May 2009 Portfolio Summary and Review

If April 2009 was the “Month of Reflection”, then perhaps May 2009 can be aptly described as the “Month of Green Shoots” ! The start of the month saw a sudden improvement in business sentiment and the theory was put forward that “green shoots” were being observed which slowed the pace of decline in the real economy. Other horticultural terms were being flung around as well, with some saying that there were equal amounts of “brown weeds” and that a recovery was not clear at all despite signs that some areas of the US Economy were bottoming out. The situation was echoed back here in Singapore as well, with prominent MPs giving divided and conflicting views over the economic situation.

The result of the sudden burst of optimism was the biggest one week jump in global stock market indices I had seen so far in my limited years of investing. It was just back in March 2009 when STI hit a low of 1,456, and as of this writing, the STI is close to the psychological resistance point of 2,300. That’s almost a 58% jump in the Index within just two short months, and does illustrate the point that when valuations revert to the mean, they can do so suddenly, sharply and without prior warning. Suffice to say almost all the people I spoke to were taken completely by surprise, and many are somehow convinced that this is a bear market rally and not the “real” recovery. Whether this is so will only be known on hindsight.

My divestment of Pacific Andes this month has returned some capital back to me to be recycled to other worthy investment opportunities. Suffice to say I am devoting some time to research and studying some potential companies right now, and admit I was rather slack and lazy over the past few months and thus was only comfortable in adding to my existing positions (back in October 2008 and March 2009). It would be splendid indeed if I could find another value investment when conditions have not totally improved, and sentiment continues to be depressed. Once valuations revert fully back to the mean, it may prove difficult to find sufficient margin of safety.

With the FY 2009 reports for Boustead and Tat Hong released on May 28, 2009, I shall be busy in the coming weeks doing some in-depth analysis for each company and its prospects, and will post these up separately when they are available.


For May 2009, corporate updates and result announcements for my companies are as follow:-

1) Ezra Holdings Limited – Ezra had done a placement of 78 million new shares at $1.185 to raise capital for paying down debt and possible M&A. This was detailed in a previous blog post of mine, therefore I will not give further details here.

2) Boustead Holdings Limited – Boustead released their FY 2009 results on May 28, 2009. Revenues for FY 2009 rose 17.9% from S$438.3 million to S$516.6 million. Gross profit, however, increased by a smaller 5.4% due to higher COGS booked. Net profit attributable to shareholders increased by 16.8% to a new record S$60.1 million, as Boustead celebrated their seventh year of record revenues and profits. A final dividend of 2.5 cents per share was declared, payable on August 20, 2009. My dividend yield was 6.63% after taking into account my additional purchase of Boustead in March 2009 (based on a total dividend of 4 cents/share for full-year 2009). I will be doing a detailed analysis and review of Boustead’s financials and prospects in a separate blog post, but I have to caution that FY 2010 will definitely not be as good as FY 2009 as the global economic crisis hits home for Boustead.

3) Swiber Holdings Limited – Just yesterday, on May 29, 2009, Swiber announced a share placement of 84 million shares at 88 cents each, raising about S$71 million (after deducting expenses). The fund raising was done through CIMB GK Goh and was stated as being for general working capital purposes. The new capital raised is about 20% dilutive, which represents an exercise similar to Ezra (incidentally, at least Ezra got a better deal with 78 million shares at $1.185). Oil prices have been trending up to US$66 per barrel at the time of writing and the prospects for the industry look bright with more deepwater E&P taking place in the years to come.

4) Suntec REIT – There were no updates from Suntec REIT for this month, and I received the dividend on May 29, 2009. There was a proposal from MAS, however, which mentioned that REITs should conduct AGM from FY 2010 onwards. That would indeed be a welcome change with respect to improved corporate governance.

5) China Fishery Group Limited – CFG released their results on May 15, 2009 and reported a 40% increase in revenues year-on-year, but only an 8% increase in net profit due to higher COGS and also higher selling expenses. As this is a 1Q 2009 results release, I will not go in detail on the analysis. Readers are welcome to visit SGXNet to obtain relevant information on CFG’s latest results and press release.

6) First Ship Lease Trust – I received the dividend of US 2.45 cents per unit from FSL Trust on May 29, 2009. It was converted at an exchange rate of 1.458 to the SGD. Conditions in the shipping market appear to have improved, as evidenced by the BDI jumping to the 3,200 level; its highest level since Sep 2008 on higher demand for iron ore from China. However, my feel is that there is still a long way to go before the shipping industry recovers, thus all shipping trusts would still face significant headwinds moving forward. As long as the cash flows from lessees are steady, I do not feel overly worried about my investment in this Trust.

7) Tat Hong Holdings Limited – Tat Hong released their FY 2009 financials on May 28, 2009. Revenue for FY 2009 was flat at S$632 million, while gross margins stayed constant at 38.2%. However, net profit attributable to shareholders declined 23% from S$89.8 million to S$68.9 million, mainly due to a S$16.1 million forex loss, impairment of goodwill and disposal of associated company, as well as provision for losses. A final tax-exempt dividend of 1.5 cents per share was declared, bringing my yield to 2.2% based on my purchase price of 68 cents. The dividend will be paid on August 18, 2009, subject to shareholders’ approval at the upcoming AGM. Taking into account my additional purchase in March 2009, average dividend yield for FY 2009 was 6.31% (using a total dividend of 5 cents/share for FY 2009). I will be doing a detailed review and analysis of results and prospects for Tat Hong in a future post.

Portfolio Comments – May 2009

My portfolio for May 2009 is not directly comparable to April 2009 as there was a divestment of Pacific Andes, which lowered my cost of investment. However, one thing I can conclude is that with the recent reversion of valuations towards the mean, I also saw a substantial increase in the value of my portfolio. It has now turned positive for the first time since October 2008 and is up 22%. The loss from the divestment of Pacific Andes had reduced my realized gains from S$12.8K to a mere S$4K. If this is added on to the unrealised gains, the total gain on my portfolio cost is 25.6%.

May 2009 itself has proven to be an amazing month as my net worth has increased substantially due to the rise in market value of my portfolio. This is the fastest and most drastic increase since I began embracing the concepts of value investing, and it is a small testament on how investment principles can help one to preserve capital and give one a decent return on investment. However, I must remind myself not to be overly complacent as my focus is still to closely monitor my companies to ensure they adhere to my original purpose for investing in them. After all, the financial crisis is far from over and recovery still seems remote as of this writing, so the companies I own may face further headwinds and difficulties in the months to come. While I do believe that most of them will be resilient, it is an undeniable fact that they would still be negatively impacted in one way or another.

On a separate note, the companies I owned had seen a total of two placements (Ezra and Swiber) and one rights issue (PAH) for the month of May 2009 alone, and this itself proves that my method for selecting companies needs to be fine-tuned and improved. Companies should be using most of their internal cash flows to sustain and grow their businesses, and should also be paying out a healthy dividend to their shareholders. That said, one must keep in mind that the balance between growth and income is tenuous, and my investments in Swiber and Ezra are considered “growth” investments; hence the fund-raising itself does not come as a surprise, though it is admittedly unwelcome. My screening process in future will account for high gearing and cash inflows as being a critical and pertinent part of the decision-making, and I will be more rigorous and demanding in my selection criteria as well.

My next portfolio review will be on Tuesday, June 30, 2009.