Overall satisfactory results, balance sheet looks much better as well. Despite a negative January in terms of sales for its associate, glad to see that overall profit from associate came out much better than previous year.
Please refer to my facebook post to read more about it. The link can be found on the right >>>>.
Since YTD returns are still positive, the posting continues for now.
Today i will be sharing about a Hong Kong Stock that has been on my watchlist for close to 3 months.
Why HK Stocks? Well i have a better record recently in HK Stock Investing compared to SG Stock Investing hence it there is the bias. On a less serious note, there are probably like few SG Stocks i might be interested in but i probably will refrain from sharing this time.
Before we look at what the company is and the reasons to buy,
Lets look at just financials
In terms of ratios, it has improved and has the company has not increased its inventory to do this.
Associate Profit is also increasing year by year. Although it is worth noting that results has been boosted this year by one-off disposal.
Although it is puzzling that the current price is not at its peak given that its financials have improved. Which prompts us to take a closer look. Can this be the stock that will do well?
Company Name : Yeebo International Holdings LTD
Ticker: 259 HKEX
Investing Thesis: Investing in this company is akin to playing premium poker hands at Wynn Macau
Folks who know texas holdem will know that the strongest hands are AA while premium hands includes high pairs as well as suited/ non suited AK AQ etc. These hands when in an all in scenario before any cards are dealt, have the highest chances of winning unless they are against similar hands.
For example your chances of winning when you have KK vs an opponent with QQ is at least 80%.
But of course, you don't get these hands all the time and as such you end up turtling or just playing tight. This company would be the same as it requires lots of patience and is not a company that is likely to blow up unless you open with the premium hands sooner with the help of luck.
Back to Reasons to Invest. 3 Simple Reasons.
1. Improving Financials and Fundamentals
For simplicity modelling reasons, i assumed that 2H of this FY will be same as previous FY to get a feel of whether profitability has improved.
While it is hard to estimate the revenue and profits of its main business which contributes 33% of normal profits, we can estimate the associate profit. Most of the associate profits (around 90%) comes from Nantong Jianghai, a listed stock in China (SZ:002484)
I know what some experienced folks might be thinking but lets keep the exciting part for later.
To estimate if business conditions has improved, lets do the backwards investing method. A method that a few jokers like me still use. We shall compare Nantong Jianghai Profits from Oct 22 to March 23 vs Oct 21 vs March 22.
2. Deep Value in Associates.
Apart from getting the improved financials via improving results of its associates, the company benefits from an appreciation of share price of its associates and has deep value.
2 Associates it owns is 35.1% in Suzhou Qingyue and 29.1% in Nantong Jianghai
Suzhou Qingyue Market Cap: 5.29 billion RMB
Nantong Jianghai Market Cap: 16.2 billion RMB
Implied Stake Value: 7.03 billion HKD
Current Market Cap of Yeebo: 2.73 billion HKD.
As such, buying the company is buying the implied stake at a book value of 0.4 and getting another free business which contributes 1/3 of the profits and has improved in revenue and profits as well.
3. First Divestments in 2022.
Value is useless unless exercised. The same goes for waiting and playing only premium hands. You can have the best hands but when you raise and everyone else chooses not to play, you don't get much from these hands.
The same is can be said for Yeebo, it takes both hands to clap for value to appear. One is having the cards and the second is someone playing against you.
Therefore, Yeebo needs to sell the stake for any immediate value to boom, however they can also play the long game and just reap improving profits from it as well. Which makes things easier compared to poker.
They now hold 246.1 million left. As you can see in these 2 disposals, gains have been made as these associates are trading at market value above the book value.
The implied stake is worth 7.03 billion but on its books it is 1.73 billion.
Conclusion
Yeebo is a company that has conducted many share buybacks and has paid dividends regularly with a special dividend paid after the disposal. In fact the disposal is its first ever since the acquisition of shares in Nantong Jianghai in 2000s, as such it makes me believe that it might be finally in the phrase of slow disposal and profit harvesting
Even if it does not, the improving results of Nantong Jianghai will benefit the company.
There are other things such as fundamentals of Nantong Jianghai and Suzhou Qingyue to read up and be kept abreast on as well so it is not risk free as nothing is in stocks anyway.
If poker illustration is too hard to understand, then think of it like having invested in a farm that has 25 chickens laying quality eggs that increase year on year. You can sell some of your stake in the farm away at a very good price the marketplace is offering to buy or just continue getting your profits. Being the largest shareholder of these chickens but not managing the farm, you would be kept abreast of the developments of your farm and whatever information that the marketplace will be slow to react.
As for the main business of Yeebo, they engage in LCM/LCD Modules which is something that a lot of taiwan companies can do as well. Therefore, it is not any exciting business from the outside although i believe that should they introduce their company more often to the media or public, we will be able to understand that part of business better.
Due to ongoing complications of my own finances and my view on AAG Energy as well as other hkex companies, i will refrain from commenting if i will add in the near future.
Much of April Returns came from Propnex that had a bonus issue and went ex-dividend. However it endured a volatile trading day on 27 April when property cooling measures were announced.
My quick thoughts / reactions from the measures is that it seems to be shooting a bazooka at the wrong target. While the biggest increase in ABSD comes from trustees and foreigners, they do not account for large amount of transactions. As such, it is likely that they would consider becoming a PR or consider renting instead. With the rental market already hot and expensive, this would likely drive it up.
1 Theory Crafting is that this might result in lesser expat expansion into Singapore as this would mean that for them to set up company and settle here is now more expensive and as such they might consider other countries to set up their operations.
I do not believe that the HDB hitting 1 million dollars + and the increase in people buying resale / private housing instead of waiting for a 5-6 years for a BTO is actually due to these trustees or foreigners. As such i believe its just trying to prevent any weird huge influx of foreign buyers or just encouraging people to get PR and then purchase instead.
I just think its quite sad for the Singapore Generation these days. Whether one switches job to get a higher pay or gets promoted and say an increment of 7 to 15%, i just wonder if that is ever enough to purchase a house anymore.
1 of my favorite sad truths i use when people ask why i am not attached is that 'I am ugly and my salary is low as such i don't think its correct for me to think about this as the partner and any children in future would likely suffer.' Of course the truth is i don't have any intention to get attached so i don't think about it but i know the sad truth still exist.
As such, Propnex will see some sale reduction but if prices keep going upwards, their commission which is in % will also be subsequently higher. I believe there should be a more targeted absd coming soon unless the elections might play a part in the decision making.
As for the rising house prices, its just a sad sight to see.
Back to Portfolio and Changes. I have decided to trim Propnex and replace YZJ Fin Holdings with Huationg Global
I will probably write about it in some detail when i have more time. Currently i am fifty-fifty on it but my gambler hunch will say lets go with it.
Introduction (Cautionary Comments)
My recent records on SGX Stocks has been disaster. So much so that i actually contemplated if i should ever buy into this counter that i have researched about. After some consideration, perhaps blinded by the need to overdrive and greed to achieve my targets, i have decided to throw the dice and gamble again by going back into sgx stocks. I can only do as much research the rest will have to leave it to fate and luck to decide my wealth.
|
Prior SGX
Stocks Purchase |
Profit / Loss |
|
HG Metal |
Loss (-7%) |
|
Hotel Grand |
Loss (-0.51%) |
|
Samudera Shipping |
Profit but Current Price higher than Sale Price |
|
SUTL
Enterprise |
Loss (-0.51%) |
Therefore it is very important to consider the above before actually reading further.
Company Introduction and Thesis
The company that i will be sharing today is Ossia International (SGX: O08).
The Thesis for the company is: Golden Hour Arrives but Storms are ahead. Is current price mispricing?
Company Business Segments
The company can be broken into 2 portions. The first being its stake in Harvey Norman Singapore and Malaysia while the second will be its retail operations in Taiwan.
The first segment as the mentioned earlier will be retail operations of Harvey Norman Singapore and Malaysia which has online sales as well as brick and mortar sales. Pretty Straightforward.
The second segment being its retail operations in Taiwan. The company distributes Columbia , Kangol, Tumi, True Religion and Sorel products. They can operate as standalone stores found in Shopping Outlets such as Taoyuan , Retail Spaces found in Shopping Malls such as SOGO or via their own website store or web stores on PChome.
1) Solid Singapore and Malaysia Operations.
Contrary to popular beliefs that brick and mortar will rip due to ecommerce and all, harvey norman's Singapore and Malaysia Operations have shown a good growth in profitability across a 5 years trend.
Profits rise from 25 million in 2018 to 45 million in 2022. Similarly, Revenue has rise from 489 million to 637.96 million.
Taiwan's operations have always been stronger in the 2nd half (Sep to March). This is largely due to its brands such as Columbia selling much better when it is winter season compared to summer season. Taiwan experiences colder temperatures from Sep to March, with temperatures falling to 11 or 12 on some days.
With the brands including travel theme such as Tumi and Columbia (buying of winter clothes to travel), this is definitely a play on travel resuming in Taiwan. At the same time, Kangol has been a relatively well known brand worldwide outside of Singapore. I am always happy when i see someone wearing Kangol in South Korea or Taiwan.
As such, i do expect that the revenue will be stronger this 2H and gross profit will follow as well.
While i have not found any clear indication that revenue will be stronger(if i had the time i probably would want to monitor things at 台中 on a weekend where i am finally free), a couple of things i noticed that reinforced some beliefs in the company are as follows.
George Goh is the Group Executive Chairman and the Goh Brothers own more than 50% of the company. As George Goh is recently more into updating his information and social profile, it is much easier to find more information about him and what he does. With more increased public exposure as well as the increased sharing of the Harvey Norman Story in recent months, i would believe that things are looking up or at least looking decent.
One of the critical comments about my investing style is that i am someone that does not look a longer term horizon and paint a story and analysis about the company.
My view towards that is that i do not have such visionary sense and i am more concerned about how much % i can make from a company in the short term compared to a story that might go wrong some how.
Imagine painting a story of a certain property company in china making its recovery in 2026 and 2027 because it has sufficient balance sheet and diversification as well as the know-how and all. Even if the story is compelling, it is hard to estimate the gains made in 2026 as well as the opportunity cost might be too huge. To begin with, story telling is good for earning a job but rather hard for the portfolio especially when i just want to overdrive until i bang my head.
Back to Harvey Norman Malaysia, it currently has 28 stores. At Harvey Norman AGM, it has been announced that they are looking to increase the number of stores to 80 stores by 2028. 6 years. 52 stores increase.
First off, we need to find out if increase in number of stores has been a success at Harvey Norman Malaysia Operations. From the graphs below, we can see that revenue has increased as number of stores increase. In the initial years, when stores increased from 18 to 23, there was a impact on store per revenue but it has recovered in recent years which is expected as it takes time to ramp up revenue at a store and dependent on when a store is opened it will affect revenue as well. Taking a bad case of 0.9 million per store, we are looking at 720 million revenue. Which means profits could close to triple.
Lastly, it is also worth noting that i called it the golden hour before the storms. In fact, the storms are things that everyone are familar with. Inflation increasing cost of living, Increased Housing Prices in Singapore, Negative Economic Growth Fears as well as Unemployment Fears, High Interest Rates. These are likely to affect consumer sentiments of retail although if you ask me truthfully, i would say Harvey Norman has already performed better than its peers (more on that later). Also, it has done well in the past 5 years especially recovered from the Covid Lows.
Conclusion
We have a company that trades at a PE of less than 5 based on Half Year Results and Book Value of 0.65. Profit of Harvey Norman Singapore and Malaysia Segment for July 2022 to Dec 2022 has been higher than Jan 2022 to June 2022. Also, sales growth is seen from Oct 22 to Dec 22 (which is not reflected in Ossia Half Year Results which ends at Sep 22).
In the Taiwan Segment, it has been improving year on year and with cold weather in Taiwan and the resumption of travel, i expect things to be better as well and record higher profits.
Last but not least, the executive chairman is someone who has a decent profile and has increased public exposure in recent times.
I wish there was more liquidity in the stock and i have more ammunitions to add into it.
Peer Comparison
Senheng is a eletrical retailer in Malaysia. Also one of Harvey Norman's Malaysia Competitor.
Recently a thought came to my head, i wondered if the IPOs on SGX might have been getting worst or even underwater. I am not sure but when i see headlines of Digital Core Reit, Manulife US Reit , it gives me this impression
As such, i decided to as and when i feel like it, review some of the SGX Stocks that Ipo-ed in the past years.
2021 is likely a good year to start. The company would likely released its FY 2022 results being in a more 'clean slate' due to lack of IPO Fees.
The first company that came to my mind was Econ Healthcare (SGX: EHG)
Basic Info
Business Model: Operation of Nursing Homes / Elderly Aged Homes
IPO Price and Date: 28 Cents ( 19 April 2021)
Current Price and Dividends Declared so far: 19 Cents and 1.2 cents
Total Loss = 27.85% in close to 2 years.
Implied PE = 14.39
BV = 1.28
Financials
On 1 look, it seems like a good company for a staff to work in, as the increase in staff cost is the same amount as revenue increase. But we would have to factor the increase in subsidies from government and then all in all it looks ok.
Unfortunately. a likely one-off other operating expense due to their new Henderson Nursing Home and a slight increase in utilities as well as depreciation expense meant that profit only grew by 10.8%.
With overall occupancy at 77.9%, there is definitely more room for revenue to grow? Lets find out.
Revenue = 21.215 million.
SG Revenue & Occupancy Rate: 18.39 million & 96+%
Msia Revenue & Occupancy Rate 2.609 million & 77.5%
China Revenue & Occupancy Rate 0.212 million & 77%
Hence at full revenue, 22.80 million is possible. 26% revenue growth. Not great at all.
Looking at tariffs has stabilized, the company just have to be more proactive in growing its occupancy rate and profitability in Msia and China. Then it is likely to have a better 2h compared to 1h. Furthermore, its cash flow is supposed to be better as most of the gains in revenue and other income is eradicated by depreciations as well.
Looking on a more long term scale, it has a 732 bed in Sg upcoming in 2025 while a 280 bed in China in 2H 2023. While i am excited over this 732 bed in SG in 2025 as this is inline with government policy to add 5000 bed from 2020 to 2025. It also represents a potential revenue increase of over 60% for SG Revenue, its strongest source of revenue and profitability.
Red Flags
1) Company has been involved in stock scam scandal before, putting in money into a pump and dump hk scheme stock and following which have been duped as the share has rapidly decreased. If an investor like me could tell that it had no earnings and no dividends record, i am pretty sure the reason
Though i do admire the courage as the company continues to go on with its core competencies.
2) Nice Mistake but lets pay more remunerations.
It baffles me how the founder is paying himself more for making an investment mistake which caused the company to be barely profitable and dividend to be lower than what one might had expected.
This just reinforced my initial thoughts that the quality of SG IPOs in recent years might be going down hill.
First 3 Months Return of 2023 = 10.71%
As i will be busy on the next few days, i have decided to skip ahead 1 day and report the results.
China Sunsine - From the tone of the results briefing, it seems like Q1 would likely be not as good. The china automobile trend in the first 2 months of 2023 looked bad as well with a close to 20% fall compared to 2022. Considering that the industry is cyclical and the company has been expanding production levels, there is a time to think that the company might be overvalued but its definitely not now.
Centurion - Overall a solid result, with news that rentals are up and dorms are operating at full capacity. Only concern is the finance expense that has ate up profits in 2H 2022. 1H 2023 will likely reveal how good the reversion in rates are vs the cost.
