November 2010 Portfolio Summary and Review

Make no mistake about it – November 2010 was a rather sensational month, not just buoyed by news of QE2 (Quantitative Easing) and Hong Kong’s more draconian property measures, but was also filled with financial results announcements from five of my companies. This of course got me in a minor frenzy and had me busy for the last few weeks as I sought to read through all the news and updates to keep myself abreast of developments within the companies in my portfolio. Thus far, I have posted up my analysis and review of MTQ and Part 1 of Boustead, and this is set to continue with Tat Hong in December as I delve further into the results. I have also taken the liberty to include brief summaries of the results within my portfolio review for those who are not keen to read the (boring) details of a full analysis.

I think enough has been said of QE2 and I will not dwell further on that. The more interesting regional news (besides the release of Aung Sang Suu Kyi in Myanmar) is that of China and Hong Kong doing their utmost to rein in runaway property prices. Hong Kong made a rather draconian move of implementing a stamp duty of 15% on the sale of property, split equally between buyer and seller. While analysts and economists have remarked that the Singapore government is unlikely to follow suit (for fear of “scaring off” genuine buyers), the government has grudgingly acknowledged that the measures implemented on August 30, 2010 have failed to sufficiently cool demand and lower prices. As a result, a record amount of land has been released in order to ramp up supply for 2011 in an effort to bring down prices. Even MAS acknowledged that the current environment of ultra-low interest rates (SIBOR being just 0.44%) and the aggressive tactics used by banks to encourage loan growth may result in imprudent borrowing by a large swath of the population. It remains to be seen if there will be further measures implemented to cool the market.

On the COE front, prices have just hit a 10-year high with COEs for small cars hitting S$39,000, and those from the “Open” category hitting S$49,890. This means that a 1.6L Toyota Corolla now costs about S$110,000, while a mere Audi costs in excess of S$300,000 (note that this is enough to buy most couples a flat in a distant, remote part of Singapore). At the same time, the media reported that inflation was creeping up in Singapore, and stood at 3.5%. Incidentally, savings accounts at most major banks continue to pay a measly 0.125%, which means a lot of money will flow into equities, bonds and property. Part of the reason for the inflation is due to higher car prices, as dealers jack up prices in anticipation of a further shrinkage in the COE supply come February 2011. It all seems to be contributing to a boiling cauldron of speculation, and should the bubble burst suddenly and inexplicably, it would seem many will inevitably get burnt the way speculators got burnt back in 1997.

Another observation of mine is that there seem to be many more IPOs these days, the most recent being Sabana REIT (Singapore’s first Sha’riah compliant REIT). With sentiment being hammered by Ireland’s woes and China’s cooling measures, these new aspirants are seeing their share prices debut below their offer price, the most recent being Sabana (listed at $1.05) closing at $1.02. Amtek Engineering is another company which is due for a listing (at $1.30 per share), and all the shares to be offered are vendor shares. With the prevailing sentiment (on forums) being that it is an almost effortless task to apply for any IPO, receive an allotment, and stag it to receive instant profits, there seems to exists a cavalier attitude amongst punters and speculators; not dissimilar to the unadulterated enthusiasm being displayed at the height of the bull market during the heady days of late 2007. I guess it takes some loss of money (and face) to demonstrate the making money from Mr. Market consistently is extremely difficult and is not to be taken as a given. After all, everyone understands the concept of there being “no free lunch” and the all-important mantra of “Caveat Emptor”.

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

1) Boustead Holdings Limited – Boustead announced their results on November 9, 2010. Revenue for 2Q 2011 was up 14% to S$130 million, but net profit attributable to shareholders was down 25% due to higher operating expenses and lower gross margins. For 1H 2011, revenue was up 38% while net profit was up 98% (due in part to the disposal of a leasehold property). An interim dividend of 2 cents per share was declared, up from 1.5 cents per share a year ago. More details can be found in my separate posts on the analysis of Boustead’s results.

2) Suntec REIT – Suntec REIT’s EGM was held on November 25, 2010 at Suntec City Convention Centre Rooms 325 and 326 at 10:00 a.m. Basically the EGM was held to approve the acquisition of the 1/3 interest in Marina Bay Financial Centre (MBFC). There was a good crowd and some people raised very interesting questions; but since I was just a small shareholder since IPO, I didn’t raise any queries and was content to listen to others vociferously voicing their opinions (and displeasure haha). It was also amazingly well-organized, with a meal voucher being given to each shareholder so that there would be no rush for the food (and some people sweeping everything into their tumblers or plastic bags). A bento box set was given to each unit holder consisting of bee hoon, 2 buns, bottled water and a host of other cakes and snacks. Best of all, a free Suntec REIT EZ Link card worth S$5 was given to every registered unit-holder, and I took the liberty of handing it over to the ticket office at the nearest MRT station to exchange it for a cool S$5 note. I guess I can treat that as an early advance dividend! A placement was done yesterday at $1.37 per share to raise the S$428.8 million gross proceeds to fund the one-third stake in MBFC, and an early dividend will be declared for the currrent units.

3) Tat Hong Holdings Limited – Tat Hong released their 1H FY 2011 results on November 13, 2010. Revenue for 2Q 2011 was up 20% but COGS was up 25%, resulting in a 12% rise in gross profit. Net profit attributable to shareholders was just up 7%, and for 1H FY 2011 profit was just up by 2%, demonstrating that the recovery was actually slower than expected for the Company and those within the industry. An interim dividend of 1 cent per ordinary share and RCPS was declared, and is payable on December 17, 2010. I will be doing a review and analysis of Tat Hong’s results, but not in as great detail as the FY 2010 results. In a separate announcement on November 12, 2010, Tat Hong also announced the proposed acquisition of 70% of Hup Hin Transport Co Pte Ltd, which is a heavy transport solutions provider. The Company has a diversified fleet which includes 200 units of transportation equipment from lorry cranes, rough terrain, all terrain cranes, prime movers and trailers. The consideration for the shares is S$7.7 million (effectively valuing the entire company at S$11 million) and the NAV was S$6.8 million (meaning Tat Hong paid a slight premium to book value), while profit after tax as at Dec 31, 2009 was S$3.05 million. This means Tat Hong paid about 3.6x PER for their 70% stake in the Company. The rationale being that the acquisition can help the Group to leverage off each other’s strengths and capabilities and to broaden the Group’s customer base in the region.

4) MTQ Corporation Limited – MTQ released their 1H FY 2011 results on November 3, 2010, and I have provided a review and analysis of their financials and prospects in a previous post. On November 22, 2010, the Company also announced that the price of each scrip share under their Scrip Dividend scheme would be 83 cents per share. I have chosen to fully take up my proportionate share of scrip and will not be receiving any part of the dividend in cash, hence my realized gains for November 2010 will NOT reflect this dividend. MTQ also sent over its annual newsletter called Horizons which provided an update on the developments within Oilfield Engineering and Engine Systems.

5) GRP Limited – There was no news from GRP for the month of November 2010. The dividend of 1 cent per share was received on November 26, 2010.

6) Kingsmen Creatives Holdings Limited – The Company released their 3Q 2010 financials on November 10, 2010. Disappointingly, 3Q 2010 revenue rose 7.6% but COGS increased 9.5%, resulting in just a 1.2% increase in gross profit. As a result of higher other expenses, net profit for 3Q 2010 fell 17.7% to S$2.5 million. For 9M 2010, net profit rose by 5.2% to S$9.4 million. Cash flow generation for 9M 2010 from operations was S$15.2 million and FCF was about S$9 million, hence I was fairly confident that Kingsmen will be able to maintain their final dividend of 2 cents/share come February 2011 when they release their FY 2010 results.

7) SIA Engineering Company Limited – Things were fairly busy over at SIAEC. First, they released their 1H FY 2011 results on November 2, 2010; and declared an interim dividend of 6 cents per share, up from 5 cents per share last year. Revenue for 2Q 2011 was up from S$248 million to S$277 million, while profit attributable to shareholders climbed by S$5.4 million from S$61.1 million to S$66.5 million. For 1H 2011, profit rose from S$106.2 million to S$137.3 million year on year. The Balance Sheet remained strong with no debt and cash balances of about S$406 million. There was –ve FCF generated for 2Q 2011, due to a decrease in creditors of S$27.2 million, but for 1H 2011 there was positive FCF of about S$40 million. Overall, most of the cash outflows were due to the payment of the final dividend, and cash flow generation continues to be strong. I will NOT be doing a detailed review of SIAEC’s 1H FY 2011 financials as I had just posted up my 5-part analysis of purchase for SIAEC. On November 4, 2010, SIAEC announced their 25th Joint Venture (JV) with Panasonic Avionics to set up a Singapore-based MRO facility for in-flight entertainment and communications systems and components. For this JV, SIAEC will own 42.5% while Panasonic will own the remaining 57.5%. On November 26, 2010, SIAEC announced that their 6th line maintenance JV was up and running, with them partnering Southern Airports Corporation in a 49%:51% JV. The JV company is called Southern Airports Aircraft Maintenance Services Co., Ltd and is located at Ho Chi Minh City’s Tan Son Nhat International Airport. Both these transactions are expected to accrue long-term benefits for SIAEC as they slowly but surely grow their stable of JV companies and extend their presence around the world.

Portfolio Review – November 2010

Realized gains have jumped to S$49.1K from S$46.4K due to SIAEC, Boustead and Tat Hong going ex-dividend, but note that for MTQ, I have chosen to accept the scrip dividend (which was priced at 83 cents per ordinary share), therefore the value of the dividend is not included under “Realized Gains”.

For the month of November 2010, the portfolio has lost -4.5% against a +0.1% marginal rise in the STI. On an annualized basis, the portfolio has gained by +13.7% against the absolute gain of +8.5% for the STI. Cost of investment remains at S$202.4K, and unrealized gains stand at +19.6% (portfolio market value of S$242K).

December 2010 is set to slow down as companies have all but reported their 3Q results, and this is usually the time when corporate activity slows down as staff take leave for the holidays along with their families. I will not be expecting much corporate updates during the month, and can probably concentrate on analyzing the results from my companies; as well as thinking about issues such as property, personal finance and alternative investments.

My next portfolio review will be on December 31, 2010 (Friday). I will also be including a special year-end commentary and summary of my portfolio to discuss the rights and wrongs; and also to detail my investment strategy for the new calendar year 2011.