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