Tat Seng Packaging(Sgx: T12 ) 1Q results thoughts- On track for worst 1H since 2016

Tat Seng Packaging released its 1st Quarter results on 10 May 2019.

It was somewhat a surprise as Tat Seng has never released its 1Q and 3Q results, meaning that investors have to infer from Hanwell previously.

Results came in with net profit coming in at 59% lower. Though I have to admit that i was not really surprised with the poor results. Will explain later in depth why so.

Results Overview

Negatives
-Net Profit slipped. Doesn't need much elaboration on this

-Non-Controlling Interest recorded a loss, this meant that one of its plants would have likely incurred a loss, which signifies a much more competitive environment and companies might have to shut down operations.

-Gross Margins slipped below 20%, 20% is actually a very interesting quote from a chinese website that writes 'If not for the sake of the staff, one would be better off working instead of running packaging business that is below 20%)

-Volatile Yuan, especially with trade war possibly bringing yuan back to 1 usd = 7 yuan levels, what this means is that the comprehensive income might record loss and instead be book value destructive

Positives
-Sales volume increased 2.9% in 1Q 2019, a remarkable feat considering that the shroud in the industry currently

-Operation remains lean, distribution and selling expenses increased less than the increase in % of sales volume. General and administrative expenses also fell more than % fall in revenue.

-Cash flow from operation came in at 4.3 cents per share, largely due to good trade receivable collection.

-According to Chinapaper, the new Nantong plant to bring in 100 million sgd of revenue each year? Nevertheless, from the article, the new plant seems to be well received and aided by the local authorities. It also reiterates the state of the art facilities present with equipments of international standards. 

So why would Tat Seng be on track for the worst 1H since 2016?



-Do note that 1H results do include 1Q results as well. Previous 1Q results would not be accurate as they would be based on estimations from Hanwell which is something i did not choose to include in the data.

From the chart its easy to understand 3 key points

1) 2H will usually be better than 1H due to the traditional peak season effect. That trend however is not applicable in 2018.

2) An increase in corrugated prices brings higher profits. Similarly as corrugated prices start falling, the profit will follow suit.


3) Despite higher corrugated prices in 2018 2H, profits are lower than 2016 2H. Why is this so?
In 2016, 2H corrugated prices were much higher than 1H corrugated prices. In 2018 1H corrugated prices are higher than 2H. Which is why profit fell (also explained in point 1 and 2)

At time of writing its only May, but April corrugated prices are about 9% lower than 1Q 2019 average. The bad market conditions can also be seen in the shutting down of packaging firm in China.

(Translated to English: Thank you for the long term support to the company. Due to bad economy conditions and  a downturn in the markets. The company is in a loss making position and has decided to end operations on 30 April 2019. Orders that are already received will be delivered as soon as possible. This decision is made out of a lack of alternatives and we apologize for any inconvenience caused.)

Based on that and the above materials, i would estimate that the profits would be lower than 5.7 million which is the lowest 1H result from 2016 to 2018. I would say if the company earns a minimum of 3 cent EPS, it would be remarkable performance.


Conclusion

I would say Tat Seng is generally a decent company going under tough industry conditions at the current moment.
The price to book currently is attractive but estimating earnings going forward is going to be tough as as the highest factor would be demand in corrugated products. This in turn drives prices and profit of corrugated packaging companies like Tat Seng.
I will probably need more time to think through if i should even be adding any equity(not just Tat Seng) at the current stage.
Meanwhile i would listen to some k-pop and think through.

Attaching k-pop pictures as usual.

Design Studio Group Ltd (SGX: D11) 1Q 19 Result thoughts- The pain worsens

Design Studios released its 1Q 2019 results on 8 May 2019. 
It turns out that the results were pretty dire.

Formerly a dividend darling, the company was barely profitable in 2017 and made losses in 2018.

In 1Q 2019, it made losses of S$ 6.193 million. In whole of 2018, the losses were only S$23.912 million. 1Q 2019 made up 25.9% of 2018 losses.

There were couple of details that stood out in its 1Q 2019 results.

Poor margin control

A quick count tells us that revenue is 15.535 million but the raw materials used, subcontractor cost and employee benefits totaled to 15.355 million. That leaves only $180k of profits after these 3 subtractions.
I would say there is probably 2 ways of looking at this figures.
1) Poor margin control leading to projects that are not even profitable.
2) Staff cost is mostly fixed therefore the cost did not decrease but instead increase due to expansion of business united or the commonly seen wage rise.

Sign of negatives to come?

We are told that there were project delays leading to lower revenue generation. Does this mean that there would be higher cost recognized in future quarters along with the revenue? This would mean more losses ahead should it happen. Personally I do think that this would happen.

Conclusion

Having been in the woods since 2017, it seems like the company is venturing even deeper into the woods and has been constantly eroding its equity.

The only bright spot is that order-book has been at a healthy level consistently. Though if these order book only serve to bring in revenue that result in losses, that would not be a bright spot at all.

It still remains an interesting company for me to take a look at its financial statements and try to understand how its business model works.



Posting a K-pop picture as usual.

Investing results in the past 12 months, - 43% swing in time weighted returns and back to square 1

Decided to look back on the past 12 months of investing on a public holiday today.

Before actually loading the chart on stockscafe i probably had a similar sight in mind as well.

At highest point which is in June, time weighted returns hit 21.82%
At lowest point which is in January, time weighted returns hit -22.32%

That's a rough swing of 43% in a short span of just 6-7 months. To give a rough gauge the amount swung is probably around 6 semesters of university school fees.

How did i cope with it?
To be frank i did not really cope very well initially but i just have to continue my daily research to make sure my estimations are at least somewhat close.
Then its leading life as normal, going for more concerts definitely cheered me up as well. I developed the habit of not even bothering to open the app to look at daily prices.
At some point where the portfolio just tanks 4 digit sgd a day i'm already kinda frozen and emotionless, as though knowing its gonna happen but i'm just like nope i'm not gonna sell anymore no way man.
Due to the fact i was pretty heavy in equities to begin with and had a low income, it was pretty difficult for me to add.

Then come the turn of the year where we see broad rally in Hong Kong and China markets. This made the returns head back to where they were just 1 year ago. Literally back to square 1. If anything i felt that i did very bad in the past year. Could have improved my analysis process better. But then again if my 'analysis was really good i won't be in the current position now :( '

What are the implications the past year had on me?

Well at the current moment there are certain stocks i really want to add but i took a look at the chart above and i'm like 'here we go again?' Guess that part of fear does run a little in me still.

I foresee myself adding still in May, probably a change in strategy from what i did last year i guess. After-all, the stocks i held in recent few years all had different strategies involved and resulted in varying results.

After-thoughts

-Could have done better really given the amount of time and space i had.
-Was really lucky, could have actually lost much more money.
-Did a couple of nonsense panic sells when in actual there really isn't a need for it. Its just the i want to keep more cash on hand fear at play.
-The sharp rally year to date makes me wonder why i did not really add even more? But i guess that's human emotions at work. Might have to work on that better.

All in all i would say the results were a blessing while the process was a good learning experience and taught me that i really need to be more precise and less complacent. Not just because the returns hit a peak in June and hence i could be more 'slack' in researching. I am pretty angry with myself looking back at that.

Hopefully the next 12 months i would be able to do better. So that i would continue to have funds to go watch concerts haha.

Short AGM review + some personal thoughts on Sutl, Hanwell and Uni-Asia

SUTL Enterprise(BHU.SI)

-Attendance roughly 20 
-A shareholder mentioned about the vitality around the marina being 'low'. For e.g restaurants keep folding. Management says that its up to sentosa development corp to do the leasing and keep the area vibrant 
-Current lease left at Sentosa is about 19 years left , after which its probably a need to do some discussing to see if the leases will be extended, but similar to golf courses at sentosa, it will be 30 years basis. With the sentosa cove properties around the marina, its 'hard' to see the marina being changed into something else according to management. 
-Malaysia's new marina will be 2 times bigger. Interest checking has begun but pre-sale has yet to begin 
-For US and China's operations it will be management contract basis. Whereas in sg, msia and thailand(i think) its an ownership basis. 
-1 shareholder highlighted the need for local partners to avoid getting 'chopped' which the management replies they have been doing that and cited the msia one as a joint venture as an e.g 
-Lastly one asked when the foreign operations will reflect on P&L, the answer is that the proceeds of membership pre-sale should enter the cash flow this year but there is no clear infos. 
-Had a chance to have a 3-4 lines chat with one of the management guys who was seated at front row. He says us operations should start in 2 weeks.

Personal Thoughts: I believe 2019 should see some sales progress on the marina in malaysia as well as some management fees coming from the usa operations and hence we could get a better sense of its future operations. Singapore is likely to come in stable as the membership sales are on a long term basis. The cash on hand and cash flow from the marina is pretty decent at current price considering it has 19 years of lease left. The concern I have would be the business risk in Malaysia and possibly Thailand.

Hanwell(DM0.SI) 

-Attendance roughly 50 
-A shareholder asked about the Capex in the upcoming year. The reply is that most likely its on the side of Tat Seng only 
-Tat Seng will cease operations at Nantong Hengcheng and move operations to new plant at Nantong Tatseng which is more hi-tech. The current land at Hengcheng is on rental basis. 
-Differing views among shareholders, one sees Tat Seng as capital intensive and would rather Tat Seng be divested while another has the complete opposite view. 
-Management said they are pretty satisfied with Tat Seng's results in what was a harsh and competitive environment. 
-Capital Reduction 100% passed, the deputy chairman says out of so many he chairs, its rare or was it the first time its 100% something along those lines and everyone can go celebrate.

Personal Thoughts: Hanwell still remains a very asset based play, this year has been a big breakthrough in terms of distributing cash and having a good dividend. As for Tat Seng, it remains to be seen whether they will continue to grow and contribute more profit to hanwell via the new plants. A key information in the auditor statement is that the fair value of the golf course is actually higher than the carrying value of Million Cube, the holding company. Therefore even if the money is not obtained and the deal falls, the risk is not big. 

Uni-Asia Grp(CHJ.SI) 

-Attendance roughly 50 
-Started with a presentation by CFO on the results 
-Proceeded with reiterating that despite the impact of leases they remain fairly confident of 1Q results which would be out in May. 
-Dividends will be distributed on a semi-annual basis. 
-1 shareholder asked if the asset for sale that has been sold in Feb according to AR will book a full 5+ million usd profit (which is roughly 10 cents eps). The answer was there will be a gain but its not full gains as due to the leases effect some of the gains will be deferred as well. 
-Another shareholder questioned the placing which is met with the answer of growing the pie for all shareholders. 
-Another shareholder suggested for share split as according to him the optimal number of shares should be 200 to 300 million but the current number of shares is about 50+ million only. This was met with the answer of options are being assessed. 
-A shareholder asked why the finance cost are quite low, the reply was that the company had good ties with banks in Japan such that even if they borrowed in USD it was low.

Personal Thoughts: Past few quarters i have many misses with the estimation of the company's different segments. I would really wait till the 1Q results to appear before knowing whats the impact of the new leases on the company's profit and loss statement. Having said that, the divestment of a hotel at above book value in February as well as gains from Hong Kong 3rd Office Property Project should still happen sometime this year. 

Just sharing kpop photos as usual below.

Buying thoughts for those who actually scrolled down :)

I probably would wait till 1Q results of Uni-Asia Group before deciding if I should add my position.

As for SUTL, i believe it would be a long wait and if i decided to go for a longer time frame i might add more of it.

As for Hanwell, i do not think that Tat Seng's results might be good in 1H due to high benchmark set in 2018. Its all eyes on the 2H. As Tat Seng's results generally decide most of Hanwell's profits that would be crucial. If the gap between share and book value continues to widen in Tat Seng, it could be good chance to add more Tat Seng. I bought Hanwell shares as i was unable to attend the Tat Seng Agm in the afternoon. 

Quick and Short thoughts on Mapletree Industrial Trust's Results (SGX: ME8U)

Just saw Mapletree Industrial Trust (MIT) results and decided to pen some thoughts.

Below information are taken out of MIT's slides.

Passing Rent	Q4 17/18	Q1 18/19	Q2 18/19	Q3/18/19	Q4/18/19
Flatted Factories	$1.81	$1.81	$1.81	$1.79	$1.78
Hi-Tech Buildings	$2.65	$2.65	$2.76	$2.7	$2.84
Business Park Buidings	$3.8	$3.79	$3.8	$3.72	$3.76
Stack Up/ Ramp Up Buildings	$1.3	$1.31	$1.3	$1.3	$1.28
Light Industrial Buildings	$1.45	$1.44	No info	No info	No info

Generally, passing rent is on a downtrend apart from Hi-Tech Buildings.

To illustrate things in detail, we will use 2 charts. On the Y-Axis is the amount per square foot.

Flatted Factories

What I think would happen

Passing Rent would continue to fall as new leases are way below current passing rent. Although renewal rents have been above passing rent in first 3 quarters,  the point of inflection seems to have been achieved in Q4.

It is not stated that how much of revenue is obtained from flatted factories but flatted factories accounted for 33.1% of MIT's portfolio. Which is why its passing rents would have a huge impact on its revenue.

Hi-Tech Buildings

What I think would happen

Passing Rent would likely fall as the average new leases per square foot renewal from Q2 to Q4 amounted to $2.54 per square foot on average whereas the passing rent at end of Q4 is $2.84. The average passing rent is much lower due to a huge amount of lease being renewed in Q2, which had a low rate of $1.75.

Hi-Tech buildings stood for 43.3% of MIT's portfolio which is why its passing rents would have a huge impact on its revenue.

Conclusion

Based on these info above which indicates negative reversion in rates, I am not too optimistic with regards to organic growth coming from the trust in the upcoming year. 

As this is my first time taking a look at Mapletree Industrial Trust, there might be a chance that I might be wrong with my analysis but after taking a look at the results over the year.

I would not be a fan of this trust. Even though when this trust is up 9.4% year to date when the STI is up about 10.5%.

That concludes the quick thoughts, following my previous post, i will upload some kpop pics that is not related to the post at the end as well........ 

Is OUC Holdings (Oriental University City Holdings, Hkex: 8067) worth a purchase?

A friend(Domodaddy) suggested to me that I should get my back into doing research following the booking of a heavy loss in my previous post. I have decided to heed his friendly advice(i guess?)

Today's focus will be on OUC Holdings  (Hkex: 8067)

What's the company about?

The company owns a plot of land at Langfang Development Zone with a medium term lease expiring in 2049 (30 years time). The company has educational facilities on this plot of land which has site area of 487,270 sqm. That's about 68 football fields.     

It then leases education facilities to college, schools and universities. Examples of types of facilities include teaching, dormitory and retail.

To give lay man examples

Teaching = Classrooms, Dormitory = Onsite campus places to stay , Retail = Supermarkets

According to its prospectus, education facilities leasing fees are received based on estimated student enrollment for upcoming academic years. 

Student enrollments are not disclosed in annual results nor annual reports.

Who are its Shareholders?

People might be familiar with Raffles Education, a stock listed on SGX. It holds 25% of OUC Holdings. Overall Mr Chew Hua Seng the Chairman and CEO of Raffles Education owns 75% of OUC Holdings.

Financials (Company first listed on Jan 2015, with financial year ending June 30)

(In RMB'000)	2014	2015	2016	2017	2018	1H 2019
Revenue	59,643	61,588	68,619	60,336	67,311	37,754
Profit before tax	43,958	58,247	71,782	35,348	220,148	20,019
Profit before tax (PBT) without revaluation	34,397	23,492	42,178	12,352	49,742	20,019
PBT excluding revaluation and associate	34,397	23,492	41,258	7280	40,734	20,922
PBT excluding above and govt grant	25,749	23,492	36,258	28,295	40,734	20,722
Margin	43.17%	38.14%	52.84%	46.7%	60.52%	54.88%
Dividend	NIL	8 cents HKD	8 cents HKD	8 cents HKD	12 cents HKD	5 cents HKD
Equity/ Liability Ratio	24.09	12.43	10.48	7.94	7.67	6.59

What I like about the company

- At a trading price of 2.02, its trading at a historical PE of 9 if before tax figures are used. The price to book value is also at 0.3135. Considering there is 30 years to the lease expiry, this valuation is undemanding.

-Revenue has been slowly trending up across the years, this has been accompanied by an increase in profit margins. With 1H 2019 recording a 13.4% increase in revenue compared to 1H 2018, could we foresee a revenue breaking year?

- Dividend has been increasing and consistent in prior years. In fact cash generated from operations has been consistent around 30 million for 2017,2018. A 12 cents dividend would require only roughly 18-19 million.

My concerns for the company

-Customer risk, the largest customer accounted for 64% of the group's revenue.

-Credit risk, 1H 2019 had good results but it came along with a 18 million increase in trade receivables and prepayment. With 16 million coming from trade receivables and 15.6 million is 3-6 months due. A pretty alarming situation considering this has not happened in previous years.

-Acquisition of  Zhuyun Education Land from Raffles Education. This acquisition has the word 'wrong' on all aspects.

1) The price was arrived at a 'willing seller, willing buyer basis'. As mentioned earlier on its shareholding, this sounds like left hand and the right hand doing a puppet show. Although a valuation report is done.

2) Funding of the purchase is largely done by a conversion note(176 million at rate of 2.48%) which entitles the note holder to convert at a price of 2.30 hkd per share. A maximum of 88,565,306 shares can be converted which is a dilution of 49.20% of current shareholdings.

3) The properties generated a net loss of S$251,000 in FY 2018. Anyone in the right frame of mind would probably not acquire something that is loss making unless they are confident in turning around the business although OUC holdings in theory is under Raffles Education?

Conclusion

Q: Would this be the company that sets me in the right foot towards recouping my losses?

A:Maybe

Q: Would this company pass my valuations?

A: It does pass my valuations, though I am not a fan of actions of the company as well as its recent balance sheet concerns in trade receivables.

Q: Would I buy the shares of the company?

A: No, having been through last year, I am more skeptical of taking a 20-80 or 10-90 chance. I would buy the company if trade receivables convert into cash in the next quarterly report and the acquisition does not happen. The big draw is that the price: book value is well below the current rate and the profits have been decent. But it is likely to change should the acquisition happen and it would put a ceiling on the share price as well. 

Food for Thought

Raffles Education has attempted to issue rights in December 2018 to raise 27 million SGD which has been cancelled in March 2019 as the trading price of the share( 9 cents) is below rights price of 10 cents. This rights 'action' would align to why they would sell the properties to OUC Holdings. 

Though i would wonder why did they not want to divest the whole OUC Holdings as its net assets are recorded on balance sheet to be 1,159,632,000 RMB or roughly 234 million SGD. OUC Holdings recorded a 170 million RMB revaluation which is already above the rights amount to be raised.

That concludes the first stock I decided to share. Would try to put up more when I have the time to do more research and writing. 

Currently more busy with watching shows and listening to k-pop........yup you guessed it right, the write-up is done while listening to k-pop as well.