Predicting and Previewing HG Metal Results

 HG Metal has been a position that i have added in 2022 and so far my gains and losses are +/- 3%.

It has presented a decent result in 1H 2022 with eps of 5.12 cents. Should it continue its trend, it will mean that earnings come in at around 10 cents and trading at a PE of less than 4 as its trading price is 39 cents.

Furthermore, the net asset value of the company stands at 89 cents.

Ever since 2019, the company has shifted its focus from trading to manufacturing. This can be seen in its manufacturing segment profit growing since 2019 while its trading segment has had mixed results.

Manufacturing Profit growing while Trading Segment has mixed results.

In thinking about how the earnings might go in the second half, i decided to take a look at 3 things.

1) Steel Rebar Prices

2) Steel Rebar Demand

3) Competitor

1) Steel Rebar Prices

The average price of steel in 2022 2H is 1060, which is higher than 2021 1H where it started recording decent earnings of 4 cent EPS. However, it is lower than 2021 2H and 2022 1H. Which means that the trading segment might face some losses due to the volatile steel price movements.

However it is all too difficult to predict as the trading segment faced losses in 2018 despite a flat steel price environment and prices was higher than 2017 while in 2019 it managed to have profits despite 2018 2H > 2019 1H > 2019 2H for steel prices.

All things considered, i consider the retracement of steel prices to be rather healthy and it is good for construction demand. A thing worth noting is that steel prices have rise again in 2023 and is up around 10+% in China (A country which SG Imports steel from)

2) Steel Rebar Demand

According to the BCA Free Info, demand for Rebar Steel in 2022 (Up till November) has already exceeded 2020 and 2021. Making it the strongest year since Covid Struck.

Of course it is unlikely to surpass 2018 and 2019 levels but HG Metal's 2021 manufacturing revenue has increased beyond 2019 levels which shows that it has managed to grow despite the macro environment not recovering to those highs.

As such, i expect the manufacturing segment to show some growth or at least maintain stable.

3) Competitor

BRC Asia is its competitor and the market leader in the industry.

Despite some reversal in contracts, it has recorded a relatively strong gross profit and net profit from July to Sept 2022.

This means that business is stable although it has highlighted the BCA Heightened Safety Requirement which might play a part moving forward.

Wild Card Consideration (Resignation of the CEO)

Interestingly, the CEO does not hold any shares in the company and he has resigned while the major shareholder will take up the position of the CEO.

I have to applaud the efforts of the leaving CEO as since joining in Jan 2019, he has turned the ship well and recorded profits in 2019, 2020 and 2021. 

He is also paid well in 2021 (1.5 to 1.749m) when the company recorded 12.1 million profit.

In 2020, he is paid (0.25 to 0.499m) when the company recorded 1m profit.

In 2019, he is paid (0.5 to 0.75m) when the company recorded 0.8m profit.

Conclusion

I feel that 2022 results will be stable. Following which then there is probably 3 scripts that the company might follow 

Script A - A company that does well when steel prices are up and a lot depends on the increase of steel prices moving foward. In this case, 2022 2H will likely be weak due to lower moving steel prices and the volatility is far lesser.

Script B - The company continues to benefit from its manufacturing segment and is able to offer the value preposition while the tailwinds of 2023 demands being stable and 2022 demands being good offer a re-rating of share price.

Scrip C - A change in CEO results in the company moving backwards instead. Might mean there are some setbacks in the manufacturing business. This means that 2022 might be its last good year for some time.

Of course none of the scripts might happen as well. That is the nature of some sgx small caps where info is very difficult to find and even with info the estimation might be off. As such, it explains why its sizing in the portfolio is around 8+%.

Just hoping that the company will pay a good dividend and be able to produce decent results moving forward after their company trip in July 2022 to Langkawi.

Justin Allen Holdings (A Company i have shortlisted recently)

 To continue the previous trend, if this post goes off, it means i have took a plane and travelled somewhere. This time its Taiwan.

As such, considering the flight price as compared to previous trips is lower, the quality of this post is expected to be not as high.

A company i have added to my shortlist/ waitlist recently is Justin Allen Holdings Ltd (Hkex: 1425). It is a company that is listed in 2019 November and its business entails OEM garment manufacturing of sleepwear and loungewear products. Its major customer is Target and Walmart although the former is 85% of its revenue.

(Company Logo)

Following my trend of looking at the balance sheet first, the company's balance sheet and financials have caught my eye straight away as they look too wonderful to be true.

(Total Equity rising since 2018, Cash has also covered liabilities in 2021 which means i can take a close look at the other parts of the company)

(Revenue and Net income rising in tandem. Looks good as well but is all so good?)

What i like about the company

1) Really Good Numbers

There is no sugar coating, the numbers are good and that is that.

The half year numbers pale in comparison to full year number as usually business picks up in 2H of the year. Nevertheless, the past few years have seen an increase in price per product. Yet at the same time, the number of staff at Cambodia has decreased. With its China Plant being unprofitable in 2022, relatively cool to say a huge chunk of profit comes from Cambodia.

(Seasonal Impacts do Occur, 2H usually is better than 1H)

Perhaps a better way to sell koyok will be to present the 1H numbers in comparison but i am slightly lazy so i will just leave it like that.

2) Close to full hiring and expansion plans. Constructing a plant near the delivery location has became a trend recently i have noticed and with 3 factories in the pipeline as well as customers possibly approving new wear products will allow for better revenue in future. In fact, i would say this might mean that it is close to full capacity currently.

From my possibly unreliable sources of the internet, it seems like the Cambodia Factory is close to full capacity as well.

(Company's Expansion Plans)

3) Major Customer increasing demand over time.

(1H and 2H both increased year on year.)

What i dislike about this company

1) Balance Sheet can better. Company holds quite a huge sum of financial assets and have seen them being written down in 1H 2022.

For folks who are highly into looking at inventory, trade receivables and various asset ratios, this balance sheet will likely be a mixed bag of results as while receivables has not increased despite an increase of revenue by 30%, payables has increased largely while inventory has also increased by around 40%. 

 A good gauge will be to refer to the 2021 balance sheet to assess the inventory levels.

Fortunately, the 2021 June levels of inventory look similar to 2022 June. Which means it is not much of a worry. Also with most revenue coming from target, i am not sure how much importance should be place on the receivables. 

2) Highly Volatile Orderbook. As orders are not on a long term contract basis and also subjected to economic demands in US, these are factors that can affect any garment factories in general. There is also a heavy reliance on Target to have not much financial difficulties as well as being able to grow their market share and demand in US.

This is also highlighted in its IPO.

3) Difficulty in finding more information. While some information on its China Subsidiary which is unprofitable is available, the Cambodia Subsidiary's information is much harder to find and it its not a surprise given that there is probably around 1000 staff there about and the language Cambodia uses (Khmer) is difficult to type / translate around as well. 

On the management front, they have been rather low profile or did not win any awards or anything where they would give an interview. The most recent article was about wages in 2022.

(Article Link Here)

Another article was in 2020 which mentioned a change in strategy helping the company.

(Article Link Here)

Conclusion

Is this stock a buy currently? Not for myself as i have mentioned a lot of times i do not have excess cash. 

How about if i had cash? I would consider because this company has shown good profitability in the past, a potential expansion plans as well as unit price has increased each year while margins have climbed steadily as well. Also, the management themselves hold 67% of the company. I believe that a billion or 2 billion HKD is considered small as Target's apparel sales in 2021 itself is around 140 billion HKD.

Of course there is some concerns over what sizing i should put in(if i had the cash) as a part of me would have liked for the management to explain a bit more on their plans and how they have done well these years while maintaining a lower Cambodia Headcount etc. 

In other words, the PR portion can be better communicated. Sometimes even accepting a media/radio interview to share about the company's business and its developments would be decent as well

Although something interesting is that they have paid a 5.9 cents dividend for FY 2021 and there is some reasoning given. 'For the year ended 31 December 2021, the Board proposed a final dividend of HK$0.059 per share, representing a dividend ratio of approximately 46.6% out of the profit attributable to the owners of the Company. Given the Group continued to record good results in a challenging environment, the Board decided to declare dividend at a relatively high dividend ratio to shareholders of the Company for sharing fruitful returns to them and as an appreciation for their support.'

I would not be surprised if  FY2022 results continue to impress.

                                                      (Thanks for reading)

For folks who want to view the half year comparison can refer to the table below.

Anyway if my valuations (which are 99.99% inaccurate) would indicate, i would estimate that 2H 2022 could break 23 million . However, this is depending on what is the maximum capacity they can achieve which is something that they have not said or indicated. From my reading, they do outsource their orders as well so i believe any increase in production should be largely possible.

 If productions do hit 23 million in 2H 2022, the profit estimate could look like this.

This means that it is trading at less than 4 PE at the current price of 0.63 (As Full Year EPS will be 0.17)

However at the current price of 0.63, it is trading at book value of 1.64 (above book value) which is a rarity among garment small caps.

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

 

December 2022 Returns: -1.13%

Year to Date Returns: -16.56%

Since Inception (9 Sept 2020) Returns: 36.67%

To be frank it has been a bad year for the portfolio. UMS, Propnex, TC Auto, Powermatic Data, Tuan Sing, China Sunsine all had a more than 5% drop in share price . 

I feel compelled to make changes because of the poor returns. However, they are inside because i have some level of conviction. As such after carefully thinking about things as a whole, i have decided to make 1 change only. 

Haw Par has been added into the portfolio. This came about as i was thinking about the conglomerate discount that was being talked about in Reborn Rich Drama.

Haw Par has enough cash to cover its liabilities and while it is not exactly Soonyang Group, we can never rule out chances of something of that happening in a fantasyland concept.

Anyway, balance sheet is strong, with a reputable brand of medicated oil, holding shares in a sector that is expected to do well in higher interest rate environment, coupled with a more than 10% drop in share price in 2022. Yup i think its ok to pick it up.

2022 Review Part 2

Motivation for Investing

-For the first 5 months of 2022, motivation for investing has been relatively muted. However, the take-over offer for Shinvest in April meant that i had to start the transition of around 20% of the portfolio into other stocks as i have always maintained a low cash to asset ratio and i had no intention to deviate.

-With that i have allocated some proceeds into adding into my other top 2 positions within 1 month of receiving the proceeds

-From July, i was slightly more motivated. That was after i came back from my first overseas trip in June 2022 where i took a plane since 2019. That was also when my portfolio got much more active. 

-To give a gauge, 56% of portfolio dollar movements took place in 2nd half of the year. While accounting for a 15% movement in 1st half was due to the take-over offer.

(2022 Returns: 21.49%. A standout miracle?/masterclass?/fluke? year which beat the STI ETF, Hang Seng Index as well as the small cap Hang Seng Index) In terms of absolute value, 2022 is the highest due to a higher base compared to 2019.

(For folks who might be interested in XIRR)

-The things that i have done well and not well have been talked about in part 1. My personal thoughts is that this year is not a tough year but its a year where things have to be done in quick fashion. 

-Some examples would be catching on undervalued trend in container shipping in sgx to realizing that covid testing has increased tremendously due to omricon as well as the possible reopening news. These were quickly reflected in the market in matter of minutes to few days.

If i did not really went overseas and came back with some increased motivation to finish the year in positive returns, i might not have done as well. In previous years, a couple of stocks in my portfolio would just be kept there but for this year i have sold them (e.g Tat Seng Packaging)

GingaMingaYo

-If i were to rate myself for my 2022 performance, i would give myself 6.1/10. 2nd half of the year saved a poor 1st half of the year which was helped by a takeover offer. A good chunk of returns can be attributed to good luck as well. Passing marks given as the transition has been ok as of now.

The problem will probably be sustaining the same level of motivation into 2023. Like any other years, the toughest part is the year ahead.

Thoughts on my positions (6% Weightage and above)

1. AAG Energy Holdings Ltd (2022 Share Price Performance: 34.49% )

-I have talked about it in my previous post so i will not mention as much. I estimate the returns to be in a range of 15 to 30% if there is a takeover offer.

2. HG Metal (2022 Share Price Performance: -1.30%)

-A position i initiated in April 2022.

- A company that has benefitted from steel price increase as well as improved construction demand in 2021. Its main business is trading and manufacturing of steel rebars. In recent years, it has concentrated more into the manufacturing segment which includes cut and bend of steel rebars.

-It remains to be seen if the company's manufacturing segment can start producing consistent profits and grow from there as the company has pivoted into supply of cut & bend rebars to the construction sector in FY19. For now at least, the story seems to be working out as the cut and bend revenue in 2021 is higher than 2019.

Year	Cut and Bend Revenue
2018	55,637,000.00
2019	73,306,000.00
2020	47,257,000.00
2021	88,508,000.00

Year	Manufacturing Revenue
2018	63,713,000
2019	91,630,000
2020	61,615,000
2021	103,704,000
2022 1H	61,754,000

-As such, if it is able to prove  that it can be well profitable when steel prices are in a healthy environment and not just a rising price environment, the company should be able to show better value.

3. Medialink Group (2022 Share Price Performance: -1.33%)

-A position i initiated in August 2022. More about the company can be seen in this previous post

-From mid year results, it seems on track for a double digit growth this year. The return of in-person comic conventions in Hong Kong and Taiwan has also allowed for more spending in anime related merchandise.

-Back in October, when the previous post came out the price was 0.128. As of 23 December it is 0.148 with a dividend of 0.007 declared. There is no need to cheer because the broader market recovered as well.

-The current biggest anticipated IP will be The First Slam Dunk. Will have to observe how well things go in 2023 January.

4. Mainland Headwear Holdings (2022 Share Price Performance: 27.26%)

-A surprise as after a 80% return in 2021, it continues to impress with a 27% return in 2022.

-I have previously talked about the company's mid year results in this post. For folks who are more interested in the company's past and recent developments can refer to this video as well as the latest developments in this article.

(Sending Hearts and Wishing Everyone a Happy New Year)

(May Everyone have a Prosperous Year Ahead)

AAG Energy Recent Updates

 AAG Energy Rallied 14.60% on 12 December before falling -1.27% on 13 December. Nevertheless, it is still a more than 10% rally from the friday closing price.

What brewed over the weekends?

This is in-line with the recent developments of its parent company 60339. 603393 approving an investment decision to invest up to 3 billion RMB into their Hong Kong Subsidiary (Not AAG Energy). The board also approved that out of this 3 billion, up to 2 billion can be from loan.

Considering that the net asset value of 603393 is only 12 billion RMB, this is a huge move from the company. The money moved into the subsidiary is also the same company that launched a 50.5% equity ownership offer in 2018 for AAG Energy. Therefore, this has triggered people to think that a take-over is close.

In 2018, when similar announcement is made, the initial amount as 2.2 billion and subsequently re-raised to 2.6 billion. The announcement was made in Feb and the acquiring announcement came in May. As such, we can estimate that this time around the timeframe is likely 3 months as well.

A simple count will mean that the offer price is likely to be cap at 2.30 HKD based on the 3 billion RMB converted to HKD.

At the closing price today of 1.55, there is still some upside to be considered.

(As seen in yellow shaded text, not more than 3 billion RMB increase in investment of subsidiary that is currently holding the AAG Energy Shares)

What are the things to know and beware about?

1. The timeframe for this investment is 1 year according to the announcement by 603393. Hence they have up to 1 year to wrap this deal up or commit to this deal.

2. They can claim that they want to invest but end up not doing anything as well. However, in 2018 when they first did this, they did acquire shares. In 2021, they made the same announcement and the amount was 0.65 billion rmb and ended acquiring 6.68% of AAG Energy.

3. Cash on Hand for AAG Energy. With 2 billion cash on hand, liabilities of 1.715 billion and 1.36 billion of receivables (mainly state owned oil and gas firms like CNOOC and Sinopec), its safe to say there is a good 700 million free cash on hand after the subtraction of 700 million of capex required for 2H 2022. These cash can either be declared as dividend if it is really required for the acquisition but I highly doubt this will happen.

4. Dividends and Previous Funds in the company. There should be a small amount of 100-300 million of cash in the HK Subsidiary Company as it has received dividends in 2022 and probably some left over funds from acquiring the shares. This portion is not disclosed as we do not know the balance sheet composition of the subsidiary company.

5. Not all funds are used. Perhaps end of the day after discussions, they might just end up acquiring a certain portion of shares. Nothing is confirmed as always.

6. Offering some 603393 Shares as part of the deal? A rarity with very little odds but cannot be ruled out.

Personal Thoughts

I think there are 2 ways to look at this, from a good and bad angle

Good Thing is that

There is a certain price support base and end point for this company. Coming at such timing of the year, it more or less certains that my performance in 2022 will be positive which among the HKEX Investors that started the year with at least 70% equities, this should be some decent or some would say miracle performance.

Bad Thing is that

I have quite high hopes for this company and its future, the price of 2 or even 2.3 HKD is pretty low ball in my pov.

2022 will be the company's best performance since listing and it is a company where it really has showed to be the dominant leader in terms of technology and profitability in the coalbed methane china industry which is known as an unprofitable industry.

Personally i feel that today's reaction is normal but i feel that interest might not be sustained for too long and it is likely to slowly trend downwards before an offer comes out again.

Although i might be wrong and we trade at this range and slowly trend upwards till the offer comes (if it does).

As for whether i will continue to purchase at these prices, well i have no comments/thoughts because i highly doubt any adding i do based on my current cash position can affect the portfolio much either.

2022 Review Part 1

With the year coming to an end, i have decided to split the reviewing into 2 parts. 

The first part consist of what went well, what did not go well and general thoughts. 

While the 2nd part will be more on the 2022 returns portion.

(One of the things I manage to do in 2022 was to go Korea to catch a concert)

General Thoughts

It has been nothing short of a strange and volatile year, with news of interest rate rising along with inflation rates, the world scrambles to respond to higher prices which is felt from a larger scale such as more expensive loan rates to the smaller scale of increase in prices of food and drinks. 

In any general finance theory, the increase discount rate will cause a reduction in valuation of companies and those who are unable to pass on cost due to inflation (for example unable to add price in a competitive market yet having to pay more to attract the workers to do the same work) will also suffer in reduced profits.

On the China Front, we kicked off the year being covid zero with other parts of the world slowly opening up. Unfortunately, the lockdowns are happening very often and demand remains lacklustre which has resulted in many companies recording 30 to 50% fall in share prices while property companies took a even higher fall while some went into suspension.

Suspended List include Giants such as Shimao Group and Sunac which had a market cap of  92 and 120 billion in December 2020. In 2020, they are worth around 5 and 8 SATS Holdings at today's price.

While those that are not suspended did not really do well in share price either. Some notable ones include

With the exception of Yuexiu Property which is state-owned, the rest have fared pretty bad with highest being 90% loss in its share price. Even my favourite road king is not being spared. 

Surprisingly, the contagion has not impacted SGX Markets as Yanlord Land remains resilient. The key difference would probably be the selling price per sqm for Yanlord being much higher and they do have a few investment properties as buffers.

In Singapore, it has been a resilient year, the opening is around 3200 points and we are still at that level despite some highs of 3400 and lows of 2900. 

I guess the main fears of Singaporean would probably be: 

1) How to grow wealth amidst the many different possible sources suddenly having black swans e.g hodlnaut.

2) Handle rising loan rates while having to wait long time for BTOs. 

3) Job-hopping while trying to make sure that the new job would not be cut off during a recession should such situations arise.

4) Coping with inflation and increase in food prices , gst etc.

I still remain my stand that buying t-bills and ssb is not suitable for me as i see them as volatility reducers in the portfolio and not investment return generators.

Trades that went well this year in 2022

1) Human Health Holdings (Hkex 1419) Bought at 1.18 in Jan and sold at 2.24 in Feb on the back of Covid-19 cases rising in HK and the need for compulsory testing and vaccination. More can be found on the 2 writeups here and here

2) Samudera Shipping (SGX: S56) Bought at 0.795 in July and Sold at 1.22 in August) Previous writeup on this lucky purchase can be found here 

3) Sold off / Cut loss on Johnson Holdings and WKK Intl after former had poor contract wins and latter had performed well below my expectations. Sold off at 0.98 and 0.91. The price as of 8 December is 0.66 and 0.68.

4) Cut loss on IGG. Sold off at 5.17 in January on the back of the profit alert on its poor performance. Current Share Price 2.98.

Trades that went bad this year in 2022

1) Selling of Prop Services Company CC New Life (Hkex 9983) and Yuexiu Services (Hkex 6626). Sold them at 2.3 and 2.51. The current price is 3.77 and 3.25 respectively. 

2) Hotel Grand. Bought 0.985 and Sold at 0.98. The macro research on trends and number of tourism did not really seep into this company which reported a lousier bottomline and poor top line as well.

The rest that is on my portfolio, some were purchased at a higher price than current prices, it remains to be seen if they will turn sour in the last weeks of the year or in 2023.

Overall so far, i have sold more than i bought this year, which means that there is net capital outflow currently. I hope to make it negative by a token amount to show that i have put in more money compared to last year if i can get the companies i want at what i think is a ok valuation.

In terms of transactions frequency, this year's frequency is fewer than 2021 which is expected as there are other things to do as well such as travelling and when markets fall, averaging down adding is more common and there is less incentive to try a couple of trades here and there unless i am more confident.

However, the transaction value is close to 1.9x of what is in 2021 which means that there has been larger movements in the portfolio. This is in line with what i wanted to achieve. Since June after my first flight since 2020. I promised myself to be more active and try my best for the rest of 2022 before deciding on further actions.

(Just me taking a highly zoomed shot like at least 16-20 times on a Samsung S22 Ultra)

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

 

November 2022 Returns: 10.03%

Year to Date Returns: -15.60%

Since Inception (9 Sept 2020) Returns: 43.85%

To Quote November in a Phrase would be: What a Strange World GingaMingaYo

November Return is the highest month so far in 2022, erasing the losses in October but Overall Year to Date the portfolio is still negative compared to the STI.

Main Returns driver would be Propnex and UMS. While the main laggard would be China Sunsine.

A lot of companies reported results or business updates in November

UMS - Solid Results even though the 2023 and 2024 recession and lower demand fears hingers in thoughts of many.

Powermatic Data - Solid Results, basically flattish in terms of main business but cash pile grows and the decision to not declare any dividend. Fortunately, to combat the long lead time and increase in components cost, the company has decided to increase prices since July 2022. It remains a very stable company in balance sheet perspective.

Propnex- 3Q Results was best quarter this year, although there are some other income factors that might not be as sticky, it is still a good sign to see that the stable base is there with the overhanging thoughts of increased financing cost in property due to interest rates as well as the housing cooling measures.

KSH- Gaobeidian starts to contribute slowly, have to assess based on full year results. Construction Portion Results improved as the gap (Construction Revenue - Construction Cost) has widened. Unfortunately the weakening of pounds and rmb probably ate into its profits and caused a large exchange loss. All in all, fundamentals remain solid, with a few JV and associates formed this year, this will likely start another cycle of participation in domestic prop development projects.

China Sunsine - Q3 2022 was an improvement against Q3 2021 but definitely lower than Q1 or Q2 2022. With falling raw material prices due to lack of demand as a result of covid restrictions, the timeframe has to be stretched longer and with the build up of production plants, the company is likely to be able to do well again when demand is back and it has higher production capacities.

LHN - Mixed Results. with a lot of revaluation left right centre. Co-Living remains a good growth trajectory. For the rest i can only sigh.

With that, waving goodbye for this month.