Sunday 24 March 2019

Investing Mistakes and Making a Loss: PC Partners Group (Hkex: 1263)

Its not very often you see blogs talking about making mistakes and losing money. So here's one post of such.

PC Partners released an undesirable full year results on friday. The result definitely missed my estimates.

Key Highlights
-Revenue came in at 9122.3 million for Full year. 2H was 3583.9 million, 35.8% lower than 2H of previous year.
-Gross margin came in at 6.4% for 2H, one of its lowest margins ever since its ipo. Included was 120m provision for inventories(Due to markdown of value and obsolete inventory provisions)
-2H recorded a loss of roughly 70m hkd or 10 hk cents per share
-As a result, no dividends has been declared for 2H results.

Personal estimates
-Revenue to come in at 20-30% lower than last year 2H however this has missed as revenue came in at 35.8% lower. This estimation was made after looking at other graphic card manufacturer's sales.
-Gross profit margins to come in at roughly 8%. This was a miss as well as gross margins came in at 6.4%. The estimation was made after observing a sharp 30% drop yoy in gross margins of fellow graphic card manufacturers.
-All in all i had expected the company to record roughly 20 hkd cents of profit.

Had the provision and exchange loss been not accounted for, profit before tax for 2H would have came in at 70 million or 19 cents per share. Though that's not how investments research and assumptions should be done.

Personal thoughts
-My inability to account for such provisions and estimate earnings accurately has definitely result in a costly investment decision.
-I have decided to exit the investment at an average price of 2.467 hkd per share. Having made small gains from 'buying and selling' this counter back in 2017 and early 2018, this results in an overall loss of 27104 hkd from this investment. With most of losses already recorded prior to the sale, the impact of the sale is a decrease of networth by 12474 hkd
-Its easy to say these losses are only worth a few thousand sgd but from the perspective of mr working adhoc earning 1k a month, its safe to say this is one mistake i will remember for a long long while.
-One saving grace was that the value of the counter has already tanked so much that it only stood 12.88% of the portfolio and 9% of total net-worth. Which means if it was 0 value, it would mean that i would only lose 9% of my money.
-The decision of selling was a result of 2 causes. 1) Inaccurate estimations meant that the current method i have used for researching on this stock is useless and therefore it would be really pointless to continue researching. 2) This would allow me to take my mind off things and focus on other stuffs.

Thoughts on PC Partners moving forward
-Moving forward i believe the company will still have to clear the inventory of old graphic cards (finished goods is double of last year's numbers)
-The first 2 months of revenue in 2019 of a fellow manufacturer has been 34% of its 2H 2018, which seems to indicate that similar trend is very likely to continue.
-A profit warning will likely occur given how high the barriers have been set in 1H 2018.
It remains to be seen how the leasing servers joint venture will turn out.

Personal actions to take
-Safe to say estimating earnings has been more of a bane than a boon for myself. Producing more undesirable results than desirable ones. I would be better to stick to other methods such as special cases and book value investing more.
-Probably use whatever is left from the 'cut loss' to enjoy life more (e.g watch concerts or buy k-pop merchandise that i really wanted to buy but on many occasions i have been holding back to build up money to invest)

In life there would be times you hit and times you miss. Times you smooth sail and times you crash hard. There could be 101 other reasons that resulted in a crash or just simply one is incapable which resulted in the crash. 
My own takeaway would be how i approach my next venture out again and what i would do to prevent similar mistakes from happening again.

Friday 8 March 2019

Uni-Asia Group Limited (SGX:CHJ) Results Briefing

Uni-Asia Group held its results briefing on 8 May. The turnout this time is surprisingly high, in my previous 2 times the number was around 10-20 but there were roughly 40 people this time round.

Key Takeaways from the briefing (Do note that i could have misheard some parts somewhere and noted down wrongly so do not take everything i say as 100% accurate)

These should be read in tandem with the results presentation and my previous write-up on it.

1. Results release for 1Q 2019 results will be on 15 May 2019

2. 1Q 2019 results will be the first time it incorporates IFRS 16 Leases into its balance sheet and income statement.
It will be interesting to see the impact it has on the overall income statement as well as on the hotel management segment (which has the most changes due to IFRS 16).
This is coupled by the seasonal factor of a lower occupancy rate in hotels in 1st quarter usually.  Management reiterated that it should be seen on a full year basis instead
The hotel numbers will 'unlikely be nice'

3. Fair value of containerships are 0 and management will  be looking to dispose them off at the right time.
Fair value for the rest of the portfolio which are dry bulk ships amounted to US$5.8 million.

4. Onerous contract for sale and leaseback was due to paying price for lease is higher than current charter rates. Management could have waited till towards end of contract to impair but decided to do so in end 2018.

5. The 3rd HK Property Project has finished constructing and there will be gains to be recognized this year but it is unsure how much as of now. The project is being inspected by government now and waiting for approval. Currently a rough estimation would be 2nd or 3rd quarter for the proceeds to flow in,

6. Hotel listed on balance sheet to be sold is the Hotel Vista Nagoya Nishiki, has been sold in Feb 2019 and according to management there should not be any impairments as the hotel has been money making.
Hotels are poised to ride the trend of increasing tourism in Japan. A forecast found on the Japan Tourism Board estimates that there would be a 13.8% year on year increase in tourist numbers as 2018 numbers were affected by natural disasters. Furthermore tailwinds such as Rugby World Cup are likely to contribute to the increase.

7. Company was awarded the first negotiation right of PFI Project in Wako City. Management explained that they have been trying to get such projects for quite some time hence it is a milestone to be awarded such project. The cost of construction will be borne by the government so the risk is close to no risk. The company will be paid a recurrent fee as a construction manager and asset manager upon completion. The sum is likely to be not significant but this opens up to more of such opportunities for the company to be involved in.


All in all i believe the fair value losses are likely a matter of the past and the maximum fair value losses to be recorded would be 5.8 million from the dry bulks but this would be compensated from the leases cost as a result of new accounting measures.
Hence it is difficult to assess whether the profit would improve as much in 1Q 2019.
Given past track record of the 1st hk and 2nd hk property investments, the 3rd hk property investments should come out with a investment multiple of 2 to 3 times hopefully.

Friday 1 March 2019

Uni-Asia Group (SGX: CHJ) 4Q/ FY 2018 result write up

Uni-Asia released its financial statements and results presentation slides today. 
On the plain view, results do seem to be dire with q3 and q4 in losses.......but are they truly bad?

It is highly recommended to read the slides alongside this write-up. 

Details off the surface
Dividend declared of SGD 7 cents (6.25 ordinary dividend and 0.75 special dividend for its 2nd HK property gains). 
This gives a yield of 5.83% based on the closing price of S$1.20 on 1 March 2019.
Q4 was loss-making, mainly due to impairment of ships and provisions. 
This has resulted in NAV of 2.84 usd, a decrease of 0.05 usd from previous year. 
Against closing price of S$1.20, the price to book ratio stands at 0.3125.

Key observations
-Provision for onerous contract of $3m made for its Uni-Asia shipping which does chartering of dry bulks. If that was not included, Profit before tax would come in at $935 000, a 29% drop quarter on quarter but a 297% improvement over Q4 2017. As such, if the provision is not included, profit would have increased by 32.7%

-Daily Dry Bulk Chartering rates improved to 10500 in Q4, however operating days did decrease. While my own estimates are not as accurate, the uptrend in estimates and daily rates is still seen. For Q1 of 2019, March will be a crucial month as daily rates have rebounded close to 10000 in March 2018.
1H 2018
Q3 2018
Q4 2018
Full Year 2018
Total Charter Income
15 078 000
7 515 000
7 684 000
30 277 000
Operating Days
Daily Rates
zzxbzz estimates from sources on the net

-Carrying value of containership in its fair value portfolio is 0, in Q4 the remaining  fair value($3.3m) has been valued down in Q4. Alongside is an impairment of $3m for its only containership held on balance sheet as ppe(which means that there would be depreciation and impairment losses only). 
As of the analyst briefing back in December, the book value of the ship was 14m while market value was 12-15m. While it was said that it was not at impairment levels then, it seems like it has reached impairment levels later that month. 
Following the impairment on its 1 containership held as ppe, the fair value loss on its 3 containerships held under the joint investment portfolio would not come as a surprise given that it has been recording fair value loss all along(refer to previous post)

-Despite borrowings falling from $216m to $180m(roughly 16%), finance cost has increased by 9%.

-Hotel of $22.7m has been classified as an asset for sale as it is marked for disposal in 2019. It will be interesting to see how this disposal pans out in 2019.

-Only $1.9m of fair value recognised for the 3rd HK project(K83 office building), alongside with gains still to flow in 2019 for the 2nd project, the property division ex japan should do well in 2019 since 95% of GFA of the 3rd HK project have been sold.

-Hotels operation in Japan have been proven to be profitable even at around 82% occupancy rate. Without opening expenses incurred, hotels generated $356 000, on a full year basis this would equate to roughly 1.4m or 3 cents per share. However with new accounting leases kicking in, it would likely see a worse off result in 2019 while cash flow is not affected.

Buy? Hold? Sell?
The considerations for sell would be 'anticipating a shipping downturn in 2019, leading to unprofitability and impairment loss of containership as well as dry bulks.' A slowdown in the japan economy is likely to affect business hotel usage and in turn result in a poorer performance.
Coupled with an increase in finance cost, this could be dire.

The considerations for hold would be 'increased dividends, ability to give a higher payout despite lower earnings coupled with lower borrowings and good cash flow (proceeds from 2nd hk project). This alongside huge fair value losses recorded already this year sums up the reasons to adopt a wait and see approach

The considerations for buy would be 'impairment loss would mean lower depreciation value and higher profits, with fair value at much lower.' Also with proceeds from the 2nd and 3rd project yet to fully be accounted for, it could provide a catalyst. Lastly, Tokyo Olympics in 2020 still remains relevant to its hotel play which has seen occupancy rates pick up to 82% a level that is profitable as of 2018 as new leases accounting are not yet in play.
Personally I am inclined to hold and perhaps add some if my circumstances and the price both align.
A thought in mind would be that continuous adding would likely be exposing more of the portfolio towards shipping which is a cyclical itself. On the other hand, the company does have other business segments to diversify income stream but would still leave itself to key risk of impairment and fair value losses from the shipping sector.