September 2009 Portfolio Summary and Review

September 2009 can be aptly described as a month in which major economies took even more tentative steps towards recovery from the sharp recession, and the USA is also reporting that the recovery from recession will be slow and very gradual, and that unemployment is likely to exceed 10% before we are through with this “Great Recession”. At the same time, I was highlighted to an article in the Daily Mirror here which highlighted that the recession is far from over as far as the shipping and marine sector was concerned, as many ships are still moored in the waters off Singapore with no cargo to carry and no jobs to service. There is an acute over-supply of vessels in almost all categories (most pronounceably in bulk shipping) and global trade had also dropped off a cliff 6 months ago and is only gradually, albeit slowly, picking up. As economies struggle to shake off the shackles of recession, demand for commodities such as oil and gas will pick up slowly; but it will still take a good 3-4 years before demand for shipping returns to 2007 levels.

Valuations are taking a tentative breather and it is beginning to get difficult to locate genuine bargains in the stock market; this is due in part to gradually improving risk appetites and the entrance of more retail players as they notice the last 6-month recovery in share prices. This has prompted many investors to jump in head first into the pool without testing the temperature of the water, with the unfortunate result of getting burnt for their efforts. Whether the stock market is trading with “blue-sky” scenarios (this term is increasingly beginning to appear in analysts’ reports and irks me to no end), or incorporating extremely pessimistic scenarios; one must always keep in mind that prudence, conservatism and a sense of reality can keep one grounded and enable one to avoid debilitating losses. As some of my previous posts had mentioned, one cannot always only choose to purchase when valuations hit trough levels, as this happens under very rare circumstances (and there is only a short window of opportunity – in this case Oct 2008 through March 2009); one should instead hope to pay a fair price for a well-managed company with solid fundamentals, and let the process of growth in the company’s business and compounding increase the value of your investment over time.

I also managed to spend some time monitoring the mind-boggling property market in Singapore, which has behaved contrary to popular wisdom, which says that property prices should dip in a severe recession rather than rise. As HDB resale prices continued to climb alongside prices of private properties, one eventually has to fork out nearly S$400,000 to S$500,000 for a 5-room HDB flat in a prime location. Assuming a young married couple earning less than S$8,000 buys one of these flats, they would have to take a 30-year loan and be heavily indebted for close to the rest of their lives. Mr. Mah Bow Tan’s has asserted that couples only have to fork out less than 30% of their salary to service their housing loan, which implies it is “affordable”. But affordability has a different definition according to me – it’s how much pain you will have to go through to service a loan assuming you have no other sources of income, and HDB prices are way too high for the average Singaporeans (earning a median salary) to comfortably afford. The recent measures taken by the Government to cool the property market (i.e. scrapping IAS and interest-only loans) may cause some cooling but they probably have to do more in order to deter the speculators.

In terms of the companies I own, there was quite a bit of news which I had summarized in a previous post in order to save space for my portfolio review. Any news between that post and this review is included here. October 2009 will see results releases from Suntec REIT (3Q 2009), FSL Trust (3Q 2009 excluding stub) and Ezra (FY 2009).

There was a new addition to my portfolio during the month of September 2009, and it is a company called MTQ Corporation with two divisions which deal with oilfield engineering and engine systems. Taking into account all of my previous mistakes as detailed on this blog (and in order to avoid repeating them), I chose this company because it has growth prospects in Bahrain (Middle East), Management which is shareholder friendly, a business with barriers to entry, and the Company has consistently positive operating cash flows and a strong balance sheet (it is in a net cash position as at March 31, 2009). Valuations were not excessive at just 5.3x historical PER (at the time of my analysis). Management has also shown itself to be astute, which I will detail in a future post.

I will be providing my reasons and rationale to substantiate the purchase of MTQ Corporation Limited in subsequent posts. I had taken a total of about 2.5 months to fully research on this company and write my report, supported by facts and figures. The reason for the (apparently) long time it took to analyze the company was due to my constant procrastination and also being tied up with work and personal commitments. As a result of the thumb-sucking, I had missed opportunities to acquire at much lower valuations, thus my inaction cost me some measure of margin of safety. I shall endeavour not to repeat this mistake again.

Since trading volume for this company is low, my collection had to be done in stages, and on different days; thus incurring significant brokerage expenses. In total, I had allocated about S$20,000 to this investment for Sep 2009 (as reflected in the increase in my portfolio cost).

As at this point in time, I will also be initiating research on a few other potential companies for value investment. This is in case the market price of MTQ increases to a point where I feel there is lower margin of safety (hence I will stop collecting) and also as alternatives to allocate excess funds which have been accumulated over the months and from the divestment of Swiber and Pacific Andes.


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

1) Ezra Holdings Limited – No more updates since my last post.

2) Boustead Holdings Limited – No further updates since my last post.

3) Suntec REIT – Suntec’s next distribution will be announced in Oct 2009, and in the meantime in Sep 2009 they issued S$25 million of fixed-rate notes to finance the purchase of the Suntec City Convention Centre.

4) China Fishery Group Limited – Golden Target and Pacific Andes have been actively buying shares in China Fishery over the last few weeks, with several tens of lots being transacted every single day. I do not take this as any indication of merit or that a possible takeover is on the cards, though there of course have been rumours that this is so. With the change in financial year to September 28, 2009, it means that China Fishery will report full-year 2009 results (9M 2009) before November 30, 2009.

5) First Ship Lease Trust – There was no news further news from FSL Trust. October 2009 will be the time the Trust releases its 3Q 2009 results and DPU (apart from the stub distribution). I will also receive the distribution of USD 1.27 per unit on October 30, 2009.

6) Tat Hong Holdings Limited – There were no subsequent updates from Tat Hong, and I have to wait for the results of the EGM on October 6, 2009 to know if shareholders approve the AIF Capital investment in RCPS.

7) MTQ Corporation Limited – There was no news from the Company for September 2009.

Portfolio Comments – September 2009

Once again, a direct comparison cannot be made between August 2009’s portfolio and this month’s portfolio as there had been an addition of a new company into my portfolio. For the record anyway, my portfolio is up +28.6% thus far, and with realized gains of S$9.4K, the total portfolio gain is +36.7%.

I recall mentioning that it was stressful to decide how to best allocate funds in a very low interest rate environment, as cash lying idle in bank accounts pays a very scanty return of less than 1% per annum. That prompted me to start my search for a suitable company to invest in during June-July 2009, which led to my eventual purchase of MTQ Corporation. This is an investment which I believe should give a constant decent dividend yield and which will bear fruit in 2-3 years time. I would be expecting their 1H FY 2010 results (the company has a March 31 year-end) in early November 2009, and due to the weakening in the oil and gas sector and a drop in enquiries, MTQ’s business is expected to suffer in the short-term, though I would still expect cash flows to be positive and an interim dividend to be declared.

My next portfolio review will be on Saturday, October 31, 2009.