Thursday, January 31, 2008

End-January 2008 Portfolio Summary and Review

Volatility seems to be here to stay, and the Index of late has seen very violent and unpredictable swings which have caught many speculators off guard. For those who choose this period of time to do proper research and invest with a margin of safety, then you would have peace of mind as you will not be emotionally affected by the volatility and temporary insanity of Mr. Market. I was not too worried about the companies I owned, as they did not appear to report any news which affected their business prospects, though of course I am wary and keeping an eye on interest rates which may have a mid-term effect on loans and borrowings.

After some digestion of facts from sharing on Wallstraits.com forums, I have a much deeper understanding of shipping trusts and the structure of FSL Trust in particular. I must attribute nearly 90% of my enhanced understanding to a forumer known as d.o.g. (Disciple of Graham) who has painstakenly answered my queries on the growth and long-term prospects of FSL Trust. His argument is very logical, objective and analytical and after evaluating the facts which he presented, it would seem that FSL Trust has “more than meets the eye” (to quote a phrase from the old cartoon “Transformers”). I will be digesting his arguments as well as other forumers’ comments before deciding on how to proceed with this investment. Evidently, I admit I made a mistake in not researching deeply enough into the structure of FSL Trust and the underlying growth story; but instead merely got “blinded” by the high yield. Value investing involves learning as I go along, so I will take this as a good lesson learnt on how to understand my investments better.

Below is the summary of my investments and related news as at January 31, 2008 (STI at 2,981.75 points). I have included Year-To-Date (YTD) gain or loss as a way to benchmark each company’s share price performance instead of a total portfolio basis:-

1) Ezra (Vested since October 6, 2005) - Buy Price $0.645 (bonus adjusted), Market Price $2.30, Gain 257%, YTD Loss 43.5%. Ezra announced, on January 24, 2008, that EOC had successfully wound up its first major Offshore construction and pipelay project using Lewek Champion’s DP2 positioning technology. This project was completed on schedule and within budget, and hopefully paves the way for EOC to clinch more contracts as more vessels come on board.

2) Boustead (Vested since September 13, 2006; averaged down November 13, 2006) - Buy Price $1.295 (average), Market Price $2.27, Gain 75.3%, YTD Loss 7.7%. There was a broker report on Boustead which mentioned that some of the project revenues would be delayed in recognition to FY 2009 instead of FY 2008. This merely defers the revenue recognition as Management has reiterated that project delays are part of business risk. Boustead had, on January 21, 2008, announced that Singapore Airport Logistics Centre 2 Pte Ltd (a 50:50 JV company with Boustead Mec Pte Ltd), had disposed of a warehousing facility at 80 Alps Avenue for a consideration of S$46 million. This will substantially add to their cash hoard and the Group will recognize a gain of S$11.93 million from this disposal. For 1H FY 2008, net profit attributable to shareholders stood at S$25.9 million; thus this will boost net profit to about S$37.83 million. For FY 2007, net profit attributable to shareholders was S$35.2 million, which means that Boustead should be on track for a sixth consecutive year of record revenues and profits. I will be expecting a net profit improvement of about 10-20% to about S$42.2 million.

3) Swiber (Vested since February 14, 2007) - Buy Price $1.01, Market Price $2.31, Gain 128.7%, YTD Loss 36.7%. According to Energy Current website, Swiber Conquest has, on January 10, 2008, headed for Poleng to join the crane barge Da Li Hao for its first mission in the Madura Sea off Indonesia. Swiber Conquest will be deployed to lay three pipelines totaling 94 kilometres, while Da Li Hao will commence the installation of an offshore platform in the vicinity. Other than this, there was no news from Swiber for the half-month ended January 31, 2008.

4) Suntec REIT (Vested since December 9, 2004) - Buy Price $1.11, Market Price $1.49, Gain 34.2%, YTD Loss 11.3%. Suntec REIT announced result on January 30, 2008 and DPU increased 16.5% year-on-year to 2.279 cents per share for the quarter ended December 31, 2007 (1Q FY 2008). Based on my buy price of S$1.11 and by annualizing the dividend to 9.116 Singapore cents, my yield for Suntec REIT will be 8.2%.

5) Pacific Andes (Vested since March 29, 2006; Rights Issue July 11, 2007 at S$0.52 per share; averaged down August 17, 2007) - Buy Price $0.655 (rights-adjusted), Market Price $0.45, Loss 31.3%, YTD Loss 27.4%. There was no news from the company during the half-month ended January 31, 2008.

6) China Fishery Group (Vested since November 20, 2007) - Buy Price $1.50 (average), Market Price $1.72, Gain 14.7%, YTD Loss 7.0%. There was no news from the company during the half-month ended January 31, 2008.

7) First Ship Lease Trust (Vested since January 14, 2008) - Buy Price (Averaged Down) $1.105, Market Price $1.02, Loss 7.7%. I have reviewed FSL Trust’s results in another post, and this evening the company announced that they had secured an additional US$200 million loan facility from a few banks. This is a four-year term loan at 120 basis points (i.e. 1.2%) above the US$ 3-Month LIBOR. Hopefully, with this new facility, they will be able to make more yield-accretive acquisitions to enhance DPU.

Overall Portfolio

My overall portfolio has increased by 56.4% without taking into FSL Trust’s cost. If included, the gain is 38.7% from a new cost of S$80.4K as at January 31, 2008. The market value of my portfolio without FSL Trust is S$91.1K, and if FSL Trust is included then the portfolio value is S$111.5K. Realized gains remain are about S$4.9K, an increase of about S$300+ due to the dividend from FSL Trust.

Comparison against STI

The STI had declined by 14.37% since the start of 2008. Without FSL Trust, my portfolio has declined 21.6% thus under-performing the FTSE STI once again. This can be attributed to the steep price drops for Ezra and Swiber as compared to the beginning of the year. Since the businesses are inherently stable, I see no cause for worry.As a result, to date in 2008, my portfolio has under-performed the new benchmark STI by 7.23 percentage points.

My next portfolio review will be on Friday, February 15, 2008 after market close.

8 comments:

HH said...

Hi MW,

Always have to thank you for updating your portfolio -- never fail to prompt me to do mine. :)

I am done! not as bad as I thought. My 3rd largest holding dropped from 12 to 8, I thought my portfolio must be horrendous but commodities save the day, thankfully. still it is a - 6.45%

Mentor's NAV was up because of his Yen (which he liquidated), commodities and Bonds.

With more money, one can do portfolio rebalancing. How nice .

Blessings

Anonymous said...

Hi Musicwhiz,

Your stock portfolio is very similar to mine, or at least all your stocks are under my radar screen. One particular one is FSL, which is in my top priority buy list soon.

It is interesting to see your comments on "more than meets the eye" on FSL, I am wondering, you care to share?

tks!

Anonymous said...

I observed that your realised gain is relatively small, guess you're not long in the market and also your allocation focus more on growth. In time of volatility, one can take solace if your gain is already sustantial and can ride the wave more confidently. Gong Xi Fa Cai.

musicwhiz said...

Hello HH,

Good to learn from you and your mentor. Please keep your ideas and comments coming ! It will indeed be an inspiration if I can achieve the kind of wealth which your mentor has generated.

Regards,
Musicwhiz

musicwhiz said...

Hi Anonymous,

I have been following the Wallstraits thread on FSL Trust (incidentally, it was started by me) and d.o.g. has been explaining a lot on the structure and possible future of FSL Trust. Perhaps you can check it out there ? Presently, I am still compiling information and analyzing FSL Trust from various aspects, so I will need time to do a detailed posting on the trust.

Thanks,
Musicwhiz

musicwhiz said...

Hi Anonymous,

Yes, true you have a point. Sadly, my realized gains have not been high due to the offsetting effect of previous losses before I started value investing. These mistakes are detailed under my section on "Investment Mistakes". However, I still count my lucky stars that I have realized gains as a lot of my friends are sitting on realized (and also unrealized) losses !

Thus, it is a process of continuous improvement, and we are all on the perpetual learning journey to better ourselves.

Regards,
Musicwhiz

Anonymous said...

Hi Musicwhiz,

I've been on and off sort of following your bi-monthly update of your stock portfolio. Actually, before the market went on a downward spiral, your portfolio can be said to be one can only be dreamt of. Correct me if I am wrong, I think your gain then was over 100%?

I think an investor should focus more on the value rather than on the price - within a short term, price can go from at value to very overvalue, or from cheap to at value, or from overvalue to at value or under. On further examination, most of it I would think (my personal valuation though) is that a number of it went from at value (the price that was paid) to over value. Again, the only way to gain if the intention is to hold is to know the difference between price and value. Ultimately, whatever price we pay for a business, we are only paying for the future cash flows for whatever period the business will be in existence from now to eternity, that must be discounted at an appropriate interest rate.

On hindsight, it is very easy for me to say so and frankly, it takes experience and lots of observation on what others are doing and in identifying the stumbling blocks and move it aside.

That is the beauty of investing for it is a long walk where every day we can become a little more knowledgeable.

Regards
BC

musicwhiz said...

Hello BC,

Thanks for visiting and leaving your comments.

You are right in a way to say that at one stage, my entire portfolio was up over 100%. That was actually during the days of the bull run when a lot of companies were over-valued. I was actually not expecting my portfolio to stay at above 100% returns for long (not in the near-term at least) as I knew it was over-valued. What I preferred was for the companies to grow over time and give me steady returns. It would have been interesting to note that Graham would have sold if he felt a company was over-valued; but my view is that growth will eventually catch up with price, thus I was willing to wait for the company's growth to be realized. That said, I believe there is latent potential which is over and above the financial numbers (i.e. intangible factors).

Another point to note is that my returns have been "diluted" as a result of adding a yield counter (FSL Trust) to my portfolio. Removing this from the equation, my portfolio is actually up about 53-55%, which I deem decent.

Your description of valuation is accurate, and value is what we get while price is what we pay for. A better price would mean a lower price, which increases the chances of a better return as well.

Haha, I think we are all learning on how to tackle the "stumbling blocks" you mention. Hopefully they are one-foot hurdles and not 7-foot ones which I cannot hope to jump across !

Yep, everyday is a learning experience and I am continually surprised that I can add value to myself by doing reading up here and there to enrich and enhance my knowledge.

Happy CNY !

Regards,
Musicwhiz