June 2010 Portfolio Summary and Review

Call this an extremely slow and boring month, which June has traditionally been in terms of corporate news flow and updates. Add the fact that no companies are releasing any financial results this month and you can somewhat get the idea of how stagnant things can get. The World Cup, which began on June 11, 2010, has furthered shifted attention from the stock and financial markets to the television and newspapers (and maybe even the football betting outlets!). However, I have no cause to worry as I am confident that the companies in my portfolio are managed by competent managers who are adept at maximizing value for their shareholders. In other words, the businesses should be chugging along just fine even in the absence of material corporate developments.

In terms of economic news flow, the sporadic and conflicting news reports oozing out of the USA seem to paint a contradictory picture of whether the economy is slowly recovering, or still mired in quicksand (i.e. sinking slowly but surely). A huge amount of data is churned up by USA and other nations on an almost daily basis and the amount of information and news is staggering and mind-boggling. From what I gather, the psychological effects from the European debt contagion seem to have subsided somewhat, which implies that markets are acting more “rationally” now, if such a word can be used to describe it. This is not to say that the Euro Zone is out of the woods, but it simply seems to imply that people have “acclimatized” to these facts and so are not in “panic” mode anymore. Of course, if any sudden news comes out to report that another member of the Euro Zone is in dire straits, you can be sure there will be renewed panic and fear once again. Such events should be perceived by the astute investor as opportunities to accumulate shares in stable companies for the long-term.

Locally, the property market turned up rather subdued news, even though prices of resale private flats hit another new high. There seems to be a general feeling that prices are flat for now, and buyers and sellers are playing a cautious game as each does not want to budge. Caveats lodged in May 2010 was down 41% month on month and though developers are now gearing up for more launches, it remains to be seen if prices can hold up and maybe even hit new all-time highs. Even our Minister Mentor has come out to say that he believes there is “probably no property bubble here yet”, as housing prices are underpinned by real demand and foreigners still find our property here cheap. It remains to be seen if he is right on his assessment, and only time can prove if property prices are indeed “cheap”.

Inflation as reported for May 2010 inched up to 3.2%, and one can see that inflation is once again rearing its ugly head, while our local banks continue to pay extremely pathetic interest rates on savings account, ranging from 0.125% to 0.5%. In other words, even if you parked your money in the “best” savings account, your money is still losing about 2.7% of its value, slowly but surely. Therefore, let me take this opportunity to once again reiterate my stand – an investor should invest in companies with good dividend yield which exceeds inflation rate so that he can continue to grow his money to at least keep pace with inflation.

A very small mention on car COE prices in Singapore, which have crept slowly upwards as dealers and the public anticipate a further supply cut due to Mr. Raymond Lim’s new formula. Apparently, the Open category COEs are already breaching the S$40,000 mark, and look unlikely to come down anytime soon. In fact, when August 2010 arrive I’d expect them to rise even further. So my view is that anyone who can own a car in Singapore has to be somewhat rich, as even a simple Toyota Corolla can cost about S$80,000. Somehow it feels like owning a car in Singapore is becoming more and more of a lofty ambition, that is if you really want to retire with some smidgen of wealth left behind. Just my two-cents though, car owners please do not get offended!

Below is a snapshot of my portfolio and associated comments for June 2010:-


1) Boustead Holdings Limited – It was a generally quiet month for Boustead, except for the announcement on June 15, 2010 that they were involved in a potential M&A transaction to purchase 1% Convertible Notes in Bio-Treat Limited for S$42.7 million. This deal is still subject to financial and legal due diligence although the preliminary due diligence (i.e. inspection of the physical assets) had already taken place. As this deal may or may not go through, I await more news from the Company in due course, and will evaluate the merits/demerits of this decision when more information is available. Just as I thought the month was going to close quiet, Boustead announced on June 29, 2010 that Salcon had been awarded a S$21 million (AED 55 million) contract to build the first New Water Recycling Plant for Abu Dhabi in UAE (United Arab Emirates). The salient details are in the press release so I will not say too much, but the contract also comes with a 5-year operations and maintenance agreement.

2) Suntec REIT – There was no news from Suntec REIT for June 2010.

3) First Ship Lease Trust – June 2010 was probably one of the most nerve-racking for FSL Trust shareholders, as the Trust announced that both VERONA I and NIKA I were “arrested” as they had not paid up for bunkers supplied to them. This caused the share price to subsequently plunge to lows not seen since the bear market, and sort of affirms my belief that this is really one heck of a mistake! Counting in dividends, the loss will amount to about 35%, but the psychological impact and lessons learnt are really priceless. A small piece of “good” news was announced on June 18, 2010 when FSL Trust managed to secure the release of VERONA I after paying up US$1.6 million. The vessel will then be deployed on the spot market to continue generating some cash flows (estimated at about US$13,000 per day). The Trust is focusing on securing the release of NIKA I from a Chinese (Qingdao) court. Somehow I am not optimistic that all these issues will be resolves anytime soon, and forecast a drastic cut in 2Q 2010 DPU, which means my yield may drop even further. Lesson learnt – next time, go for sustainable yield rather than high yield.

4) Tat Hong Holdings Limited – There was no news from Tat Hong for June 2010 apart from a minor announcement on June 15, 2010 that they were incorporating a Joint-Venture company in China called Tat Hong Zhaomao Investment Co., Ltd with intended paid-up capital of US$30 million. Tat Hong have contributed initial capital of US$9 million and the monies were provided by the RCPS raised.

5) MTQ Corporation Limited – MTQ had announced on June 9, 2010 that UOB had granted them 2 Term Loans of US$9.8 million and US$9.2 million. These loan facilities are intended to part finance the construction of the Bahrain facility. Other than this minor announcement, there was no other news from MTQ for June 2010.

6) GRP Limited – There was no news from GRP for the month of June 2010. A very quiet company indeed with its financial year ending this month, and results are likely to be announced by late Aug 2010.

7) Kingsmen Creatives Holdings Limited – There was no news update or corporate announcement from the Company. A recent report dated June 25, 2010 by Kim Eng does provide some updates on the contracts and business prospects of the Company, but in my opinion the analyst is, as usual, too optimistic. Read the report for the facts, rather than believe the interpretation and the optimism. Another report by OCBC came out on June 29, 2010 and essentially mentions the same facts and prospects; but is worth a read because there is some in depth research into various aspects of the Company (except Cash Flows, I feel).

Portfolio Review – June 2010

Realized gains continue to remain at S$54.0K in the absence of any of my companies going ex-dividend (and also with no transactions during the month), and the AGMs of Tat Hong, Boustead and MTQ can be expected in July 2010. Note that for this month’s portfolio review, I have added in this month’s portfolio XIRR gain compared against STI’s gain, and also the YTD June 2010 XIRR gain (adjusted for withdrawals, further investments and dividends) against STI’s performance YTD June 2010. A rather surprising result was that my investment (according to Excel’s XIRR function) has appreciated by +31.4% since Jan 1, 2010 against the STI’s -4.3% loss, and I feel there must be some sort of mistake as I could not possibly outperform the STI by such a wide margin*. My investment cost has remained at S$175.4K as at June 30, 2010, my unrealized gains now stand at +8.5% (portfolio market value of S$190.3K).

July 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. Besides attending the AGMs (if I can make it), I will probably be doing more reading on investing, personal finance and life in general; and building up my war chest in the meantime.

My next portfolio review will be on July 31, 2010 (Saturday).

*Note: If there is anyone who can clarify on how to use and compute XIRR, I would be most appreciative. I do not want to perpetuate the fallacy that I have done much better than the index just because of a possible erroneous computation.