Monday, June 30, 2008

End-June 2008 Portfolio Summary and Review

The second half of June 2008 was peppered with bits of news from the companies I own. Ezra announced the completion of their first FPSO (under 48.9% owned EOC) and the clinching of a significant charter contract worth US$400 million over 3 years. I remember Ezra first announcing the news of the FPSO back in October 2006 and the buzz surrounding the news at the time. Now, the company is poised to continue growing as it undertakes expansion into the deepwater oil and gas segment. Boustead was also relatively active in announcing news (please refer to the section below on Boustead for more information).

With respect to the economy, the flow of data continues to pour in relentlessly from Wall Street, on everything from factory output, unemployment to inflation. It’s a wonder one does not go crazy from the constant influx of information ! The most important and note-worthy piece of news is that the USA Federal Reserve has kept the Federal Funds Rate capped at 2% (which was largely anticipated) due to fears over mounting inflation. Back in sunny Singapore, inflation for May 2008 managed to stay “constant” at 7.5%, despite consensus estimates that inflation would hit close to 8%. Wow, what a relief, I am SO HAPPY that inflation is ONLY 7.5% (mind the sarcasm).

The reporting season for 1H FY 2008 will begin in late July 2008, and I am expecting results and dividend announcements for both Suntec REIT and FSL Trust. The rest of the results are expected to flow in during mid to late August 2008, and Annual Reports for Pacific Andes and Boustead should also come in by then and will be separately reviewed on this blog.

Below is the summary of my investments and related news as at June 30, 2008 (STI at 2,947.54 points).:-

1) Ezra (Vested since October 6, 2005) - Buy Price $0.645 (bonus adjusted), Market Price $2.65, Gain 311%, YTD Loss 20.2%. Ezra announced on June 24, 2008 that EOC took delivery of its first FPSO, Lewek Arunothai, and that it is on a charter contract worth US$400 million over 3 years. There is also a two-year extension option for this charter, and EOC will continue to explore the FSO and FPSO market. I forsee significant earnings accretion to Ezra Group from this contract even though Ezra only owns 48.9% of EOC. Immediately on June 25, 2008, Ezra announced that it had established a multi-currency medium term note programme (similar to Swiber’s a while back) for S$500 million in order to fund future capital expenditures and for working capital purposes. In the current low interest rate environment, it makes good sense for the company to issue debt in the form of notes/bonds to capture and lock in the low cost of financing, rather than issue equity for which they may have to pay higher dividend yield (not to mention diluting existing shareholders).

2) Boustead (Vested since September 13, 2006; averaged down November 13, 2006) - Buy Price $1.295 (average), Market Price $2.36, Gain 82.2%, YTD Loss 2.1%. Boustead had, on June 23, 2008, announced the clinching of a turnkey contract by Boustead Projects (91.7%-owned) of S$60 million to build Singapore Freeport. This is a state-of-the-art facility which will be used primarily for the safe storage, display and trade of the world’s finest collection of valuables and antiques. The project will be in two phases, with Phase 1 to be completed by end-2009 and Phase 2 by 2011. On June 25, 2008, Boustead also announced that its 40% associated company GBI Realty Pte Ltd had entered into an arms length transaction to sell a property for S$200 million. The proceeds will be used for general working capital purposes, and the Group will recognize a gain of S$26 million for FY 2009. On June 26, 2008, Boustead announced that it had obtained in-principle approval for the share split. Management will proceed to issue a circular to all shareholders and convene an extraordinary general meeting (EGM) to seek shareholders’ approval for the split.

3) Swiber (Vested since February 14, 2007) - Buy Price $1.01, Market Price $2.47, Gain 144.6%, YTD Loss 28%. There was no significant news from Swiber, but the company was doing a road show in Hong Kong recently and the analyst who went with them mentioned that the Equatorial Driller will most likely be built by a smaller yard as Keppel and Semb Marine already have their hands full. The company should be releasing more details of the ED soon.

4) Suntec REIT (Vested since December 9, 2004) - Buy Price $1.11, Market Price $1.36, Gain 22.5%, YTD Loss 20.5%. There was no news for the company for June 2008.

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 $0.48, Loss 26.7%, YTD Loss 23.8%. There was no news from the company for June 2008. I am still awaiting more details of the scrip dividend scheme to assess if it will be good to choose shares over cash.

6) China Fishery Group (Vested since November 20, 2007) - Buy Price $1.50 (average), Market Price $1.70, Gain 13.3%, YTD Gain 8.1%. There was no news from CFG except for an amendment to the senior notes issued and due 2013.

7) First Ship Lease Trust (Vested since January 14, 2008) - Buy Price (Averaged Down) $1.105, Market Price $1.22, Gain 10.4%. There are still no updates from FSL Trust as at the date of writing this post, regarding their financing of the third vessel and their plans for growing their portfolio.

Overall Portfolio

My overall portfolio has increased by 65.2% without taking into FSL Trust’s cost. If included, the gain is 50.0% from a cost of S$80.4K as at June 30, 2008. The market value of my portfolio without FSL Trust is S$96.3K, and if FSL Trust is included then the portfolio value is S$120.6K. Realized gains have increased to S$6.2K due to the dividend from Ezra to be paid on June 18, 2008.

Comparison against STI

Using my new benchmarking technique:-

The FTSE STI had declined by 15.36% since the start of 2008. My portfolio (without FSL Trust) has to date declined 17.5%. Therefore, I have under-performed the STI by 2.2 percentage points.

FSL Trust has gained 10.4% thus far from my date of purchase while the benchmark STI has fallen 8.1% (from Jan 14 – my date of purchase); I am happy to report that FSL Trust has managed to out-perform the index for FY 2008 thus far.

My next portfolio review will be on Tuesday, July 15, 2008 after market close.

8 comments:

WisdomW said...

Hello Musicwhiz,

Its always a pleasure to read your monthly portfolio analysis, and thanks for being so open about it so that other investors can learn from you.

Just wondering, how do you actually determine whether you out/under performed the STI?
Does your method require you to lock a specific "starting point" of the STI? If so, may i know when is your "starting point"?

Thank you.

musicwhiz said...

Hi wisdomw,

Someone asked me this a while back too ! I used the closing prices of all my companies as at December 31, 2007 (or whichever was the last trading day of the previous calender year), and calculate the total portfolio value. This figure is then benchmarked to my current portfolio value (as at XXX date) to derive a gain/loss %. I then use this % to compare against the fall/rise of the STI (in % terms) since the start of the year; hence I keep the comparison period similar.

You would note that I have treated FSL Trust separately. This is because it was purchased in Jan 2008 so using the closing 2007 market price would not be accurate. The idea is to see if my purchase has under or outperformed the benchmark and so the starting point fo comparison was from the date I purchased FSL (the first purchase, there were subsequently 2 more to average down).

Hope this clarifies !

Thank you for visiting too, and leaving your kind comments.

Regards,
Musicwhiz

notimetoinvestor said...

hi, just wondering. i know that we need to research before investing. But given so many stocks out there, which one do we select to research in the first place?

la papillion said...

Mw,

It must be me who asked you this question :) What happens if there are more movement in the portfolio? Say I sold some and bought some? How did you account for that? Just treat it separately until my next FY?

musicwhiz said...

Hi notimetoinvestor (interesting nick !),

Look for companies which can give consistent earnings growth amid all kinds of conditions and which have competitive advantage. They must be in an industry which have relatively high barriers to entry, and should preferably be the market leader or market mover. It's not easy to find such companies, though, which is why one must devote significant efforts to researching !

Regards,
Musicwhiz

musicwhiz said...

Hi La Papillion,

Yeah I guess. Haven't really figured out how to do it like a fund does (i.e. using NAV to measure up my portfolio using $1 as a base). Perhaps I will figure it out some day, but in the meantime I am using this method which sort of works. :P

Regards,
Musicwhiz

Brendan Lee said...

I really respect your patience in stock investment. But I'm not sure if this is the best strategy for Singapore stock.

Should we sell in the bull market and buy back again in a bear market like that?

I understand that market timing is never easy.

musicwhiz said...

Hello Brendan,

I believe that companies' inherent value will be realized if one has a long-term perspective. I think your concern is that Singapore's market is not sufficiently "mature" unlike in the USA, and this means markets can be manipulated by big players with the funds and resources. This is true to a certain extent, but does not preclude investing with a value mindset in companies which have clear growth prospects.

If I had sold during the bull, I would not be able to buy back at the valuations which I bought some of my companies. Examples at this point in time (July 12, 2008) are Boustead, Ezra, Suntec REIT and Swiber just to name a few. Of course, it's tempting to think of selling at extreme highs and buying back at the low, but this is theoretically only possible on hindsight. My wish is not to time the market but to own good companies whose business is growing.

I think my rationale may be different from other investors, whose main motive is to make profits from price movements rather than bothering to own a piece of a growing company.

My point is that I feel market timing is futile and takes up unnecessary time and resources. Of course, detractors will claim fervently that it CAN be done, but I have yet to see anyone get superbly rich through 100% timing. Time in the market still counts for me, rather than timing the market. This is why I reject the idea of 100% cash at this point in the bear market. If you own shares in a good company which is paying dividends greater than the inflation rate, why would you want to sell ? Anyhow, I do have an opportunity fund in case I see good opportunities.

Regards,
Musicwhiz