Sunday, July 31, 2011

July 2011 Portfolio Summary and Review

July 2011 was interesting as there was quite a bit of unexpected corporate news flowing from the companies which I own. This was surprising considering I only own 6 companies right now in my portfolio, one of which is a REIT. Also for this month, Suntec REIT and SIA Engineering released results which will be profiled in the respective company summaries below. Over on the political front, Norway suffered a horror terrorist attack on July 22, 2011 which highlighted just how vulnerable we all are to this kind of violence. Meanwhile, Spain and Greece continue to hog the headlines on their debt problems; and USA has decided to join the party with the Senate debating on whether to raise the debt ceiling to allow the country to borrow even more money. As if the amount they owe wasn’t obscene enough…..

On the local economic front, COEs and HDB resale prices have hit yet another high – it’s like a tired old stuck record when reading this kind of news. Nothing and nobody seems to be able to contain or control the raging increases in the cost of cars or of public housing, despite the many “draconian” controls imposed on the housing market in the past 18 months. With MAS tweaking their inflation forecast for the year from 4% to 5%, I somehow think that the economists over there are under-estimating the problem. As I mentioned before in a previous post, the combination of cheap debt and hot money will continue to drive prices up in the short-term beyond fundamentals. Therefore, for couples who wish to buy for the long-term, make sure you get a fair deal and stick to BTO flats if that is possible (i.e. income ceiling below $8,000).

There has been an addition in cost to my portfolio for July 2011, and this is attributed to an increase in stake in MTQ as a result of their recently announced acquisition of PSL (Premier Sea and Land). Cost has now increased from $210,000 to another new high of $219,000. As explained before, pending the refund of monies paid for my daughter’s hospital bill (through insurance claim which is taking forever to process), I shall not have very much more monies to channel into equities in the short term as I need to maintain a reasonable and sufficient cash buffer for emergencies.

Below please find my portfolio as well as corporate summaries for July 2011:-


1) Boustead Holdings Limited – On July 8, 2011, Boustead announced that its wholly-owned subsidiary, Boustead Projects, had entered into an S&P Agreement to sell a strata divided building to be constructed at 61 Ubi Avenue 1, for S$38 million. However, the sale will only impact FY 2014’s earnings. On July 22, 2011, Boustead Projects was awarded a Design, Build and Lease contract for Continental Alloys to build an integrated distribution and manufacturing facility at Jurong Industrial Estate. The facility will be completed in 2Q 2012 (which means costs will be incurred till then, after which recurring revenues will be recognized from rental income), and will take up 5,500 square metres. This latest contract brings Boustead’s industrial leasehold property portfolio to >90,000 square metres. Further on July 27, 2011, Boustead Projects was presented with two very prestigious awards at the Workplace Safety and Health Awards 2011. They are the WSH Silver Performance Award (third consecutive year running) and Safety & Health Award Recognition for Projects (“SHARP”) for zero accidents achieved over 1.5 million man-hours at its largest project – the $107 million Rolls-Royce Achord at Seletar Aerospace Park. I also attended the AGM held on July 29, 2011 and will do a post on it in time to come.

2) Suntec REIT – Suntec REIT released 2Q 2011 results on July 21, 2011. DPU for 3Q 2011 was 2.532 cents per share, a marginal increase over last year’s DPU despite the acquisition of 1/3 stake in MBFC. This was due to the DPU dilution arising from the issuance of new shares to fund the acquisition. Occupancy rates remained high for Suntec’s properties, though, and this should underpin the healthy dividends to be received every quarter. The dividend will be paid on August 29, 2011.

3) MTQ Corporation Limited – On July 6, 2011, MTQ announced a significant acquisition – that of Premier Sea and Land (PSL) and PEMAC for US$19.6 million. PSL provides oilfield equipment primarily used for drilling applications in Southeast Asia and has relationships with over 20 OEMs. PEMAC is a machining facility specializing in repair, retrofitting and component manufacturing of oilfield equipment and machinery and speciality fabrication. The acquisition was at 4.7x PER as PSL generated US$4.1 million worth of profits for FY 2010 (ended Dec 31, 2010). It was funded by US$5.79 million in cash and US$13.51 million in debt.

I also attended the AGM which was held on July 22, 2011, and took the opportunity to engage the Management on pertinent issues relating to the business; and to clarify doubts I had over recent acquisitions by MTQ for its Engine Systems Division as well as NMS and PSL. I will be summarizing the findings and thoughts on the AGM in a future post. I will also detail my thoughts on the latest acquisition of PSL and of MTQ gearing up into a net debt position to finance this purchase, among other matters. Some of my comments will be in line with a recent article by The Edge Singapore with Mr. Kuah Boon Wee regarding PSL as well.

*Please Note for MTQ – XD date has passed for MTQ and I have chosen to accept scrip, but the scrip dividend issue price has yet to be determined. Thus, for computation of XIRR returns as a benchmark against the STI, I had to assume that the dividend was paid in cash on September 16, 2011 in order to give an accurate XIRR figure. When the issue price of the shares is determined and I know my full allotment of scrip, the market value of my portfolio will then be adjusted for my September 2011 portfolio.

4) GRP Limited – GRP announced on July 13, 2011 that it was divesting itself of its 63.5% stake in GRP (China) Pte Ltd, which is its uPVC business division. The consideration for the disposal will be $1.92 million and GRP will book a gain on disposal of $313,327 for FY 2012. The rationale for the disposal was that uPVC has seen revenue declining for 3 consecutive financial years, and was also unprofitable and (I suspect) bleeding cash. Divesting it will free up GRP to re-focus resources on its Hoses and Marine and Measuring Instruments Division and also allow some working capital to be channelled back into the business. Overall, I see this as a mildly positive move but the financial effects are still unknown until the Company sends the Circular to shareholders seeking approval for the disposal in an EGM. Meanwhile, it is likely that FY 2011 results will be released in late August 2011.

5) Kingsmen Creatives Holdings Limited – Rather predictably, there was no news from Kingsmen Creatives for July 2011. Their 1H FY 2011 results should be released around mid to end-August 2011, and I shall be expecting the usual 1.5 cent/share interim dividend to be declared, barring unforeseen circumstances.

6) SIA Engineering Company Limited – SIA Engineering released their 1Q 2012 results on July 26, 2011. Revenue fell by 3.7% to $277.6 million, while net profit attributable to shareholders decreased by 3.8% to $68.1 million. If one-off items were excluded, then net profit attributable to shareholders would have decreased by just 0.7%. I shall not be doing a review on the results as this is just the 1Q results release. I skipped the AGM which was held on July 22, 2011 (same day as MTQ); and the dividend will be received on August 11, 2011.

Portfolio Review – July 2011

Realized gains have increased to S$62.6K due to SIA Engineering going ex-dividend on July 26, 2011 and Suntec REIT going ex-dividend on July 27, 2011. For MTQ, as I have decided to choose scrip dividend, I will not be recording any realized gains from dividends. When the scrip dividend is credited to my CDP account on September 16, 2011, I will automatically adjust my cost to reflect the reduction in cost arising from the scrip shares, and my portfolio market value will also account for the increased stake multiplied by the closing share price for September 30, 2011.

For the month of July 2011, the portfolio has increased by +0.5% (using XIRR in MS Excel to compute) against a 0.0% fall in the STI (flat); thus my portfolio performance has finally outperformed the STI by 0.5 percentage points. This was much better than June 2011, when the portfolio was on par with the STI. Cost of investment has increased from S$210K to S$219K and unrealized gains stand at +12.6% (Portfolio Market Value of S$246,500).

I guess I still have a “backlog” of posts especially the super long overdue Kingsmen Comprehensive Analysis Part 5, as well as the continuation of the Porter’s 5-Forces Series. Inadvertently, I started a new series on Annual General Meetings as well! I guess I have quite a bit on my plate to blog about but as usual the problem is time constraints due to work and family commitments.

August 2011 should be a fairly interesting month. I am expecting 1H 2011 results from Kingsmen Creatives, FY 2011 results from GRP, and quarterly results (1Q 2012) from Boustead. As MTQ only reports half-yearly results, I will have to wait till October for them to report 1H FY 2012 results. Of course, I am expecting dividends from both Kingsmen and GRP.

My next portfolio review will be on August 31, 2011 (Wednesday).

10 comments:

Dividends Warrior said...

Hi MW,

Looks like ur portfolio withstood the US and Euro debt crisis pretty well. ^^

EMAVF said...

Hi Market whiz - how can I contact you privately?

thanks

Musicwhiz said...

Hi Dividends Warrior,

Thanks but the portfolio is actually doing just decently (not splendidly) and chugging along. The reason for constructing this portfolio is to buffer against downside rather than anticipate a lot of upside. So I guess if there is really a bull market coming along, I'd expect to under-perform badly LOL!

Cheers,
Musicwhiz

Musicwhiz said...

Hi EMAVF,

You can drop me an email at musicwhiz55@gmail.com. And please don't refer to me as "Market Whiz". My nickname has always been "Musicwhiz".

Thanks,
Musicwhiz

patrol said...

HI MW,

I bought MTQ last year and have been overseas since. You mentioned that you have chosen script so if there is no action on my part, what will happen? Will that be an automatic dividend given to me? I am a newbie
Tks
Pat

Musicwhiz said...

Hi Pat,

Maybe you can write to the IR or CFO Mr. Dominic Siu to enquire more about this? Not sure what happens if you are overseas, but technocally they should send you the form to choose cash or scrip. For me, I am expecting to get that form by August 12.

Cheers,
Musicwhiz

patrol said...

Hi MW,

Thanks for the advice!
But out of curiosity, suppose if you choose not to take cash or script. What will happen? Your shares get diluted and suffer a loss? I am asking because i know many who have bought shares and do not really read the forms. Over the years, many have discarded their forms without any action. As i am a newbie, i do not know what to advise.

Pat

Musicwhiz said...

Hi Pat,

If you do nothing, you will get the dividend in CASH. If you wish to choose scrip, then you will have to fill up the notice of election.

My advice is - if you feel the business has potential to grow further then you should choose to accept scrip and own more of the company (as compared to those who choose cash). And yes if you choose cash you will get slightly diluted as I am sure the Chairman + CEO will choose scrip to increase their shareholdings at the expense of those shareholders who chose cash.

So it boils down to how much you believe in the business moving forward. I suggest having a view of at least 3-5 years on the business.

Regards,
Musicwhiz

Invest said...

Hard to say or it is very good return, but to me diversification looks little too weak..

Musicwhiz said...

Hi Invest,

What do you mean by diversification looks weak? The portfolio is meant to take concentrated positions in a few companies due to the intensive nature of research - which is what value investing is about anyway.

Thanks,
Musicwhiz