December 2009 and FY 2009 Portfolio Summary and Review

December 2009 was generally a quiet month, as is generally the case as Fund Managers and traders go on long leave and take vacations due to the Christmas season (it’s after all a big festival and event in the Western World). Over here in Asia, the mood was also muted and stock market action was generally lacklustre, with trading volumes at multi-month lows and there was a general lack of interest all around. Even though the Straits Times Index managed to break new highs for 2009 in the last month of the year, there was hardly much cheer and excitement as problems in Dubai World and Greece’s debt crisis threatened to stall the global economic recovery and grind it to a temporary halt.

Surprisingly, in the USA, things had begun to look up, with home sales rising to their highest levels (November home sales up 7.4%) in over 3 years as the Obama Stimulus Package took effect. GDP growth for USA in 3Q 2009 was also 2.2%, which was considered surprisingly strong after the worst recession in 70 years ravaged the US economy and sent unemployment rate soaring past 10%. These bits and pieces of positive newsflow managed to keep the DJIA above the 10,000 level, when just 9 months ago it was hovering at the 6,500 level. Indeed, what a difference 9 months makes! No one could have foretold that the rebound in equities would be so sharp and sudden (well many did mention it on hindsight, but somehow no one had predicted it beforehand haha).

HDB prices continued to moderate with the completion and official opening of The Pinnacle @ Duxton, with MM Lee officiating the ceremony and mentioning that HDB prices will continue to rise to ensure Singaporeans are able to enjoy capital gains on their property purchase. Rules were also changed to ensure first-time home buyers had a higher chance of securing a flat, and more BTO sites were released, including the Dawson plot which saw prices for 4-room flats hit S$350,000 to S$500,000 for an 84 square metre unit! To me, it’s still an affordability issue because when the crunch comes, these couples may have over-leveraged and have nothing left in their CPF (remember the salary cap is still S$8,000 for HDB flats).

As the year draws to a close, all I can say is that it has been a very remarkable year for me in terms of increasing my investment experience and knowledge. In just one year alone, I have learnt a lot about how companies operate, and been through several mistakes which would leave deep impressions on me for the rest of my life. My learning through the divestment of Ezra and Swiber, as well as insights into their capital structure, Balance Sheet and Cash Flow have revealed insights to me which I had never known before as a value investor. Thanks to the explanations from investors such as Donmihaihai as well as contributions from experienced value investors dydx and d.o.g. on Wallstraits forums, I have intensified my reading and analysis and moving forward, will apply these principles more stringently and rigidly in search of a worthy investment which comes along with adequate margin of safety.

In searching for suitable investment opportunities this year, I came across MTQ as well as GRP. By using a framework which was more focused on Balance Sheet strength as well as stressing the importance of cash flows, I had narrowed down these two companies as good investment targets. Gone are the days when I focused more on the Income Statement and contracts, as evidenced by my prior purchases of Ezra and Swiber. The fact of the matter was that earnings can continue to grow due to high leverage, and contracts are useless if one does not exercise prudent cost control. I had to learn these the hard way but I am glad for the opportunity and cherish the experience.


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

1) Boustead Holdings Limited – Parts 2 and 3 of my analysis have been posted earlier this month. On December 10, 2009, Boustead announced the sale of an industrial building (yet to be completed) in Tampines Industrial Avenue 5 for a consideration of S$67.8 million, of which S$17.3 million will be recorded as profit from the sale of property. This transaction will only be completed in FY 2011 but it shows that Boustead is able to sell a leasehold property even though it had projected that such sales would be slow during this period. As a result of this sale, they will be left with 4 design, build and lease projects. On December 22, 2009, Boustead announced that 91.7% owned Boustead Projects had secured its largest contract to date of S$107 million to design and build an integrated manufacturing and support facility for one of the world’s leading power systems corporations, to be located at SeletarAerospace Park. This contract is expected to contribute positively only in FY 2011. The following day on December 23, Boustead announced two disposals – one of its 30% stake in PT SMAC for US$600,000 and the other of its 95.6% stake in Batam Logistics for S$955,556. In total, these transactions will net them cash of about S$1.8 million (using 1 USD = 1.40 SGD) and allow them to recognize a profit of S$1.12 million. The interim dividend of 1.5 cents per share was received on December 18, 2009.

2) Suntec REIT – Suntec REIT announced a “stub” dividend of about 2.44 cents per share as a result of a private placement of 128.5 million new units at S$1.19 each, to raise a total of S$152.9 million in gross proceeds. This move was done to reduce their gearing and to bolster their Balance Sheet. There was also news of Suntec REIT suing Popular Holdings because of Harris Bookstores moving out of Suntec City Mall much sooner than their tenancy agreement required, and this will most likely escalate into a lawsuit as Harris has no intention to pay any damages to Suntec REIT.

3) China Fishery Group Limited – There was no news on China Fishery for December 2009, and the AGM is will be held on Jan 22, 2010 ay Suntec City Convention Centre Level 2 at 2:30 p.m.

4) First Ship Lease Trust – Regarding the November 23 announcement of a potential issuance of senior notes, FSL Trust has decided not to proceed with it as news of Dubai World broke out just as they were promoting the Notes during a road show, which resulted in weak demand and very bad pricing terms (rumours mentioned a yield of about 11-12%). Management were prudent enough to recognize that these terms would be extremely prejudicial to the interests of unit-holders, and so wisely released an announcement on December 7, 2009 to state that they would NOT proceed with the offering, but are keeping their options open to perhaps offer the notes again at a later date, once sentiment improves further.

5) Tat Hong Holdings Limited – There was no significant news from Tat Hong during December 2009, except a minor announcement on December 7, 2009 which stated that Tat Hong Plant Leasing Pte Ltd had disposed of a piece of land and Tat Hong would recognize a small gain of S$118,000 on disposal of fixed assets. Tat Hong should be announcing 3Q 2010 results some time in Feb 2010. Meanwhile, the interim dividend of 1 cent per share was received on December 16, 2009.

6) MTQ Corporation Limited – Predictably, there was no news from MTQ for the month of December 2009. They can be considered to be a very quiet, nondescript company.

7) GRP Limited – GRP is another quiet company, with no news for December 2009. Their 1H 2010 results will be released in early Feb 2010, and I would be expecting a decent dividend from them (hopefully another 1 cent per share as per 1H 2009).

Portfolio Comments – December 2009

December 2009 was another quiet month with no changes to my portfolio. Realized gains have increased from S$28.4K to S$28.8K as a result of the receipt of dividends from Boustead and Suntec REIT (stub dividend). Unrealized gains remain low at +13.4% as a result of recent purchases (up from +7.6% the previous month), but overall gain has increased from +28.4% to +34.6%. Share prices inched up slowly but steadily (and somewhat reluctantly I would add) due to increased confidence in the global economy, but some pessimism over Greece and Dubai dampened spirits a little.

Special Year-End Review for 2009

I would say the year had started off innocuously enough, with the STI hovering close to 6-year lows and pessimism at a high. The feeling and sentiment at the time, I recall, was one of deep despair and it felt as if an impending doom was on its way, with the news full of predictions about the collapse of the global financial system and a 10-year recession in which the world would see zero to negative growth. Economists really outdid themselves and tripped over one another to come up with more and more dire forecasts, and of course everyone believed in the ultimate Prophet of Doom (Nouriel Roubini) as he was arguably the one who forecast the entire sub-prime mess back in 2007.

Despite harbouring these dark thoughts and feeling fearful, I did manage to keep some wits about me and continued to research for good companies to invest in. As this was my first true bear market, the fearsome spectre had well and truly enveloped me in its embrace and I did feel fear and trepidation as keenly as any other investor who was unused to seeing valuations fall off a cliff. While I was warned by experienced investors in SI forums about how severe and savage a bear market could be, I must admit one really has NO IDEA until one has lived through a bear market; and the shock and horror of it all was not lost on me. Till this day, I willingly admit that my previous aura of invincibility had crumbled around me as share prices literally melted. It is not easy to survive a bear market and on hindsight, the most money can be made in a bear market if you know how to deploy capital wisely and assuming you HAVE capital on hand to deploy. A good savings habit really helped me out in that it gave me valuable capital to average down on positions in which I felt confident about, even though these positions later turned out to be flawed (as was the case with Ezra and Swiber). I did what seemed right at the time, putting more money into positions which I had fully researched and was comfortable to hold for many years; hence I increased my positions in Tat Hong and Boustead as well.

Looking back at the wreckage of the bear market, I am saddened to report that not everyone had got out of it alive and well. There are friends who entered close to the peak of the bull market of 2007, and they were too scared to average down and too much in despair to cut losses (when you are 90% down, it’s rather hopeless to cut losses). But the importance of this bear market has got to be the lessons it has handed down to me – in that valuations matter a lot when choosing companies to invest in; and nothing short of thorough research is needed to help one stay alive and preserve capital. I may have survived the mauling this round, but there is no room for complacency as there will be many more bear markets and many more chances to lose capital. Therefore, I have to persevere and stick to my principles in value investing, and continually seek to improve myself. Only then will I be able to be assured of consistent returns on my investment, over the long-term.

The search goes on for under-valued companies in 2010, and my mistakes in 2009 have changed my perception of “risk” and made me much more cautious. My next step is to read “Security Analysis” by Benjamin Graham and David Dodd, and it is one of my resolutions for 2010. The path to becoming a better value investor is fraught with difficulties, but I have many more years to hone my knowledge, and this blog will continue to act as a diary of my investment journey.

Personal Finance Review for 2009

I just wanted to add a short note on my personal finance journey, as I am tracking my total assets, HDB loan and net worth every month. Currently, I am continuing to save about 45-50% of my take-home salary, and my net worth position has dramatically improved since Jan 2009 because of the huge rally in May 2009.

Total assets have about doubled since Jan 2009 (counting in cash balances, equities and insurance policies), while my HDB loan has been reduced from about S$127K to the current S$112K. If my projections are accurate from my loan amortization table (which extrapolates using a concessionary rate of 2.6% per annum for the whole of 2010), the HDB loan should break the S$100K mark in late 2010, and I shall have about 6 more years to clear the loan completely. Until then, I shall continue to save, invest and insure. My next personal finance update will be at the end of 2010 (once a year).

My next portfolio review will be on Sunday, January 31, 2010.

Wishing all readers a Happy and Prosperous New Year! May 2010 be a year of good luck and good health for all!