2019 Portfolio Review

2019 has been a relatively lucky year as I have done very little compared to recent years yet the returns was the better one.

Perhaps laying low and doing little was a correct call after all especially how bad the 2nd half of 2018 has been.

On the other hand, I attended more concerts than the previous years as well. In 2020, I hope to attend more than I have done in 2019.

Year	Buy Amount(SGD)	Sell Amount	Net Buy (Sell)
2019	42,804.68	36,190.07	6614.61
2018	117,229.86	127,703.72	(10,473.85)
2017	71,013.40	56,843.11	14,170.28

On the bright side of things, as a whole I still pumped money into the portfolio.

2019 Returns vs STI ES3

The HSI represented by tracker fund of Hong Kong (HKEX: 2800) has returned 12.78% this year.

My thinking would be that 2020 would likely be a year with returns much lower than 2019 and I have to be mentally prepared.

Since I have hit a target I have set midway this year, I would have to agree with what I would do if I hit the target....and that is to continue another year.

I can't say if it's a good or bad thing to continue for at least another year, time and hindsight will tell the story in due's time.

At the same time I would have to source for some new ideas and review some of my past ideas and assess if they should be added into the portfolio.

Many thanks to readers of the blog as well as those who have showed their support to me this year. I wish everyone a happy, prosperous and healthy 2020 ahead.

3 Companies on my watch list with YTD 20%< loss, should I buy them?

Starting the post with a k-pop picture first.

In a year where the index has recorded a positive returns year, one would possibly consider bottom fishing for counters that have done badly this year.

I will be sharing my thoughts on 3 counters that have done badly this year, each having a year to date return of at least -20%

1)  SFK Constructions (Hkex: 1447)

·        YTD returns: -65.89%

·        A construction company based in Hong Kong, the company had seen tough business conditions which lead to its margins being eroded.  Gross profit margin fell from 4.28% to 2.5% while net profit margin fell from 2.2% to 0.47%

·        Various reasons were quoted in its profit warning announcement. Mainly replacement of non- performing subcontractors, unexpected prolonged period of inspection of works done and certifications of payments resulted in higher financial cost and lastly projects of higher margin were completed in the period resulting in lesser contributions

Q: Would I be interested in this counter as it trades at 0.78 of book value and 3 PE ?

A: Nope, personally I am not a fan of construction business in general as the margins have always been low. To quote Build King's annual report, to achieve a profit margin of 3% will have been remarkable, SFK has been unable to do it which represents a risk.

Furthermore, the announcement seems to indicate that the order book for SFK will have lower margins going forward unless it secures higher margins projects.

Given its revenue trends, the company probably has an order book worth of 1.5 to 2 years. With a lower profit forecast, the PE is not a safe measure.

2) NWS Holdings (Hkex: 00659)

·        YTD returns: -26.88%

·        Followers of my portfolio might find this counter familiar as i have briefly held it for a period of time(2017 Sept to 2018 May). Bought at HKD 15 and Sold at HKD 14.48 with HKD 1.43 dividend.

·        A conglomerate with business based mainly in Hong Kong and China, it has segments in roads, aviation, construction, facilities management and transport. Its most recent acquisition includes purchasing of FTLife Insurance a insurance company in Hong Kong.

·        Some of the more notable to public names would be management of Hong Kong Convention and Exhibition centre in Wan Chai, New World First Bus, one of the 2 largest bus brands in Hong Kong. The other being Kowloon Motor Bus (KMB) which is also listed as Transport International.

Q: At the current price of HKD 11.26 and a dividend yield of 5.15%, would I be interested to buy this counter?

A: If I have a time frame of 3 years at least, I would be tempted to purchase this counter. The reason is that most of the company's segments are doing fine and the new acquisition of FTLife at a purchase price of 50% of its market cap would prove to make or break the company.

However, the transport and facilities management sectors have raked in increased losses and in the near term i foresee it is likely to continue. With increased wages, fuel cost and  the hk protest, revenue would be affected for its bus business while capex would be required to maintain the vehicles. Also its duty free and convention centre are likely to suffer from reduced visitors into Hong Kong and the accessibility of exhibitions during weekends. Coupled with increased agreed capex into the convention centre as part of a new operation agreement, the headwinds are definitely there.

In conclusion, if the timeframe is at least 3 years, I would definitely be keen to buy it. But in my own portfolio management there is more to ponder about adding a position into the portfolio apart from it being a good idea in the long run.

3) Bauhaus International (Hkex: 483)

·        YTD returns: -24.84%

·        Clothes retail outlet operator in Hong Kong, China and Taiwan

·        A company which has consistently shown losses in the first half of its results (from March to Sept). It has recently shown losses in the second half of its results as well, something that was not seen in the previous year. The explanation for a usually better 2nd half results is due to Christmas and Lunar New Year period. 过新年, 买新衣带新帽.

Q: At a dividend yield of 6.5%, would this counter be a good counter for bottom fishing?

A:Its quite a straightforward No.

1) Earnings are negative.

2) Retail landscape for Hong Kong is bad and I would worry if they would be able to pull through the current chaos having recorded bad results even when there was no chaos.

3) My memory of their outlets in Hong Kong is that they have been doing discounts and are not crowded.

Sometimes bottom fishing is never an easy thing to do. One has to think if the company is able to do well in the long run and assess carefully. Furthermore if 1 is on board a company which has fallen 30-50% in a year, a lot of work has to be done to decide if averaging down or cutting loss is the more appropriate actions.

With this i end off with a quote.

You look god-like if you had averaged down and subsequently you make over 50% as it rebounds over 100% but you look like an idiot if it continues to fall another 50-60% after a 30% fall. Whether you are able to do the former on a more consistent basis would be key. But then again no one wants the shares to keep falling after you had bought it. Unless you did not buy enough initially then subsequently any upside would not please you.

Recent actions and thoughts

Actions

-Added SingHoldings

Ø  Relatively safer stock pick

Ø  52 weeks closing price of 37.5 cent to 41.5 cent, fluctuations of roughly  11-12% is not volatile

Ø  Will be cash rich after Parc Botannia project which is 95% sold is done.

Ø  Lack of projects moving forward a key risk, but trading at 0.6 of book value even with Parc Botannia not fully recognized yet is too attractive preposition.

Ø  1 cent to 1.375 cents dividend equate to 2.5% to 3.4% yield.

Ø  Recent buying of shares by owners at 37.5 cents could be a sign of a price floor

Sold half of Uni- Asia Group

Ø  Totally dumb decision in portfolio decision making sense as it's a loss making position and I sold half of it only.  Dumb decision make as a result of personal reasons but still dumb from portfolio management basis

Ø  When the position its loss making on the portfolio, usually I should have done 1 of the 3 options. 1) Hold and as the stock's financials are okay. 2) Add more if the financials are acceptable and the current price is an attractive buy. 3) Sell all of it as the results/prospects might not be as ideal as to what you have researched. I ended up doing none of the 3.

Ø  Results wise 3Q was decent as Hotels reached new occupancy rate and the absence of fair value losses resulted in a profitable quarter albeit barely. Cash flow remains strong and debt to equity has gone down.

Ø  4Q estimations perhaps -1 million to 1 million in bottom line. Equating to roughly 1.2 cents of loss/ profit. Key upsides that might affect earnings will be improve in hotel operations and closing of more marine related deals. Key downsides that might affect earnings will be a sharp drop in dry bulk rates and impairment losses of dry bulk vessels.

Ø  Personally after making a dumb decision, I am not sure what unpredictable action I might do with this counter.

Added Shinvest (a company that has rise by 200% this year)

• -Fair value I think would be at least $3, though the main factor affecting valuation will be the decision of management in handling their investments
• -Hopefully I would have time to attend the agm and hopefully they would be willing to share their plans moving forward.
• -Always a psychological barrier for myself to add a counter that has ran so much this year but there will always need to be a first time to overcome such barriers.

Thoughts

KSH Holdings

-Results showed improvement in results which is good but cost of construction as a percentage of the construction revenue actually increased again.

-This leads me to believing that some project margins might not be profitable at all.

-As such there will be heavy reliance on Gaobeidian and the local projects that are in the form of associates and joint ventures.

-Affinity @ Serangoon looks like the best in margins. Thought I have some reservations about the margins of Rezi 24.

-A good amount of income also comes from loans to its joint ventures and associates.

-Ultimately the decision not to add this stock into my portfolio came from the really poor and deteriorating construction margins.

Tat Seng Holdings

-Cash flow generations remain excellent in 3rd Quarter

-Results although poorer than 3Q previous year, but that was to be expected as corrugated prices have been at lower levels as well.

-On closer look, depreciation this year is higher by about 900k while results was only poorer by 600k hence there has been an improvement in the business despite last year having higher corrugated prices.

The year has been kind to me, very thankful for that. Since one of the aims was met this year, its time to think about the year ahead...

Thoughts on 5 years of investing

November 2019 actually marks my 5 years into investing. 5 years of trying different methods of investing. 5 years of doing the same thing....is definitely not easy.

Happy 5th Anniversary!

(What a 5th anniversary could look like)

(What these 5 years actually looked like to me)

(Credits to lovelinuscom)

Will be sharing some thoughts to what I have seen, felt and observed in these 5 years. Do note that these thoughts are definitely biased and might be wrong as well.

1) It's possible to be investing for 5 years and still be unable to encounter a take-over offer or a rights issue.

The former is probably due to luck and the latter would be picking companies with high levels of cash and low debt. Avoiding reits would also help in avoiding a rights issue

2) People who are awaiting a 'crash' like 2009 are probably still huge in cash since I have started investing.

Unfortunately, the STI has not reached the 1500 levels (1594 in 2009) from 2014 to 2019, the lowest it ever went while I was investing was about 2629 in 2016. Hence people who thought that in 2016 the oil price crash and the china penny stock crash was actually gonna send the STI to 2009 levels would probably be still logging in to their bank accounts on a regular basis thinking how much of it should go into SSB and telling themselves the crash is definitely coming as its long 'overdue'

3) Power of compounding > Waiting at the right time

This point has been illustrated many times online on a numbers basis. However the psychology of losing money is too strong for some people. For others, it's about whether they can compound well. Index funds have decent past results but naysayers would always say 'Past performance does not guarantee future results keke'. Ironically it's also some of the naysayers that say the 10 year once crash is due and mocking those that say 'this time it's different'

Year	5%  Compounding	10% Compounding	15% Compounding	20% Compounding	25% Compounding	2% Bank Interest Compounding
1	1	1	1	1	1	1
2	1.05	1.1	1.15	1.2	1.25	1.02
3	1.1025	1.21	1.3225	1.44	1.5625	1.0404
4	1.157625	1.331	1.520875	1.728	1.953125	1.061208
5	1.215506	1.4641	1.749006	2.0736	2.441406	1.082432
6	1.276282	1.61051	2.011357	2.48832	3.051758	1.104081
7	1.340096	1.771561	2.313061	2.985984	3.814697	1.126162
8	1.4071	1.948717	2.66002	3.583181	4.768372	1.148686
	18%	41%	57%	68%	76%

The last % is the amount u would have to lose in a market crash to lose to 2% Bank Interest Compounding which we all know is just a layman assumption as interest rate falls, it's difficult to find a pure play deposit and obtain 2% interest in each month.

4) For stock-picking, idea generation is important.

I have probably came across roughly 40 stocks in just 5 years that I have bought and sold some. So it's safe to say each year I probably need to have about 8 stock ideas that I would execute. The number of ideas would definitely fall when one is being more concentrated. I would say 5-6 ideas a year is pretty good already.

Another thing would be that you cannot expect all ideas to do well, it will not. There will be some hits, some misses and many more refining and going back to the drawing board to redo the process again.

5) Attending Company Agms are important even if not all Agms are particularly useful.

That is one way I seek some confidence in holding stocks that are relatively less known and those that I have quite some losses in. In particular to those that are in deep red, attending agms would allow me to gather some thoughts to if I should average down and when I should.

My thoughts would be that

If one would buy insurance to cover the risk of yourself falling ill or be unable to work, why would you not seek some form of insurance to your own investments even if it's not fool-proof.

Short thoughts on Lendlease Global Commercial Reit

Lendlease Global Commercial Reit will be listing on SGX on 2 October 2019. The application for its IPO will be open to public from 25 September 2019 (Wednesday) to 30 September 2019 (Monday). 

Prospectus can be found here

Will keep this article short as the reit has already been covered by many prominent bloggers such as Investment Moats

Key Information

1)Listing Price of $0.88 per unit is 1.08 of its book value of $0.81

2)Currently the portfolio consist of only 2 properties. The first being 313 Somerset and the second being 3 freehold offices in Italy.

313 Somerset currently has 86 years left on its lease.

3) The gearing ratio upon IPO is expected to be 36.4%

4) The forecasted dividend yield is expected to be 5.8% and 6.01% for 2020 and 2021 respectively based on the IPO price of $0.88 per unit.

5) 1,167,946,000 units will be issued, of which Lendlease Trust would hold roughly 27.2% of it, Roughly 33.1% would be available to the public and private placements. Roughly 38.85% would be placed to cornerstone investors which include Blackrock , Fullerton Fund Management and Nikko Asset Management.

What I like about the reit

1) Institutional Investors are onboard, as such there should be a higher corresponding trading liquidity to the company and allow the company to be better priced.

2)313 Somerset sits just on top of the mrt station and it still has 86 years left of lease which means valuations are unlikely to be adjusted too far downwards in the near future should a recession occur. To add on, there has been little sales of retail mall in the Orchard area. The most recent news would be Starhill Global Reit willing to offer above market price for Isetan's share of Wisma Atria, another retail mall which is just up the road.

3) Effective Interest rate is only 1% currently.

What I dislike about the reit

1) With only 2 properties, it is widely estimated that more properties will be injected into the portfolio and this will likely result in more offering of shares.

2) Projected forecast seems too good to be true on first glance. The forecasted financials seems to indicate that revenue would increase 36.7% from 2020 to 2021 and this would result in a corresponding increase in DPU of 38.4% after distribution adjustments. The revenue increase constitutes a 34.3% revenue increase in its Italy property and 37.7% in 313 Somerset. 

Valuations

	313 Somerset	Wisma Atria	Plaza Singapura	Paragon
Net Property Income Yield	3.1%(2020)/4.32% (2021)	4.85%	5.36%	5%
Occupancy Rate	99.6%	99.6%	99.3%	Not shown
Latest Rental Revisions	Not Shown	Not Shown	+1%	+8.6%

-If anything, the current valuations of the net property income yield for 313 Somerset remains to be below the current market levels even after a 30% increase to be projected in 2021. With higher yield shopping malls having a positive rental revision, I remain fairly optimistic that the income should be able to deliver as forecasted.

According to the S-Reit data provided by fifth person,

CapitaMall Trust trades at 4.41% dividend yield with a gearing of 34.2% and book value of 1.29

SPH Reit trades at 5.08% dividend yield with a gearing of 26.3% and book value of 1.15

Starhill Global Reit trades at 5.97% dividend yield with a gearing of 36.1% and book value of 0.85

My personal thoughts would be that for Landlease Global Commercial Reit to trade at 5.8% dividend yield with a gearing of 36.4% and book value of 1.08 is actually quite attractive.

However we have to be aware that the property's yield is actually currently below its competitors.

Final Thoughts

-Personally I do not think the IPO would stay underwater for the short run as there would most likely be injection of properties into the reit and it would be problematic if they have to issue shares at a cheaper price. Furthermore, this would make the yield trend towards 6% or even higher which would make the reit even more appealing.

-In the long run, many factors such as interest rate environment as well as the yield of property on its future acquisitions and the reit's ability to increase the property income yield would be important as well. Generally if I were to purchase a reit, i would be betting on inflation, economic growth being positive and interest rates to be stable or low .

-I would be applying for the IPO for the reit though i have not decided the amount i would want to put in yet as i would have to assess my expenses going forward and the equity to cash level before making a decision.

As usual, I would end off the post with a k-pop picture.