Thursday, September 30, 2010

September 2010 Portfolio Summary and Review

As expected, September 2010 was a very quiet month with hardly any corporate announcements from the companies in my portfolio. This was to be expected as September has traditionally been a very quiet month, and I have confidence that the businesses I own are slowly but surely building up their competencies and capabilities to tackle the new challenges ahead.

This month was one of quiet reflection over the business aspects of the companies I own, as well as a little more delving into SIA Engineering Company, which was an investment I had acquired in early August 2010. As can be seen, most of my posts have been on property, investing and SIA Engineering. Moving forward, my thoughts are focusing more on personal finance areas and also on the latest news on Singapore Airlines (SIA) issuing corporate bonds for retail investors. This is a very interesting development as corporate bonds had never been available to retail investors before; previously they were issued to either institutions or sophisticated investors (accredited high net-worth investors). SIA will be issuing S$300 million worth of bonds at a yield of 2.15% per annum, coupon to be paid annually (the announcement did not say otherwise). Suffice to say that the yield is really pretty dismal, considering one can get yields of at least 3-5% in equity markets right now. However, in the current low interest rate environment, getting a coupon rate of 2.15% is still significantly better than the abysmal 0.125% which is being paid by most savings accounts. Of course, one has to also consider the fact that SIA is one of the well-run and well-established airline companies in the world; hence the risk of default will be low, which is why the bonds are paying such a low interest rate. Another advantage of bonds is that they rank above equities in terms of payment should anything untoward happen to the Company, although they rank behind secured debt. It will be interesting to see the general public’s response to this bond offering, and also observe how the media covers this and “plays it up”.

On the economic news front, USA is obviously undecided whether it will have a double dip, with most economists and “experts” trying (in vain) to second-guess one another. Obviously, the one who happened to get it right will be lauded as the new “soothsayer of the year” and enjoy a reputation akin to what Nouriel Roubini is currently enjoying. Such is the strangeness of this world, where people constantly try to predict that which cannot be predicted, only to have to “revise their forecasts” constantly. I still think economists have the best job in the world because they can always afford to be wrong yet still retain their jobs. Imagine if that were to happen in the engineering field - a suspension bridge is calibrated wrongly and collapses. Someone would lose their life, and not just their job.

Over onto the property scene in Singapore, it appears that the recent “draconian” rules which I had written about a while back appear to have dampened sentiment considerably, especially in the HDB resale market. COVs appear to be headed southwards, and sellers are becoming more realistic in their asking price. The Government has also released more plots of land for development and developers appear to be a little more cautious in releasing their projects; though most report that sales are still “healthy”. The Business Times published a Property Supplement on September 23, 2010 in which one of the article contributors, Kelvin Tay (Chief investment strategist at UBS), mentions that the market may be in a state of denial over the presence of a bubble, and he cites examples of Japan’s real estate bubble in the 1980’s and the more recent American sub-prime housing debacle. All I can say is that if one is prudent and makes provisions for exigencies, he will not get caught by surprise should prices crash suddenly and inexplicably.

Interestingly, on the personal finance front, the Sunday Times (in its September 26, 2010 issue) ran an article in its “Invest” section called “Generation Debt”. The article reports rather shocking statistics where it mentioned that those in the 20-29 age group had the highest rate of defaults on their debt, at 7.16% (which far exceeded the average of 3.11% for all consumers). Credit card defaults were the most common, with other types of debt including overdraft, mortgage and motor vehicle payments. Mr. Ben Fok, CEO of Grandtag Financial Consultancy, comments that 20-somethings “cannot exercise self-control, and have not mastered the art of delaying gratification and (thus) spend more than they can afford to”. It’s quite a worrying trend to see this happening as this generation is supposed to be the “future” of Singapore as they will be entering the workforce and setting up families in 5-10 years time. If they cannot manage their finances properly, the future of Singapore appears bleak….

And just yesterday, news reports mentioned a sensational and unbelievable fraud case involving two employees of Singapore Land Authority (SLA) of up to S$11.7 million! The sheer amount and audacity of it really stunned me (this news coming hot on the heels of the widely reported SPH cheating case), and I guess the perpetrators had not expected to be caught red-handed, which was why they freely went on a shopping spree, scooping up luxury cars, designers bags and watches, jewellery and properties. It really boggles the mind how such a massive fraud could take place and yet go undetected for 2.5 years. I’d be interested to know the inner workings and machinations behind this fraud case to see just how these jokers managed to keep it under wraps for so long.

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

1) Boustead Holdings Limited – There was no significant announcement from the company for the month of September 2010. However, The Edge Singapore did run a 3-page interview with FF Wong of Boustead; and in it he details his plans for expansion of the Group through various avenues, and also his plans to grow the company in the next couple of years.

2) Suntec REIT – There was no news from Suntec REIT for the month of September 2010.

3) Tat Hong Holdings Limited – On September 13, 2010, Tat Hong announced that the Group would be subscribing for further equity interests in Tat Hong Zhaomao Investment Co., Ltd. This will raise their stakes in these China joint ventures slowly but steadily, and allow them to recognize a larger portion of revenues and earnings. On the Tutt Bryant front, the acquisition of the remaining shares is proceeding well and the transaction should be completed by CY 4Q 2010. I expect earnings recognition to start flowing in during 3Q FY 2011.

4) MTQ Corporation Limited – On September 3, 2010, MTQ announced that they had injected an additional USD 2.97 million into MTQ Oilfield Services W.L.L (MTQ Bahrain). Following these injections, the registered capital of MTQ Bahrain now stands at USD 3.6 million. Separately, on September 24, 2010, MTQ announced the appointment of Mr. Nicolas Campbell Cocks as Independent Director of the Company.

5) GRP Limited – There was no news from GRP for the month of September 2010. The Annual Report should be out by October 2010 and the AGM will be held in November 2010.

6) Kingsmen Creatives Holdings Limited – There was no news from the Company for September 2010. I did manage to meet the CEO Mr. Benedict Soh in a “Meet the CEO” session organized by Kim Eng Securities. There, Kingsmen’s General Manager Andrew gave a brief presentation on the Company’s competencies, projects and customer base; and those present (including myself) also managed to ask a few questions of Management. It was a fruitful session, and I also received hard copies of Kingsmen’s latest annual newsletters (one for Exhibitions & Museums, another for Interiors).

7) SIA Engineering Company Limited – There was no news from the Company for September 2010.

Portfolio Review – September 2010

Realized gains have remained constant at S$46.4K as there was no transaction for the month and also no companies going ex-dividend. For the month of September 2010, the portfolio has gained +7.28% against a +5% rise in the STI. On an annualized basis, the portfolio has gained by +18.1% against the absolute gain of +6.9% for the STI. Cost of investment remains at S$202.4K, and unrealized gains stand at +24.3% (portfolio market value of S$251.6K).

October 2010 will be somewhat slightly more interesting than September 2010, as one of my companies (Suntec REIT) will be announcing its 3Q 2010 results. Other than this, expect more of a wait till November 2010 where Boustead, Tat Hong, MTQ and SIA Engineering will release their 1H FY 2011 results. I somehow have an uncanny tendency to pick companies which have March 31 financial year-ends! GRP will also be releasing their FY 2010 Annual report, and the AGM should be some time in late October 2010.

My next portfolio review will be on October 31, 2010 (Sunday).


Cory said...

Q. Realized gains are this carried forward from previous years ?

Annualized Result is this CGAR ? And how divident is computed into it ?

thanks for sharing !

Musicwhiz said...

Hi Cory,

Yes, realized gains comprise ALL gains and losses which have been realized from my investing days since I started investing in Dec 2004.

Annualized result is CAGR yes. Dividend is computed into realized gains, NOT unrealized gains once received. CAGR includes the dividends and compares portfolio as at Jan 1, 2010 with the portfolio now, adjusted for changes in portfolio mix values.


PanzerGrenadier said...

Hi Musicwhiz

I am also professionally interested in the alleged SLA $11.8m fraud case as I am an internal auditor.

Would be interesting to learn more as the case progresses.

Be well and prosper :-)

Musicwhiz said...

Hi Panzer,

Yep, I am very interested too. More leaning towards wanting to see justice done, haha!