Friday, December 31, 2010

December 2010 Portfolio Summary and Review

It’s that time of the year again when I do a year-end portfolio overall review, as well as muse over the hits and misses over the past year. At the same time, I will also do a run-down of my financial position, and comment on my personal financial situation. My previous post already talked of my financial resolutions for 2011, so I will not bore readers further by delving into those. What I am simply going to do is to review my portfolio, loans and savings structure and give a very brief and succinct summary. The usual monthly commentary on the economy, property and other financial matters will follow, and I shall end off with my customary review of the companies within my portfolio. I will also make a brief mention of my expectations for my portfolio for 2011 in terms of business growth and dividends.

Review for 2010

The figure above is a new one which I compiled to take stock of the year’s decisions with regards to divestments, and also for dividends received. It offers a glimpse into realized gains and losses for the year as well as dividends received (in total) from each company within my portfolio.

Divestments and Dividends

As can be seen, there were just two divestments made during 2010, that of China Fishery in Jan 2010 and FSL Trust in Aug 2010. The capital gain and loss as indicated is taken as the absolute dollar value, and does not account for dividends received. The divestments yielded total cash amounts of about S$58,000.

For total dividends received, this amounted to about $10,800 from 8 companies, though do note that my current portfolio has just 7 (FSL Trust has since been divested), all of which yield dividends. The average monthly dividend is just $900 currently, and the blended yield based on my current portfolio cost is just 5.3%. Though this is not exactly impressive, I feel it is a decent return on investment considering I chose not to invest in high-yield, but potentially risky investments such as the aforementioned shipping trusts. There are also REITs out there offering high yields of 8-9% but I feel these have their associated risks which may be triggered upon the raising of global interest rates to combat inflation. Hence, the dividends from my current portfolio reflect a conservative approach to beat inflation yet preserve capital in the event of rising interest rates and/or another severe downturn.

Purchases for 2010 and Portfolio Cost

Two purchases were made during 2010 – that of Kingsmen Creatives and SIA Engineering (SIAEC). Capital was deployed in early Jan 2010 after the divestment of China Fishery into Kingsmen Creatives, and further purchases were made in May 2010 after Mr. Market became manic-depressive. A total of about S$67,000 was invested in total for Kingsmen Creatives. In August 2010, after a comprehensive research was performed on SIAEC, purchases were conducted over 3 days to the tune of S$49,000. Therefore, in total, S$116,000 was deployed into two companies during 2010, exactly double of the amount divested (S$58,000). The other S$58,000 came from aggressive savings and reinvested dividends. The net effect of these transactions (i.e. divestments and purchases) increased my portfolio cost from S$135,400 at the start of 2010, to S$202,400 by year-end 2010*.

*Reconciliation = Cost @ Jan 1, 2010 ($135,400) - Cost of Divested Companies (S$49,000) + new purchases for 2010 (S$116,000) = Cost @ Dec 31, 2010 (S$202,400).

Investment Plans for 2011

My plans for 2011 basically consist of researching and reading more books on investing, in order to hone my skills and sharpen my knowledge base. While I will still be conducting research in order to look out for potential gems, do note that my time will also be more limited as my work and my family demand more of my attention. This means that although I will be scouring around, the level of detail of the research may not exceed that of SIAEC, as it is both tedious and time-consuming as a one-man-show researcher of companies. Much as I would like to devote more time to this exercise, I realize that there are constraints to what one person can do. One reason I join Value Buddies forum is also to watch out for good ideas thrown up by forumers, which I can then spend more time to delve into rather than start from scratch from the more than 700+ companies listed on the SGX. However, if there are no companies to purchase, I will simply be content to accumulate cash from savings and dividends and wait until there are suitable opportunities, in order not to compromise on margin of safety.

The analysis of valuations will continue into 2011, as I half suspect valuations may rise further and contribute to stocks being more expensive than they are now. I also gauge the level of sentiment using the STI as a rough barometer, as well as the “activity” on investment forums and blogs. Lately, I had noticed more investment blogs being started by young adults (and even some teenagers) cataloguing their investment decisions. While starting young is applaudable, the sprouting up of more of such blogs also signals that the market is luring in more new players; which may indicate very early signs of frothiness and irrational exuberance. It will be interesting to observe this phenomenon in greater detail come 2011 to see if it is exacerbates.

Portfolio Expectations – Business Growth and Dividends

I am expecting business growth of about 10-15%, which is more or less in line with economic growth and inflation. The companies I own should have sufficient competitive moat to be able to raise prices to compensate for inflation in staff salaries and rentals, and the general recovery in the economy should spur more business for my companies and ensure decent cash flows. Since I am relying on all my companies to generate a decent yield for me, I would also expect that their cash flow will remain healthy; and that I can project a future dividend yield of about 5-6% on my entire portfolio cost.

Country-specific factors may influence the earnings of the companies I own too, as each country has a different operating, economic and political environment. Recently, GMG Global encountered some problems in Ivory Coast which made some of their exporting difficult, and the result was that business was affected to some extent. Although such events are tough to predict, it is safe to say that for companies which operate in countries with tough laws or unstable governments, the risk of something negative occurring is multiplied many folds. Even Boustead was not immune to problems in Libya as they attempted to build the Al Marj township according to their client’s requirements, and I’ve talked about the associated problems quite a few times already.

I was also thinking along the lines of possible scrip dividends being offered by some of the companies within my portfolio. MTQ is a likely candidate and I had already accepted the scrip for the interim dividend of 2 cents/share. I guess this validates an investor’s belief that the company will continue to grow and do well; thus the shares will be worth much more in future.

Property Market

The property market in December 2010 showed some signs of cooling down, with private property prices for mass market condos falling 0.4%, and median COV falling to $20,000. Though some believe that this is just a temporary “blip” before prices start heading north again, there are others who are confident that this is THE turning point and that prices will begin a slow but sustained descent. Whatever the case, I still feel that property prices remain high enough to be a major hindrance for young new couples trying to buy their first home. The Government has been launching more executive condominiums with the same $10,000 ceiling and priced exorbitantly (by my standard), so I feel the problem will not be alleviated any time soon.

Car (COE) Prices

I guess no one in Singapore should feel surprised that COE prices cracked the $76,000 mark for the “Open” category at the second bidding for December 2010. With the impending supply shrinkage according to the LTA’s new formula, there was a mad rush for COEs and this pushed the prices of cars up to ridiculous levels. I personally think the COE situation will probably get more and more out of hand, with prices hitting $100,000 by next year. Singapore will end up becoming a playground for the rich and wealthy with their expensive large cars, while the middle class stands by and watches on enviously as cars are priced out of their reach. It’s a sad but true situation.

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

1) Boustead Holdings Limited – The biggest news for Boustead in December was the termination of the Heads of Agreement with TT International (“TTI”) for the Big Box Project (Jurong East Entertainment Centre). The details can be found on SGXNet but essentially I was not too surprised at the failure of the deal to launch because of the repeated delays (which implied the parties were having a hard time hammering out the T&C), and also because of some onerous rules. FF Wong has a very conservative and prudent way of assessing potential M&A, and I am comforted by the fact that he will not jump headlong into a deal without doing proper due diligence to mitigate Boustead’s risks. On December 22, 2010, Boustead announced the termination of their proposed investment in Bio-Treats Convertible Notes, and instead said that they would be investing S$4 million to purchase 100 million shares of Bio-Treat at 4 cents/share. I guess this closes the chapter on both Big Box and Bio-Treat, and still leaves most of the cash stash essentially untouched and undeployed. It may mean a higher final dividend come May 2011, or it may also imply that FF Wong is again actively looking out for good M&A opportunities.

2) Suntec REIT – Suntec REIT declared a stub dividend of 1.723 cents/share to be paid on January 5, 2011 as a result of a private placement of 313 million shares at S$1.37 per share to raise funds to purchase a 1/3 interest in MBFC. The acquisition was successfully completed, and it is perceived that office rents will continue to trend up, so dividends for 2012 should be higher (it will fall for 2011 though due to rental reversions which are lower than the rates locked in during 2007-2008).

3) Tat Hong Holdings Limited – There was no news from Tat Hong for December 2010.

4) MTQ Corporation Limited – There was no news from MTQ apart from their scrip dividend scheme, which set the price of each scrip share at 83 cents/share. I have decided to accept 100% scrip as I wish to participate fully in the future growth of the Company, and am confident of its long-term growth prospects in the Middle East (Bahrain) and Australia.

5) GRP Limited – There was no news from GRP for the month of December 2010.

6) Kingsmen Creatives Holdings Limited – There was surprisingly a lot of news for Kingsmen this month. On December 3, 2010, it was reported that Kingsmen was involved in arbitration proceedings with one of their sub-contractors, Hup Lian Engineering, over some work over at Universal Studios Singapore. This is not expected to have a material effect on the Company. Three days later on December 6, Kingsmen acquired 11.7% of Kingsmen North Asia from Tan Ai Lian. On December 28, 2010, Michael Ng Hung Chiao was appointed Managing Director of Kingsmen’s China operations, while at the same time, Edward Ho Juan Hee stepped down from the same position to pursue his own interests. Michael has about 25+ years of experience working for Kingsmen, as he had joined in June 1984. Further to this, on December 29, 2010, the Company announced that there would be Management changes taking effect from January 1, 2011. Simon Ong (one of the founders) will be made CEO and will supervise the day to day operations of Kingsmen and strategic development, while Benedict Soh (the other founder) will focus on strategic roles, business development and to oversee the Group’s overseas offices. Other Management role changes can be found in the announcement on SGXNet. I feel this portends well for Kingsmen as we move into 2011 as they are looking to sharpen their focus and streamline their top management team.

7) SIA Engineering Company Limited – The only news from SIAEC was announced on December 9, 2010, saying that they had signed a S$300 million services agreement with Silkair. This is a 5-year contract and is a renewal, so does not qualify as a “new” contract announcement.

Portfolio Review – December 2010Realized gains stayed stagnant at S$49.1K as no more dividends have been declared by companies within my portfolio.

For the month of December 2010, the portfolio has gained +0.5% against a +1.4% rise in the STI. For FY 2010, the portfolio has gained +24.5% (using Excel’s XIRR formula) against the gain of +10.1% for the STI. Cost of investment continues to remain at S$202.4K, and unrealized gains stand at +20.1% (portfolio market value of S$243.1K).

January 2011 should be an interesting month as the new year promises new opportunities and challenges, and I should expect at least a trickle of corporate news and updates after the holiday season ends. Since February 2011 is the period whereby my companies will report results, I shall expect it to be still a relatively quiet month. Only Suntec REIT will report their results at the end of Jan 2011.

My next portfolio review will be on January 31, 2011 (Monday).

Let me also take the opportunity to wish all readers a very Happy New Year! May 2011 be a great year for all of you, and may you be blessed with good luck, good fortune and good health!


Singapore Man Of Leisure said...

Hello Musicwhiz,

I appreciate your sharing of your portfolio review. Together with the excel tools provided by Createwealth8888, I am benchmarking with pride on how to create a "dashboard" for my own portfolio.

Why re-invent the wheel?

Drizzt said...

Hey boss, great looking portfolio. Hope 2011 is great for you too.


Musicwhiz said...

Hi Man Of Leisure,

Glad you are able to do this! Thanks too for visiting my humble blog.

Happy New Year to you!


Musicwhiz said...

Hi Drizzt,

Haha thanks yes everything is fine. All the best to you too and Happy New Year!


The Value Fund said...

Nice set of results for 2010. Look forward to reading your adventure in the new year to come.

Musicwhiz said...

Hi The Value Fund,

Thanks for visiting!


PanzerGrenadier said...

Hi Musicwhiz

Wishing you a great start to year 2011!

Happy New Year!

PY said...

Hi Musicwhiz, Many thanks for sharing your thoughts. I truly enjoy reading your blog.
I am a little bit curious why you are not considering/adding any REITS to your portfolio. Company such as CACHE offers decent yield, with relatively low gearing ratio, long lock-in tenure period, annual rental escalation clause etc, which should be able to mitigate part of the risks associated with rising interest rate in the near future? Hope 2011 will be a great year for those who stay invested in equity. Happy New Year!

Musicwhiz said...

Hi Panzer,

Thanks for visiting and wishing you Happy New Year too! :D


Musicwhiz said...

Hello PY,

I really appreciate it when readers like yourself tell me that you enjoy reading my blog. It really provides the motivation and impetus for me to continue to write about my investment journey! Thanks so much for that.

As to why I did not select any REITs, it's because I do not understand them very well and feel that they are not within my circle of competence. It's not just a matter of interest rates; there are other factors to consider as well. I much prefer analyzing "normal" companies, haha.


Cory said...

24.5% CGAR is a solid return !
Hi Musicwhiz,

Just to make sure i read correctly,

Is the price delta between 1 Jan 2010 and 1 Jan 2011 ? And not the price starting from the date of purchase which can be 2008.

Nevertheless, whichever way, is a very good returns.

Musicwhiz said...

Hi Cory,

The % returns actually includes dividends as well; I simply took in all the cash outflows from purchase of shares, infows from dividends and divestments; and ran an XIRR using MS Excel, and that's the number I got.

Not too sure if it's the accurate way of measuring results. Mike Dirnt used to advise me on this but admittedly I've been slow to catch on.

Hope I am not misleading anyone here, and even if I do, it's purely unintentional! I myself feel that my returns are mediocre at best.


Cory said...

As mentioned your results are still good regardless.

Maybe i explain how i did mine recently.

Purchase A shares S$2.30 Year 2009.
Stock price increased to S$3.50 in Year 2010 1st Jan.

Stock Price raised further to S$4.00 by 31 Dec 2010.

My CGAR will be from S$3.50 to S$4.00 delta for FY2010. This is how i count...not sure is right.

Musicwhiz said...

Hi Cory,

Thanks for your comment. Hmm, that sounds about right I think!