Sunday, January 31, 2010

January 2010 Portfolio Summary and Review

I guess the most earth-shattering piece of news this month is the announcement by American President Obama about new controls over banks and what they can do. On January 22, 2010, he proposed that commercial banks be prohibited from entering the investment business; and to just stick to what banks do best – provide loans and earning money from loans and interest. Basically, this is the concept of the “old-fashioned bank” and seeks to move backwards in terms of banks’ allowable activities and roles. This has similarities with the Glass Steagall Act enacted in 1933 as a result of the Great Depression, and was a direct legislative measure in response to the failure of 5,000 banks during that harrowing period. In addition, he mentions 2 additional reforms – that of ensuring that banks (which received taxpayer-insured deposits), are not allowed to put such monies at risk by operating hedge funds and private equity funds; and to prevent big banks from further merging and consolidating till America is left with just a “few super large banks”, which will NOT benefit the average American. Of course, the markets did not take to his comments very well and a savage sell-down ensued, with the DJIA falling over 500 points in just 3 days.

In addition to this (apparently) ground-breaking news, news also trickled in about China’s economy growing 10.7% year-on-year for 4Q 2009; and its December 2009 inflation jumped to 1.9% from a negative inflation last July, while bank lending rose sharply as well. All these pointed to China possibly over-heating as its GDP growth for FY 2009 hit 8.7% (some websites report a “revised” figure of 8.2%), which for any nation is considered breakneck growth. China has begun the task of reining in runaway lending by banks, by hiking the reserve ratio and also directly telling banks to freeze lending. Of course, all these measures had the knock-on effect of providing yet more jitters to the stock markets as everyone got worried that the economic recovery after the Great Recession would grind to a halt. So instinct and emotion took over and caused the selling to intensify, especially in Asian markets as well.

Back in Singapore, signs are pointing to more property inflation in the months ahead, with our local newspaper reporting that private home prices rose 7.4% in 4Q 2009, following a blistering 15.8% increase in 3Q 2009. Resale prices for HDB flats also hit a fresh record in 4Q 2009, rising 3.9% (bringing the full year 2009 increase to 8.2%); while median COV (cash-over valuation) doubled from S$12,000 to S$24,000! And in a triple whammy, COEs for cars also crossed the S$20,000 mark for the first time since 2004, buoyed by high demand (as a result of sharp discounts given by retailers) and controlled supply of COEs (and less scrapping of older cars). These effects all add up to make Singaporeans a lot poorer, as property priced continue their relentless climb and people have to fork out more for their dream home.

For myself, I took the opportunity this month to clear off my entire shareholding in China Fishery, and had written a blog post about it a couple of days ago which readers can take a look at. The announcement of the dual listing came at a bad time as I had just written my post on dual listings, and to me this was like a slap in the face (it certainly felt that way, trust me!). The proceeds of about S$50,000 were then channelled into a company Kingsmen Creative which I had been researching for some time, and I felt it had decent growth prospects and could provide a steady dividend yield. Purchases were made on January 25 and 26, 2010. It had net cash (good balance sheet), strong cash inflows, a steady order book, dividend yield of about 5.3% and revenue and earnings growth over the last 5 years. I will be doing a more detailed analysis of purchase in due course; but in the meantime I had pumped in about S$42,000 into this company, with at least a 5-year view unless something goes drastically awry. This has raised the cost of my shareholdings to the S$150,000 mark, a new level which I previously had not hit. The good news, of course, is that my total assets are increasing month by month while my HDB loan is being paid down; so my net worth is increasing at a comfortable pace. Coupled with regular savings of about 45% of my net salary, I still manage to maintain a buffer in case of emergencies, and this also forms my growing opportunity fund in case more investment opportunities crop up.


For the month of January 2010, there was very little business activity announced among the companies I own:-

1) Boustead Holdings Limited – In early January 2010, Boustead announced that its energy division had secured S$68 million worth of contracts from around the globe. In a span of a few weeks, Boustead had boosted its order book by S$500 million; and this was a good start to the calender year. On January 6, 2010, Boustead announced that it had launched a portal called whereto.sg, which is an interactive map portal of Singapore.3Q 2010 results should be released by mid-February 2010.

2) Suntec REIT – Suntec REIT released their FY 2009 results and declared a dividend of 0.318 Singapore cents per share, on the new units plus existing units. If added to the previous stub dividend of 2.568 cents per share, total dividend would have been 2.886 cents per share, representing an annualized yield of 10.4% at my purchase price of S$1.11.

3) First Ship Lease Trust – FSL Trust released its 4Q 2009 and FY 2009 results and fortunately, there were no nasty surprises. DPU was US 1.5 cents per unit and there was a press release by Philip Clausius saying that the worst had passed but the shipping industry remains in the doldrums; however all lessees are still honouring their leases and cash flow remains healthy. A guidance of US 1.5 cents was given for1Q 2010, and FSL Trust may revisit the bond issue which was scrapped last year in the wake of the Dubai crisis; with the funds going into possibly purchasing distressed vessels with high yield. From the way I see things, the yield has got to be much higher than the proposed coupon rate of 12% for a bond issuance if FSL Trust wants to go ahead.

4) Tat Hong Holdings Limited – There was no significant news from Tat Hong during January 2010, except some clarifications on their Joint Venture company in China and also Tutt Bryant giving some market updates for 3Q 2010, saying that conditions remain “subdued” and revenues were not as high as expected (though expenses were also lower than expected). This would imply Tat Hong would NOT have a very good 3Q 2010, contrary to Mr. Roland Ng’s assessment that conditions will begin to improve from 2H FY 2010 onwards.

5) MTQ Corporation Limited – There was no news from MTQ for the month of January 2009.

6) GRP Limited There was (predictably) no news from GRP during January 2010.

7) Kingsmen Creative Holdings Limited – There was no news from the Company in January 2010. Full-year 2009 results are expected to be released in late February 2010, and the Company will also give guidance on its order book as well as the performance of its various business divisions (the major ones of which are “Museums and Exhibitions”, and “Interiors”).

Portfolio Review – January 2010

Considering the new turbulence in stock markets this past month, the portfolio managed to stay relatively stable and recorded a gain of 6% over my new cost of S$150,800. Realized gains had increased to S$52.6K due to the divestment of China Fishery, and as mentioned some of the proceeds from that divestment had been reinvested into Kingsmen Creative. The STI saw a drop of 5.3% this month on concerns about US banks (Obama’s speech) and also China’s policies on reining in overheating and rampant lending. It is expected that pessimism may continue for some time to come.

In the meantime, I will continue to seek out good investment opportunities; or I may also average down on existing positions if the valuations are favourable. February 2010 will be an interesting month as full-year results will be released for most companies, and I also look forward to quarterly reports from GRP, Boustead, Tat Hong and Kingsmen Creative.

My next portfolio review will be on February 28, 2010 (Sunday).

11 comments:

- said...

Although a technician by trade, I follow your posts with great interest. Afterall, great technicals tend to resonate with great fundamentals. Admire your enthusiasm and passion. BTW, Kingsmen - a great pick!

Trendlines said...

Apologies for the double post, but my nick is 'Trendlines' for the above comment

JW said...

Hi MusicWhiz, I was also taking interest in Kingsmen Creative, as well as GuthrieG and Aztech.

Think I could wait for your research on Kingsmen instead
:)

Musicwhiz said...

Hi Trendlines,

Thank you for visiting and leaving a comment. I will be posting my Kingsmen analysis of Purchase soon. :)

Regards,
Musicwhiz

Musicwhiz said...

Hi JW,

It may take a while for the full research to be posted up, as I intend to do it in parts (as usual) and I may intersperse other blog posts about other topics along the way as well.

Regards,
Musicwhiz

Leps said...

I am curious as to the amount you committed to Kingsmen. Was there any type of formula you used? eg x% of portfolio value, x number of shares.

also, you normally do pretty detailed analysis of a company's biz and cashflow etc, but what guidelines do you use for valuation and determining the margin of safety? is it earnings growth? DCF? NAV?

your rationale and valuation for GRP and MTQ seem pretty clear, but not so much for the other purchases. Would appreciate if you could explain in more detail? would like to learn more about your thought processes in these respects.

thanks

Musicwhiz said...

Hi Leps,

Nope, there was no actual formula used as in % of portfolio or such. I divested China Fish for $50K and decided to allocate S$42K out of that to Kingsmen. I added the remainder to my opportunity fund to watch out for better opportunities, so it's just a matter of reinvesting part of my profits and getting a suitable return on my cash.

I will use PER as an indicator and earnings/revenue growth (conservative) as a precursor for screening. Margin of safety comes from analysis of the Balance Sheet over many years (which implies how well the company is run), ROE, Cash Flow analysis and such. There's no hard and fast rule and for me, as long as valuations are fair, I am willing to invest and hold for medium-term. But many factors have to be in my favour before I commit, though intangible aspects may also affect my final decision. In short, it's not science, sometimes it's also based on gut feel and my experience analyzing businesses over the years.

I did do an analysis for Tat Hong, and for Boustead I thought the reasoning was pretty clear from all my yearly analyses. As for Suntec, it's an IPO stock and my first and giving yield of 10% so I don't see why I should get rid of it. As for FSL Trust, yes it's a mistake but it's giving cash flows too, so no reason to cut loss now as I still have ample opportunity funds without divesting.

For Kingsmen, you'll have to wait for the full analysis (I am still working on it).

Regards,
Musicwhiz

Leps said...

Hi MW

Thanks for the prompt and detailed reply, really appreciate it.

Sorry I wasnt clear in my comment. Your rationale for purchase of all your companies are always set out in a detailed fashion. It was more on why the purchase at a certain price, and what amount of margin of safety that I didnt really discern from them. But, as you have explained, it is more of an art than a science, so I understand that better now. Many thanks and wishing you continued success

Musicwhiz said...

Hi Leps,

Yes, unfortunately it is definitely more of an art than an exact science. This is the reason why investing cannot be "taught". If not, then all the students and professors would be filthy rich by now haha!

Good luck and Regards,
Musicwhiz

Roger said...

Sorry, this has no relevance to this post.

What do you think of private placements like the recent one by China Sports?

The market reacted negatively, and headed for the exit. I was too slow off the blocks. But I am learning...when the stampede starts, scramble for the exit fast1

Is this wise?

Musicwhiz said...

Well Roger,

Private Placements are for raising funds through equity. These are called Secondary offerings, and the way the market reacts is partly due to sentiment, partly to fundamentals.

Think about it - if a company had to periodically raise money in this way and dilute existing shareholders, all in the name of finding "strategic partners", is that a good thing in the long-run? One must observe and study the business model and Balance Sheet in order to make such deductions.

I would say if you are trading based on sentiment, then I cannot give advice. But if you are studying the fundamentals, then please do look at the Financials, margins and other aspects of the Company.

There's a lot of homework and reading to do out there. :)

Good luck!
Musicwhiz