Monday, May 31, 2010

May 2010 Portfolio Summary and Review

I guess this month can be counted as “exciting” and “thrilling”, if those words can be used to describe the roller-coaster ride in the stock markets around the world! The Greek crisis and the devaluation of the Euro had caused all major market indices to hurtle towards a major correction, and markets had dropped so swiftly that it erased all of 2010’s gains so far, and then some. Strange thing was that the Greek crisis has been in the news for the past few months but investors seemingly chose to ignore it, till now! With the close to US$1 trillion bailout approved by Germany and other stronger European nations pledging to support the Euro and their weaker neighbours, there should have been ample confidence and stability; yet this was not so as Mr. Market’s pendulum swung from irrational exuberance to unjustified pessimism. The fear this time was that Greece’s debt would affect other weak nations in the Euro Zone such as Portugal and Spain and cause the entire Europe to derail, thwarting the global economic recovery.

While at this point in time it is unclear if the contagion will really spread across the world, what I can conclude with certainty is that companies will still continue to do business, and cash will still continue to flow; and perhaps everyone should just relax and continue buying good companies. I took the opportunity to deploy about S$25K in cash to bolster my shareholdings in Kingsmen Creatives (as mentioned in my previous post). By reviewing Kingmen’s business model and cash flows, the company has been consistently generating healthy FCF without the need for heavy investment in capex and without needing a lot of working capital; hence I can foresee that dividends should continue to be paid. Assuming the dividend remains unchanged for FY 2010, the shares will provide a potential yield of 6.2%; and this is in addition to potential growth as Kingsmen extends its footprint across South-East Asia and the Middle East. Since I had already reviewed Kingsmen in my last post, I shall not provide further details here.

Property prices seem to be have hit another high in Singapore with buying momentum strong. However, on May 21, 2010, the Government announced that it had released 31 residential sites in 2H 2010, which can generate 13,905 private residential units. Most are located in suburban areas or the city fringes. With this inflow of supply, will it indicate that housing prices will begin to stabilize and perhaps dip? Housing affordability is one big bugbear of mine, even though I already “own” an HDB flat, as some of my friends are having trouble affording an HDB flat as the COV is too high! Those who earn a combined income of more than S$8,000 are finding HDB resale flats too expensive, and condos are far worse of course. I will talk more about this in next month’s portfolio review, once the effects of this announcement have taken their time to seep into the property market.

Regarding personal finance, of which I blog about occasionally, there was a news article in the Straits Times on younger Singaporeans struggling with debt (May 21, 2010). The article mentions something shocking – 7.16% of those in the 21-29 age range defaulted on their credit card debt in 2009. Apparently, a lot of youths in this age group had just started work and could not manage their expenses and assets well; thus landing in trouble by racking up huge credit card bills. Paying only the minimum sum meant that the debt snowballed beyond control, and led to defaults. The main reason, says Ms. Chen Yew Nah (Managing Director of DP Credit Bureau, which compiled the numbers), was that youths like to acquire possessions “that signify they are successful”. By this I would automatically assume she is referring to iPhones, gadgets, cars, branded luxury goods and other material items. One should always be prudent with spending and avoid keeping up with the Joneses; in order to have enough savings to act as buffer and also for investment.

This month was a busy month as Kingsmen had released their 1Q 2010 results, and Tat Hong and Boustead also released their FY 2010 results (which will be reviewed later and posted up). Below is a snapshot of my portfolio and associated comments for May 2010:-

1) Boustead Holdings Limited – Boustead announced their FY 2010 results on May 26, 2010 and it was followed up by an audiocast similar to FY 2008 and FY 2009. Revenues were down 15% year on year, while gross profit was down just 7%. Net profit attributable to shareholders decreased 28% to S$43.1 million (largely due to absence of a S$22.7 million gain on sale and leaseback of an industrial property), while net profit margin was about 10% and ROE about 20%. A final dividend of 2.5 cents/share was declared, and in addition a special dividend of 1.5 cents/share was also declared, making it a total of 4 cents/share. I will be doing a detailed review of Boustead’s FY 2010 results, and will also be transcribing and posting up the question and answer session with Mr. FF Wong from the audiocast like I did for FY 2008 and FY 2009.

2) Suntec REIT – There was no news from Suntec REIT for May 2010. The dividend of 2.513 cents was received on May 27, 2010.

3) First Ship Lease Trust – There was a big negative whammy for FSL Trust this month, and it came in the form of a payment default by Groda Shipping, one of FSLT’s lessees. As a result, FSLT have to take re-delivery of their two vessels Verona I and Nika I. The vessels are now under contracts of affreightment with Rosneft, and the Trustee-Manager is exploring alternative solutions which will reduce risk of cash loss, while assuring (hapless) shareholders that no trigger of event or default and that there is no interest cost impact. Sadly, the 2Q 2010 DPU guidance of 1.5 US cents is now under review, and this may mean another DPU cut as cash flows get even thinner. The shipping crisis is far from over and this has been one of the most nerve-racking investments I have made so far; this mistake will reverberate for many years I think!

4) Tat Hong Holdings Limited – Tat Hong released their FY 2010 results on May 24, 2010. FY 2010 revenue was down 22% to S$495 million, while gross profit was down 21% to S$190.8 million (there was a slight improvement in gross margin). Profit attributable to shareholders was down 44% though, as the Company was hit by higher admin expenses and poor contributions from associates and joint ventures even though gross margin improved. A final dividend of 1.5 cents/share was declared on both ordinary and RCPS. I will be scrutinizing the numbers and facts and coming up with an analysis of Tat Hong’s FY 2010 results in due course.

5) MTQ Corporation Limited – Since I had already written Parts 1 and 2 of MTQ’s analysis, I won’t say anymore on MTQ as there was no news for May 2010 anyway. Look out for Part 3 which I am working on to be released some time in June 2010.

6) GRP Limited Unsurprisingly, there was no news from GRP for the month of April 2010. In other words, shareholders are still waiting with bated breath to find out what Management intend to do about their cash stash!

7) Kingsmen Creatives Holdings Limited – I had already written a post on Kingsmen’s 1Q 2010 results, and hence will say no more here. There was no news from the Company for the month of May 2010.

Portfolio Review – May 2010

Realized gains remained at S$54.0K in the absence of any of my companies going ex-dividend (even though dividends were declared, they were not yet approved at the respective AGMs). No direct comparison can be made between last month’s portfolio and this month’s as I have added to my position in Kingsmen Creatives and therefore increased my cost. My investment cost has increased to about S$175.4K (a new high) and as at May 31, 2010, my unrealized gains now stand at +3.9% (portfolio market value of S$182.3K).

June 2010 should be a relatively quiet month as none of my companies are expected to report results; and corporate news is also usually slow during this period. Hence, I will most likely make use of this month to fully analyze Tat Hong and Boustead’s FY 2010 results, as well as to continue to build up cash reserves for investment.

My next portfolio review will be on June 30, 2010 (Wednesday).


Ah John said...

Good discipline!

Musicwhiz said...

Hi Ah John,

Thanks for visiting!


goat said...

Hi MW,

1) Would you consider adding to Suntec REIT currently at 8%+ yield?

2) Why not get Starhub at >9% yield currently instead of Kingsmen?


harsha said...

Are you understating % of Total Gains? I'm assuming realized gains flow into portfolio cost.

Musicwhiz said...

Hi goat,

I won't add more to Suntec as it's a REIT and I am not an expert at them. I have retained my initial lots from IPO mainly for "sentimental" purposes and also because it has given me about 10% yield. :)

As for Starhub, there are 2 reasons I avoid:-

1) I don't understand the business very well - a lot of technical terms and technical aspects.

2) The Balance Sheet is loaded with a lot of debt, and it is in a net current liability position.


Musicwhiz said...

Hi harsha,

Realized gains do not flow into portfolio cost. I keep these 2 separate. By right, I can use the realized gains to offset portfolio cost but that would distort the true return. I will give an example.

Say GRP bought @ 20 cents. I receive 2 cents dividend thus far and the share price is say 21 cents. So technically the return should be 3 cents dividend by 20 cents = 15%. But if I use the dividends to reduce my cost for GRP to 18 cents (i.e. 20 cents minus 2 cents), then the unrealized gain would then be 3 cents / 18 cents = 16.6%. Hence, to get a more accurate picture of returns, I choose to keep cost and realized gains separate.

Hope this explains!


Royston said...

Hi MW,

Do you think you can consider adding email subscription to your blog via feedburner?


Musicwhiz said...

Hi Royston,

Erm. How do you do that? I must admit I am not very tech-savvy, so I am not sure about all this stuff.

Care to advise please?


Royston said...

Hey MW,

Its quite ez actually...just login to feedburner using your google account...

There's an option for you to enable email subscription. Then you just need to copy and paste the code provided as a html code gadget.

Feel free to let me know if you need any help with it.


cif5000 said...

"Hence, to get a more accurate picture of returns, I choose to keep cost and realized gains separate."


Maybe it is just me who is curious about your XIRR after you started value investing.

I had showed you the elaborated way to calculate if you don't have that function in Excel, and the alternate way of using Google Docs. Hope you will be curious too, and run the numbers...

Musicwhiz said...

Hi cif5000,

To be honest, I am very curious too, just like you! Haha.

I have managed to get the XIRR function working on my office computer, and did manage to churn out some real return figures on some of my recent divestments (i.e. Ezra, Swiber and China Fishery) after accounting for dividends.

However, on a portfolio basis, I face some difficulties as I do not know which date I should use as the "start point". It's widely acknowledged (by myself) that I switched to value investing in late 2007, after selling off my Global Voice (EUNetworks). However, would it be wrong to use an arbitrary date and start computing from there?

Would love to hear your thoughts or suggestions on this!


cif5000 said...

The beauty lies in the ability to set whatever start date you prefer. Just remember to carry forward the portfolio value and use that with the start date. In that sense, you can calculate the return for any period that you want. e.g. yearly return, quarterly return, since 01Jan2008, since 01July2005, return for the period of Mar2008-Mar2009, etc, etc...

There is no right or wrong. The scoreboard allows one to see if over the years, one is indeed progressing (you will agree that month to month changes are irrelevant)

You can also compare quarterly and yearly performance against selected benchmarks.

Isn't that wonderful?

Musicwhiz said...

Hi cif5000,

THat's very true! But it will take a while for me to key in everything as I started investing in Dec 2004! Give me some time to work it out and perhaps I shall display it during my next portfolio review.


Mike Dirnt said...

Hi MW,

I agree with CIF. If you noticed, i have computed my returns on a monthly basis. I calculate in terms of holding period returns. Holding period return (HPR) which is a Time Weighted Return is the industry standard in doing performance comparison. From monthly, you can then annualised those HPR.

HPR = [(End Portfolio Value + withdrawals + dividends - additions - Begin Portfolio Value) / Begin Portfolio Value] - 1

Mike Dirnt said...

i think you can forget about finding the right starting date. it may be too long ago to keep backtrack. you can just start from the beginning of the year. so until end of june, you should have 6x monthly HPR or 2x quarterly HPR. then you can make use of these returns to compare against STI just for curiosity and benchmarking sake :P

Musicwhiz said...

Hi Mike,

Thanks for the advice. I've been playing around with XIRR but have been getting pretty weird %! I think I will use say June 2010's return for the month (from June 1 till June 30), as a % to measure performance for the month.

Then I will also do a YTD June 2010 comparison of my portfolio against STI. Correct me if I am wrong on this (as I am still new to XIRR):-

1) Starting market value should be a negative number (say my portfolio was S$150,000 as at June 1, 2010), so I key it in as -S$150,000?

2) All sale of shares are treated as +ve capital inflows? This would mean purchases are recorded as -ve?

3) Dividends received are recorded as +ve numbers?

4) Ending portfolio value should be a +ve number?

If I had done the above correctly, then my XIRR as at June 24, 2010 is around 26% for YTD June 2010. This is why I do not think it is correct as it seems too high!

Maybe either yourself or cif5000 can help on this? Most appreciated.


Mike Dirnt said...

MW the notation of + and - seems ok. as i said from your latest post, the IRR can get distorted at times depending on the timing of your large sale/additions

why dont you switch to the following formula?
monthly HPR = [(Month End Portfolio Value + withdrawals + dividends - additions - Month Begin Portfolio Value) / Month Begin Portfolio Value] - 1

if you want to be more accurate, make use of a smaller HPR ie weekly or daily