I am pretty sure that I am going to receive quite a bit of backlash after this post following some unsightly comments from the hardwarezone forum for my decision to divest AHT two weeks ago. Regardless, I will try to be as transparent as possible and hope readers do their own diligence before deciding to invest their hard earned money. This is one of those evidence that if you don’t do your own diligence and simply follow other bloggers purchase, the situation may not turn out to be great.
Today, I made the decision to divest all my 5 lots of OUE Ltd at a price of $2.22. Given that I had purchased them last September at a price of $2.16, this represents a minor gain of $0.06/lot, which translates into a total gain of $300 in absolute amount. I suspect the reason for the increase is due to the latest Keppel Land announcement which Keppel Corp has offered to purchase at a premium. This boosted the whole property related counters which are currently traded at a discount. Having said that, OUE isn’t any of your Keppel Land or Capitalmall Asia and I seriously doubt the big boss up there is willing to privatize this asset generating machine.
I have blogged a few times last year after my purchase on OUE and you can view them here below for those who are interested:
Rationale for divesting
My thesis for the strength of this company is still the same as before. I think the company is currently trading at an undemanding book valuation of around 0.53, which is almost half what their liquidation value is right now. The earnings though are a little weak so this Iis very much more an asset play than anything else.
However, there are a couple of things which makes me think deeper:
1.) Confirmation of divestment of Crowne Plaza Changi Airport & Extension
When I purchased the company back then, I was playing a little guessing game about the potential divestment of the abovementioned assets. When news about the confirmation was announced, the market doesn’t seem to take into that positively. This is in conjunction with the previous divestment when they injected their two Reits properties arm OUE Hospitality and OUE Commercial Trust and the share price slumped down heavily. This is just something I don’t really understand. Is there something behind the curtain that retail investors does not really know?
2.) Guaranteed Income Support
The above reason could perhaps be attributed to this income support cause. Given that the management chose to aggressively inject their properties into the Reits arm without any stabilization, they are able to recycle capital quickly but chose to provide guarantee income support to these Reits as a result. As an investor, I am not sure if that is the best option to do because some of these capitals are not being recycled to obtain a higher required rate of return.
3.) Aggressive Venturing
If you read about the background of the Riady family, they are almost into all the businesses you can think of. Properties, retail, hospitality, food and beverages, logistics, recreation are all part of their diversified business. This is not necessarily a bad thing per se, but you can see how the risk has increased because of this. Imagine if there were recession and their capital is stuck in any of these businesses. Further, we look at the Return on Equity over the past few years and they do not really impress.
4.) No Share Buyback
I remain baffled why the company did not step up to stabilize things when the share price is weak by doing things such as share buyback to give investors a vote of confidence. Instead, what they have done is to use their capital to some mutual funds which yield at about 3% after inflation. I’m not sure if the management see that is more value or is the undemanding valuation of their current share price is more value. The action doesn’t seem to justify some of the reasoning in my head.
It’s always easy to put the blame on others when things doesn’t go in your favor but difficult to concede that it’s your own mistake through our own personal reflection. Again, I wanted to highlight the risk of following a blogger’s pick on stocks when you do not do your own due diligence.
Thankfully, this is a situation where I managed to get out unscathed because of the optimistic nature of the property related market today due to Keppel Land privatization.
As mentioned above, I feel that this a case where I may have overlooked some of the key important items and the lack of having further due diligence in knowing more about the management style and history. I have taken a step up by recognizing my own mistake without doing enough when I purchased the company.
This does not mean that the fundamentals of the company is bad. But some of the things and actions at the moment left a few question marks in my head which I do not really understand and because of this I do not feel very comfortable investing in something I am not entirely sure of. This may seem like a quick trade in and out but I rather be at a situation out right now. As it is looking right now, I may already be regretting my action.
I may be vested back in this company some time in the future, regardless if the share price is higher than now, once I have understood the whole situation much better. But until then, I rather focus in companies I know much better.
What about you? Anyone been in this situation before?