Friday, August 15, 2008

Mid-August 2008 Portfolio Summary and Review

The first half of August 2008 was quiet, unless you take into account the rumblings of the general public who literally saw the value of shares on the bourse fall to new 52-week lows. In terms of corporate actions and announcements, there was little activity. While I do maintain that “no news is good news”, sometimes having some updates on matters pending is useful for listed companies as a means of communicating with shareholders.

Much of what is happening to the USA now is fairly well-known and widely reported in the news, so I shall not elaborate on the details. Suffice to say that economic activity is slowing and countries such as Australia and United Kingdom may be looking at a possible recession. Singapore itself has revised FY 2008 growth figures to 4-5% instead of the previous 4-6%, as there was a contraction in 2Q 2008 as compared to 1Q 2008. If 3Q 2008 reports a contraction, then Singapore will be in a “technical recession” (don’t ask me about this term, it was coined by economists) !

Meanwhile, the Olympic Games are on in Beijing now and the China stock market has reacted by crashing even further as people are now worried about a post-Olympic slump. Interestingly, S-Shares listed on SGX have seen valuations getting more and more attractive as investors become overly pessimistic, contributing to the irrational panic and selldown. There are now many bargains in the local bourse but of course one needs to assess the impact of rising inflation on a company before one decides to purchase.

Boustead released their first quarterly results (1Q 2009) on August 12, 2008, while Swiber released 1H 2008 results on August 13, 2008. Pacific Andes and China Fishery released their 1Q 2009 and 1H 2008 results respectively on August 14, 2008. Thus, the reporting season is over for my companies for now, with the next being Ezra’s FY 2008 results due in mid-October 2008.

Below is the summary of my investments and related news as at August 15, 2008 (STI at 2,797.50 points).:-

1) Ezra (Vested since October 6, 2005) - Buy Price $0.645 (bonus adjusted), Market Price $2.00, Gain 210%, YTD Loss 39.8%. Besides a brief announcement that the company was issuing S$50 million worth of bonds (at a coupon rate of 5.285% per annum due 2011), there was no other news for Ezra for the half-month ended August 15, 2008.

2) Boustead (Vested since September 13, 2006; averaged down November 13, 2006) - Buy Price $1.295 (average), Market Price $2.28, Gain 76.1%, YTD Loss 5.4%. Boustead released their first quarterly results (1Q 2009) on August 12, 2008. Revenues fell 11.3% while net profit due to shareholders dipped 38.6%. As mentioned in their FY 2008 Annual Report, their quarterly results are not expected to fully reflect the business of the company as many of their contracts are project-based, hence there may be deferred or delayed revenue recognition. Anyhow, if the sale of property in the UK for 1Q 2008 was excluded, then net profit attributable to shareholders would have increased 96.1% from S$2.87 million to the current S$5.63 million. Note that as many of Boustead’s projects are still in their initial phases, and the fact that the company itself has provided sufficient detailed explanations for each of their divisions, I will NOT be doing a 1Q 2009 results analysis. I will reserve this for their 1H 2009 results to be released some time in November 2008. Boustead went ex-dividend and I have added the dividend of 7 cents/share to my realized portfolio gains. My dividend yield for FY 2008 (based on a total of 10 cents per share) is 7.72%, beating the inflation rate which has hovered at 7.5% for the last 3 months. Note too that Boustead goes ex-entitlement for their 1:1 share split on August 18, 2008, so I will be adjusting my purchase price by 50% to S$0.6475 in my next portfolio review.

3) Swiber (Vested since February 14, 2007) - Buy Price $1.01, Market Price $1.65, Gain 63.4%, YTD Loss 51.9%. Swiber released their 1H 2008 financial results on August 13, 2008. I will be doing a detailed review of their results but I will give a snapshot here on this portfolio review. Revenues for 2Q 2008 grew 391% from US$25.4 million to US$124.53 million, while gross profit increased 333% (gross margin was slightly impacted, probably due to usage of more third-party vessels till the delivery of more vessels closer to end FY 2008). Net profit increased a smaller 258% from US$6.2 million to US$22.2 million mainly due to an increase in headcount and finance costs (from their increased debt). Their results were within expectations and do not come as a big surprise, though the shrinking margins beg an explanation. More details will follow in my analysis which should take a few days to compile and which will include snippets from a Reuters interview given by Mr. Raymond Goh.

4) Suntec REIT (Vested since December 9, 2004) - Buy Price $1.11, Market Price $1.42, Gain 27.9%, YTD Loss 17%. There was no news for Suntec REIT for the period ending August 15, 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 and July 3, 2008) - Buy Price $0.5475, Market Price $0.395, Loss 27.9%, YTD Loss 37.3%. Pacific Andes reported a decent set of results for 1Q 2009 on August 14, 2008. Revenues were up 10.2% to HK$2.35 billion while net profit after tax was down 15.1% due to higher costs impacting its low margin SCM business unit. However, profit attributable to shareholders increased 26.1% to HK$122 million. Moving forward, I would expect to see moderate growth from the company in the light of difficult economic conditions. I will not be doing an analysis for PAH and my analysis will be focused on China Fishery’s 1H 2008 results (since both companies are inter-linked and their future plans and prospects will be similar).

6) China Fishery Group (Vested since November 20, 2007) - Buy Price $1.50 (average), Market Price $1.23, Loss 18%, YTD Loss 33.5%. China Fishery released their 1H 2008 results on August 14, 2008. For 2Q 2008, revenues increased 24.1%, reversing a dip in revenues for 1Q year-on-year. Gross profit was slightly impacted from higher COGS for 2Q, but overall for 1H 2008 gross margins had improved. Net profit after tax increased 16.6% for 2Q 2008 to US$23.5 million, bringing 1H 2008 net profit to US$63.9 million, an increase of 26.2% over 1H 2007. I will be doing a detailed review and analysis of CFG (focusing more on the future and prospects), but this will take time and readers should only expect it by the end of August 2008.

7) First Ship Lease Trust (Vested since January 14, 2008) - Buy Price (Averaged Down) $1.105, Market Price $1.21, Gain 9.5%. There was no news from FSL Trust, and Management should currently still be busy trying to negotiate the additional loan to finance the acquisition of the third Yang Ming vessel. They did say that they had till October 2008 to do this. Another interesting fact is that the USD has been strengthening against the SGD in recent weeks, reaching a high of 1.41. This bodes well for me as the previous dividend was received at a conversion rate of 1.3608. The higher exchange rate, coupled with the higher dividend quantum, should make for a significantly higher dividend amount once converted to SGD and paid to me on August 26, 2008.

Overall Portfolio

The gain on my current portfolio is 21.5% from a cost of S$89.2K as at August 15, 2008. The market value of my portfolio is S$108.4K. Realized gains have increased to about S$8.6K as a result of the dividend from FSL Trust, Boustead, Suntec REIT and Pacific Andes (the dividend will be counted until the decision to choose scrip arrives – if scrip is chosen, I will adjust the realized gains accordingly). If the realized gain is included, the total gain as a % of my cost will be 31.1%.

Comparison against STI

Using my benchmarking technique:-

The FTSE STI had declined by 19.7% since the start of 2008. My portfolio (without FSL Trust and the new PAH purchase) has to date declined 34.6%. Therefore, I have under-performed the STI by 15.1 percentage points.

FSL Trust has gained 9.5% thus far from my date of purchase while the benchmark STI has fallen 13.1% (from my date of purchase Jan 14, 2008 when STI was 3,218.14); I am happy to report that FSL Trust has managed to out-perform the index for FY 2008 thus far.

The new Pacific Andes tranche which was purchased at 44 cents per share on July 3, 2008 will be analyzed separately from the rest of the portfolio. STI as at July 3 was 2,880.45 and STI today is 2,797.50, thus this represents a 2.88% loss. Current share price of Pacific Andes is 39.5 cents, representing a loss of 11.4%. Hence, my purchase of Pacific Andes has under-performed the index (I have excluded the dividend in my computation).

My next portfolio review will be on Friday, August 29, 2008 after market close.

8 comments:

John said...

I'm considering buying PacAndes or ChinaFish. Their NAV is quite similar, about S$0.54 per share, view they are closely related and pretty much in the same biz. But their market price differed so much, PacAndes last done S$0.395 and ChinaFish's more than doubled this! It thus appears to me that PacAndes is the obvious choice because it's priced below NAV whereas ChinaFish doubled its NAV. I am tfore curious why you later also buy ChinaFish after already vested in PacAndes? Do you still think ChinaFish is still worth holding? Your helpful comments on my above queries will be greatly appreciated.

Anonymous said...

It should be useful to note Pac Andes holds a majority of shares in CFG.

Anonymous said...

While PacAndes has an NAV of bout 50c per share, do note the amt of goodwill in the books. that goodwill becomes a function of ChinaFish share price. If its above what they bought for, no problem; but they'll hvta amortize if ChinaFish drops.

Whether or not the acquired price is rite will be subject to another discussion, my pt here is do take note of the NTAV or net tangible asset value.

Btw, MW, I was there at Pac AGM as well, very interesting to note the change in the Peruvian govt policy.
:D

Vincent

musicwhiz said...

Hi John,

Basically CFG is involved in the upstream fishing operations (they catch the fish) while PAH is doing the SCM portion. I think each company has its own merits and are both growing at a decent pace, thus I invested in both of them. Also note that there are high barriers to entry for this industry which is a plus point for me, and the Ng Family have a track record for growing the companies (including PAIH listed in HK).

The full value of CFG and PAH may only be realized from FY 2010 or FY 2011 onwards as they are still consolidating their Peruvian resources and expanding their footprint in South America.

Cheers,
Musicwhiz

musicwhiz said...

Hi Anonymous,

Thanks, I was aware that PAH holds 64.1% of CFG.

Regards,
Musicwhiz

musicwhiz said...

Hi Anonymous,

Yes you have a point there. It is debatable whether they over-paid for CFG, but then they would not have known the market price would correct so much in the current bear market, so it's more like an observation made on hindsight.

Good to know you were also at the AGM. I think Ng Joo Siang explained it pretty well (and patiently) for those who wanted to know more about the ITQ system.

Cheers,
Musicwhiz

John said...

Hi Musicwhiz
Tks for the reply. PAIH being the controlling shareholders of CFG and PAH, using them as their upstream and midstream providers of raw materials and SCM, retaining the downstream biz of precessing and distribution to themselves only, appears to me as putting the latter 2 S'pore coys at a disadvantage compared with themselves? Eg, in such a vertical integration, PAIH do the all-important end user biz of processing and distributing fish filet and able to control their up-stream costs. Do CFG and PAH supply their products/service to outside buyers other than PAIH and their associates? Think we sud invest in PAIH instead, although it being a HK coy is not so convenient for Singapreans.

musicwhiz said...

Hi John,

You have a point, but I invest in PAH and CFG also because I think their separate businesses have potential. Thanks for the comments, though. Very insightful. :)

Cheers,
Musicwhiz