Friday 28 December 2018

Brief 2018 Review + Brief 2019 Ideas

My Performance in 2018: -9.20%
Performance of ES3(STI ETF): -6.87%
Performance of Tracker Fund 2800(Tracker Fund of Hong Kong): -11.48%
Performance of Tracker Fund 2828(Hang Seng H-shares ETF): -11.76%
Performance of Tracker Fund 2822(CSOP FTSE China A50 ETF): -24.29%
Performance of Tracker Fund 2823(I Shares A50): -23.68%

The poor performance should not be unexpected as majority of my portfolio is in Hong Kong and i have made a few poor decisions this year as well.

The last 3 months of 2018 has seen little buying as i slowly shifted to focus on other aspects of life.

Nevertheless total assets(cash+ equity) amounted to a high 5 digit sum which i felt i was lucky to end with such amount.  I could have done much much worse if not for a great deal of luck.

Moving into 2019,  I foresee myself slowing the pace of investing and probably focus more on other aspects of life.

However, i would still likely be blogging about my investing thoughts.

Brief Investing Ideas for 2019 (Singapore)

1) SBS Transit (Sgx: S61)

Yay Factors
-Rail Ridership higher than 2017 by about 8%
-Bus Contracting Model should benefit operators more
-Approval of 4.3% increase in fares.

Nah Factors
-Rail Operations still loss making
-Possible loss of Bus Packages in future(Next would be in 2020)
-For a company that trades at around 11 to 12 Forward PE, the possible expiry of bus packages from 2020-2026 do not seem to reflect a good price

Food for thought
-Despite a 0.21% increase in average daily ridership from Q1 to Q2, revenue increased by 16.8 million or 5.36%  quarter on quarter and segment profitability of public transport improved by 30%. This could be due to the new bus contracting model for SBS's Seletar Bus package coming into play. The bus package started from 11 March 2018.
- With Bukit Merah Bus package coming into play at a similar tender price to Seletar's, would we see another modest improvement in Public Transport Sector?

2) City Developments (Sgx: C09)

Yay Factors
-Low Gearing ratio of 23% before Fair value adjustments and 17% after fair value adjustments
-Investment Properties held at cost, implied Price to Book Value of roughly 0.526 if fair value is used.
-Share buyback since August 2018 at price of 9.54

Nah Factors
-Inventory of unsold properties in SG one of the highest among the various companies
-M&C Hotels PLC seems to have struggled this year.

Food for thought
-Seems to be a proxy for any Singapore Property Policy reactions.
-Bulk of profits still comes from Property development in Singapore
-There seem to be no new sales of New Futura from Oct to December, which could imply that vacancy rates remain same at 19% and imply poor sales of current ongoing projects.

Friday 14 December 2018

Uni-Asia Group 3Q2018 results briefing

Recently had the chance to attend the 3Q2018 results briefing for Uni-Asia Group

Will jot down my observations and thoughts here. This is an add-on to the previous post found here

Hong Kong Property Projects
- 2nd project will still have gains to be recognized in 2019 as there are 2 floors left not sold (2nd and 3rd floor retail related) and  some money is still with the consortium the group invested in.

- The current aim would be to invest in more projects but at a lesser amount than their 2nd project which they invested USD 10.4M.

-This way the income would be more recurrent as the projects are slated to complete in 2019,2020,2021 and etc if more projects are invested into

Japan Property Projects (Alero Series)
-IRR of each project is minimum 20% so far, the invested amount is roughly 3 to 5 million USD.

- Aiming for 6-8 projects a year. (This could imply perhaps around 3 million USD profits per year?)

- Would only focus on having projects in Tokyo as that is where population is increasing.

Japan Vista Hotel Management
- Operates on a 'management' basis hence they take into account the revenue and expenses of each hotel. Expenses do include paying to owners of the hotel a fixed or variable cost.

- The invested equity is roughly 3 million and hence the returns on equity is good although on a revenue basis the returns look mediocre (48.9 million revenue in 9 months of 2018 but 171'000 profits)

-5 Hotels opened this year and accounted for 1146'000 pre opening fees. There would be no pre-opening expenses in 4Q as the next hotel opens in end 2019.

- Current year of operations is not in a stable stage which the company hopes to achieve and aim for 2.5m USD profits in a year.

-However with IFRS 16 to be implemented in January 2019, this will result in higher upfront cost and affect P&L of hotel operations. This is due to incorporation of assets on the balance sheet along with lease liability which results in right of use depreciation +    Interest expense

Shipping Operations
- Group aims to focus on dry bulks in the long run and move away from containerships

-Currently has 4 containerships. 1 is on the balance sheet as cost-impairment basis. Book value estimated to be 14 million. Market value slightly lower at the moment but has not hit impairment levels. The current market for containers does not seem to bode well and further impairment losses would likely occur across 2018 and 2019.

-As for the dry bulks, the ships are on a mix of spot+ long term charter basis.

-As IMO 2020 approaches, ships will have to use low sulphur oil or install scrubbers. On handymax vessels which account for all but 2 of Uni-Asia's dry bulks(which are supramax), installer scrubbers are impossible due to size of ship being too small. Hence low sulphur oil has to be used and the cost is likely to be shared among various parties despite Uni-Asia being an owner.

-1 of the supramax ships will be installed with scrubbers which is requested by the current charterer of the ship. A scrubber is estimated to cost 2-3 million dollars. There is likely not much financial impacts arising from this as the increase in charter income would likely be offset by depreciation arising from the installation.

 Final words

The Positives
Currently 4Q 2018 dry bulk charter rates are still higher than 4Q 2017.
2nd HK Project and 3rd HK Project will still have gains recorded.
Hotels likely to see a 4th quarter of earnings not impacted by opening cost

The Negatives
Containerships might see impairment/ fair value losses
IFRS 16 to affect balance sheet ratios as well as P&L negatively.

Wednesday 12 December 2018

My thoughts on Bajaj Auto

Recently had a round in a job interview where i was told to write my thoughts on the
company Bajaj Auto.

Unfortunately my write-up was unable to allow me to progress to the next round, nevertheless i have decided to attach my write-up on the blog while biding my time to write some other articles.

*Personally i do feel that my write-up was pretty bad but if given another chance to re-write it, i am not sure if i would have wrote it much different. I guess i still need more practice and advice.

Bajaj Auto is an Indian automobile manufacturer company. The company mainly focuses on 2 wheelers, 3 wheelers as well as 4 wheelers .
In the 2 Wheelers segment which is segregated into Scooters and Motorcycles, Bajaj Auto Limited focuses on motorcycles only unlike some of its competitors. The company believes that it is unable for the company to focus on all segments and hence decides to not go into scooters. In the Motorcycles segment, the bikes are segregated into few segments namely Entry-Level(represented by its bikes such as Platina, CT 100 and Discover 100/110), Commuter and Commuter Deluxe Segment (Discover 125 and V), Sports(Pulsar and Avenger) as well as Super Sports Segment (Dominar 400, Pulsar RS200 and KTM). Its main competitors in the 2 wheelers segment include Hero Motocorp, TVS Motor and Honda. According to SIAM, in 2017-2018, 2 wheelers accounted for 69.67% of automobile  exports by India as well as 80.85% of automobile domestic sales in India. Bajaj Auto is currently the 2nd largest company in the Motorcycle Segment in terms of Market Share.
In the 3 Wheelers segment, Bajaj Auto is the world's largest manufacturer as well as largest exporter in India. ITs main competitors in the 3 wheelers segment include Atul Auto, Piaggio, Mahindra and Mahindra, Scooters India Limited, TVS Motors . According to SIAM, in 2017 to 2018 , 3 wheelers accounted for 9.43% of automobile  exports by India as well as 2.54% of automobile domestic sales in India.
The company currently operates both domestically and via exports. Exports accounted for 39.3% of revenue in FY18. The percentage has largely fluctuated over the past 5 years due to currency devaluation but has grown to be a higher proportion when compared across 10 years.
Rajiv Bajaj is the Managing Director of Bajaj Auto since 2005. He has been widely accredited with introducing the Pulsar range of motorcycles and spearheaded the turnaround of the company. The Pulsar is known for its bikes being value for mileage, cool looks, easy availability of repair centres as well as value for money.
In an interview published in 2011, he said that 'brands have pricing power and a brand is actually a product that creates a new category'. The Pulsar succeeded and became a brand that created new category which included other bike products like the Platina. Another interview in 2018 by Businessworld revealed that Bajaj’s current priority is the application of the scientific principles of Homoeopathy to the task of building a brand centred strategy at Bajaj Auto to make it one of the world’s leading motorcycle manufacturers. The company also practises total productive maintenance to improve the quality and productivity of its products, processes and employees. It also extends such practises to its vendors.
-Healthy Financial Ratios. The financial health at Bajaj Auto is healthy. The company has pared down its debts since FY 2017 and remained above 1 in both quick and current ratios. The fall in current and quick ratios in 1H 2019 is largely due to a shift in investments from current assets  to non-current assets. Equity to Asset ratio has increased over the years, reflecting lesser % of liabilities in the balance sheet.
FY 2014
FY 2015
FY 2016
FY 2017
FY 2018
1H 2019
Current Ratio


Quick Ratio
Debt: Asset Ratio
Equity: Asset     Ratio
-Free Cash Flow generation. The company's net cash from operating activities has been positive since 2014. However, in some years such as 2017, the company has not been able to have a positive net change in cash and cash equivalents. This is largely due to the purchase of investments.
-Investments form bulk of the balance sheet. For a company that mainly does automobile manufacturing, it is indeed surprising that a large part of the balance sheet is made up of Investments. The Investments stood 68.7% of Assets in FY2018 which is a increase from 57.97% in FY 2014. These investments include investments in subsidiaries and goodwill on above investment as well as others which include fixed maturity plans, short term mutual funds, bonds & debentures. The others segment has increased over the years, forming 86.61% of investments and 68.70% of Assets in FY2018 as compared to 85.59% of investments and 49.24% of Assets in FY2014.  The company has an investment policy which allows them to only invest in products with credit rating equal to or above AA+ and P1+. Even though the company is allowed to invest in high ratings product,  these products are not capital guaranteed and the company is susceptible to credit quality and default risk of various underlying securities.
- Falling EBITDA Margins. The company's EBITDA Margins have been on a downwards trend. In 1H 2019 it has hit 18.2%. In its analyst briefing for 1H FY19, Management has said that the lower margins is due to its entry level segment's margins being largely lower. The Platina model is in single digit range while CT Model is loss making. This is in lieu with the business strategy of its entry price segments where Bajaj Auto has cut its selling prices in the entry level segment to gain market share. This strategy seemed to be contradictive as in an interview with Mint in 2010, Rajiv Bajaj has said that 'The numbers game is not important, but profitability is'. Currently the company has shown increased in profits but it remains a worry should further price cuts occur in a rising raw materials environment as this would hurt EBITDA Margins even further.
Business Outlook
-2 Wheel segment market share falling. Bajaj Auto's motorcycle segment has been falling over the years. According to Bloombergquint, the market share has fallen from 24% in FY 2013 to 16% in FY2018. Bajaj Auto had released 6 variants of its Discover Models but it seems like it failed to differentiate itself well. This is echoed by Rajiv Bajaj which said that 'Discover was his biggest blunder and it became a 'me too' product which is bad in life and marketing'. However a silver lining would be that the sports and super-sports segment has seen growth. KTM's India Sales recorded a growth in volume of 32% from FY17 to FY18 as well as showing a CAGR of 44% over last 5 years. KTM's profits has also grown 9.49% from FY17 to FY 18 and a CAGR of 15.43% over last 5 years
-3 Wheel segment subjected to permit requirements. In 2017, the governments of Maharashtra had scrapped permit requirements which allowed a quota of 3 wheelers. This has been a positive for 3 wheel demand in India but many other states such as Delhi still do have permits and local demand will be largely affected by authority's decisions.
-4 Wheel segment getting approval from India Authorities. Qute, Bajaj Auto's quadricycle which has sold in countries in Asia, Europe as well as Latin America is not allowed in India. However this could soon change as in June 2018, quadricycles were approved as a new vehicle category in India. In its analyst briefing for 1H FY19, management has guided it expects to sell significant volume in 2020 and has obtained 18 states approved .
-Automotive Mission Plan 2016-26 (AMP 2026) by Indian Automotive Industry and Govenment of India . AMP 2026 aims to increase the net exports of the Indian Automotive industry by several folds. Possible Plans include improving business climates as well as infrastructures to boost the productivity and attractiveness of the Indian Automotive industry.
Corporate Governance/ CSR Concerns
-Gender Unbalance. Only 1 female on the board of directors(currently 16). Only 3.73% of workforce is female
- Long Tenure of Independent Direcors. 3 Independent Directors seem to have over 10 years tenure in the company. Namely D.S Metha(Since 1998), P Murari(Since September 2006) and Niraj R. Bajaj(Since September 2006). In addition, P Murari has only attended 3 out of 8 meetings in from 2017-18 and 2014-2015
Peer Analysis
1H 2019
Bajaj Auto
Hero Motocorp

Atul Auto

Despite a falling trend in margins from FY 14-15, Bajaj Auto has still managed to maintain higher margins compared to its 2 wheel rival (Hero Motocorp) and 3 wheel rival (Atul Auto). Hero Motorcorp is the market leader in 2 wheels and would be an appropriate comparison. In the 3 wheel space, the 2nd and 3rd in market share are Piaggio and Mahindra and Mahindra Limited but both companies are not used in the peer analysis as Piaggio has derives more than half its revenue(53.68%in FY17) from Western Countries while Mahindra and Mahindra Limited derives revenue(roughly 32% in FY18) from farm equipments as well.
In Bajaj Auto Limited, I have seen a leader(Rajiv Bahaj) who has been able to turn around its company and create superior margins over its competitors for the past years. He has also been candid in admitting his mistakes such as having too many variants of Discover which lead to a decrease in the company's market share. The company has prided itself on its R&D(which Rajiv Bahaj started in 1996 with 4 young engineers then) and with its high cash position is primed to carry out more R&D in the near future and explore innovations in its automobile products and processes to drive further value in the bottom line.
However, my concerns would be in its balance sheet where it has a huge amount of investments in mutual funds, bonds and debentures. Should there be a large currency depreciation, the company's asset value would decline sharply and largely affect foreign investors who are invested in it.
Similarly, an increase in credit risk of companies in India which could lead to higher default among companies would affect the company's investments negatively  and impact its operations and valuations.

Sunday 2 December 2018

Some thoughts on MediNex IPO

MediNex IPO (Private Placement only)


-The company engages in professional support services to medical clinics. Some services includes overseeing the setting up of clinics, facilitating applications for relevant clinic licences and providing business support services such as accounting and tax agent services, human resource management services and corporate secretarial services.

-The company engages in procuring of medical and pharmaceutical products as well.

-Lastly, it provides Business Support Services to companies outside of healthcare industry

-The gross proceeds will be $6.5m as 26m shares placed are new shares at 25 cents each. The net proceed will be $5.32 million.

-The main use of proceeds will be for acquisition of a company called Ark Leadership which will cost $4m according to the prospectus

Key Highlights

- Good Revenue growth. Company has grown its revenue very well in recent years.
Half year of FY18's unaudited pro forma revenue is 4.941m which is 90.2% of revenue in FY17.

-Profit growth encouraging. The profits for the company has growth from 487,000 in FY 15 to 946,000 in FY 17, Thats about 39.3% compounded growth over 2 years. The unaudited HY 2018 profits stood at $1.057 million which has exceeded FY 17 figures.

- Company's cash flow from operations are decent. Cash flow from operations has been pretty on par with net income. Its Cash flow from operating activities came in at $643,391 and $1.128m in FY 16 and 17 which is in line with Net income of $745,000 and $946,000 in the same time frame.

-Steady balance sheet. At 30 June 2018, total liabilities stood at $1.155m,.Company has roughly $3.376m worth of cash with $0.4m in fixed deposits. The company definitely has enough money to maintain operations and pay off its liabilities

Key concerns

-High amount of goodwill. The company has gone on an acquisition spree in recent time. As a result this has made goodwill an astonishing amount of $2.741m as of 30 June 2018. This is roughly 38.96% of the company's balance sheet.

-Nex's acquisition questionable? The acquisition cost was $3,569,235. However the earnings in 2017 was roughly 168,004. This meant that the company was paid at roughly 21x PE and $2.39m of goodwill was recorded.

-Restructuring exercise and acquisitions questionable? The company conducted a restructuring exercise prior to placement which resulted in Medinex being the holding company of the group.

It initially acquired 50% of AccTax at $375,000  at which the vendor provided a guarantee of Profit After Tax of $450,000 for a 3 year period if not it would pay five third of the shortfall. This translates to an acquisition guarantee PE of roughly 5 (taking into account 150 000 each year and 100% is at 750,000). It does look like a very good acquisition on paper but on 5 November 2018 it acquired the rest of the 50% for $750,000 (Yup double of its initial purchase). With that i am unsure if the initial profit guarantee still holds. From the picture below it seems like AccTax is still lost making in 2017.

It also acquired 60% of interest in Patceljon Professional Services Pte Ltd and  Jo-L Consultus Pte. Ltd for an amount of $1.0791m in June 18. It comes with a profit gurantee of $360,000 per year for 2018 and 2019. Once again this translates to an acquisiton gurantee PE of roughly 5 and looks very good on paper yet again! Then it proceeds to acquire 40% of the company on 5 November at $1.440m. It paid $ 17,985 for 1% of its stake earlier on in June 18 and then subsequently pays $36,000 for 1% of its stake in November 18.
Encouragingly, it seems that the company earned roughly $294'666 in Profit before Tax in 2017

-Growth revenue from own shareholder's entities.
Revenue increased from 1.1m HY 2017 to 4.459m HY 2018. This could be due to an increase in largest customer's contribution from 20.05% in FY 2017 to 41.79% in HY 2018. However a deeper look revealed some details.

While its definitely good to have some shareholders as your customer since it is likely they will continue using your services, its hard to estimate what the impact to margins will be in such cases. Furthermore a large increase has been due to these group of shareholders and it poses an interesting question to profitability of these increased revenues.

- 3Q 18 (July to September 2018) results bad.

HC Surgical held 35.8% of MediNex as of 1Q 2019 and it contributed $ 46,000 to its results.

This is 59.6% lower and working backwards, it seems like MediNex earned $232,600 in previous year's quarter compared to $128,491 in this year's quarter. This is roughly 44.75% fall in profits.


On initial glance, 1 Cent EPS for 1H 2018 and implying a layman 2 cents EPS for FY 18 results in a placement PE of 12.5 which seems to be very attractive if the company can continue its growth momentum in the following years.

However, the recent results seems to indicate a break on its growth engines for at least 1 quarter and implies that the PE will unlikely be 12.5

Furthermore the acquisitions has been weird in my view and the raising of $5.32m when the company has 2 million spare cash.

Lastly there has been no details about the P&L of Ark Leadership which investors can assess whether this acquisition is at a good PE. Interestingly Ark Leadership is owned by the sister of the CEO of MediNex.

This company (alongside HC Surgical) would unlikely be in my considerations for buying.....