1.4 billion SGD market cap of Singpost. 

As such, i would have ideally preferred someone who has either worked at Singpost for a considerable amount of time or has been in the similar industry for a long amount of time. 

The appointment of a leadership that has experience in other fields would only make sense if Singpost would like to diversify out of its current businesses.

2) Poor Performance of Post and Parcel Segment

Ever since joining in April 2019, the CEO might have faced many challenges such as a declining market as well as Covid. However, the results are for all to see as operating profit continues to decline.

Time Frame	Revenue of Postal	Operating Profit of Postal
2021 April to 2022 March	622,334,000	24,851,000
2020 April to 2021 March	742,839,000	43,502,000
2019 April to 2020 March (Vincent Joins in 2019 April)	763,079,000	127,450,000
2018 April to 2019 March	764,751,000	165,864,000
2017 April to 2018 March	625,900,000	144,627,000

At this rate, we might see the postal segment being unprofitable by 2024 or 2025. At that point of time are we considering spinning it off to be a non-profit entity like one of the recently delisted company?

While i admit that times are different and the amount of things that goes by mail these days are getting lesser and lesser as folks go cashless and more things are available on the web for one to check. E.g CDP Statements, Brokerage Statements, Bank Account Statements etc, my understanding would be that the business is quite a human intensive business as last mile delivery involves a high amount of labour. As such, it should be alright to scale it down if volumes are down and use more technology in sorting and planning of deliveries to achieve cost efficiency.

3) Poor Record of Acquisitions

Probably one of the biggest weakness is that in trying to expand its revenue stream, it has made some bad acquisitions. In 2015 it acquired Jagged Peak and Tradeglobal which both went into Chapter 11 (Bankruptcy Proceedings) a few years later. Both of  them cost around $190 million USD in total and its roughly 15% of current market cap.

Fast forwarding to present, it has acquired Freight Management Holdings. Once again, it has recorded a goodwill of 181 million SGD on its balance sheet.

While the company has performed well for FY 2020 (PBT 20.1 million) and FY 2021 (PBT 25.8 million), it seems to have subsided in performance as it recorded 8.85 million profit after tax for its most recent financial year. This might start to show cracks in its acquisition which might result in further goodwill impairment down the road

(20.1 mil AUD PBT in July 19 to June 2020, 25.8 mil PBT in July 2020 to June 2021, 

8.85 mil SGD Profit April 2021 to March 2022)

4) Failed to improve profits of the company

Back in 2003 when it first listed, Singpost recorded 380.9 million in Revenue and 101.3 million in net profit in FY 2002.

Fast Forward to 2022, it has recorded 1404.6 million in Revenue but 47 million in net profit in FY 2021.

As such, if we look at it from a profit point of view, it seems to have taken many steps back and if we factor in inflation in the analysis, it seems to be doing much worst now.

Conclusion

There is no denying that the postal business is declining even though e-commerce is growing in the domestic postal business as Letters and Printed Paper continue to decline.

Profitability on most fronts are likely to be threatened as the margins for e-commerce is likely to be lower than traditional mail while its logistics segment's acquisitions has shown some signs of poor recent results. Also,  the company has already shown poorer 1Q FY 2022 

Having said that, the company still has some real deep value as the Singpost building is a deep value that will only be realized should the company decide to relocate its postal business or do away with it.

With a GFA of 137,227 SQM and assessing that Paya Lebar Square Offices has a Price Per SQM of $19,302(From Low Keng Huat Annual Report) , the valuation of the Singpost building would be around 2.6 billion . However, as it has only around 59 years left, it is likely to have a lower valuation. 

To put it simply, to buy it for value play, it does not make sense as it is unlikely currently that Singpost would vacate the building. 

To buy it for rental play, the Singpost building by itself is not attractive as its profits is around 52 million or 1.9 cents earnings per share per year.

To buy it for growth, there has to be a turn around in profits first which would likely to be driven by logistics or future acquisitions. Unfortunately, profits have been on a downtrend.

To buy it for strong leadership, i have not seen any outstanding points that suggest that this guy can be the next Jeff Bezos , Yu Huijiao (YTO Express CEO) or Wang Wei ( Founder of SF Express)

With that, i would not be considering purchasing Singpost at its current price.

Results Quick Thoughts (Hotel Grand, Luminor, YZJ Finance, HG Metal, Tat Seng)

 With a flurry of results released, just took a few glance and give my thoughts.

1) Hotel Grand Central

-Have to say that the revenue(increase of 1%) and profit (decrease of 31%) is quite bad. With only Singapore recording an increase of around 20-30% in revenue while the rest of the countries such as Australia and New Zealand recording lower revenues.

-Even accounting for its disposal of its investment property which resulted in lower revenue, the net profit still came in lower as the staff cost increased much more

-The only positive thing to talk about is that fixed deposit has increased a lot as the disposal proceeds have been transferred into it.

-Considering even Hotel Royal was able to double its room revenue from 5m to 10.5m, Hotel Grand is literally a joke.

Unfortunately, it will likely be moved out of the portfolio 

2) Luminor Financial Holdings (Hodlings)

-Have to say i am sorry again but i am not going to use the picture. Results-wise was shockingly poor. 

-The press release stated reaping fruits of diversification but all i can see is diworsification from the financial statements. 

-The new business segment is profitable but unfortunately they have wrote off 9.8m of factoring receivables which is 15% of its factoring receivables.

-With that the company has scored 2 goals in 2 years. Firstly, commiting a forex mistake last year in China and had to be fined. Secondly, recording a decent amount of write-offs as mistakes in loan surface

-On the bright side, i believe both are honest mistake and we should move on. After all, the owner has given a loan of 38 million at 6.5% per year and also managed to issue shares at 30 cents sgd when it is trading at around 13.5 cents currenly for an acquisition.

-Realistically speaking, i think they can do a hat-trick but i am not sure how they are going to score the 3rd goal. Could be a spectacular write-off of acquisitions which has occurred before.

-Fortunately / Unfortunately i do not have a huge position so while i keep note of the company, i do not think it is a good time to be adding more.

3) YZJ Financial Holdings

-It has been surprisingly hard to read the financial statements of the company. In fact i think the best way to align interest is to ask the whole management team of Singapore to own shares equivalent to at least 50% of their annual salary.

-Jokes aside, i am surprised to see a reversal of allowance for credit which could mean that its bonds are doing well

-The company's balance sheet is also much more healthy now compared to December 2021 as Under Performing Loan has increased from 3.34% to 5.38% while non performing loan has decreased from 10.4% to 1.39%

-The company has done step 1 correct which is generating some loans to cash. Around 900 million has been converted to cash (400m and the rest to other receivables which is prepayment for potential investments)

-Step 2 will be to convert the next 2.4 billion in the next 12 months into cash and investments then followed by Step 3 which is converting the remaining 400m and focusing on its investment funds and management companies etc.

-Lastly, results did come in much worst. With the main culprit being fair value losses in its 'Unlisted Equity' which was valued by unobservable input.

4) HG Metal

-Results is ok, among the 4 companies covered so far, the best of the worst would be this company.

-Unfortunately the market does not seem to be very positive on the results as it has plunged more than 15% after its results release

-Inventory remain high, bank borrowings have increased as well to finance inventory purchase. If its inventory purchase, i might not be as concerned yet as these tend to fluctuate time to time and at time of recording it might just be high. While finance cost is slightly higher, it has not really reflect a big increase e.g a close to 290% increase in bank borrowings but financial cost increased by only 26%

- I believe the company is probably at close to full production levels. Key to profitability will be the demand of steel and price of steel which is linked to global price trends as well as local construction demand etc.

5) Tat Seng Packaging

-Results came in at better than i expected as i expected a 20-40% drop in profits

-Profit before tax came in at 18.1% lower while gross profit is 12.6% lower. Both showing good signs amidst the tough industry

-Capex in 6 months 2022 has also increased to 14.3 million. However, there is nothing to be excited about as there is no to the moon or to the ground technology purchase. 12 million was used to purchase a new property in January 2022. However, it has 7.5m of capital expenditure commitments currently which means that this year's capex will be one of the higher ones in the recent years

-Lastly, a depreciation of the yuan has hurt the company in the other comprehensive income segment as it has recorded a translation difference loss. Unfortunately, yuan in mid august is still weaker than in June and January

If i were to rank the results( not balance sheet) of the companies then it would be 

1st HG Metal

2nd Tat Seng Packaging

3rd YZJ Financial

4th Hotel Grand

5th Luminor Holdings

In reality all 5 are somewhat bad but someone would rank better among the bad.

As for Uni-Asia i need some time to digest the results. 

(July 2022 Results) How i would invest in the singapore stock market if i had 100k of spare money

 

July 2022 Returns: 3.81%

Year to Date Returns: -11.55%

Since Inception (9 Sept 2020) Returns: 50.75%

The STI has rose by around 2.86% in July. Certain counters in the portfolio have rebounded. Meanwhile, as i only make changes at the end of the month, i did not manage to add Samudera in the middle of the month when i had a one in a million, twice eureka moment. Such things probably will not happen anytime soon especially when i want it to again.

On a more serious note, a couple of companies released their earnings or guidance.

iFast - In what is a depressed market conditions from April to June, it is not a surprise that earnings came in at a depressed level even if the impairment is not accounted for.

China Sunsine - Released a positive profit guidance on 29 July after trading hours, will be interesting to see how it trades next week although i don't think it will have a huge effect since there is the S-Chip Risk as always.

Trans China - Released a negative profit guidance stating that profit will be lower than 1H 2021. Can't say i am surprised since there is so many mini lockdowns in China in 1H 2022 and some peers such as Pang Da Automobile (SHA: 601258) recording losses in 1H 2022 while BetterLife Holdings Limited recording 35% drop in profit for 1H 2022.

The thesis remains the same, trades at a valuation that is cheaper than peers, demand for cars will come back, its not china property where you pay and you only get half the car or a car without 2 wheels. Besides showing off a car is much better than buying properties these days.

Now back to the questions to ask when i review the portfolio.

1) Is it time for Hotel Grand to make its grand appearance?

I have thought about it long hard and deep. I have decided to add Hotel Grand into the portfolio. This is on the back of an encouraging tourism numbers i have seen from Australia, New Zealand and Singapore.

Australia has the most amount of rooms for Hotel Grand, followed by Singapore then New Zealand.

Australia Tourism is up 730% in 2022 1st 5 Months compared to 2021 1st 5 Months

New Zealand is up close to 59% in 2022 1st 5 months compared to 2021 1st 5 Months.

Singapore Tourism Arrivals is up 1167% in 2022 1H compared to 2021 1H. With Revpar up 89% yoy and Occupancy Rates up 17.3% yoy.

All in all, with the privatization offer of Frasers H Trust at Close to Book Value, Hotel Grand looks like a steal with its low gearing and turning macro environment. Of course there is Covid and all but i have seen people around me starting to travel and to places including Australia, NZ as well.

I think we might be close to the stage where everyone just walks around with symptoms of Covid having caught Covid and only testing if travelling requires it or they need to see the doctor.

A slight concern would be the strengthening of SGD against NZD.

2) Am I adding any materials / commodities and inflation riders ?

In SGX, we are quite restrictive in choices. Oil intermediaries are not exactly best hedgers. Coal companies have had a weird run up and down then slightly up again. As for the oil producers, they are not exactly well known names that have been consistently pumping for many years like companies listed elsewhere. As for shipping i have mentioned previously so do check my previous posts.

There is some interest in adding some cement stocks etc such as Pan United but its valuations does not match my buy thoughts. Engro Corporation is another cement play but it has other businesses that makes it too complicated to break it down at times.

I feel that TC Auto, Powermatic Data, China Sunsine all are somewhat hedgers against inflation in their ways.

With that, the portfolio now looks like this as iFast is removed (i might come back to this again or take a look at its results time to time and comment on it) but a good analysis on iFast can be found on Kyith's post

In Conclusion, i feel fairly ok with the portfolio although there are a few stocks that are in the portfolio not just because of the immediate results but rather a bit of both immediate and long term thoughts while some are still mid to long thoughts.

(Realizing Losses) Full Divestment of Johnson Holdings 1955 Hkex

Perhaps taking realized losses is something that is difficult and sad to do, but having done my research and reviewing various factors which i will explain later on, i have decided to realized my losses which amount to around 17-20%.

To recap, Johnson Holdings is a cleaning company in Hong Kong that derives majority of revenue from government related cleaning projects such as sweeping roads, putting poison for rodents and cleaning of facilities etc. In FY 20/21  77.7% of revenue is from Government Related Tenders

At its latest financial year, it has generated 25.9 cents hkd of profit which translates to a PE of less than 4 as of the trading price of 0.98 as at 22 July 

Divestment Reason 1: Shaky 2nd half results

Johnson Holdings generated 13.5 cents in 1H 2022 and 12.4 cents in 2H 2022. On surface it looks ok, However if i were to break up the results, the gross profit margins is actually lower in 2H 2022.

1H 21/22 (9.61% Gross Profit Margin)

FY 21/22 (9.6% Gross Profit Margin)

Also another trend that can be seen is the revenue which has shown a slight decrease of less than 10% from 1H 21/22 to 2H 21/22.

Lastly, the receivables came in at an above normal level as it has increased more than revenue. Not by a lot to an alarming level but just one of those you see and sighs.

(Receivables +14.74%, Revenue +7.6%)

Divestment Reason 2: Inability to secure big contracts in 2022

One of Johnson Holding's reasons for its decent financials in this year and excellent financials last year was that it managed to secure 3.9 billion HKD worth of cleaning contracts in 2020 and 1.5 billion in 2019.

2021 was decent as well with 1 billion HKD as a follow up. However, 2022 has been close to lying flat as they managed to secure only 51 million HKD in the first 5 months of 2022.

To top it off, they have failed to renew 5 projects which was won in 2020 and 2019 which was worth 930 million HKD.

To make things worst, their rivals have just confirmed that they lost even more

(Rival won projects in Sha Tin, Yuen Long, Western and Tai Po)

(Green being ones lost pre announcement. Orange one being lost via the announcement)

The orange ones sum up to a total of 593 million HKD. It also meant that Johnson has been unable to secure contracts in other regions mentioned by its competitors.

Divestment Reason 3: Poor Public Perception and PR Response

In 2022, Johnson has been in the eyes of the public for bad reasons.

(A resident taking to facebook to ask if Johnson has done its job in preventing rats.)

(Tested for Covid, can't work but does not classify quarantine order by authorities as MC)

(An account from another worker, which said that they were not reimbursed for testing and the quarantine order as well)

(A rant from the same facebook user)

To make things worst, their PR / IR firm reply to my email was pretty bad.

In essence it did not answer a simple question of whether Johnson participated in renewing its current projects or any new projects. I had to look back at its announcements to realize they did not mention anything about whether they bidded for projects or not.

Therefore after considering the various factors

Poor Financials ahead

Poor Public Perception

Poor record of winning tenders this year and the momentum has followed through

Poor response from PR Team

I have decided to make the decision to fully divest it. I apologize once again for my sub standard in research.

On a more happy thing, i have finally collected the full set of my photocards 

(In my previous post, i was lacking 1)