Sunday, November 01, 2009

October 2009 Portfolio Summary and Review

I would describe October 2009 as the month in which I had the most portfolio changes since a long time ago! This was due to ongoing additional purchases of MTQ in early October 2009, a full divestment of Ezra due to the aforementioned reasons as stated in my previous 3 posts on Ezra; as well as the addition of another company called GRP Limited in late October 2009. The latter was a result of the deployment of funds from the divestment of Ezra and was researched by me in the last 2 weeks of October 2009. Fundamentally, GRP’s business was simple, easy to understand and the financials were clean. I will be posting a detailed analysis on the rationale for purchase of GRP, and it will be simpler than the analysis for MTQ though no less detailed; but because the company has a cleaner balance sheet and simpler to understand structure (and long operating history), it should take much time and effort to post up.

October 2009 was also the month where USA companies released 3Q 2009 results; and most of them were above expectations. Oil had also hit a new year to date high of US$82 per barrel, but is still way down from its peak of US$140+ last year. High oil prices will spur oil majors to make more investments in oil rigs and O&G projects and this will eventually flow down to benefit MTQ as they are in the oilfield engineering segment. In Singapore, most of the news flow was positive as well; but since Mr. Market had already factored most of the optimism in a few months back, there was low trading volume and nary a movement in market prices. This actually represents an opportune time for an investor to collect shares in the companies he is eyeing.

US GDP also reported surprisingly strong growth of 3.5%, officially ending the recession in which the USA reported four consecutive quarters of negative growth. Still, many obstacles remain as growth is expected to be bumpy and unsteady even as the economy lumbers along.

Property prices had increased 15.8% quarter on quarter for private properties in Singapore, while resale HDB flat transactions also saw a marginal increase in prices to a new record high. COV (Cash Over Valuation) also increased from $3,000 to $12,000, according to the newspaper. Scarily, COE for cars also hit a 4.5 year high of about S$19,000 for cars below and above 1,600cc; and this is testament that prices seem to be rising even though we had just been through the worst recession in 70 years. This is indeed uniquely Singapore!

For MTQ, I have lowered my cost to 68.5 cents from 68.6 cents by purchasing additional shares on October 2 and October 5. My total investment in MTQ is about S$27,000. For GRP, I view it more as a yield company as its growth is in the “mature” stage and it is basically a cash cow generating lots of free cash flows. The declared dividend is 1 cent per share and is for the year ended June 30, 2009 (it has a June year-end). Based on prior year’s dividend history and my purchase price, the yield would be a very attractive 10%. The Company’s business is also stable amid the sharp recession and it can still grow its cash stash; so there is a significant chance of a special dividend (as per FY 2007) if they cannot deploy the cash for yield-accretive M&A. As at October 31, 2009, I had invested about S$20,000 in GRP.

Though I had added 2 new companies to my portfolio within 2 months, there is no reason to rest and I am in the process of screening another company for potential investment as there is still some opportunity fund left over which I hate to see sitting in a bank account earning 0.5% per annum. The focus is to look for companies with sound management, steady growth and good cash flows (so as to earn a steady income from dividends). My hope is also for a decent year-end bonus for me to add to my cash stash, so that I may have more funds to deploy to worthy companies run by astute Management.


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

1) Boustead Holdings Limited – There was no significant corporate news from Boustead, except that they were awarded the most transparent company by SIAS. On October 16, 2009 there was a minor announcement of them entering a JV in an Internet-based mapping and location services business (Geologic) of which Boustead will hold an 80% stake.

2) Suntec REIT – Suntec announced their 3Q 2009 results on October 27, 2009 and declared a DPU of 2.921 cents per share. Although this was lower quarter on quarter, it still represents a decent payout and a yield of 10.5% based on my purchase price of $1.11.

3) China Fishery Group Limited – There was on news from China Fishery for October 2009. Results are expected for FY 2009 by the end of November 2009.

4) First Ship Lease Trust – FSL Trust announced their 3Q 2009 results, and declared a dividend of USD 0.23 cents, in addition to the stub dividend announced last month of USD 1.27 cents, making a total of USD 1.50 cents. Separately, on October 29, 2009, they also announced that they had finalized the loan covenant agreements with their bankers. I received the dividend of USD 1.27 cents on October 30, 2009, giving me an effective yield of about 6.4% based on my purchase price.

5) Tat Hong Holdings Limited – There were no significant updates from Tat Hong, except a minor announcement to state that the RCPS have been fully issued to AIF Capital. A corporate update was released on October 6, 2009 together with an analyst briefing and EGM which updated shareholders on the latest developments with the Company. Readers are free to access this through SGXNet, and I will not elaborate too much as most of it is self-explanatory. Suffice to say their expansion into China to grow their tower crane segment is proceeding as planned.

6) MTQ Corporation Limited – MTQ reported a decent set of results for 1H FY 2010 on October 28, 2009 during lunch break. Revenues were down 12%, gross profits down 8% while net profit was up 3%, mainly due to divestment gain of S$1.9 million on partial divestment of long-term investment (I suspect this is Hai Leck). The Balance Sheet was strong with S$23.2 million in cash, up from the same period last year, and there were positive operating cash inflows as well. An interim dividend of 1 cent per share was declared, payable on November 24, 2009. In addition, MTQ also announced a partnership with global brand Bosch to distribute Bosch products as part of their “Bosch Superstore” concept, which offers a one-stop solution for automotive parts. MTQ has 9 branches in Australia and Bosch is leveraging on their network to grow; thus MTQ is expecting the Engine Systems division to benefit from this mutually beneficial partnership.

7) GRP Limited – GRP had announced a dividend of 1 cent per share, and this was approved at their recent AGM held on October 26, 2009. Moving forward, GRP’s business should stay resilient against the global downturn and still be able to maintain a cash flow positive position. Balance Sheet is very strong with current ratio at 4.77 times as at June 30, 2009. With a cash hoard of S$13.2 million (cash per share of 9.47 cents), there is a good chance of GRP paying a special dividend unless it can find good M&A opportunities. Currently, at my buy price, this represents a full-year dividend yield of 10%.

Portfolio Comments – October 2009

October 2009 saw the most changes made to my portfolio since the start of the bear market in late 2007. I collected more MTQ in early October, while divesting my entire stake in Ezra as detailed in previous posts; as well as collecting shares of GRP using the proceeds from the divestment of Ezra. As a result, my cost has been adjusted to S$135,400, while my unrealised gain is +8.9%. Realized gains have increased from S$9.4K to S$26.6K as a result of gain on divestment of Ezra and also dividends from FSL Trust. As a result, total gain is +28.5% of new adjusted cost.

In my previous portfolio review, I mentioned that I had expected MTQ to declare a dividend, and they did with a 1c per share interim dividend; managing at the same time to remain relatively resilient in the face of falling demand for oil and gas services. GRP was purchased mainly as a yield play as their business is very stable (I had compiled data from 9 years of Annual Reports on their revenue stream), Balance Sheet is strong and cash flows are positive and consistent. I do not expect capital gains from GRP, but it gives a yield that is way above bank deposits and unless there is a material change in the business; continues to give me peace of mind.

My next portfolio review will be on Monday, November 30, 2009.

17 comments:

Anchovies said...

Good Morning Musicwhiz.

Thank you for sharing and impatiently awaiting your analysis on GRP (You sure its not ERP?)

Thanks

Musicwhiz said...

Hi Anchovies,

Haha, GRP stands for "General Rubber and Plastics Limited" and not ERP. Though I think if ERP were to list it would be a super cash cow!

As for the analysis on GRP, it may have to wait for some time as MTQ comes first as well as some of my thoughts on investment and my changing philosophy.

Cheers!
Musicwhiz

Anchovies said...

Hi Musicwhiz

Yes!

I hope you will be able to find a company like "ERP"

-Low Capex
-Insane profit margin
-NO Competitors
-Freedom to raise price
-User has "Cost" of not using it
-GROWTH (More ERP!!)

;)

Akatsuki said...

Hi Musicwhiz, i want to ask you something (about investing). Can you give me your email, so that i may do so?

Thanks

JW said...

GRP is good!

It fits my dividend play style. Thanks for the heads up!

The next XD date is 6th Nov, so I think I better get it quick! :)

10% yield is definitely attractive. Thanks!

JW said...

btw, MusicWhiz, there's this dividend company on my radar as well... Perhaps you would be interested...

Neratel.

learning said...

Hi GRP, i will take a look at GRP too! Thanks for sharing!

JW said...

Hi MusicWhiz,

I have bought in 26 lots at 20 cents too :)

Great 10% dividend yield, with brighter prospects of higher yield in the future

James said...

Nothing wrong with focusing on small cap companies in Singapore. However, one should broaden one's horizon and investment options.

I know you are value so why not Visa and Mastercard? They are attractively valued and have a simple business model and continue to grow year in year out because of increasing use of plastic.

Do not just restrict yourself to the Singapore market.

Amazon for that matter as it just made a new all time high but that is a trade for me rather than u becaause I like buying all time highs.

Musicwhiz said...

Hi Anchovies,

Such a company exists only in theory I think! Haha!

Musicwhiz

Musicwhiz said...

Hi JW,

You're welcome. I am just highlighting some basic facts on why I purchased. It's not so simple as just looking at the dividend yield, to be honest. I did do some fact-finding and quite a few spreadsheets on GRP as well.

Anyway, glad to know you are also a shareholder. Let's wait for some positive updates from the company over time.

Cheers,
Musicwhiz

Musicwhiz said...

Hi Learning,

You're welcome, but please do your own research as well. Do not follow any investment advice blindly! :)

Good luck,
Musicwhiz

Musicwhiz said...

Hi again James,

Actually I did consider USA stocks and companies listed on other exchanges, but hesitated due to the additional complexities involved in analyzing them. Accounting treatments may differ, and taxation is also another issue. There are also many aspects which are different from Singapore companies in terms of analysis.

That said, of course I agree I cannot stick to the Singapore market forever, because sooner or later I would probably run out of bargains to find. But I will take a slow and steady approach to overseas markets, and would like to refine my approach and investment philosophy in the local market first before venturing out.

Thanks for your advice.

Musicwhiz

jason said...

Hi, thanks a lot for sharing. I like your blog´.

Musicwhiz said...

Hi Jason,

You're most welcome! Thanks for visiting too. Please come back often. :)

Cheers,
Musicwhiz

SQUAREcoins said...

Hi Musicwhiz,

Where do you get 9 yrs of Annual Reports?

I could only find 3 years from SGX.

Hope you can enlighten me. Thanks. =)

Musicwhiz said...

Hi Square Coins,

Try the company's website.

Link is http://www.mtq.com.sg/corporate.htm

Cheers,
Musicwhiz