Recent Additions 6626 HK, 2343 HK

Added 2 positions recently. However both are small positions, they add up to a total of around 4.6% of the portfolio.

Added

Yuexiu Services (6626 Hkex) 

and 

Pacific Basin (2343 Hkex) , part of the 10% moomoo trading game.

Divested

Logan Property (3380 Hkex) , part of the 10% moomoo trading game as it made a 10% loss.

Rationale of adding Yuexiu Services 

1. Uniqueness - Integrated Metro Property Management with the ability to manage a huge range from train stations/ train depots to shopping malls and residential property.

2. Strong Shareholder - With Guangzhou govt being a shareholder, it is likely a strong front-runner for future government property management projects

3.Attractive Valuation - Based on 2020 PE, it is trading at around 31 PE, which is definitely not attractive for a relatively smaller size property management company, However, considering that it has improved revenue by 75.4% and gross profit by 93.9% in the first 4 months of 2021 compared to 2020, i estimate a doubling of profit and this would bring the PE down to around 15, which is attractive for me to enter as i believe it would be able to grow further given that the metro property management acquisition was done only in November 2020 and the full year contribution will be shown in 2021 as well as a good gap of around 51% between contracted GFA and GFA Management (which indicates that there is currently 51% GFA in the pipeline to be managed in future)

Key Risk

1. Although it should be a beneficiary of Covid as it is involved in sanitization of properties that it managed, it could incur too much cost or do too much 'charity' and affect earnings

2. As it is a newly ipo-ed stock, it might face volatile trading volumes and ipo price being at the lowest end of the valuation might indicate that it might face near-term pressures until 

As such, i have decided to enter a small position and will average down if the share price falls further and the valuation holds.

(Property Management Staff in Guangdong during the recent outbreak)

(Staff of Yuexiu Property Management carrying out sanitization on metro)

Rationale of adding Pacific Basin (Hkex: 2343)

1. Market Leader. Being a market leader of the handysize industry, it benefits most from a rising handysize market

2. Low new orderbook. According to its slides, the handysize is at 3.5% of existing fleet which is the lowest and this bodes well as it means lesser future supply. To put things in perspective, the orderbook in 2009 was 46% and 39% in 2011.

3.Improved pricing of 2nd hand handysize dry bulks. This means that there is increased optimism of the dry bulk market.

4.Improved Market Conditions. Handysize index has been on a rise since year to date($26000 in July 2021) and it has beaten 2010 levels of $22000 seen in 2010. Although someway off the $48000 level in 2008, this is still a significantly better condition than previous years. 

Key Risk

1. Volatility in Dry Bulk Market. As it is a commodity driven market, it can be expected to be very volatile and if the index is to start plunging, the profit would follow.

2. Priced-in Valuations. 92.86% increase in price year to date, it can be said by some that it is already priced-in and one should consider other dry bulk companies that has increased lesser.

3. Poor forward cover. Given the huge rise in rates recently, it is largely expected the forward rate estimate given to be good. A poor forward cover (due to overly locking rates too early in the year) might result in share price to fall.

As such, i have decided to enter a small position and will consider average down if the share price falls further and the index holds. 

With 1H results out on 29 July 2021, it will be interesting to see how it pans out.

(5 Year Old Handysize Dry Bulk Increase in Price)

Baltic Handysize Index(represented by red line) stronger in 2021 compared to 2020 and 2019

1 Year Holding CC New Life (HKEX: 9983) but still making a loss :(

 

(Transaction made on 15 May 2020, at a price of 8.44 HKD)

The current price as of 2 July 2021 is CC New Life is 7.60.

Compared to my first purchase price, i am actually in a loss 1 year on. In fact the stock has languished at even lower levels throughout the year. However, i remain optimistic of the company.

(Current Price of 7.60 HKD, although it has fallen to a low of 5.76 in the last year)

What resulted in the weak results so far in the year?

1) Initial Hype over property management companies

Companies were trading at close to 40 and 50 PE during the early and mid of 2020. This resulted in a lot of hype. However following the hype, the smaller and mid property management companies tanked following the lack of volume.

2) Too many new listings of Property Management Companies

As a result of this, the exclusivity and uniqueness of companies start to become blurred and funds start to go towards different property management companies. In 2020, at least 14 property management companies have been listed, with larger management companies being listed such as Sunac Services, Evergrande Property Services and China Resources Mixc Lifestyle.

How would i view property management companies 

 I feel that at a PE of 30, its acceptable if the growth year on year is 50% for at least 2 years. 

One might ask how a growth of 50% year on year is possible. The following are some possible reasons off my head.

1) Increased Prices of Property Management Fee

-The current prices vary across different cities in China and varies according to the type and age of residential properties as well. As it is still highly regulated by the governments of each city, a cap is set on the amount that can be charged. Removing this charge will allow for better growth.

2) Increased Economies of Scale

-Managing more properties in the same city with centralized control center will result in better cost savings and economies of scale. For example, using the same maintenance team for more residential projects instead of having 1 for each project will allow for lower cost.

3) Increased Scale of Management

-Revenue = Price x Demand. In this case, increasing demand will be to increase the amount of properties managed to drive growth

4) Increasing Value-added Services

-The profit margin of value-added services are higher than the property management margins. However, different property management companies offer different types of value-added services. The more common value-added services include consultancy services to property developers, real estate services and house-related services.

5) Increased Mix of Properties Managed

-Commercial Properties have a higher management fee charged compared to residential properties and such as have a higher margin. By increasing the amount of commercial properties managed, this would allow for a higher profit.

(Residential Property Management Services Gross Profit Margin of 35.6% is lower than Commercial Property Management Services Gross Profit Margin of 47.2%. However, residential community value-added services have a better gross profit margin of 47.3%)

Conclusion

To sum it up, to drive growth, a good property management company should have a good relative value preposition. 

As there are too many companies in the market currently, one would have to ask if the property management company they have picked provides a good value preposition. 

In picking a big property management company vs a medium/small, one would have to consider that the valuation difference is present and at times the lower liquidity can drive prices to a low such that it does not match the valuation.

Value Prepositions and the relevant companies that I know of.

• Scale ( CG Services Hkex: 6098) The parent company of CG Services is Country Garden Holdings, the largest property developer in China. It has also shown resilience in raising capital as it issued new shares amounting to 4.55% of issued share capital at a price of $75.25 per share in May and the company as of 2 July, trades at $79.95, which is above the issued price.

• Commercial Properties (China Resources Mixc Lifestyle Services Limited Hkex: 1209) 42.7% of Revenue from Commercial Property Management. (KWG Living Group Hkex: 3913) 30% of Revenue from Commercial Property Management. (Sunac Services Hkex: 1516) 29.9% of Revenue from Commercial Property Management. (SCE Commercial Management Hkex: 606) 46.3% of Revenue from Commercial Property Management.

• Service ( Shimao Services Hkex: 0873) Obtained 1st for satisfaction level in Q1 2021.

• Volatility (Evergrande Services Hkex: 6666) High volatility due to parent company Evergrande's ability to service debt in recent times. Evergrande is also the 2nd largest property developer in China.

• 3rd Party Properties being managed ( CC New Life Hkex: 9983) 48% of Managed GFA are 3rd party properties

• Metro Property Management Concept (Yuexiu Services Hkex: 6626) A company largely based in Guangdong, with the Guangdong Government having a stake in the company via its Guangzhou Metro. Provides management services(including sanitary services) for train depots and train services as well as properties owned by Guangzhou Metro that are developed along the metro line.

• Fast Growth Target ( Times Neighborhood Hkex: 9983) Targetted for around 70% core net profit growth in 2021 and around 50% in 2022 and 2023 in a virtual property conference held in June

Lastly, I do apologize for any misspelling or formatting of sentences as this was done while waiting for Euros to begin in the early morning hours. 

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

 

Position Changes

Reduced 900 Ifast Shares at 8.15

Added 30 000 OTS Holdings Shares at 0.34

Portfolio Commentary

As expected, June has been a rather quiet month as a whole for the portfolio. 

On one hand, companies like Hanwell and Ifast recorded slight negatives while value counters such as Powermatic Data and Tuan Sing has found some growth.

My view is that both of which are still undervalued at current prices. Although any further price appreciation could be some time away.

OTS Holdings is added as i feel that at current price, the potential growth is not well priced in and if the growth occurs then there could be further appreciation in price.

No other changes were made to the portfolio although there were 3 areas that i was looking at

1) Financials - Could have re-rating due to the chance of dividend limits being removed

2) Shipping - SGX Shipping Company are still laggards compared to regional peers

3) Electronics Manufacturing - Singapore as a relatively low covid case country would be able to respond to orders and bounce back quicker than regional peers.

Overall, i am happy with the results in 1H 2021 and I do expect returns to taper in 2H 2021.

(Short Post) OTS Holdings Limited IPO Thoughts

 

Will be a short post as there is only 1 million public shares available for application. 

As such the allocation could be a disaster (similar to Econ Healthcare)

Pros

1) Good Revenue Growth that is driven by gain in profits. 

Being a food manufactuer company, improving margins is important. As such, the company has done well improving its margins from 2019 to 2020. This has further improved in 1H 2021. As such, if the company does sustain its growth, it does not look expensive at all given a forward IPO PE of around 7.5 not accounting IPO Expenses.

2) Malaysia Growth Segment and Incentive to Manager is via profits.

Looking at the revenue segment by country, one can identify quickly that the expansion in Malaysia is the reason for the growth in profits.

From 1.4m in 2018 to 2.3m in 2019 to 7.4m in 2020, this growth trajectory itself is pretty impressive. However in 1H 2021, it has grown to 7.5m which has overtaken the whole of 2020. As such, while it is hard to assess the extent of growth it can have, it seems like they have done very well for a company entering a newer market.

On a closer look, Mr Teh the general manager of its Malaysia segment will be paid 10% of profit before tax as a performance incentive based on the Malaysia operations. This incentive does not count for 1 off fair value gains in investments and properties. As such, he is incentivized to deliver higher profits and as such enjoy higher bonuses. From the early signs, I would say he is paid well and he deserves to be paid well as he has done really well in Malaysia since the entry into the market in Mid 2017.

Cons

1) The company made 2.9m profits in 1H 2021 and 2H 2021 should be a better half as usually 2H would be better than 1H. As such it makes little sense to be listing and raising a net amount of around 6 million.

2) As the company is involved in the productions of canned foods, the company does face price wars from its competitors and as such it does not have the ability to pass on price increases as well if its competitors does not. This meant that any improvements in margins have to be via production improvements and improving revenue.

Conclusion

Its hard to find reasons listing such a good company. On paper it looks like a decently priced company that could be a multi bagger should it show good growth. Given by how Malaysia has been a success, one wonders if Indonesia and Philippines be half as successful, the growth would be tremendous. 

To add on to that, Malaysia has a larger population and such canned food would be a choice during Covid times. As such, while it is hard to estimate the revenue growth, its safe to say that the demand for canned food will remain to be strong.

Given by how low the public share offering is, probably buying from the opening market would be ideal if the price offers a reasonable PE. Its one of the IPO shares that I would not mind holding post IPO. 

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

May 2021 Returns: 9.59% (Returns driven by Tuan Sing, Ifast and Propnex) 

Year to Date Returns: 49.58%

% Change since 9 September 2020 (Inception): 65.10%

Year to Date the STI ETF returned about 11.97%

Thoughts on Current Portfolio

Results Release of KSH and Powermatic Data

Powermatic Data

-Satisfactory Results. Good Growth on Revenue. Dividend declared however remains on the low side.

-Worth noting that the company has an unprecedented level of inventory that is highest among the past few years. While if that signals an uptick in demand in the upcoming months it remains to be seen. In previous results this trend seems to have held.

-Macro trend of weakening of USD affects the company

-Setting up a subsidiary for its property rental segment. Signaling a disposal? 

-Fair Value for Property Increased, a good sign for book value.

-'In recent days, a major European Union member country have applied our latest 11x (Wi-Fi 6) products to a public project This project is ongoing since FY2021 and into FY2022. It has made material contributions to both financial period's revenue and profitability. These developments will contribute to both revenue and profitability' This could signal a good FY 2022 and following which more projects using powermatic products?

Conclusion: Would still remain in the portfolio, adding more to the position would not be a bad option for consideration. Especially its one of the times whereby the prospects look rosy in its commentary.

KSH

-Took a 12.8 million fair value loss. Resulting in a loss. 

-However, it has not taken in any potential qualifying claims from cost-sharing relief under COVID-19 (Temporary Measures) Act 2020 for existing construction projects. Future claims would be offset against cost which would mean a better margin hopefully

-Considering the backdrop of a circuit breaker, the company has been resilient

-Gaobeidian in early days. 500+ units sold across a targeted amount of around 50 000 units in the whole project

-Order book increased from $472 million in 2020 to $620 million in 2021

Conclusion: Would still remain in the portfolio, but would want to see more sg property projects associates and joint ventures moving forward. The long term thesis of Gaobeidian still exist.

Thoughts on Singapore Market Recently.

 

It has been a volatile month of May so far which is rather unsurprising given the 'sell in May' syndrome as well as the SG Markets has been 1 of the better performer this year.

With the heightened Phrase 2 announcement at about 1pm on 14 May 2021, the STI responded by tanking around 2+ % from 3114 to 3032. However, in the following week it has recovered to 3114. Seemingly the impact of the heightened Phrase 2 seems to have negligent impact on the STI.

How should we position the portfolio moving forward?

Sectors to avoid (Ranked according to my own thoughts)

1) Aviation

2) Hotels

3) F&B Services

4) Banks

Aviation - With the mutation in Covid 19 Variants and the travel bubble being postponed yet again, its rather safe to say 'uncertainty' is a word that the aviation industry will have to deal with and as such i am not very keen as an investor to deal with uncertainty. While the instant gratification in medical breakthough might occur like it did in 2020, this is something out of the hands of many to model and predict. As such i would gladly avoid the industry which will likely have very tough times ahead. 

Stock to avoid in SGX for this sector will be Singapore Airlines (SIA).

Hotels - Similar with the explaination above, i believe that the rediscover vouchers and staycation effect will unlikely bring hotels to a profitable level that is anywhere near pre-covid. Unfortunately if tourist are not arriving in Singapore then the hotels in Singapore will unlikely benefit as well. While hotels based in other countries such as China might benefit, generally i struggle to think of a pure play hotel reit or company that is currently listed in Singapore.(Not accounting for the possible listing of hotels by greentown china according to rumours) Hence i will likely stay away from investing in this sector as well.

Stock to avoid in SGX for this sector will include Far-East Hospitality Trust and Hong Fok

F&B Services - The industry has always been a margin thin industry due to huge amount of competitors and the difficulty in hiring labor without increasing cost as much. With the recent covid implications, a double whammy is formed as companies would struggle to increase manpower when restrictions are lifted while they would also be hard-pressed when restrictions are imposed. As such, while good food can guarantee the company to survive by innovations through good marketing on social media and deliveries, it is unlikely to drive shareholder returns. Despite that, certain listed F&B Companies recorded profits and paid dividends in 2020 all thanks to large government support. Such initiatives are unlikely to be seen in 2021 and should not be relied on as a catalyst for returns.

Stock to avoid in SGX for this sector will include Jumbo , Soup Restaurant and RE&S Holdings

Banks - A little controversial and hard-pressed decision. I believe this can go 50-50 because the economy is in a pretty down situation and a value hunter will say buy when the economy is bad so u can take profit when the economy is good. However the current prices of banks in Singapore are actually near all time high and does not reflect the economic conditions. While i acknowledge the economic conditions moving forward should be in the form of a 'tick' shape and will get better, i do not acknowledge the valuations seen and as such would feel that a better return could be found elsewhere.

                                           (DBS back at close to its peak in 2018)

Sectors to be Optimistic (Not ranked)

1) Shipping

2) Brokerage

3) Tech Manufacturing

Shipping - Its a pretty known fact that shipping stocks have gone crazy since the end of last year and as such will likely to ride on the trend further. In comparison of Singapore Shipping Companies to those in listed in Taiwan and Hong Kong, Singapore has lagged behind. While the main factor could be due to the lack of big name counters for investors to have their interest in, i believe their profitability should reflect when the results are released.

Stocks include SamuderaShipping and Uni-Asia Group  

Brokerage - With covid and stay home being an increasing trend, there would likely be more time for people to get their hand-on on financial markets at home. Also this provides an opportunity for folks to use their saved up income for travelling to invest and plan for the future as well. Brokerages will likely ride the tailwinds of the extended stay home trend.

Stocks include Ifast and UOB Kay Hian

Tech Manufacturing - Its a 50-50, the tech manufacturing sector has showed resilience in 2020 and has produced good results and returns. As such, with the stay home trend continuing, one would expect these industries to benefit from the increased demand as well. Being essential services companies, these companies are likely to be less affected even if there is another round of circuit breaker.

However at the same time certain companies have showed corporate results/decisions that isn't to my liking. For example, AEM guided a similar revenue but profits has fallen a lot in 1Q 2021 compared to 1Q 2020. UMS has underwent an impairment in 2020 Q4 but has decided to acquire JEP, which has went into a loss making position due to the aviation sector being affected badly. However, its Q1 2021 has showed continued growth from previous quarters which affirms the growth trend. 

As such, i would say that if one believes in the plans of these companies then they would be attractive valuations to get into.

Stocks to ponder about - UMS and AEM 

Moving forwards, the chopy markets is likely to sustain. Even though the STI has recovered from its flash minor correction last week, i do think there is more of such corrections to come.

Uni-Asia 1Q 2021 Business Updates Review and Thoughts

 

                                                       (Mood after looking at the updates)

Probably the most important slide of the whole business update would be this slide.

Daily Charter has break record high since 2018. Coming in at $10,005 per day.

Factoring in estimation of operating days of 983 (1966/2) (1H 2020 Days Divided by 2)

This should result in 9.83 million USD in Revenue

Considering January is a month whereby the Baltic Dry Bulk Handy size Index is below 1000 and it has only risen to above 1000 in the last few days of February, this result is pretty decent

Moving forwards, although we have not hit the heights of March, April figures are above 1000 and May's figure up to 11 May are also above 1000 (Increase since End April)

As such while i do not want to estimate the revenue again as it might not be accurate, it should turn out fine. Along side the disposal recognizing small gains. We should see a profit and dividend when announcement is made in August.

Unfortunately i was unable to fill my order today. Will see how it pans out next week.