Monday, October 31, 2011

October 2011 Portfolio Summary and Review

October 2011 was somewhat weird, considering the negative sentiment which pervaded stock markets and the economy from August to September 2011 seems to have somewhat dissipated. In fact, in an embarrassing turn of events, the local market has rocketed up more than 10% after I wrote my piece on “My Second Bear Market”, and is a testament to how difficult it is to gauge and predict short-term market movements with accuracy. Apparently, that post is now irrelevant, but I assure that the lessons learnt are still applicable and the fact that I am able to say that my financial position has improved should at least be of some comfort to me. I am also proud to admit that I have absolutely and completely no skill or special foresight in predicting market movements, so for readers who have somehow stumbled upon this blog looking for something akin to the Holy Grail, please do look elsewhere (for info: there is a never-ending flow of market “gurus” who continually try to predict every twist and turn of the stock markets).

To cut a long story short, out of the six companies within my portfolio, three had released their results as of this writing, while the other three will release them in November 2011. I have provided summaries of the results and dividends declared (if any), but detailed analysis will only be conducted subsequent to this portfolio review as I would need time to digest and reflect on not just the numbers, but also the qualitative aspects of what was written in the announcements.

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

1) Boustead Holdings Limited – On October 12, 2011, Boustead announced that Boustead Projects, its 100%-owned subsidiary, had clinched 2 contracts. One was a S$19 million contract to design and build an integrated manufacturing and R&D centre for Greenpac Asia (S) Pte Ltd located at Tukang Innovation Park in Singapore. The Facility will occupy 18,000 square metres and be completed in 4Q 2012. The second contract is a small one – a S$2 million contract to design and build a 1,800 square metre extension to an existing facility owned by Golden Spring Export Pte Ltd at Changi International LogisPark. With these two contracts, Boustead’s order book stands at S$320 million. I had just written a two-part post on Boustead’s EGM highlights, so I will not be elaborating too much on the Company until they release their 1H FY 2012 results on November 14, 2011 (Monday).

2) Suntec REIT – Suntec REIT released its 3Q 2011 results on October 25, 2011. A dividend of 2.533 cents/share was declared and this will be payable on November 29, 2011. As I do not have a significant stake in this REIT as a proportion of my portfolio, I shall not go into details on the press release and presentation slides, and readers can go to SGXNet to download the necessary information. In another announcement on October 27, 2011, Suntec REIT announced that it had divested its entire stake in Chijmes (which it purchased for $128 million in 2005) to Pre 8 Investments Pte Ltd for a sum of $177 million, and will recognize a gain of $49 million. This was 23% above valuation, and the proceeds will be deployed within the Fund and be used to either value enhance (whatever that means) or pay down debt.

On October 31, 2011, Suntec REIT announced a massive asset enhancement plan called “Remaking Suntec City”. ARA Asset Management will spend $410 million on the plan (which will commence in mid-2012), with $230 million slated for remaking Suntec City mall, and $180 for remaking Suntec City Convention Centre. On completion in 2015, Suntec REIT is expected to have about 1 million square feet of net lettable area. Net property income is expected to increase by 33% of $23 million, and proceeds from the sale of Chijmes will be used to mitigate the temporary dip in DPU while renovations are taking place.

3) MTQ Corporation Limited – On October 11, 2011, MTQ announced the completion of their acquisition of Premier Land and Sea (PSL). Based on the audit of PSL as at June 30, 2011, the NTA of PSL was US$17.1 million, including cash balances of US$2.6 million. As this value exceeds the minimum NTA guaranteed by the vendor, MTQ paid the vendor an additional US$2.6 million, bringing the total consideration to US$21.9 million. There was no news or information on PSL’s financial results as at June 30, 2011, and the NTA per share after the acquisition has now been amended to 72.52 cents/share. MTQ also released their 1H FY 2012 results on the morning of October 31, 2011. Revenue was up 40%, largely due to the acquisition of PSL and organic growth in Engine Systems Division, but gross profit was up just 27% due to lower gross margins as a result of sales mix. Staff costs and other operating expenses were also significantly higher due to start-up losses at Bahrain (which has yet to contribute meaningful revenues for the Group), up 33% and 47% respectively. Finance costs were also predictably higher at $505K as the Group geared up for both their Bahrain expansion and PSL acquisition. The Balance Sheet has weakened compared to the previous reporting date, and Cash Flows are also weaker due to more outflows for acquisition of shares and subsidiary. I shall be doing a comprehensive 1H FY 2012 analysis and review of MTQ in my upcoming posts. An interim cash/scrip dividend of 2 cents/share was declared, unchanged from last financial year.

4) Kingsmen Creatives Holdings Limited – On October 21, 2011, Kingsmen announced the incorporation of a wholly-owned subsidiary in Shenzhen, China. The authorized share capital of this company is RMB 500,000 and its business scope will include designing and producing architectural interiors for commercial and retail properties, pavilions, museums and theme parks. Uniqlo has also announced that it plans to increase its number of outlets from five to 20 within the next three years. Its regional headquarters will be set up in Singapore and they are one of Kingsmen’s clients, so this bodes well for Kingsmen’s Interiors Division.

5) SIA Engineering Company Limited – SIA Engineering released its 1H FY 2012 results on October 28, 2011. Revenue for 1H 2012 decreased 2.7%, while net profit attributable to shareholders increased 15% to $139.3 milllionm partly due to a tax write-back of $3.1 million. As expected, there was no debt carried on the Balance Sheet, and glancing over to the Cash Flow Statement, I note that for 1H FY 2012, there was operating cash inflow of just S$20.7 million, due to an outflow of $24.3 million for 2Q 2012, while investing cash inflows came in at S$40.2 million, therefore free cash flows totalled S$60.9 million. This was lower than 1H FY 2011’s total FCF of S$109.6 million. However, SIAEC managed to maintain their interim dividend at 6 cent/share, similar to the previous year. This will be paid out on November 29, 2011.

6) VICOM Limited – There was no news from VICOM for October 2011. VICOM’s 3Q 2011 results will be released on November 10, 2011.

Portfolio Review – October 2011

Realized gains have remained at S$67.4K in the absence of dividends received for this month (no counter going ex-dividend).

With the addition of more shares of Boustead, my portfolio cost has increased to another new high of $242,600 as at October 31, 2011. Sadly and most unfortunately, the recent upsurge in share prices and valuations has scuttled my attempt to accumulate more shares in companies, and therefore the cash which was awaiting deployment would have to sit around a while longer.

For the month of October 2011, the portfolio has decreased by -4% (using XIRR in MS Excel to compute) against a -10.5% fall in the STI; thus my portfolio performance has outperformed the STI by +6.5 percentage points. This was a worse performance compared to September 2011, when the portfolio out-performed the STI by +11.6%, but it is to be expected as a value portfolio would find it very tough to beat the index during periods of bullishness and pervasive optimism. Cost of investment has increased from S$238.7K to S$242.6K and unrealized gains stand at +5.2% (Portfolio Market Value of S$255,100).

November 2011 should be a very interesting month with many companies reporting their 3Q results. I will be expecting results from Boustead, Kingsmen and VICOM, and the receipt of dividends from Suntec REIT and SIA Engineering.

My next portfolio review will be on November 30, 2011 (Wednesday).

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