Monday 8 July 2024

Biggest Loss in a Day

8 July 2024 turns out to be a day where the portfolio sees its biggest loss (both % and absolute figures)

Day Returns: -5.71%

YTD Returns: 12.19%

My own personal thoughts / emotions

Mentally, i feel fine actually. Perhaps it is because i knew the chances of this happening was pretty high since Friday and had the weekend to prepare for it following the announcement on Friday.

Also, in terms of motivation, it has not been high all along and I was not expecting the year to be great. Having said that, i will still say the same thing that i have been talking about. I can only do to the best of my abilities and there are many things that i cannot control such as corporate business decisions and all. While i can do my best to do research, there will always be things that cannot be found. 

I will do my best and leave it to God to decide if i should continue investing. If somehow i can clock in a negative return for this year(bearing in mind that the current returns as above), i think it is a sign for me to initiate the plan to 'rectify' the problem in the following 6 months and if i fail to do it then i would definitely take a long hiatus from investing afterwards.

After all, to take half of whatever money i have left and spend the subsequent 1-3 years travelling and doing whatever i want without a job and without having to think about investing on a daily / weekly / monthly basis is something i have pondered about doing. So if God decides to show me this way despite my best efforts, then i will gladly accept it.

Thoughts on the Main Culprit of Negative Returns (Huationg Global)

Clocking in a -16.875% loss today, it has eroded 4.78 million in market cap following the news of the Dormitories Failed Tender to extend.

Personally, i thought about selling some shares if the loss was within 5% but at 16%, it is too over-reactive. After all, i had mentioned in my previous post that there is 80% of revenue being lower in 2H.

Lets think of possible reasons for this sell-off

1) Dormitory Concept not lasting. While i agree with this as some folks might sell out as it is not a 'dormitory' stock anymore, it means that not enough research has been done.

A quick search on google revealed that on 7 March a document was published to invite companies to tender for the dormitory. As such, one could have tell by reading the document that the tender was ending soon.

2) Gambling on the Contract Win. 

I would agree with this reason, whereby folks are selling off as the contract win has failed.

3) Allocation of Cost makes valuing the company difficult.

Unfortunately, this portion has been mentioned in the AGM and it is tough for me to assess as well. As such i can understand this but unlikely it is the reason 

I think that folks just bought into it for the dormitory concept and were shocked that the dormitory is not being continued would likely have affected this sell down. Though i have to emphasis again the volume traded today is around 1+ million so it is not exactly 'high' as seen in the EGM Votes (8M) where shareholders were present and the management could not vote.

Breaking down the company is actually difficult due to point 3 mentioned. But if we were to take it literally and remove the whole segment.

19597 in Segment Result . 8070 from Dormitory. Taxes is 19%

As such, without dormitory, the value will be 7694 = (17569-8070)*0.81

This equates to around 4.3 cents EPS. Or around 3.1 PE. To me this feels reasonable as a construction company. Although i think this figure is not accurate as the projects should increase and as such have to reassess the margins of the latest projects. 

A better feel of the margins of the Civil Engineering Works and Inland Logistics Segment should be seen in the 1H 2024 results. 2H 2024 will probably reflect the damage of the cost allocations better.

But I would not fault anyone to think that without dormitory, the company might not be profitable. 

An argument is that the company is profitable in 2018 and 2019.....but times have changed and prices such as dormitory prices have went up as well.

I would have been more negatively surprised if 1H 2024 is loss making compared to the company not getting the tender. But we never know, because the results are still being tabulated. Although i still don't think it will happen.

The company made 2.95 cents in 1H 2023 and 5.10 cent in 2H 2023. We still have to factor in that a similar half could happen in 1H 2024 and also for 2 months in 2H 2024.

For myself, any decision to sell the shares should be based on the below factors

1) If a loss making profit guidance is announced for 1H 2024

2) 1H 2024 Construction and Inland Margins / Revenue Fail to Impress

3) Bad Balance Sheet or Below Par Corporate Actions such as No/Cut in dividends despite a solid cash flow and balance sheet. 

Life would never be smooth and invesments are never all sunny days. 

Things can come at you suddenly but all i can say is to stay positive and analyze each situation individually and come to a logical conclusion. 

And for myself, probably looking at more kpop stuffs to keep my mentality and mood positive so i can objectively analyze each situation better without much emotional in play.

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