Monday, December 9, 2019

Dec 19 - Portfolio & Networth Update


No.  Counters No. of Shares Market Price (SGD) Total Value (SGD) based on market price Allocation %
1. Straco        100,000        0.675         67,500.00
66.00%
2. Ho Bee Land                300         2.38              714.00
1.00%
3. Warchest            34,000.00
33.00%
Total       102,214.00
100.00%




To think that we have finally reached the end of the year is such incredible moment, given how fast time flies in a moment that we've never think of.

This month, I've only managed to add Straco into the portfolio which I blogged earlier last week here. I have not decided if I will hold this company for mid to longer term since this will very much depends on their longer term development but I am optimistic that the current valuation of the company is attractive enough for a justified entry.

In addition, we will also be looking forward to the Time Capsule as well as the Chao Yuan Ge redevelopment in FY2020 so we are likely to be looking at a stronger Operating Cashflow amidst lower Free Cash Flow due to higher Capex for next year.

The company has been aggressive enough for share buybacks in the past recent days/weeks in the range of 67 to 67.5 cents.

From a personal portfolio view, current cash level is at around 33%, which I am keeping it dry for any further compelling opportunities.

I am taking it quite comfortably, chilling a little bit whilst there are no real bargains in the market.

I am also casting a wider view at the market and industry outside my circle of competence, some of these analysis I will put out in my blog when the articles are ready. Some of these companies are tech and Saas companies which I have never glanced at them in the past but do so much more often these days due to the nature of my work.

From a rental perspective, I've managed to secure a tenant at a pretty decent yield for the next 6 months so we're likely to delay our plans to move into our new place until the 2H of 2020. Again, we are likely to build this move up slowly until we really have to move in before the primary one commencement.

I'm heading for a holiday break in the week leading to Christmas so I'm likely to wrap things up sometime next week to see how my 2019 goes.


Thanks for reading.


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Monday, December 2, 2019

Recent Action - Straco Corp

I've been very busy and packed in the past recent weeks running on many fronts so I thought I'll just take this chance to quickly write an update on the recent position I took with Straco which I bought at 67.5 cents.

If you'd like to understand the past performance of this company you can refer to this great article from LJY which highlights a lot more details (Link Here)

Straco Corp has reported a rather poor Q3 earlier in November and adding further to the news that the Singapore Flyers broke down once again, the share price has plummeted over the past couple of weeks.

In my opinion, the Singapore Flyer breakdown is more an opportunity for investors than concern in the short term because we know it's likely to operate back in a couple of weeks time (hopefully!) after they have done all the scheduling check. In the long term however, it remains to be seen how many occurrence of breakdown it will continue to happen. Breakdown means suspending operations, which will then put a dent over their topline numbers as the lower number of visitors means it will be a double whammy on the extension podium which will affect the footfall visitors for the restaurants and other attractions nearby.

The Q3 numbers is traditionally the strongest number for Straco and it shows a bigger concern on the overall picture.

The most notable decline is in the number of visitors to the two aquariums (SOA and UWX) which dropped to 1.845m visitors for the quarter, which was a drop of over 8.2% year on year. Q3 is traditionally the peak season for China holidays which means this drop is a strong indication that the China growth is slowing down.

In fact, this slowdown has been felt in the past two quarters where in Q2 visitors number has dropped to 1.085m (from 1.225m the previous Q2 YoY) and Q1 visitors number has dropped to 0.986m (from 1.065m the previous Q1 YoY).

For a company like Straco which positions themselves as a growth company, the decline in the visitors number means a decline in the topline which in turn will hurt the overall bottomline.

From a cashflow point of view, the company is still generating a strong cashflow of between $45m to $60m a year, out of which $30m will go to dividends payout (at 3.5 cents) and another $12m will go to repayment of the debts ($3m repayment every quarter). The company would then retain somewhere between $3m to $10m for their retained earnings.

The balance sheet has also looked stronger as the company continues to hoard more cash and a lower debt with the repayment of the debts every quarter. The latest standing is a net cash of $180m ($209m less 29m), which translates to about 21 cents/share.

If the company continues to pare down the debts at $3m per quarter, it will take them around 10 quarters to be completely debt free.



Asset Lease Concession

The asset lease concession is always something to watch out for in the longer term, though in the short term the declining visitors footfall is a much bigger concern.

The flyer, for example, is a 30 years asset on lease concession that commences on July 2005. The initial cost to build the flyer is $240m and Straco bought it in 2014 for $140m with 17 years lease left (90% stake). Today, they are generating a revenue of about $40m and an operating profit of about $10m a year (without breakdown of course!). 

The asset is capitalized throughout the useful life of the asset (35 years and 7 months) based on about $8m a year. Adding this back and deducting capex assuming at $1.5m (based on AR) every year, the company would generate a cashflow of about $16.5m a year from this asset. If we multiple back the $16.5m throughout the 17 years, this would sum up to about $280m. This would translate to about 8.2% IRR ($280m - $140m) / 17 years.

This though, only takes up 1/3 of the overall assets they own (~$40m/$120m revenue) The other 2/3 makes up of mainly SOA and UWX, both of which are flagship assets of the company. 

For SOA, the agreement for the incumbent land use right is a period of 40 years concession from 1997 to 2037. That means we essentially have about 18 years left as of today. 

For UWX, the agreement for the incumbent is also a period of 40 years concession from 1994 to 2034, translating to about 15 years left. The company generates a sales of about $82m with a handsome gross profit margin of about 70% at $58m operating profit. 

Conclusions

I reckon the company will continue to pay out 3.5 cents dividends in this coming FY despite the fall in both topline and bottomline just because I think they have too much cash to hoard and they have not found the right opportunity to acquire just yet, though it is something they've mentioned in the AR that it is something they've continuously looked at throughout the year.

The company has also started making buybacks in the past recent weeks/months so we're likely seeing some support in terms of the buybacks.

For a short term play, the re-commencement of the Flyer will bring good news which is likely to drive the share price in the short term, though the long term there are still some questionable numbers in play yet.

Thanks for reading.


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Wednesday, November 27, 2019

Why digiPortfolio Appeals To Me

In an eagerly anticipated news, DBS announced the launch of the digiPortfolio segment live on its investing platform. The main objective is to enable everyday Singaporeans like you and me to invest and grow our money.

The theme - "Invest. Sleep. Repeat" is exactly why the digiPortfolio is appealing to the masses. It is especially suitable for those who want to invest and grow their money yet have limited time and commitment to DIY their own portfolio.

With digiPortfolio's dedicated team taking care of your investment, investors can now have their cake and eat it too. Peace of mind along with potentially steady compounded growth in their investments.



Why digiPortfolio Appeals To Me?

The digiPortfolio currently provides two portfolio offerings to investors - Asia Portfolio and Global Portfolio.

If you have been following my blog, you would know that I have been channelling my resources within Asia. This is largely due to the familiarity with the local accounting and regulatory practices.

While it gives me easier access to do scuttle-butting on companies, the flip side is that my returns over the years have been heavily pegged to the Asia market's performances. I have been unable to tap on the good performance of other overseas markets, especially the US market.

With digiPortfolio, I can finally start to diversify into the global market knowing there are dedicated portfolio managers within the team that can help me manage my investments.

Step 1: Choose the Asia Portfolio or Global Portfolio

As a start, you have a choice between the Asia Portfolio or the Global Portfolio and both are suitable for beginners since one only requires $1,000 (do note the respective SGD and USD currencies) to invest.






Step 2: Choose Your Risk Appetite 

Once you have selected your focus areas on your portfolio, you will need to indicate the preferred risk level that you are comfortable with.

There are 3 risk levels for each portfolio selection, which is classified under "Slow n Steady", "Comfy Cruisin" and "Fast n Furious".

The "Slow n Steady" selection is the most risk adverse where the portfolio consists mostly of fixed income (80%), Cash (5%) and Equity (15%).

The "Fast n Furious" selection is the least risk adverse where the portfolio consists of Equity (75%), Fixed Income (20%) and Cash (5%).

For me, I chose the "Fast n Furious" risk level because of its heavy weightage on the equity selection which I think will continue to do well in the next few years.







There are factsheets that you can also zoom down to each portfolio selection if you want to read on each the ETF holdings.




Step 3: Complete the Customer Account Review (CAR)

As mandated for regulatory and compliance purpose by MAS, every investor is required to complete the Customer Account Review (CAR) prior to putting his or her money into the Global Portfolio investment.

This is to enable the bank to assess if an investor has the relevant knowledge required to understand the risks that investment products possess.

No pre-qualification is necessary for investing in the Asia Portfolio.



Step 4: Transfer Funds From Multi-Currency to digiPortfolio Account

All you need is now a transfer from your multi-currency to the digiPortfolio account.




Step 5: Sit Back, Relax and Enjoy Watching Your Moneytree Grows

And ta da.... You are all set!

Now all you need to do is to relax, sit back and watch how your digiPortfolio performs.

Remember! Investing is for the longer term, so it is likely that you will have to be patient to reap your rewards (My portfolio is in green as I wrote this)


Disclaimer: This is a sponsored post from DBS but all opinions stated are purely mine. Disclosures of risks are subjective so please evaluate on your own. 


Thanks for reading.


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Monday, November 25, 2019

New Oriental Education - This Company Grows at 138% In The Past 12 Months

This is a company that has returned 138% in the last 12 months for investors as the company is looking to grow even more in the next few years which spells opportunities if you are looking into a growth play.

The company last closed at it's historical high at $122.72 and it is continuing to grow at a very fast double digit topline growth in the next few years.


Company Overview


Founded in 1993, New Oriental Education & Tech Group (NYSE: EDU) is the largest provider of private educational services in China. The company has an extensive network of over 1,261 learning centres that span across 56 different cities. New Oriental was the first successful Chinese educational institution to be listed in the New York Stock Exchange through their public offering back in 2016 and it has a market capitalization of over USD14 billion today.




Growing Network: 1,261 and Counting

The company has a substantial presence in Beijing, Shanghai and Wuhan, where combined they have a total presence of 245 learning centres, or close to 20% of their entire portfolio.


Beijing: Beijing has one of the fastest growing population in China, as the number of people living in the city grew from 13.5m in 2000 to 20.1m in 2019 (source: worldpopulationreview). In terms of GDP per capita, Beijing has also outperformed the rest of the cities by growing at more than 8% per annum, despite the ongoing Trade Wars threatening the slowdown of their growing nation. 

Shanghai: Shanghai currently ranks first in terms of population density as the modern revolutionized city appeals to International expats and locals to come to Shanghai for both work and live. It currently houses a population of about 26m but has the infrastructure capacity to double its living population in the city to 50m by 2050 (source: shine.cn) through their urbanization transformation in the region and strong economic growth. 

Wuhan: Wuhan is a surprise inclusion because of its strong economic growth and infrastructure transformation over the years, the city has recorded one of the highest rate of historic population growth over the years (source: wiki-wuhan). To date, their population stands at about 10.6m, which is about half the population size of Beijing.


Financial Performance

Revenue has increased by 26.5% year on year from $2.4m in FY2018 to $3.1m in FY2019 and has grown at a CAGR of 19.8% over 5 years. 

This is mainly due to both the organic aspect of growth (152 new facilities and learning centres added in FY2019) as well as inorganic growth through the successful implementation of the optimization strategy coming in from the K-12 After-School Tutoring division and U-Can Middle School, which grow by 28.5% and 27.2% respectively. 

Gross Profit margins continued to remain resilient at 55.5% in FY2019, despite coming in slightly lower than the 5-year average of 57.3%. 

As the company seek to embark on its expansion plan, the company has correspondingly incurred higher costs for marketing and other SG&A related costs such as salary and rent as there are higher headcounts to account for. 

Operating and Net margins have dipped slightly to 9.7% and 7.7% in FY2019, which translates to a decrease of about 9.2% and 36% from the year before. The drop in net margins in FY2019 is mainly due to the revaluation loss of their long-term investments.



Cash-Flow Management 

Cash Flow from Operations was approximately at $805m in FY2019, which is slightly higher due to better working capital and higher depreciation, as compared to $781m in FY2018. 

Capital Expenditures came in at approximately $251m in FY2019 as the company continues its aggressive expansion plan by adding 152 new facilities and learning centres across the different cities. 

The company’s business model enables them to continue generating copious amount of Free Cash Flow, which stands at $553m in FY2019. This translates to an FCF yield of about 3.6% in FY2019, based on the last closing price at $96.58 (based on 31st May fiscal year). 

Balance Sheet Strength 

Due to the copious amount of Free Cash Flow that the company generates, the company is able to retain much of the retained earnings even after paying out dividends ($1.80/share) to shareholders. 

As at 31st May 2019 (FY2019), the company has Cash Equivalent amounting to $1.41b and another $1.78 in Liquid Assets in their book. Net Cash stands at $3.1b, which is an increase of 14% over the previous year. 

Net Cash & Cash Equivalent has grown at a CAGR of 20.86% over 5 years period. 





Valuation


From a valuation perspective, the company is not cheap but that's because the company is still growing at mid double digit topline growth, which signals there is plenty of rooms to grow both organically and inorganically.

From an earnings perspective, an EPS of 2 cents/share translates into an earnings multiple of 61x with the saturation growth continues to rampant through their ambition target.

FCF yield currently stands at 4% with growth capex incorporated into it as the company has very little maintenance capex to cater to.

The company also has plenty of room to maneuver their capacity utilization rate so optimization of capacity will be in play for any organic growth the company is utilizing. 

With the amount of cash they continue to generate, it is likely the management can embark on both their expansion plan and returning more cash to shareholders.

Thanks for reading.


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Wednesday, November 20, 2019

Geo Energy - Continuation of Perceived Weakness in The Near Future

Geo Energy is one of the top leading coal producers which has presence all across Indonesia.

What the company does is actively to seek new acquisitions to grow and increase the number of existing coal reserves they have while controlling the production of their coals during periods where coal prices are weak.



Recent M&A is very accretive

Their recent announcement for the acquisitions of PT Titan Global Energy is a testament that they are expanding the geographical lead presence in different parts of Indonesia by looking for cheap M&A where they can both did accretive acquisitions and at the same time average down their coal reserve. The current M&A set up is that accretive such that their average costs for the newly takeover coal reserves are down to only USD0.57 / tonne, which is a significant discount to the latest battered ASP of USD33 / tonnes.

Having said that, there seems to be minor delays in completing the acquisition due to some regulatory which they have to sort out.

Financial Performance FY2019


Their results this year has not been as stellar as the previous year.

In fact, it is struggling so much that they are making losses after losses and in the 3rd Quarter, net loss ballooned to over $11m in one quarter alone.

This was mainly due to weak coal prices based on the ICI index which dipped to US$33/tonnes in the 3rd quarter, which is down from US$37.5/tonnes in Q2 and US$41.5 in Q3FY2018.

The only saving grace was that their production costs tend to typically falls around the US$30/tonnes mark, so from a cash profit between ASP and Production costs, they are at least still profitable and are churning out operating profits from the business.

Still, with fixed and non-operating costs to be factored in, the company will have to sell at a much higher margins in order to cover their other costs.

Offtake Arrangement


One particular thing I like about Geo's business model is that they tend to do an offtake arrangement with trading companies or their JVs before they mined their coal supply.

It is an arrangement where contracts and agreements are signed, prepayments are received, then they will start arrangement on how much mining supply is required. The mining activities is sub-conded to PT BUMA.

Their recent successful offtake arrangement deals with Macquarie on their TBR means they have a prepayments and more financing facility available on hands to tap on, in exchange for an equity plus warrant swap.

Company declared good dividends during good times


Management declared an interim of 1 cents and a final of 0.4 cents in FY2019, which translates to a total of 1.4 cents or close to $20m from a cashflow point of view.

This was during the good times when coal prices are doing well and margins are higher.

With this year the company moving into losses, the interim was suspended and you begin to wonder if the dividends last year was a one-off incident.

While the company has a cash balance in their book of around $184m, and another $20m or so in their other liquid restricted assets, they do have close to $290m in their liabilities due to the MTN issued, which they have to pay $6m per quarter in coupon interests. Annualizing these interests costs, the company would have to pay $24m in a year, which translates into 800,000 tonnes of coal that they have to sell just to break-even (if we assume the production costs of US$30 / tonnes.

The question is then directed into how accretives are those acquisitions that they keep doing by using MTN to finance.

Can we predict the financial performance of Geo?


Coal, being a commodity, is impacted by many variables which is probably difficult to predict given it's a worldwide used commodity.

The recent regulations surrounding China's regulatory control over imports of low grade coals have impacted them quite a bit as their coals are typically thermal 4200 low calorific which is meant for electricity usage.

The higher grades of the coking coal, which is typically used to make steel and nickel, are much more expensive to produce, and are more commonly in demand for electricity vehicles or to make infrastructure.

The recent heavy rainfall in Kalimantan is also affecting the production supply of coals which makes things more volatile in nature.

Geo's performance is very heavily correlated to the coal price index, and it's a lagging indicator that we can see every time coal prices move in one direction, Geo's performance (and share price) would follow suit the next quarter.

With this in mind, it is probably not the right time to buy the company yet as the management has guided for the next 2 quarters to remain subdued for coal prices.

Thanks for reading.


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Wednesday, November 6, 2019

Nov 19 - Portfolio & Networth Update


No.
 Counters
No. of Shares
Market Price (SGD)
Total Value (SGD) based on market price
Allocation %
1.
Ho Bee Land
       300
2.33
             700.00
1.00%
2.
Warchest
  

      100,000.00
99.00%
Total



      100,700.00
100%

We are 2 months away from closing the year so I thought I'll update this early.

The portfolio has never looked "cleaner" than what it is today but I guess given so many involvement I am in the second half of the year with all the things going on and the recent few bad trades (see below), I am tempted to regroup going into 2020.



Shorts Position Gone Wrong


It has been a very challenging month in terms of the market because the sentiments on the ground have been very bullish due to the impending signing of the Phase 1 deal which drives the market higher everyday.

One of the position was Starhub, which I managed to cut loss at $1.38, which translates into 3 cents loss / share. With 120,000 shares position, this translates to about $3.6k loss in absolute return, which I think is okay given that Starhub does indeed reports a much better Q3 results than most people expected. In terms of FCF, they have also increased to $100m from the previous quarter of $75m due to the stabilizing topline so if this continues, I just suspect they might be able to continue paying their 9 cents / share dividends. 

Having said that, the impending high capex they have to fork out for the 4G spectrum and 5G bids have not been addressed, so that is still a question mark which investors have to concern moving forward.

The other short position I had was DBS, which I managed to also cut loss this morning at $26.31 (after what I think as they broke through the $26.30 resistance), which translates into $1.27 loss / share. With 12,000 shares position, this translates to about $15.2k loss in absolute return.

This feels a bit more stink not because of the loss that I incurred but because I think the thesis is still right (looking at both UOB and OCBC results) but the market sentiments have been growing more positively due to bullish market sentiments, so it's a matter of entering at a wrong timing. 

I believe banks will continue to have a tough earnings guidance (OCBC and UOB have guided for lower NIMs and low loan growth) in 2020, and could be a double whammy should the market turns.

I think this is a good lesson for me (and for everyone else) given how the market can continue to remain irrational more than you can remain solvent, or as the saying goes. 

Given the amount of warchest I have on hand, I could have hold onto it further but I decide to regroup after what has been a very challenging second half of the year for me in terms of the stock returns. I also wanted to maintain a strict discipline in cutting things that have not gone the right way.

Clearing Other Positions

I also cleared out my position for HK Land and divested it at $5.60 which is just about the break-even when I had it earlier this year. While I still continue to believe in the company, I wanted more warchest at this point in time given the much reduce networth I have in my portfolio.

I have also divested my small position in Far East Hospitality Trust at 72.5 cents which I don't have a big stake in the first place.

Other Trades During The Month

The one positive outcome came from a contra trade made this month when Keppel announcement was announced and I managed to contra for SMM for a few thousands profit in return.

This was more of itchy hands trade than anything but I wouldn't want to hold it for longer, though I still feel SCI provides a compelling case nearer to the Keppel decision.

Do I Fly With Eagle?

I was tempted to board the boat with a few of my other peers in the chatgroup for Eagle but was fortunate not to board as Eagle continued to sink over the next couple of days.

While the yield looks tempting for a Reit, even in the face of a declining hotel business fundamentals and a write-off of their QM, I am still skeptical of whether the sponsor would raise any funds from divesting more assets which may become dilutive to shareholders.

I think the faster they clear this up with investors, the clearer the picture is which will be good for both parties.

Paid-Up Our Second Home


This month, we also managed to pay up our home which I blogged about it earlier here , which costs $1.41m in value and also the 3% stamp duty, which translates into $42k hence the big reduction in our networth report.

At least with this one settled and dusted, there is finally something to look forward to in 2020.

Final Thoughts


This has been a rough month and in particular the second half of this year has been pretty bad for me, especially since the good performance of Vicom I had earlier in the first half of the year.

Chances are I'll likely sit back and hold off any sort of activities until the end of the year and then try to come back stronger with these lessons learned so that I (all of us) could have a better results in 2020.

Meanwhile, please continue to stay vigilant in this market and do your due diligence :)

Thanks for reading.

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