(Short Analysis) Econ Healthcare (Asia) Limited – The first catalyst board listing in 2021

 

Basic Details

Sector: Aged Care Services (Private Nursing Homes)

Competitors: Orange Valley, Lee Ah Mooi etc

Date of Listing: 19 April, 9am

Application Start Date: 10 April 2021, 7am

Application End Date: 15 April 2021, 12pm

Implied Market Cap upon Listing: 71.96 million

Implied FY 2020 PE: 17.9

Implied Trailing PE: 11.65

Predicted PE: 19.7 (Due to listing expenses)

 

Reasons to like this company

Resilient Sector – As the newer younger generation come into the picture, a changing type of taking care of elderly might occur and as the generation gets older, with lesser birth rate it means that the chances of elderly without kids is higher and these nursing homes come into the picture. Rain or Shine, economic crash or not, the demand is likely there unless a mass covid kills all elderly or something along that line.

 

Good Growth by 2025 – For anyone that can afford to wait, 16% increase in bed capacity from 2023 as well as a 44% increase in bed capacity from 2025. Hence this translates to a growth of 73% by 5 years. Which is good for a small market cap size company.

 

Asset Light Model – This meant that it does not have to worry about the land and its depreciation and instead offers a relatively low operating leverage.

 

Investment Property could be undervalued – The freehold land in Malaysia has not been revalued and a sale could provide good value. Currently rented to Columbia International School it seems.

 

PE not high by current market standards – This is in line with the markets at a higher side and the feel-good factor, the current PE does not look over-priced in this aspect

 

Recent IPOs all doing well – Surprisingly GHY Culture, Astrea Bonds, Credit Bureau Asia, Aztech have held up well on debut.

 

High ROE Business – Generating 3.8 million with 19.1 million of equity, a rather high ROE of 19.8%.

 

High Ownership Retained – Owner retails 80.5% of the company post listing. Indicative that its not so much selling out the company and cashing out intention.

 

Reasons to dislike this company

Delist and Relist Logic – Having delist back in 2012 at a market cap of 80.4 million and now relisting at a lower market cap, does not seem to paint a rosy picture for the business when it has been profitable the past 3 years.

 

Falling Profitability – Unfortunately, the company has profits fell from 5.4 million to 3.8 million from FY 2018 to FY 2020.

 

Staff Cost – With the recent news of healthcare staff getting a pay raise, this effect is likely to affect the company which has seen increased healthcare staff cost in the previous few years as well. With lesser staff this year (9), staff cost increased instead. All these point to a rising cost upcoming. As staff who feel that they are not paid well might consider job hopping to hospitals who should be hiring due to covid-19 and as well as vaccination drive.

 

Interested Party Transactions – A lot of private nursing homes run by the coy are rented from the owner and a sum is paid. As such, while the owner is unlikely to slap himself by charging an extra high amount, the same can be said for transparency as the owner owns the home charging rental himself while shareholders have a piece of being the rent payer.

 

Investment Property Yield too low – Rental Income of 216 000 in FY 2020, against a land value of 8.3 million. This translate to a yield of 2.6% which I am not sure if its good at all.

 

 Conclusion

I can see a thesis for making a punt to apply and to make a quick profit on the listing day. However, I cannot see a long-term prospect especially with its staff cost heading upwards while its revenue is not heading upwards. Most of the 6 months FY 2021 results have been boosted by Job Wage Support which is not going to be repeated in subsequent quarters. The earnings will likely decrease soon before heading up again in 2025 or 2026. However, in the meantime, it is likely to experience a depressed share price due to its earnings.

Having said that, opportunity can arise as it wins more Build-Operating-Lease contracts from the government and expand from there. However, given by its current prospects, it’s not rosy.

Lastly, SPH made the acquisition of Orange Valley at an implied book value of 2.3 times. However, it subsequently wrote off some of its book. This implied that at 2.3 times it is over-valued. However, the listing this time is at a higher book value of around 2.5 times. Surely its over-priced as well?

(a picture says a thousand words but a word from the picture is enough to say the story)

                                           

 

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

March 2021 Returns: 9.31% (Returns driven by Hanwell, UMS, Propnex, Ifast) 

Year to Date Returns: 23.71%

% Change since 9 September 2020 (Inception): 36.55%

Overall it has been a very satisfactory 2021 March and a very satisfactory 1Q 2021 for the Excel Portfolio.

Hope this helps in some sense in debunking the myth that Singapore Market is a very difficult market to profit apart from the 3 banks.

Changes made in End March

Removed 3000 Top Glove Shares (Value of 4560)

Added 12500 China Sunsine Shares (Value of 6562.5 based on 31 March Closing Price of 0.525)

Cash Portion reduces by 2002.5 to 121

Change Rationale

Top Glove seems to have to many internal company problems in the industry that has seems to have its effects played out sooner than later. Initially a pick just in case Covid-19 got worst, it seems like Covid-19 vaccine story has played out much sooner and the problems with the company itself compounded and resulted in a very bad correction in its share price. An exit decision therefore has been reached.

China Sunsine is a pick as a proxy on the vehicle industry in China as well as the Chemicals industry proxy. With a decent 1Q expected and the recovery of the vehicle industry in China in 2021, it could reach its highs of recorded in 2018. Hence the decision to pick it up was made.

Other counters that made the list for change consideration but was not picked

1) Uni-Asia Group

2) QAF

3) Spindex Industries

The 10% profit and run game on moomoo (record so far)

 

Recently, I have opened a moomoo(futu) account for the apple share. However after putting in the money of 2001 USD, I did not cash out the initial amount placed and hence decided to use the money to try to see if I could make some small profits to have some Bak Ku Teh meals.

                                             Rangoon Road Ng Ah Sio Bak Ku Teh

The main aim is to make around 10% profit and divest it. Should it end up reaching a 10% loss, the position will be reassessed to see if it should be held longer, or it should be divested.

I did not set any rules currently for when I need to buy again when I sell. But I try my best to do it on the same day if possible. As such, it is unlikely that I research very deep into the positions. Which is why the investment amount is not huge as well.

Current Record as follows.

Transaction Date	Action	Counter Ticker	Counter Name	Amount Purchased/Sold	Purchase/Sold Price Per Share	Commissions Paid (In HKD)
4 February 2021	Buy	00934 HKEX	Sinopec Kantrons	4000	2.74	33.92
11 February 2021	Buy	08502 HKEX	Ocean Line Port Development	8000	0.24	20.69
17 February 2021	Buy	08502 HKEX	Ocean Line Port Development	8000	0.235	20.69
25 February 2021	Sell	00934 HKEX	Sinopec Kantrons	4000	3.01	32.48
25 February 2021	Buy	00822 HKEX	Ka Shui International	20000	0.58	31.44
12 March 2021	Sell	00822 HKEX	Ka Shui International	20000	0.64	32.54
12 March 2021	Buy	03339 HKEX	Lonking	4000	2.85	31.43
26 March 2021	Sell	03339 HKEX	Lonking	4000	3.14	Pending
26 March 2021	Buy	01538 HKEX	Zhong Ao Home	16000	0.92	Pending

The free commission card is not applied to the first trade made on 4 February 2021, it is applied to the rest.

                                            Hopefully the good streak continues

Rationale for Buying/Recent Views

Sinopec Kantrons – Value purchase, flushed with cash following the sale. Oil prices rise in February and hence it hit around the target range. Hence divested. I did take a glance at the results release in March. It was rather decent apart from the huge divestment did not result in

Ocean Line Port Development – Its already 1 of my holdings even before I added it on moomoo platform, results satisfactory, gearing came down very much as well.

Ka Shui International – I have posted in my post recently titled Ka Shui International – A good FA Company. The only update is that the positive profit alert is pleasing to the eyes. The good news probably flow onto the market in the following days and the target range was hit and hence divested

Lonking – Good Financial Position, Good Sales in 2021 January and February. The results released on 25 March was blockbuster, 33 cents dividend and improved results in 2020 when the street was expecting weaker results. As a result it went up 18% on 26 March. Hitting my target range and hence divested.

Zhong Ao Home – Results likely to be ok I think, the price has corrected quite a bit since the Greentown investment in a stake in the company and current price to earnings is relatively cheap in my opinion. The current price represents a close to 50% discount to Greentown’s initially entry price of $1.80. Though there are a few key risk to take into account as well. Mainly 1) High Goodwill, around 14% of total assets. 2) Impairment of trade receivables and high trade receivables.

 

The other counters on the consideration list before I picked Zhong Ao Home

1.        Pacific Basin (HKEX 2343) – Dry bulk play. Good Dry Bulk Data for the year so far. Will it sustain though? Time Frame not right after all results released recently and it has been going up already recently due to the Suez Canal news that has hit headlines for memes and laughters.

2.        Yip’s Chemical (HKEX 408) – Valuation looks cheap considering that a spin off is likely on the horizon. The recent share buyback would also demonstrate confidence to the current high chemical price climate. Time frame wise, with results released recently, its not a play for the results seasons hence there could be some time to go and some monitoring could be done.

3.        Central China (HKEX 832) – Results yet to be released, a spin off of its project management unit could occur this year. The value is there but I would want to make this a core position if the price is right. As such I chose not to add this as I believe the results is likely to be subpar as it has guided for lower gross margins of its property development already. Having said that, if its project management segment display good growth, it would help in improving the valuation of the company as it undergoes the spin off.

4.        Asia Cement (China) Holdings Corp (HKEX 743) – Results postponed; however, Taiwan side has released the results and it looks rather bleak as 4^th quarter seems to be flat. Having said that, good revenue figures in 1^st 2 months of 2021. With release of results of other companies in the industry such as Anhui Cement (flat results). I think if there is upside to occur, it probably would occur later.

 

Astrea Retail Bond – It’s a Press!

 

3 Reasons to press for the bond

1)      Current Astrea Bonds Trading at a Yield to Maturity less than 3%

As such, the 3% bond should be traded at a premium and should open above $1. Which means anyone who wishes to punt should not be underwater on day 1.

 

2)      Current Retail Bonds are also trading below 3% yield to maturity

The best comparison would be to compare with the SIA Retail bonds. Surprisingly for a company that continues to be unprofitable, it is trading at a yield to maturity that is below the ASTLC 3.85%. Although one can argue that its maturity its in 2024 and therefore have a shorter timeframe, the ASTLC 3.85% also has a Scheduled Call Date of 20 June 2024. As such should it be called in 2024 when it meets the conditions. The XIRR of 2.89% without counting any fees looks attractive as well.

 

3)       PE Funds perform well under simulation and from March 2020 to November 2020

A previous doubt I have in the private equity would be the performance and whether they would do well to generate profits for redemption. From the simulation by an independent research consultant, it seems to have done well by maturity date. Which means that the bonds are safe (not risk free but relatively lesser risk)

From the results, we can conclude that the covid 19 crisis did not affect profits of the PE Funds a lot as they manage to bounce back and regain the losses by turning in a profit that is way higher than the loss in the 6 months from March 2020. As such, passing such the hurdle of Covid-19 with flying colors is a big plus.

 

             However, what are the risk?

 

1)      Interest Rate Risk - If interest rate continue to increase, bonds would have a fall in price in general and would encourage funds to invest in other newer issues with higher rates.

2)      Stonks Risk – Well in the environment where a day’s fluctuations can be very wild, one would never know what happens in these few days. Assuming someone took the money to punt the Astrea Bonds instead of deploying them in Tesla or other more in-demand and in-focus stocks which they might have wanted. They might miss out on those gains instead.

3)      Freak Events – There can be many freak events that might happen out of the blue. For example, PE Funds found to be fraudulent etc. Should such shock freak events occur, this would likely drive down valuations of the PE funds and the bond as well.

 

Conclusion: It is a press! At least for the short run its worth the try. For the long run, the prediction of interest rates is anyone’s guess. A fair value opening price i guess should be 1.014.

Pictures obtained from Bondsupermarket and Bond Prospectus

Disclaimer: This is a post written in a short time span and of the blog owner’s view. As such it should not be a surprise should any mistakes arise in the post. It is also a post sponsored solely by the owner's own time.

Results Release Short Few Lines Layman Analysis (Tat Seng, A-Sonic, QAF, Yanlord , Challenger)

Tat Seng Packaging (SGX: T12)

-Profits greatly improved thanks to a more stable paper pricing in 2H 2020 compared to the downtrend in 2H 2019

-Company has also done well during the Covid Crisis, a trend not seen in its competitors.

-Gross profit margin for 2H 2020 improved year-on-year

-Improvement in profit margins despite higher depreciation cost

-Operationally good, dividends though were a disappointment. Could be due to spin-off and capex requirements.

-Spin off should imply a fair pe of at least 15 as long as it’s not at sgx but rather hk or china. Which is massive considering that it is currently trading at 5-6 pe in sgx.

However, what are the risk?

Paper Price fluctuations resulting in huge swing of earnings as seen in past few years

Industry is highly fragmented and lacks pricing power. While generally one could do its best to improve its business processes, it still conforms to the trend of the industry.

A Sonic Aerospace (SGX:BTJ)

-Results decent thanks to ‘Other Income’

-Normalized Earnings based on Q4 is roughly 800k each Quarter

-Based on Annualized and Profit to Parent ratio of 58%, Estimate roughly 1.8 million in profit

-Company Market Cap 24.854m, (Trade and Other Receivables + Cash – Total Liabilities) = 26.529m

-Effectively it is trading at 0 earnings valuation. With recent adding of shares by management as well.

However, what are the risk?

-Revenue Increasing at a % lower than Freight Charges. This could imply that it does not have much value in its value chain in passing cost or setting cost. Which would start to hurt its profitability, as seen in 2020 its ‘Revenue – Freight Charges’ is lower than 2019.

- Record Profits thanks to disposal but a dividend cut. Implying business conditions might be tough?

QAF (SGX:Q01)

-Results fundamentally solid however the re-valuation was a surprise. Will have to see the valuations of the spin-off eventually should it happens. EBITDA came in pretty close to estimation for the Primary Production Business.

-Spin-off would also reduce the gearing of the company as the Primary Production has higher liabilities to assets compared to the group as a whole.

-Based of its Bakery Operations of 7.3 cents, trading at around 14 PE for a Bakery Company looks rather appealing.

After removing primary productions from its market cap, the adjusted PE is about 10.

However, what are the risk?

Earnings Normalizing post covid, spin-off not occurring again due to lack of demand.

Yanlord Land (SGX:Z25)

-Profits come in around the same after normalizing earnings. Definitely unlike Sincere Property.

-Higher Sales throughout 2020, margins going down as per industry trend

-3 Red Lines. Yanlord Land seems to have passed all 3 requirements, meaning that it would be able to grow its debt further. To add on its investment properties (around 20% of its assets) should provide some breathing space in the future as it can be sold off if needed to meet the requirements.

- With roughly 4 years of 2020 Revenue’s sales yet to be realized, the next few years seem fine.

-Pockets of possible opportunities (Spin-off of project management, property management, investment properties to reits)

However, what are the risk?

Write down of Investment properties (After all increase in 2019 and 2020 seem rather unbelievable)

Curbs to China Housing Market (Especially recent reiteration of how housing is not for investing but for living emphasis in China)

Does not seem to follow trend of other China Property Stocks that are listed in China or Hong Kong. 

For example, on 25 February, most property stocks trended higher by 6% to 20% following news of 3 batches of land sale per year by multiple cities.

Unfortunately, this sentiment is not seen in Yanlord Land which could imply a different investor base and perception towards China Property Market. As such, any positive sentiments from China/HK is unlikely to be replicated in SG.

Challenger Technologies (SGX:573)

2H 2020 beat 1H 2020 (13.7m vs 9.6m). This is impressive considering that other income for 1H is higher than 2H. Recovery from Circuit Breaker effect and going into phrase 2 and 3 very well.

Excellent Inventory Control. Revenue and Purchase of Goods and Consumables have a very similar magnitude in change. Which is ideal as you would not want purchase going up 50% but revenue going down 10% or going up only 10%.

Market Cap of 193.32 million, Cash – Liabilities amounting to 30 million, full year earnings of 17 million without other income. Valuation does not look steep.

However, what are the risk?

Failed acquisition offer might result in being less shareholder friendly. As seen in its dividend despite a record year. The dividend is lower than 2018 despite profits being higher than 2018.

Fall in Employee Expenses, in any other year in normal business circumstances, that would be good productivity showing. However, this year, the employee benefits fell by 3.1 million which meant that either someone was fired, or the overall pay package has been reduced. 

To make things more puzzling, as of 2019 annual result they reported they had 41 stores in Singapore while in 2020 annual results they reported they have 42 stores in Singapore. 

From a shareholder standpoint, its good to see good results. But from an employee point of view, knowing that your company made 5.6m more before tax by cutting employee cost by 3.1m and receiving 4.8m more of other income. I don’t know how to view it.

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

 

Positive Returns in February despite a really volatile month in the markets

Results Release for UMS, Propnex, IFast, Hanwell, Centurion 

Results Short Commentary

UMS - Shocking 4th Quarter creates a drop in share price on the last trading day of the month. However I remain positive on the long term trend, as such it would still remain in the portfolio.

Propnex - On paper looks like the better company compared to APAC Reality, a comparison article i would consider penning my thoughts when i have the time. In short, results are excellent and with travel not resuming any time soon as it seems, housing would be a good investment tool with low interest rates to stay for a little longer.

IFast - Good Results but it seems like its very volatile as investors seem to regard it as a tech stock. Will have to see how well it grows its AUM and more details on the E-MPF and how much stake they have in it.

Hanwell- Originally was going to exit and take profits in this stock after a remarkable increase the past few months. However, was totally caught off guard with the potential spin-off of Tat Seng Packaging. As such, holding this stock and see how things turn out will be the choice. On the results front, 2H out performed 1H as it was widely expected. Hence there was no surprises on that. However the dividend was a bit disappointing as it could have been higher.

Centurion - Operationally did ok and fair value losses due to sluggish demand of its student hostiles (due to lock down and lack of flying to study abroad) were expected as well. The demand should remain stable for workers dormitories. The lack of dividend is understandable given it has been in the headlines for a big part of the year.

Overall i am fairly satisfied with the portfolio performance and the results of the various counters in the portfolio so far.

Ka Shui International Holdings Limited - A Perfect FA Coy set to fly?

 

Stock Ticker: HKEX: 822

Stock Info: A die casting of alloy and plastic injection business

Stock Price as of 8 February 2021: 0.6 HKD

Implied Market Cap: 536.26 million HKD

                                                      Financials:

A company that has recorded profitability in all but 1 year from 2008 to 2019. I would consider it impressive as it has recorded a profit even in 2008 where the global financial crisis happened.

Perhaps a red flag will be fluctuating earnings across years and 2015’s unprofitability that has to looked into deeper on why so the case.

In 2015, the company has recorded unrealized loss for foreign exchange contracts of 71m and 22m of impairment. Which when after accounting both one-offs, resulted in a loss.

However, this worry can be chalked off as in its 2019 Annual Results, it has done away with the forward contracts.

Balance Sheet:

From the snapshot, current ratio has always been above 1, equity has always increased apart from 2015 where it was unprofitable.

Looks ok to me.

Dividend Record

Solid Dividend Record with a Knack of rewarding shareholders every year. Apart from 2016 which it was unprofitable for the year ended 31 December 2015 which is understandable.

 

Recent Results

Recent results have been a blast and a huge boon. With the company tripling its profits on the back of margins improvement. Its something good to see as it highlights that the company’s manufacturing processes has improved and could be a sign of potential earnings value.

Even if not counting the other income, the company is on track for a better year as it tends to have more orders in the 2^nd half of the year.

Assuming Covid did affect demand in 1H 2020 and it outperformed a non covid 1H 2019, its imaginable that 2H 2020 will likely be better than 1H 2020. Especially in 2019, 1H 2019 had 14m of profit while 2H 2019 had 74m of profit.

As such if we assume similar allocations and 1H 2020 margins, we could be looking at 2H 2020 profits of 195 million in 2H 2020.

 

Is it time to buy buy buy then?

Unfortunately, there is potential red flags to consider before we jump into such a counter.

1)      Controlling Shareholder dumping shares

Unfortunately, in what is supposedly looking like a record year, the controlling shareholder has decided to exit the shares at a price of 0.7358 to 0.8546. Although reasons are unknown as it could be for personal reasons, it looks kinda shady and profit taking. It is the main reason why the price has crashed and is trading at 60 cents today.

2) Appointment of a CEO capable of crashing share prices. 

Share Price fell from above 1.25 in 2017 to 0.94 today

Sounds a bit misleading but a new CEO was named and will be taking over from 1 February 2021. Chu Weiman who is previously the CEO from the trading division of Leeport (Holdings) from September 2016 to December 2020. With engineering background, surely it is relevant to the industry they are operating in.

Unfortunately, the track record of the trading division is as follows

Year	2017	2018	2019	1H 2020
Operating Profit	15,962,000	10,242,000	- 37,016,000	-5,498,000

Although 2017 and 2018 was profitable, 2019 lost all its profits and the loss trend did not reverse in 2020. Hiring such a person to lead the company moving forward, I have my doubts. The sole bright side would be that the controlling shareholder (Lee Yuen Fat) will remain as the chairman of the board.

1)      3) Questionable Sale of Subsidiary to Controlling Shareholder

In October 2016, an announcement was made whereby the company will sell a subsidiary along with the land and building to its controlling shareholder. In the very complex deal, it has been mentioned that it gives shareholders the opportunity to consolidate its production lines and realise the fair value of the group’s investment in the land and property with a gain.

However, a question would be if so why would the land be sold back to the owner instead of the open market then? Well your guess would be as good as anyone’s.

Conclusion

The company is cheap based on current valuations and should the 2H 2020 thesis occurs. On its website it has also been collaborating with a few parties such as XPeng which opens up its exposure to the electric vehicle industry, a new up and rising trend in China.

However, a few structural issues remained even though on paper it has rewarded shareholders almost every year since 2008.

Looking at its long term stock chart, 

The highest stock price came in 2013 and 2014 whereby dividends were at their highest. Whether such high amount of dividends would occur again would be anyone's guess but at least the trend is that the dividends go with tandem with good results and there is a decent chance there will be good results.

Unless a guidance is given, and some explanation is given in some briefing with regards to the major shareholder selling the shares. If ever i would take up a position, it would a small portion for punting. A large position would be unlikely due to the lack of info available.