Friday, May 01, 2009

April 2009 Portfolio Summary and Review

I guess April 2009 can be dubbed the “Month of Reflection”. Why do I say so ? This was the month where leaders from many countries as well as central banks mulled over the effects of their policies and also waited for signs of improvement (so-called “green shoots”). While it is highly debatable that we have put behind the many years of excesses, over-leveraging and excessive risk-taking; it is also questionable if things can continue to worsen as they have for the past 12 months. Arguably, this is because the decline has been so sharp and the recession so protracted and extensive that most are of the view that “things cannot get much worse”. Whether this is true or not will only be known on hindsight, unfortunately.

Thus, as retail investors, one should take a long-term view of the world economy and of the ability of companies to survive and sail through the storms relatively unscathed. A quarter or two of bad earnings and missed expectations are not to be confused with the permanent and pervasive value destruction which a company would be subject to as a result of this downturn. The devil is in the details and it requires diligent study and analysis to weed out the survivors from those who fall by the wayside. Already, many S-Shares (China companies listed on SGX) have fallen prey to the downturn and their shares have been suspended. These include (but are not limited to) Ferrochina, China Printing and Dyeing, Fibrechem, Guangzhao IFB, China Sun, China Sky, Oriental Century and more recently, Sino-Environment. They are suffering from a myriad of problems and serve as a good lesson for investors to learn from and ensure that one treads carefully when selecting companies to invest in. I consider myself fortunate to have escaped the carnage thus far and the numerous land mines which have been scattered across the barren landscape to ensnare the unwary investor.

April 2009 did not throw up attractive opportunities for investment, hence I have kept my powder dry and continued to build up on my savings and cash stash in anticipation for opportunities to average down further. While many “experts” have opined on the fact that markets are in a recovery phase as the recent rebound was about 20-25% from the bottom, my view is that of adopting a neutral stance and to continue to monitor my companies closely, while of course keeping a watchful eye on economic developments and getting updates on industry reports concerning the companies I own.

In terms of Singapore corporate reporting, the season will really kick off in May 2009 with the blue chips reporting results. I would also be expecting full-year result from Tat Hong, Pacific Andes and Boustead as well as quarterly reports from Swiber and China Fishery. The consensus expectation is for earnings to dip by 30-40% as a result of the recession, but not many have considered the future earnings potential for these companies once the recession lifts (and yes, it would eventually lift, the question is simply that of “when”). Singapore’s GDP contraction is poised to be the worst on record but the silver lining is that things will probably improve closer to the end of 2009. By the time news tickles through that things are indeed getting “better”, valuations may not be as attractive as they are currently any longer.

For April 2009, it was a somewhat busy month. Corporate updates for my companies are as follow:-

1) Ezra Holdings Limited – Ezra released their 1H FY 2009 results on April 8, 2009. I have provided a two-part analysis on their financials and prospects and readers are welcome to check back on those postings. No other news was reported from the Company.

2) Boustead Holdings Limited – On April 15, 2009, Boustead announced the award of a contract to design, build and lease a facility awarded by a Fortune 500 company. There were no details of the exact location of the facility, the name of the customer or the value of the contract. This news does shower a beacon of light for Boustead Projects, as their previous announced project was in July 2008 (9 months ago). On April 24, 2009, Mr. Wong Fong Fui, CEO of Boustead, received the prestigious CEO of the Year Award under the mid-cap category during the Singapore Corporate Awards 2009 held at the Shangri-La Hotel.

3) Swiber Holdings Limited – No concrete announcements were made by the Company in April 2009 relating to future plans or to their contract wins, except for a small mention that US$70 million worth of new contracts were secured in Jan-Feb 2009. I attended the AGM/EGM today and will be providing an update on the Company and its prospects in a separate post.

4) Suntec REIT – Suntec REIT released their results on April 28, 2009. A DPU of 2.918 Singapore cents was declared. This represents an annualized yield of 10.5% according to my purchase cost. They also announced refinancing of their loans due 2009 by garnering a 3-year term loan (from a consortium of 7 banks) worth S$825 million. Their next due date for debt repayment has now been pushed to FY 2011. As my holdings in Suntec REIT are not significant, I will not be doing a review of this REIT.

5) Pacific Andes Holdings Limited (PAH) – There was no significant news from PAH during April 2009, other than the purchase and subsequent extinguishment of another US$5.5 million worth of convertible bonds. This leaves a total value of US$83.5 million left of convertible bonds, exerciseable by 2012. Tentative date of results release for FY 2009 is May 29, 2009 (Friday).

6) China Fishery Group Limited (CFG) – CFG had no significant announcements for April 2009, but after attending their AGM, I did manage to obtain some clarifications on their cost structure, plans, prospects and their current status. I may do a post on this in future if I have the time, but no promises. Note that the tentative date of results release for 1Q 2009 is May 15, 2009 (Friday).

7) First Ship Lease Trust – FSL Trust released their results on April 21, 2009 and declared a dividend of 2.45 US cents per unit. They also activated the DRS (Dividend Re-investment Scheme) for the first time to try to conserve more cash in order to pay down their outstanding debt (pre-emptively). So I would of course expect more dilution from the new units issued and possibly an even lower 2Q 2009 DPU, even though the stated guidance was for 2.45 US cents. That’s what happens when I purchase a shipping trust with an aggressive 100% payout ratio without considering the high leverage and the consequences of not paying down some of their debt and accounting for it as an amortizing loan. I guess I cannot say this enough, but my mind must have been stuffed with wool at the time which clouded my judgment; or perhaps it’s just plain old greed ? Whatever the case, it’s a constant mistake which taunts me; and the dividend is becoming more of a return OF capital rather than a return ON capital. I cannot even begin to describe the irony, so I shall stop here.

8) Tat Hong Holdings Limited – Other than some perfunctory announcements on the establishment of a joint venture company in China, there was no other significant news from Tat Hong in April 2009. I would expect, though, that the recent announcements for the Marina Coastal Expressway and the Sports Hub would be positive for their business as it indicates a continued demand for cranes and heavy equipment. The date of release for FY 2009 results is currently slated for May 28, 2009 (Thursday).

Portfolio Comments – April 2009

April 2009 saw the portfolio improve significantly from a total loss of -34.1% as at end-March 2009 to a total loss of -20.3% as at end-April 2009. This was mainly due to improved sentiment (as evidenced by the significant increase in the STI from end-March 2009 to end-April 2009), rather than an improvement in the fundamentals of the companies I own. My portfolio is more weighted towards the more stable and resilient companies Boustead and Tat Hong, as I see them being more able to sail through the current financial storm and emerge stronger in 2-3 years time. In the meantime, of course, I shall source for other investment opportunities, keeping in my the mistakes I made over the past 18 months which have more than revealed my fallibility.

As for wealth-building, I will continue to save a substantial portion of my income as the emergence of swine flu and the continued financial turmoil has hardened my resolve to save for a rainy day. All through the last 24 months, it felt like a big struggle trying to build wealth, and my savings are the only tangible effect of my frugality. By investing monies into the stock market during one of the most bearish periods in modern history, I am hoping to be able to subsist on a decent return over the next 10-20 years. Perhaps this sounds too ambitious, but I still view it as being preferable to over-extending myself over unwanted gadgets, or blowing the money on monthly instalments for a car which I don’t need.

My next portfolio review will be on Sunday, May 31, 2009.

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