October 2010 Portfolio Summary and Review

October 2010 was another relatively quiet month in terms of corporate announcements and business news. Despite the constant trickle of economic news and data coming out of the USA and China, there was not much of an impact in terms of stock market movements and sentiment. It could be that people are either more de-sensitized to such news, or the full brunt of the news has yet to sink in. Whatever the case, companies which are well-managed should still be able to grow, albeit at slower rates dependent on economic growth. As for the issue of inflation, the current low interest-rate environment will probably cause this to be a problem 1-2 years down the road; and I am hoping this problem is tackled sooner rather than later.

The “biggest” and most sensational international news appears to be China’s unexpected increase in interest rates during late October 2010. China raised the 1-year lending rate and deposit rates by 25 basis points (0.25%), partly to slow down China’s (continual) red-hot growth and also to tame inflation. Let’s not forget that China’s property prices have also been on an uptrend, with prices moving out of reach of most commoners’ (as a proportion of their annual salaries). I personally feel that China could be where the next “bust” will occur, as it is never mentioned that this is a possibility and everyone is somehow looking towards the USA and Europe to drag down the rest of the world. There was even some news to suggest that all the inflows of “hot money” exiting USA and Europe could find its way into China, Hong Kong and Singapore, thereby creating an asset bubble in both property and equity markets. Whether this is so will only be much clearer, on hindsight!

Locally, the most sensational news happens to involved the Singapore Stock Exchange itself, as it launched a massive merger bid for the Australian Stock Exchange (“ASX”). SGX is using a combination of share issuance and debt to fund this proposed purchase; but already analysts are lambasting the move as being overly ambitious, and SGX claims to be able to raise EPS by 20%; though dividend per share will likely decrease as the outstanding shares issued will rise significantly. On Australia’s side, this deal faces significant hurdles as the Australian authorities are unlikely to be too happy with the prospect of Singapore owning a piece of ASX. As events unfold in the coming months, it will be interesting to see how things pan out.

The property scene in Singapore is somewhat strange – transactions have levelled off for private properties; but HDB resale transactions hit the highest level in at least 7 years. In terms of prices, there was not much downward movement despite the stringent measures implemented by the Government on August 30, 2010. So perhaps this lends some credence to the assertion that “hot money” continues to buoy asset prices and I feel it may create an artificial “cushion” for high prices and lead people to feel complacent that this is the “new norm” in property prices. As I have repeatedly emphasized, interest rates are currently extremely low (just look at SIBOR) and therefore this is a very unusual situation in Singapore. When the US sub-prime market imploded, many also had not expected it and were caught by surprise. I’d hate to see the same thing happen for Singapore, and hope that “things are indeed different”.

There was not much news in the way of personal finance and cars in the local news for October 2010; instead much of the news was dominated by something non-financial – the haze situation which blanketed Singapore in late October! I guess the outlook on the global economy must be as hazy as the skies above Singapore, for I do see a parallel there! Jokes aside, it is hoped that Indonesia can clean up its act (pun intended) and ensure no more cases of haze in Singapore and neighbouring Malaysia.

As November is coming up very soon, this will be an interesting month as five of my companies will be reporting results. They are SIAEC (Nov 2), MTQ (Nov 3, lunch break), Tat Hong (FY 2010), Boustead (also FY 2010) and Kingsmen Creatives (3Q 2010). Due to time constraints, I may not be analyzing all the companies here and posting my views on their results; either that or I may summarize the results into one post rather than split it into parts which makes it harder to read and track. Whatever the case, all I know is that I am going to be very busy in November! Hopefully, my mood will be lightened by the declaration of generous dividends from the companies in which I own shares in.

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

1) Boustead Holdings Limited – On October 4, 2010, Boustead’s Energy-related engineering division was awarded S$9 million worth of contracts for the design, process engineering and construction of waste heat recovery units for onshore and offshore oil and gas installations in Brazil and Chile (i.e. South America). A more significant announcement was made on October 7, 2010 when Salcon clinched a multi-million dollar contract to design, engineer and construct a water treatment and return condensate plant for Tuas Power Ltd. The complex is slated to be completed in 2012 and builds on Salcon’s growing order book after its announcement in June 2010 of a S$21 million contract. With these two contracts in the bag, I foresee that Salcon should be able to turn in a second consecutive year of profitability for FY 2011, barring unforeseen circumstances.

2) Suntec REIT – Suntec REIT announced its 3Q 2010 results on October 25, 2010. A DPU of 2.503 cents per share was declared for 3Q 2010, down about 14% year on year. At the same time, Suntec REIT also announced the proposed acquisition of 1/3 of the new MBFC (Marina Bay Financial Centre), an iconic development which will be completed in 2013 and will be serviced by the Downtown MRT Line. Although financing details have not been released, it will probably be a combination of shares and more debt, which means a rights issue is likely on the cards. When that occurs, I will have to evaluate my position to review if I wish to finance this ambitious purchase, or if I wish to divest my holdings.

3) Tat Hong Holdings Limited – There was no news from Tat Hong for October 2010. Tat Hong’s 1H FY 2011 results should be released some time close to mid-Nov 2010.

4) MTQ Corporation Limited – There was no news from MTQ for October 2010. The Company will release their 1H FY 2011 results on November 3, 2010 during the lunch time trading break.

5) GRP Limited – There was no news from GRP for the month of October 2010. The AGM was held on October 29, 2010 (which I was not able to attend).

6) Kingsmen Creatives Holdings Limited – There was no news from the Company for October 2010. As the Group General Manager Mr. Andrew did mention that Kingsmen will not be announcing ad-hoc contracts anymore, I guess investors have to wait till each quarter’s results are announced to find out about the new contracts garnered and latest order book.

7) SIA Engineering Company Limited – On October 4, 2010, SIAEC announced that they had signed an A340 contract with Airbus to provide maintenance, repair and overhaul (MRO) services for Singapore Airlines’ fleet of five Airbus A340-500 aircraft. The value of the contract was not mentioned but it would last for six (6) years.

Portfolio Review – October 2010

Realized gains have continued to remain constant at S$46.4K as there was no transaction for the month and also no companies going ex-dividend. For the month of October 2010, the portfolio has gained +0.68% against a +1.5% rise in the STI. On an annualized basis, the portfolio has gained by +19.1% against the absolute gain of +8.5% for the STI. Cost of investment remains at S$202.4K, and unrealized gains stand at +25.2% (portfolio market value of S$253.3K).

November 2010 will be a very interesting month indeed as five out of my seven companies are slated to release results. It will be a busy time for me as I review their financials as well as business plans!

My next portfolio review will be on November 30, 2010 (Tuesday).