From May to June, the biggest mover in the portfolio would be Huationg Global. The rest of the stock had relatively lesser movements in terms of %.
On the results / business updates front, there is nothing much to report as there is no results release in June.
YTD, the STI Index is down around 1.39% and in June it is up around 1.49%. Just relieved that the results this year has been much more pleasing compared to the poor results seen in 2022 where i clocked a -16.56% performance.
July and August should see more volatility ahead as results release is upcoming and speculating of results might occur as well.
The past few months have seen some changes in my portfolio. Will just jot down the changes and the reasons (shortened version) for the changes.
Should i be able to find some time i will consider writing a longer version of certain changes
(1 of the associates of my recent additions)
Removals
Ossia Intl - Following a result that has met expectations, the share price has increased by over 20% from the results release. As i have only initiated positions since March my average price is around 0.12x.
Stripping aside the presidential bid craze and all, the dividend yield of 10.5% and PE of 4.3 is attractive. However considering Harvey Norman has a PE of 5.3, expected retail environment to be tough as well as my intention to channel limited funds to something else, i have decided to divest it and review the company 3 months later.
It is fair to say that the estimation was on the lower end of my expectations as well.
AAG Energy - With the offer at 1.85 approved, i have divested on the last day of trading at 1.83 as the 1+ months wait would be too long for myself as i have decided to take a risk and try to use the funds to do channel to something else.
Central China Management - I only have less than 2% of my networth in this stock but i have decided to clear the deadweight anyway. This brings an end to any involvement i have with central china stocks for the time being. As such i can keep lesser eyes on the property market and more on other stocks in my portfolio. The final divestment was done in May at a price of 0.415. Price as of 27 June is 0.335 so guess i am right in the short run for now.
Additions
When in doubt, just add things in your portfolio. Yup that is what i did so the usual suspects have seen an increase in their positions. However, there is one new addition to the list.
Yeebo International (Hkex: 284) - A company that has its own business that has shown improvement in bottomline in the past years. Financially healthy and way below book value as the associates it holds has far outweigh the market value.
Being associates, they contribute to the company's bottom line as well which has improved over the years.
As a whole, it is trading at 0.3 to its book value. With some divestments done in 2022 to its associates, it remains to be seen if the same will happen in 2023 but since its associates are recording better profits, it will benefit slowly as well if it chooses not to sell the golden goose to the market.
I have took up a stake following proceeds of AAG Energy. I foresee adding more when the company divest more of its associates shareholding or when the associates report better results and have a good roadmap being executed. But for now, buy some and observe and if by luck anything delightful pops up then its all good.
Dream International, Mainland Holdings and Huationg Global which has already been in my portfolio are the other additions. To sum each addition in 5 and less points each.......
Dream International
-Weak US Orders Expected due to Funko Q1 Earnings Poor and Full Year Expected to be Weak.
-Betting on the increased orders from Disney Japan and China.
-Increased expansion and hiring through Covid shows faith in business
-Good Dividends, best financial health in years and below book value
-IR replied, while quality of answer might not be the best but it will suffice.
Mainland Holdings
-New Factory came into production in May, will observe how the production and margins improve
-Guided double digit growth for 2023 in Dec 2022. To see if this plays out
-Factory in Bangladesh being lauded for success of OBOR and Common Prosperity
-Reputable Management, Hosting of Key Customers to new factor in May .
-Hiring of Jap Language Knowledge Staff might indicate new customer / market as jap revenue is low now.
Huationg Global
-High Risk Stock, Financial Statements and Audited Reports actually look difference with huge disparity.
-Red Flag of CFO Leaving adds to the high risk. Although removing a CFO that prepares statements with disparity from audited reports does make some sense
-Inland Logistics Support related to construction activity showing strength. With projects lasting 1 year, can we expect results to sustain this year? Hopefully.
-Possible Divestment of Office might be catalyst as in the audited report, the sale value > book value.
-Dormitory revenue low compared to peers. Might see a catch-up or higher amount this year due to demand supply factors?
The computer is back up so i will celebrate by posting a post.
As the title goes, today's stock focus will be on Honma Golf (Hkex: 6858)
Honma Golf is considered to be a small player in the golf industry and a premium brand by many. A video of their golf club making can be found on youtube.
Layman Technical Analysis
Looking at the 5 years price chart, the stock has came down close to 66%. Looking at the current price, it seems to be trading at close to 5 year lows.
Financials
Looking at its revenue and income trends, it does not have a stable trend and it has been affected during 2020 and 2021 as well. What is worth noting is that it has made a good recovery in 2022 to pre-covid levels.
As of 2022 FY, its operating earnings is around 0.4 HKD, this translates to a pe of around 8.3 at current price of 3.32.
Reasons to consider this stock
1) Growth in revenue of golf club. 1 of its most important source of revenue, golf clubs have seen a growth in revenue under constant currency basis. Traditionally, 1H has been lower in revenue so there is a good chance that if the momentum continues, the company could see record earnings in this FY.
Mizuno's golf department recorded an increase of around 30% from April 2022 to March 2023. As such, i believe that Honma has some chance of doing well as well.
2) Golf as a sport. In the past i have the idea that golf is for the rich due to the need to book a golf course, hire caddies etc. But as technology and more mainstream golf has been introduced, folks can now play golf at simulators first as well as tee-up at driving ranges before going onto playing golf course golfs. As such, the market has opened up with the use of technology. These simulators are also available as 'club try outs' as players can now tee up at the stimulators to see if the golf clubs are suitable for them before purchasing it.
I believe the introduction of technology in Golf will allow Honma to have higher brand awareness as folks can try their club before deciding to buy it, Honma being an expensive brand would deter others to purchase and try it in the past without such simulators.
3) Small Market Share Compared to Industry.
In 2022, the golf club revenue came in at around 200 million SGD. This is similar to Mizuho (244 million SGD) but small compared to others like Callaway (1777 million SGD) and Titleist (748 million SGD)
As such, it is less likely to be affected by any headwinds and more of the revenue will be focused on its execution.
Lastly, the internal target / guidance given at the recent half year result release will be 10+% target in growth in revenue while keeping net profit at 25% Margin.
Reasons to not consider this stock
1) Choppy Earnings - As the yen has been depreciating against many currencies, this has resulted in net profit to be very volatile. As such, it is more important to consider the operating profit instead. Should yen continue to depreciate further, the company would be worth lesser as well as its balance sheet since it is traded in HKD.
2) China and Korea are the biggest markets.
This can be seen in 2 ways. Firstly, golf in Korea and China are both fast growing and under penetrated.
However, i think it might be a concern as China has seen soft consumption since 2023 while Korea's rapid growth might not be repeated and even see declines. Golfzon, a indoor golf simulator provider has seen a revenue decrease of close to 20%. Similarly, a post by Invest Chosun has mentioned about the headwinds in the golf market in Korea in 2023.
Nevertheless, these are operating difficulties that the company has to navigate through.
3) Inventory a Big Problem
Inventory is around 6 months of Revenue. Provisions have also increased by 50% across a span of 1 year.
The company also does not have a good record in clearing inventory.
2.2 million out of 4.4 million fresh inventory was cleared in the first year resulting in 2.2 mil brought over.
Out of 3.4 million (1-2 years) inventory, only 855k inventory was cleared resulting in 2.5 million brought over.
As such, there is a probability on increased provisions.
Conclusion
Premium Brand, Healthy Balance Sheet but revenue and inventory remains a concern that the company has to overcome. The fall in share price to a single digit PE is probably justified given the concerns of the company.
Given that peers like Callaway and Acushnet trade at 15 to 25 PE, Honma is definitely undervalued at 8.3 PE.
Unfortunately given the current landscape and how other golfing peers have performed from Oct 2022 to March 2023, i believe the 2H growth might be cap at 10-15% max.
Having said that, the company is still small and has ample abilities to make up for the macro headwinds. If the share price is anything to show for, it shows that the company has depressed investors more often than not.
Nothing surprising as Propnex crashed in the first week of May, fortunately i took some profits off. In other aspects, UMS guided for softening quarters ahead while the general sti is also down in May.
On the results / business updates front, Centurion released acceptable numbers. Powermatic released good numbers as well, i covered it on my facebook post
Poor Consumption Numbers from China but i think it would be better to ride it out then to change it to something else for the current moment.
I will take some time to think about it if there is a need to change anything.
Overall satisfactory results, balance sheet looks much better as well. Despite a negative January in terms of sales for its associate, glad to see that overall profit from associate came out much better than previous year.
Please refer to my facebook post to read more about it. The link can be found on the right >>>>.
Since YTD returns are still positive, the posting continues for now.
Today i will be sharing about a Hong Kong Stock that has been on my watchlist for close to 3 months.
Why HK Stocks? Well i have a better record recently in HK Stock Investing compared to SG Stock Investing hence it there is the bias. On a less serious note, there are probably like few SG Stocks i might be interested in but i probably will refrain from sharing this time.
Before we look at what the company is and the reasons to buy,
Lets look at just financials
From this financials, i can tell that the company has found its way back into good profitability. In comparison, the 6 months results has already exceeded half of the previous FYs.
In terms of ratios, it has improved and has the company has not increased its inventory to do this.
Associate Profit is also increasing year by year. Although it is worth noting that results has been boosted this year by one-off disposal.
Taking a look at its 3 year chart, the company seems to hit its peak in July each year before retreating. However, it is still much higher than in 2020 which means that its improving financials has been recognized by the market as well.
Although it is puzzling that the current price is not at its peak given that its financials have improved. Which prompts us to take a closer look. Can this be the stock that will do well?
Company Name : Yeebo International Holdings LTD
Ticker: 259 HKEX
Investing Thesis: Investing in this company is akin to playing premium poker hands at Wynn Macau
Folks who know texas holdem will know that the strongest hands are AA while premium hands includes high pairs as well as suited/ non suited AK AQ etc. These hands when in an all in scenario before any cards are dealt, have the highest chances of winning unless they are against similar hands.
For example your chances of winning when you have KK vs an opponent with QQ is at least 80%.
But of course, you don't get these hands all the time and as such you end up turtling or just playing tight. This company would be the same as it requires lots of patience and is not a company that is likely to blow up unless you open with the premium hands sooner with the help of luck.
Back to Reasons to Invest. 3 Simple Reasons.
1. Improving Financials and Fundamentals
For simplicity modelling reasons, i assumed that 2H of this FY will be same as previous FY to get a feel of whether profitability has improved.
The simple modelling shows that EPS has improved assuming same business conditions for 2H for both FYs. However pros in investing will know doing this is just pure bullshit because no one believes conditions ever stay the same. Or such an assumption is just for show.
While it is hard to estimate the revenue and profits of its main business which contributes 33% of normal profits, we can estimate the associate profit. Most of the associate profits (around 90%) comes from Nantong Jianghai, a listed stock in China (SZ:002484)
I know what some experienced folks might be thinking but lets keep the exciting part for later.
To estimate if business conditions has improved, lets do the backwards investing method. A method that a few jokers like me still use. We shall compare Nantong Jianghai Profits from Oct 22 to March 23 vs Oct 21 vs March 22.
Well we have a winner, profits improved by 45%. Which means that Associate Profit is likely to contribute a higher level, based on its 29.1% share, a simple estimate is 108m HKD, while it is lower than 1H in the current FY, it is still higher than yoy.
2.Deep Value in Associates.
Apart from getting the improved financials via improving results of its associates, the company benefits from an appreciation of share price of its associates and has deep value.
2 Associates it owns is 35.1% in Suzhou Qingyue and 29.1% in Nantong Jianghai
Suzhou Qingyue Market Cap: 5.29 billion RMB
Nantong Jianghai Market Cap: 16.2 billion RMB
Implied Stake Value: 7.03 billion HKD
Current Market Cap of Yeebo: 2.73 billion HKD.
As such, buying the company is buying the implied stake at a book value of 0.4 and getting another free business which contributes 1/3 of the profits and has improved in revenue and profits as well.
3.First Divestments in 2022.
Value is useless unless exercised. The same goes for waiting and playing only premium hands. You can have the best hands but when you raise and everyone else chooses not to play, you don't get much from these hands.
The same is can be said for Yeebo, it takes both hands to clap for value to appear. One is having the cards and the second is someone playing against you.
Therefore, Yeebo needs to sell the stake for any immediate value to boom, however they can also play the long game and just reap improving profits from it as well. Which makes things easier compared to poker.
Folks will be glad to hear that in 2022, Yeebo has divested 10.4 million shares or 1.3% as of Sept 2022. They further divested another 4.1 million shares subsequently in the same year.
They now hold 246.1 million left. As you can see in these 2 disposals, gains have been made as these associates are trading at market value above the book value.
The implied stake is worth 7.03 billion but on its books it is 1.73 billion.
Conclusion
Yeebo is a company that has conducted many share buybacks and has paid dividends regularly with a special dividend paid after the disposal. In fact the disposal is its first ever since the acquisition of shares in Nantong Jianghai in 2000s, as such it makes me believe that it might be finally in the phrase of slow disposal and profit harvesting
Even if it does not, the improving results of Nantong Jianghai will benefit the company.
There are other things such as fundamentals of Nantong Jianghai and Suzhou Qingyue to read up and be kept abreast on as well so it is not risk free as nothing is in stocks anyway.
If poker illustration is too hard to understand, then think of it like having invested in a farm that has 25 chickens laying quality eggs that increase year on year. You can sell some of your stake in the farm away at a very good price the marketplace is offering to buy or just continue getting your profits. Being the largest shareholder of these chickens but not managing the farm, you would be kept abreast of the developments of your farm and whatever information that the marketplace will be slow to react.
As for the main business of Yeebo, they engage in LCM/LCD Modules which is something that a lot of taiwan companies can do as well. Therefore, it is not any exciting business from the outside although i believe that should they introduce their company more often to the media or public, we will be able to understand that part of business better.
Due to ongoing complications of my own finances and my view on AAG Energy as well as other hkex companies, i will refrain from commenting if i will add in the near future.
