Sunday 23 January 2022

4 Stocks to Consider in midst of the HK Omicron Outbreak



People who have been following news would know that Omicron has broke through Hong Kong's Covid-19 Defense. Previously known for its strict quarantine policy for foreign arrivals, Hong Kong has a 21 day quarantine period for foreign arrivals. While this has proved very effective, the breach in its Covid Defense came from reportedly 2 Cathay Flight Attendants who flouted isolation rules and was subsequently fired.

In Hong Kong, the fight against Covid has largely been a top-down approach. This is in the form of the government setting rules and measures to combat Covid. Unlike a couple of countries who has chosen to live with the virus, HK's approach is a Covid Zero approach as it aims to reopen its borders with China and possibly other countries when it has managed to achieve zero covid cases for a prolonged period of time.

Against the backdrop of the outbreak, HK government has initiated the following measures 

1) Urging Social Distancing and people to not go out unnecessarily.

2) Locking down estates for mandatory testing and asking citizens from blocks/areas that are identified as dangerous to undergo compulsory community testing.

3) Implementing measures such as Dining-in will be banned after 6pm, closing of bars, ktvs, cinemas. Also live performance has been banned.

4) Quarantining blocks when cases are too high in the block

5) Stepping up on vaccination by urging public to go for vaccination and increasing amount of vaccinations centres.

(Initiation of Compulsory testing in areas)
(Packed Testing Centre Queue)
(Queue to get tested)

As such, Testing, Quarantine and Vaccination will be key.

In lieu of the recent developments, 4 stocks have appeared to be interesting medical plays that one can consider in picking up.

1) Kato HK (HKEX: 2189)

-A company in the operations of aged care business. It derives most of its revenue from aged-care business. However it has took part in the operations involved with quarantine operations and this has allowed it to improve its profitability

- The company is involved in the quarantine operations at Asia-World Expo. This has propelled its revenue and profits. As such, it trades at an implied PE Ratio of 8.

- Revenue related to the quarantine operations 

1H 2020: 10.0 million HKD ( 8.7 % of total revenue)

2H 2020: 32.0 million HKD ( 22.8% of total revenue)

1H 2021: 30.9 million HKD ( 20.5% of total revenue)

- With news of quarantine facilities being packed. It is believed that Kato HK would continue to benefit.

2) Bamboos Health (HKEX: 2293)

- A company involved in the outsourcing of nursing staff, it has been able to grow its revenue by providing of services in the community vaccination centre.

- The company trades at an implied PE of 5.5

- The company is also involved in the vaccination drive by providing both Sinovac and Pfizer jabs.

(Sinovac jab offering)
(Pfizer jab offering)

3) Human Health (HKEX: 1419)

- A company involved in the medical services in Hong Kong, mainly via private clinics.

- The company has ventured into the administration of vaccine. This has resulted in the company to increase its revenue by 44% and turn in a profit from a loss making position in 2020.

- The company trades at an implied PE of 3

- As such, with the increased need to administer Covid 19 Vaccines and increased testing due to the recent outbreaks, this company is likely to benefit.

(Improve in revenue due to covid-19 related services)

(Human Health Mobile Vaccination Time-table)
(Human Health Mobile Vaccination Time-table)
(An example of a Human Health Collaboration with KingMed's Mobile Testing Point Truck)
(An example of a Human Health Mobile Testing Point Truck)
(Covid-19 Vaccination Truck by Human Health)

4) Town Health (Hkex: 3886)

- A company that has business in clinic operation in Hong Kong and China. It also has a lab for testing covid 19 results and is currently participating in HK's  community testing centre operations.

-In terms of financial results, the company has reported 2 years of unprofitability in the last 5 years. The company has some issues with getting back money owned to individuals via promissory notes and therefore had to write them off. 

-Nevertheless, the company has turned in a profit for 1H 2021 and declared a dividend policy of not less than 30% payout.

-The company trades at a book value of 0.67, with 47.5% of its market cap being cash. Unfortunately its PE is not accurate at there are present of one-off losses. However, a rough estimate assuming 1h results hold the same for 2h, it would be around 17.

(Example of a mobile vaccination booth by Town Health)
(2 Community Testing Centre out of 19 in Hong Kong is run by Town Health's Subsidiary Hong Kong Health Check & Medical Diagnostic Centre )
(Town Health running community vaccination centres)


HK has a population of 7.4 million. As such, assuming 3 jabs and a vaccination rate of 90% in the future, this equates to around 20 million jabs. Currently 10.7 million has been administered. Hence the vaccination run should run for another year unless a 4th jab or an add-on jab against omicron variant breaks out.

However, if the Covid 0 policy will still be the basis of HK's Covid Policy, then testing will definitely be key.

Among the 4 companies, i will only be somewhat interested in Human Health and Town Health.

Kato HK is still mainly an aged care business while Bambooshealth is more focused on staffing solutions.

Human Health has the cheaper valuations but Town Health has the more solid balance sheet. Although it has engaged in a couple of promissory notes that has ended up being written off.

The problem with Human Health is that their trade receivables have increased a lot in their recent result release and they have impaired roughly 4.5% of it. 

As such, both have their pros and cons. Which should happen as usual as it usually is close to impossible to find an ideal company with all pros and no cons.

Sunday 9 January 2022

Starting the year with a Bang. -16% on a position

(Sharp Plunge on the next trading day after the announcement is made)
(Highlighted in yellow are the key points)

Following its profit warning announcement on 7 January 2022 where it has estimated a 80% to 90% drop in net profit for 2021 compared to 2020. This is despite a 10% increase in revenue in the same time period.

This has sent the shares diving around 17% today (10 January 2022). As the position on friday was 5.34% on the portfolio, this dive has inflicted around 1% of the overall portfolio. An early CNY gift.

Is the fall justified?

In 2020, the company made a net profit of  270 million usd. This implies that 2021 net profit is in the range of 27 to 54 million USD. This translates to a rough amount of 210 million HKD and 421 million HKD.

First off, it has made a net profit 576 million HKD of in 1H 2021 whereby 107 million is from 'other net gains'

Therefore 2H 2021 is unprofitable even if the other net gains are excluded. This is due to the increased spending in R&D, marketing expenses as well as lower revenue in 2H 2021 than 1H 2021.

Hence i feel that this fall is probably justified as the 2021 2H Results is really a disaster. The drop in revenue compared to 1H 2021 was fore coming as per my previous post. However, the spending proportions increased significantly.


I had some time in the weekend to think it through. I feel that the decision by management to go into a loss making position in 2H 2021 is not something i am comfortable with. This loss making position is already accounting that fair value investments are not accounted for. Although 1 can be said that this is investing for the future, IGG's value preposition to me has been a good dividend payer and at the same time it is able to use the rest of the income retained to invest and venture into new games.

However, it has decided to extensively increase manpower and acquired building for game development as well as spend much more on research and development. This in turn with its increased in marketing expenses and lower revenue in 2H resulted in the loss making position.

With ample financial resources on hand, they can continue to do this for a year or two but this is unlikely to be good if they cannot find a new dominant game.

Yeager has been mentioned previously. I have seen some good comments on its game on discord and is encouraged by the recent signs. However, i believe that it would take a good 3-5 months more before it would even go public with its games. Considering that the beta has just started at end of december and an end date has not ended yet.

In lieu with the change in management direction to not put net profit as a focus, i have decided to make the painful decision and cut the position to move the funds to another stock that might do well.

I believe the year is still early and there can be a couple of risks that i can take. IGG would need some time to recover and most of the recovery is likely via its new game Yeager.

After thoughts

An early 暴雷 to the year. From a western perspective its a bad start to the year. From the chinese perspective will be a bad end to a year.

Will i be able to overcome the early deficit of 'no profitable days of the portfolio since start of January' and the big bang boom of a -16% realized loss in January and do well in the upcoming months? Or will this be the telling sign that the lost of motivation is starting to hurt and i should consider quitting? 

Time should tell.

Saturday 1 January 2022

2021 Portfolio Review. Moving into 2022. (Long Post)

Motivation for Investing

-To start things off, i entered 2021 with my motivation for investing at a new low ever since i started investing back in late 2014. As such, i find myself ending 2021 with a even lower motivation than the start of the year.

-Mainly it is due to a lot of non investing related personal issues (e.g my favourite k-pop group disbanded being 1 of them and another friend that i have met with this year has left the world in this year.) that has plagued my thoughts on whether i should continue doing it on such level of attention given. 

-With lower motivations, there is less times i ask myself if i should change my portfolio or add new positions. I guess i will leave it open for what i want to do moving forward. Perhaps a new spark of motivation might come, i would never know but i don't feel upbeat anyway.

(2021 Returns: 11.04% as the top 3 positions remain unchanged. Lost to STI ETF but comfortably beat the Hang Seng Index or the small cap Hang Seng Index.) 
(For folks which are keen in XIRR)

-Returns for 2021 as above. Personally i feel that the year is acceptable as i have hit the base target i have set and i have not put much effort into changing the portfolio. 

-As such the returns are largely driven by previous years ideas. Though there are a couple of cut-loss that i have done that have saved a couple of % of more losses. 

-The portfolio's top 3 positions at end 2021 are pretty much the same as in end 2020.

Hindsight 100/100 (Look back with a 100ml of vinegar)

Top 7 moves that might make me look good this year (some might make me look bad the next year...)

1) Added Shinvest at 2.36 in May 

2) Added AAG Energy at 1.11 in July

3) Added more Ocean Line Port Development (Hkex: 8502) at 0.231-0.237 in Feb and sold off Ocean Line Port Development at 0.3 to 0.33 in July

4) Ballot for Temasek Bonds and Sold on opening day. Same for Astrea as well.

5) Ballot for TC Auto in November. IPO Price 0.23 and made a profit from it.

6) Sold off KWG Group for 12.2 in Feb. Had bought it at average price of 14.5 in Aug 2020 but it has paid a stock dividend of around 3.24.

7) Selling Central China Real Estate at 1.83 in July. It has hit below 1 in December.

Top 7 moves that might made me look like an idiot this year

1) Buying Uni Asia at April at 0.65 and selling the same amount at 0.66 in May. It is around 1.2 in December

2) Buying Samudera Shipping in Jan at 0.26 and selling it at Feb at 0.245. It is around 0.55 in December

3) Buying Logan Group at 12.54 in April and selling it at 10.4 in July. Looking back it is 5.86 now so the play is stupid but could have been worst.

4) Buying Central China Management at 2.63 in May, 2.24 in June, 1.9 in July and 1.59 in December . It is around 1.4 in December. This stocks is 1 of the highest loss% in the portfolio currently.

5) Additions this year underwater (Central China New Life and Management , IGG and Hong Kong Johnson) Especially Hong Kong Johnson, purchased in Sept 2021 and it is down 25% already in December.

6) Buying Ka Shui International at 0.58 in Feb and Selling it at 0.64 in March. It is 0.78 in Dec and has hit a high of 1.24 in December

7) Buying OTS Holdings at 0.32 in August only to sell it again in August at 0.31. Somehow the research work is clearly wrong as the results is lacklustre.

As you can see, my timing in positions is muchly flawed and very much i am emotional as well. There is plenty to work on and to improve on. 

However, i believe that paying attention o my investment thesis and checking if the company matches the thesis with its results and the surrounding environment that might affect the company's results are more crucial.

If i were to rate myself for my 2021 performance, a solid 5.1/10. An acceptable year but a very far distance away from what i can do in previous years and when i have higher motivations. 

Thoughts on my positions (5% Weightage and above)

1) Shinvest (2021 Share Price Performance: -3.50% )

-Continues to be a value play that is pertinent on the management's decision making. The outlook of its financial assets (Espressif being listed in China Tech Board with ticker of 688018 is doing well in terms of financials and has a good prospect.). Although the fair value of the company changes very frequently, a 20% upside from its current price is the minimum i would anticipate. However a lot of it depends on the management's decisions. 

(Volatility of Espressif can be seen in its share price change in 2020)

2) AAG Energy (2021 Share Price Performance: +8.46%  )

-A company that has done fairly decent regardless of natural gas price. This is due to the regulations by government for natural gas prices that is piped towards neighborhood. Recent price has been very volatile due to misconception that the company benefits largely from natural gas increases. However, it benefits only slightly as a small amount of gas sold is close to market price. Majority of discussion for prices are set 1-2 times a year hence a general increase in price level will lead to a higher price when discussed.

-In terms of productivity, cost of producing gas has came down over the years for both its fields of Panzhuang and Mabi. The point of focus will be how much more cost it can be lowered for Mabi and when the volume increase for Mabi will occur as currently 95% and above of profits comes from Panzhuang.

(Despite Selling Prices not at the highest level, 1H 2021 has already done better than previous years half year due to increase in volume and cost control)

(Cost has been coming down for Panzhuang which is one of the reasons for its improving bottom line in 1H 2021. From 0.31 in 2017 to 0.19 in 1H 2021, it is at very low levels and is probably 1 of the best in the field in China)

(Much will be on Mabi's development and whether cost can continue coming down. From 1.38 in 2017, it has reached 0.77 in 1H 2021. However given Panzhuang's figures, there is still the possibiltiy of lowering cost, just how much more and how fast would it be possible)

(As seen in this slide, Panzhuang currently makes up 90% of the production. Which means that most of the revenue and profit contribution comes from Panzhuang. Mabi is still in developmental stage.)

3) Tat Seng Packaging (2021 Share Price Performance: +26.23% )

-With new leadership and board members at Hanwell, the proposed spin-off has been called off and as such a lot on how the share price will perform will likely be on the dividend for full year and its results.

-While paper prices have kept a healthy level without much fluctuations, peers listed in China have produced 3Q 2021 Results that are poorer than 3Q 2020. However, the Tat Seng is currently still trading below book value and a relatively low PE of less than 8.

4) Mainland Headwear Holdings (2021 Share Price Performance: +80.90% )

- A company that has its progress hindered by Covid-19. As such its ramp-up of production in 2019 was not reflected in 2020. However, it has recovered on the back end of 2020 and in 1H 2021 it has managed to earn more than 2019 in total. This has led to a very nice increase in share price in 2021.

-PE still remains at a single digit level and company still remains cheap. Considering Covid risk and its location of Bangladesh, its understandable. Further upsides will be unlocking value in its Shenzhen land as production is mostly shifting towards Bangladesh as well as workers being more skilled and productive over time leading to a better financials.

-Company has been hiring and productions in 2H 2021 seems to have been uninterrupted hence the results this year is likely to be decent.


5) Central China New Life (2021 Share Price Performance: -21.44% )

- A company that has fallen a lot in 2021 due to the impact of property development companies in China being affected by regulations and poor housing sentiments.

-My personal view has not changed, it is 1 of the few companies that has not used its funds for any large acquisitions yet since IPO. This might prove to be a masterstroke decision making as its peers who has done acquisitons have suffered quite a large drop in share price. Whether the company makes use of the depressed environment to conduct acquisitions will be key. 

-Its parent company going bust will still be a concern. However, considering that the PE of companies that has been acquired recently such as color life is around 10 PE. The company is currently trading at an implied PE of around 9 and has around 1.5 PE worth of net cash. As such, it is trading at fire sale valuations already.

(From 6.3 level at start of year to around 4.9 in December)

6) IGG (2021 Share Price Performance: -14.66% )

- A company that has performed badly in financials and share price. Its poor financials is a result of its increased spending in manpower to develop games while the share price performance can be attributed to both internal( needs more time to prove its strategy works) and external(poor macro environment for gaming stocks).

- Flagship game Lords Mobile has tapered down in 2H 2021 compared to 1H 2021. Its 2 newer games Dress Up Time Princess and Mythical Heroes has had good debuts but DUTP has came down in revenue rankings in past months and it remains to be seen if the management can bring it back up.

-For Mythical Heroes it has only came out in November and therefore time is needed to observe. The largely anticipated game 'Yeager' a game that is like monster hunter will have its 4th beta on 28th December. As such, it is probably safe to say that we could have to wait longer to see it translate to anything meaningful on its top and bottom line. An interesting thing is that PC Version will be available hence if this is anything half of a Genshin Impact then it would be daebak.

(Lords Mobile in 2H of 2021 has clearly done not as well compared to 1H)
(Widely lauded as their 2nd flagship game at the 1H 2021 Results Briefing, the game has also done not as well in recent months in revenue ranking)
(Yeager from IGG)

7) Hong Kong Johnson Holdings (2021 Share Price Performance: +45.71% )

(But i am sitting at about -20% currently)

- Company released its Mid-Year results in November. Results to me look ok. However share price had a decrease of around 20% since then hence i took the opportunity to added some and it has squeezed its way to having around 5% of the portfolio.

-Contract wins in 2021 represent a small increase over contract expired in 2021 hence revenue for 2H 2021 is likely to be acceptable. Main bulk of renewals come in 2022 and hence it remains to be seen if how many is renewed and at what rate. As such, the low implied PE of around 4-5 that it is currently trading is understandable.

-I believe 2022 will be a crucial year in terms of renewals and that will set the tone for its revenue for 2022,2023 and 2024 as contracts tend to last around 3 years.

(Contracts up for grabs. 3 Ticks represent current contracts Johnson holds that will expire in 2022)

8. Uni Asia Group (2021 Share Price Performance: +108.47%)

(But i am sitting at about +10% currently as i did not hold it since last year end)

- Shipping rates have came down but it is still at profitable levels. Will see how shipping rate goes in the new year and what the management does with regards to distributions.

-The rest of the segments should be nothing outstanding or horrendous to be looking out for.

(Sending Hearts and Wishing Everyone a Happy New Year)

Year to Date Returns Chart (Peak in September. Fortunately it is positive for large parts of the year)

For anyone interested to see the range of returns for the porfolio in 2021.