Tuesday 31 March 2020

Considerations of buying stocks in recent times

It definitely has been an unprecedented past 2 months with prices fluctuating largely day in day out amidst a longer downwards trend since the start of the year. (The picture above probably describes long-term participants in the market somewhat)

In such times, i do get the rare few messages that ask about buying stocks and I take that as a sign of people paying more attention to participate in the market.

Before actually buying stocks there are a couple of considerations that I feel are more essential to answer before making the final move. I would try to give my personal inputs although these are just my thoughts only and could be very wrong or subjective.

Q1) Timeframe. Are we buying for the long run or are we buying for a short-term trading position?

A1) If it’s the short-term then the person possibly already has an aim in mind, if he/she does not then its advisable not to execute.

If it’s the long-term then the person has to ask him/herself if that amount of money that the person has put in will not be touched in the foreseeable future despite job loss or any crisis. If say you only have 10k cash but you do not have the job security then its more advisable to not put that 10k in stocks. Putting into something less volatile like Singapore Saving Bonds would be better.

Q2) Choice of Equity. Assuming Q1 did not deter us from investing, should we buy an Index ETF or a specific counter.

A2) It’s a tough question to answer personally, I feel that if you are ok with market returns an Index ETF is always safer as it’s a basket of stocks and it won’t go bankrupt unless the whole basket of stock bankrupts.

Specific stock picking always entails a higher risk and most specific stocks require monitoring as well. Which is why when people ask me about Singapore individual counters, my general advice is that apart from Banks in the STI, the rest would require reading of its financials and news related to the counter.

To cite a biased backwards example of STI ETF (ES3) vs a bank stock DBS (D05) vs a well-known household name Sheng Siong (OV8)

1 Feb 2016
31 Jan 2020
Dividends Collected
Total Return*
Simple Average Return per year
DBS (D05)
Sheng Siong (OV8)

*Assumes that the user is like me who spends the dividends on leisure and anything he/she likes apart from investing it back.

The point of the example is to show that returns largely differ between individual stocks and index etfs but that’s because the risk is different as well.

Say if I had bought DBS/Sheng Siong in 2016 instead of the STI ETF, I would probably be still somewhat more comfortable currently.

Q3) Sizing. How much should I be firing into assuming this amount of money I have decided that its definitely safe and not affected by other factors?

A3) Sizing is an art, personally I feel that this really depends on how a person perceives loss of money vs gain of money in the mental state of mind. In reality when you lose a dollar vs when you gain a dollar it should be -1 and +1. But a lot of us including myself are not as mentally strong yet for a variety of reasons. Example: Lack of investing experience, Aversion to loss, Thrill of gains.

If your ‘lose a dollar’ is more than a -1 to yourself and you know it, its better to break the amount into 3-5 parts and slowly purchase at every 10% it falls. Sure, enough you might not get to fire everything but at least you don’t feel that bad when your first few purchases start losing money.

Do bear in mind how many counters you are holding because sometimes you might start having to average some of them and you might realize you have run out of money more quickly than you have expected.

Q4) What are the SGX counters you have been looking at?

A4) Just looking of course. Will list down the counters I’m looking at and short 1 liner explanations.

Sheng Siong – Should it fall even further by another 20%, it should be quite interesting

SBS Transit- Already fell like 50% from its peak? The upside is winning the bus packages in 2H of 2020 but the downside is lockdown. Ridership is expected to decrease in this period but assuming 1 quarter brings in about 6-7 cents eps the fall in profit should not trigger such a huge sell down.

Tat Seng Packaging – Considering some foolish sense of averaging and buying back into China just seems a little safer at the moment.

SingHoldings- With Parc Botannia TOP likely in 2021, this counter will most likely be cash rich which does not reflect its current valuations although there is risk of buyers defaulting and lack of visible projects that will affect its earnings in 2021 and beyond. As of end March 727 units seems to have been sold, that leaves 8 units left assuming 735 units on the internet is accurate.

Powermatic Data- When in doubt, a cash-rich company and really good balance sheet company like Powermatic Data is always a solid pick.  

Saturday 7 March 2020

Tat Seng(Sgx: T12) 4Q Results write up – A good 4Q but cut in dividend remains puzzling

(My reaction after seeing the dividend declared)

Tat Seng released its full year results on 27 Feb 2020, I appreciate the 4Q results but it seems like the price has continued to slide after the release of the results

-4Q profit came in at 5.898 million compared to 5.516 million last year. That is an improvement of 6.9%. This is commendable as corrugated paper prices have been higher last year and traditionally Tat Seng shines in the 2H of the year.

-Adding to that, the depreciation this year has been significantly higher than last year, Q4 2019’s depreciation came in at 2.736 million while in Q4 2018(which had lousier results) only had depreciation of 1.762 million. This means that the additional investment had been able to generate better profit and margins to overcome the depreciation of the capex.

-4Q 19 Gross and Net Profit Margins came in at 20.6% and 7.75% respectively 4Q 18 Gross and Net Profit Margins came in at 18% and 6.68% respectively. Selling more (Higher revenue) in 4Q 18 has not seen higher gross and net profit in terms of both margins and actual figures.

-In terms of liability to asset ratio and current ratio. As of 31 December 2019, the ratios are 0.46 and 1.72 while in 31 December 2018, the ratios are 0.54 and 1.48. Clearly the company is in better financial health.

- Borrowings have greatly dipped across the year. As of 31 December 2019, the company had borrowings of 57.477 million while in 31 December 2018, the figure was 87.169 million.

-Lastly sales volume increased 3.2% from 2018, 4Q definitely recorded a larger than 3.2% volume increase as the 1Q to 3Q increase was 2.1%. The growth is encouraging.

-Final Dividend of 1 Cent, no explanation was given for the cut in dividend. The only reason I could have thought of would be fears of Covid 19 might drive down results and its better to keep more cash in the books. Otherwise it might be that the cash might be required to fund its new factory equipment in Hefei.

You would have to go back to 2015 the last time it paid 2 cents of dividend for FY 2014 which it earned 9.6 million. In contrast, the company earned 14.8 million this year.
Also, a dividend of 3 cents was paid in 2016 for FY 2015 when it earned 13.1 million. So it made really little sense why the company is paying 2 cents this year apart from Covid 19

-Cessation of Quarterly Reporting, while such reporting might incur more cost, the scrapping of the reporting is bad in my point of view as this means that retail investors would have more lag time and unable to ascertain how the company is doing particularly when Covid 19 is affecting china and there is no mention of whether the China Operations have resumed or have been halted since the outbreak.

Final Words
If there is no delay to the AGM this year, it would be one that I have to attend at there are a lot of question marks after the results was released. I believe the current headwinds should they continue, should drive the price of the shares down as operations continue to suffer.

Meanwhile the company trades at 4.25% dividend yield, PE of 5.15, PB of 0.55.