Tuesday, March 31, 2009

March 2009 Portfolio Summary and Review

March 2009 can be said to be an “eventful” month, if you count the number of things happening with the White House and President Obama, as well as Treasury Secretary Geithner. Suffice to say I will NOT summarize all the moves and decisions they had made so far this month, for it would take up more than this post could hold and bore everyone to tears. Just surf on to New York Times or CNBC and they will give you the low down details. Basically, there were bailouts, plans for capital injections and stress-testing for banks, if it could be summarized in so few words. The world is of course awaiting with bated breath on when the US Economy and Banks will recover, but it’s a new world order now, and some of the old practices (e.g. huge bonuses at AIG and ML) may have to be totally revamped, at the risk of more public ire. Over the last 2 days, President Obama has also rejected the re-structuring plans for General Motors and Chrysler, forcing out the CEO of GM and asking Chrysler to merge with Fiat in order to survive. A forced bankruptcy looks likely on the cards unless the two auto makers can get their act together.

This month can also be termed the “Recovery Month” as news of an impending economic bottoming and subsequent recovery seems to fill the headlines closer to end-March 2009. Whether this is true or not remains to be seen, and as economists will probably tell you, it can only be obvious on hindsight. An investor’s job is not to predict the state of the economy or when things will get better; all he has to do is select good companies and stay vested in them.

Singapore seems to be doing relatively okay with most of the general public not really feeling the full effects of the recession (yet). Condominium property launches are still thronged with people, some armed with cheque books according to a friend. Travel fairs are swamped and tours sold out in hours while the recent computer fair at Expo Singapore saw a record turnout and an even better sales figure than 2008 ! So in spite of the deepening recession, it seems Singaporeans still retain their good old consumerism culture. It remains to be seen if the coming months will see a drop in retail spending and a move towards more conservative spending and cutting down on discretionary purchases.

The Singapore stock market has managed to rally 19% within 3 weeks after news of the supposed “recovery”, with some prominent analysts declaring that 1Q 2009 will be the worst quarter, so the market can only get better over time. My job is to just take the news as it comes because things are so uncertain that it would be foolish to hazard a guess as to when the crisis will really and truly blow over and businesses can start recovering. Notwithstanding, there are still companies out there running a decent business with decent margins and they will still continue to pay dividends (albeit lower ones). So it is still possible to stay fully vested, feel cosy and comfortable and continue to monitor corporate and economic developments as they unfold.

March 2009 turned out to be an unexpectedly “busy” month for Swiber as they came out with a slew of corporate announcements and updates. For my other companies, there was a little minor news here and there which trickled in, but not enough to constitute “significant” developments. For next month, I will be expecting Ezra’s 1H FY 2009 results in early April 2009, as well as results from FSL Trust and Suntec REIT. Corporate updates for my companies are as follow:-

1) Ezra Holdings Limited – On March 6, 2009, Ezra formally announced the cancellation of their 2 ship-building contracts with Karmsund, citing the bankruptcy of Karmsund and their inability to deliver the vessels as the reason. Fortunately, the deposit paid of NOK 186 million could be refunded as it was guaranteed by a financial institution unrelated to Karmsund. Subsequently, on March 17, 2009, Ezra announced the receipt of the monies.

2) Boustead Holdings Limited – During the month, Boustead that Salcon had reached full and final settlement for the project which was reported in their previous announcements between them and Lagan and could move on. On March 16, 2009, the disposal by GBI Realty was finally completed, and this should be recognized in FY 2009’s results due in May 2009. On March 30, 2009, Boustead announced that they had disposed of Salcon Holdings Philippines Inc and on March 31, 2009, Boustead also announced the disposal of PT Surya Teguh Cemerlang Perkasa. These are moves made to streamline its business and get rid of divisions which are non-performing. Though they are taking a loss to their books, there is no cash effect from these disposals.

3) Swiber Holdings Limited – It was a month of announcements from Swiber, after about 4 months of near zero news from them. First of all, on March 11 and 12, 2009, they announced the delivery of Swiber Concorde and Swiber Supporter, two vessels which had been delayed by the recent credit crunch and which had resulted in the damaging gross loss situation in 4Q 2008. The sale and leaseback arrangements were also completed for Swiber Concorde and it was immediately dispatched for work on a pipelay job in South-East Asia. On March 19, 2009, it was announced that Nitish Gupta was appointed to the Board of Directors. On March 23, 2009, Swiber announced that their diving unit, Kreuz Subsea, was awarded the IMCA Certification. This is an internationally recognized certification which is required before oil majors engage a company to do diving support for them. On March 25, 2009, Swiber announced that ICON Holdings from USA would be taking a 51% stake in Swiber Victorious and paying the Company a sum of US$19.125 million. They have ceded control of the vessel in order to manage their debts better. I can’t say this is an altogether good move but it does alleviate some gearing issues during the current economic downturn. Their AGM will be held in April 2009 and it will be good to be able to meet up with the Management Team to get some updates on the business and their future plans.

4) Suntec REIT – There was no significant news from Suntec REIT for March 2009, except that I received Suntec REIT’s FY 2008 Annual Report.

5) Pacific Andes Holdings Limited (PAH) – There was no significant news from PAH during this period.

6) China Fishery Group Limited – CFG announced that the original scrip dividend of 6.02 cents per share would be changed instead to a bonus issue of 1 for 10 shares. This is the first time I heard of a company “dis-declaring” dividends and converting it to a bonus issue instead; but it’s just cosmetic as the share effects are similar. I do look forward, however, to being able to average my cost in CFG. The bonus will be approved at the upcoming AGM to be held in April 2009 (usually in Raffles Hotel, I’ve noticed).

7) First Ship Lease Trust – FSL Trust has very kindly provided an update to shareholders on March 4, 2009 saying that no lessees are at risk of default and their leases are structured based on “Hell and High Water” conditions which means the lessees have to pay their leases no matter what happens. All very comforting but of course the high leverage, lack of growth opportunities and retention of cash for interest payments (hence lowering payout ratio to 75-80%) are not helping the Trust’s unit price. This is not surprising as freight rates are still very low and the whole shipping sector remains in a deep freeze, with the thaw just beginning in late 1Q 2009. At the risk of sounding over-pessimistic, I would think that this situation is likely to persist at least until mid-2010. Meanwhile, the nice glossy Annual Report for FY 2008 has been received and the AGM/EGM is to be held in Marina Mandarin on April 8, 2009.

8) Tat Hong Holdings Limited – There was no significant announcement from the Company for March 2009.

Portfolio Comments – March 2009

March 2009 was a good month to pick up more shares, as the Index had plumbed new lows in early March and based on that barometer of sentiment plus my build up of cash since October 2008, I added to my purchases. These are reflected in the blue highlighted prices in the portfolio summary for Swiber, Boustead and Tat Hong. All in all, I pumped in close to S$8,000 more in the three companies, with more of the funds being allocated to Boustead and Tat Hong as these companies have a longer track record. My portfolio has improved marginally from a total loss of 34.9% as at end-February 2009 to 34.1% as at end-March 2009. Since my portfolio is now more heavily skewed towards Boustead and Tat Hong, the fortunes of these companies would play a larger role in determining my portfolio value, as well as my realized gains too ! I will be expecting some dividends to be declared by May 2009 by these 2 companies, but my expectations should be tempered by the fact that both companies may need to conserve cash either for working capital purposes or for potential M&A activities.

As mentioned in my previous portfolio review, I was building up cash from monthly savings (of close to 40% of take-home salary) as well as my bonus in Dec 2008 to take advantage of new opportunities as they may arise. Fortunately these opportunities presented themselves in early March and I could purchase more of Swiber at 37.5 cents, Boustead at 46.5 cents and Tat Hong at 53 cents. Moving forward, the same strategy will be adopted by me: aggressive savings to build up opportunity funds, while maintaining a safe buffer of emergency funds equivalent to about one year’s worth of living expenses (including enough CPF balance to pay off 6 months of HDB housing loan).

My next portfolio review will be on Thursday, April 30, 2009 after market close.


donmihaihai said...

Hi Musicwhiz,

Just went thru EZRA 1H results quickly. No hard feeling here but I just can't explain the surge in FA and debts without simlar movement in cashflow statement. Can you explain it?

musicwhiz said...

Hi Donmihaihai,

Why should you have hard feelings ? That's your style isn't it ? Nothing to be ashamed of; it's just that I haven't had a chance to ask you about your companies yet, that's all.

A quick glance tells me that receivables surged a lot which explains the poor operating cash inflows. The assets were purchased with cash as can be seen from the Cash Flow Statement. As for debt, give me some time to look through the financials. You tend to ask the hardest questions.

But sometimes I feel you can't see everything through the numbers alone. Management has the job of allocating capital and deploying funds at all times and what we are seeing is just a snapshot of it. A lot of factors come into play to explain movements in Balance Sheet Items and Cash Flow Statement. I have already concluded that you are an extreme numbers person (from your blog, no doubt), but sometimes numbers alone do not tell the whole story.

Anyway, give me some time please. From the way you analyze stuff, you seem to have more of it than I do. Haha.


donmihaihai said...

No! No! No!

I saw those changes in working capital BUT I am looking at FA and debts only, which continue from 1Q.

FA from USD$183M(31 Aug 08) to USD$290(28 Feb 09).

All loans from USD$195M to USD$259M.

Do you have any idea how that happened base on the financial statement?

Your comment on using cash for purchase half correct only. If cash were being used, with almost zero cash inflow from operating activities, Cash must dropped by > USD$100M. You know cash din drop that much.

Ok drop by another day

musicwhiz said...

Well I don't run the Company, so I can't explain those figures based on the financials alone. Perhaps it would be helpful if you asked Management yourself, as I mentioned that NOT everything can be inferred from the financial statements.

And please learn to be more polite. My temper is getting quite short with people who are so curt and impolite (even though you will probably say you "didn't intend to or didn't mean it". I know we have our differences, but I don't go stomping around on your blog demanding answers and using exclamation marks.


donmihaihai said...

Strange feeling huh.. 1st it is my style then I am stomping around and well if my exclamation marks raise your temple then I think I got to say sorry.....

Since I look at this as a follow-on from our exchange post 1Q results after you indicated that you are asking the management on debts issue, I mean I don't think I am demanding something. Even if it is so, you can always say no.

So I guess I have to walk away with tail between my legs.... but before that I have a warning, advise or whatever you take it as. That is if you are in for troubles(problems)if you unable to understand(or just refuse to acknowledge) that 1) the structure of EZRA debts, equity and return does not support an interest cover of 20X and 2) debt to equity ratio increased from 0.5 to 0.7 is not possible under the kind of situation you pointed out earlier. Understanding the linkages are the basic for reading the financial statement

musicwhiz said...


It's always your style as you say. Pushing stuff in other people's faces then claim you have to say sorry ? You do remind me of some of the trolls who used to post under "Anonymous". Only difference is that you are not anonymous, you have a nick called "Donmihaihai".

As it is, you always seem to be quite free to analyze financials of companies which you do NOT own, and I must say I myself don't have as much time on my hands to analyze everything that I have to. Good for you, if that's all you do. But as I said be more polite and civil and don't use such an "in-your-face" attitude.

I never implied you had a tail in the first place, so don't need to sound like you are backing off. It's clear you still wish to pursue the Ezra matter when I have not even had the chance to analyze the financials in detail. From previous quarters' results you already concluded that ROE and returns are unsustainable. And you have given your arguments to boot on your blog.

So may I ask: are you seriously implying they are cooking the numbers ? It's a serious charge I must add. If you cannot reconcile the numbers and you think I cannot, then please go ahead and ASK the Management to clarify; if not then please raise this red flag up to SGX or the relevant authorities. What's the point in stomping around saying this and that is unsustainable ? So I would assume for Jaya, you also had a handle as to their unrealized losses and why it occurred ? Did the company ever give you (a shareholder) a detailed breakdown and explanation as to why they did what they did ? If so then I applaud them. But most companies' management teams need to run a business, not spend excessive time explaining everything to a shareholder.

You keep mentioning about understanding the linkages and reading financials. You must really consider yourself a self-styled expert at reading and analyzing financials (from your tone of voice). I think I know a thing or two about reviewing financial statements and even though I may have reached a level of proficiency equivalent to yours, at least I am not totally ignorant in accounting.

If you are an accountant yourself then you should be able to "provide the linkages" and explain the numbers yourself, why keep asking me since you are the expert ? Perhaps the main aim of yours is to inform me that something is weird about Ezra and Management are doctoring the books, which is why stuff doesn't tie ? If that's the intention then it implies you are saying that Ezra's management is far from honest and are trying to hide something.

So is that what you are implying ? Please clarify because it seems that way !

If you think every single minute transaction can be traced to every single number in the financials, then perhaps you don't know the true essence of running a business and the nature of accounting entries.

P.S. - Please check your facts. Interest cover for 1H 2009 is just 7.7x, not 20x as you stated. D/E has risen from 11.4% as at FY 2008 to 47.1% as at 1H FY 2009 as a result of the drawdown of more loans. Unless you don't trust the presentation slides or think they got the numbers from thin air ?


musicwhiz said...

Well Donmihaihai,

As I write this, Mr. Richard Stanley of DBS has just passed away. My condolences to his family.

Life is simply too short for us to be curt and impolite to each other, so let me make the first move by saying I am sorry for being short-tempered. You just seem to bring out the worst in me, unfortunately. Perhaps because of personal reasons and such, I have been less of a nice human being than I would like to be.

Life is short. There is more to it than investing and Ezra, to be honest. I hope you can be more civil in future postings.

So once again, sorry for the provocative comments and wish you all the best for your career, family, health and life.


musicwhiz said...


If you please, I am still waiting for some confirmation of the 20x interest coverage you mentioned in your previous comment, as well as the debt-equity ratio rising rom 0.5x to 0.7x. Kindly provide some numbers on this to support, and we can discuss the issues.