Friday, February 29, 2008

End-February 2008 Portfolio Summary and Review

More results releases were due during this half-month ended February 2008, with most of the companies releasing their FY 2007 results. It was hectic to check out so many companies’ results to get a grip of how companies are doing in general, but I managed to get the impression that costs are rising and margins are impacted for many companies. For other companies, there were a lot of “exceptional” adjustments such as gain in fair value of property or gain in fair value of biological assets which basically means nothing to me as it is non-cash in nature and is a one-off adjustment. Investors would do well to look more closely into such items and deduct them from net profit to get a more accurate picture of the company’s performance. Otherwise, EPS from core operations may be distorted.

Swiber will be releasing their FY 2007 results this evening, and I will proceed to do a review and analysis of the company including their future plans and strategies. With oil prices hovering at around US$100 per barrel after hitting an all-time high of US$103.05, this may have implications on oil and gas companies and also those companies which support the oil and gas industry. Though I must say that the reason for the high oil price is due to the rapidly depreciating US dollar to new 11-year lows of 1.394 (as of this writing), and not an issue of fundamental demand and supply.

Below is the summary of my investments and related news as at February 29, 2008 (STI at 3,026.45 points).:-

1) Ezra (Vested since October 6, 2005) - Buy Price $0.645 (bonus adjusted), Market Price $2.36, Gain 266%, YTD Loss 28.9%. On February 25, 2008, the company announced that wholly-owned Saigon Offshore Fabrication & Engineering Limited had clinched a US$55.4 million fabrication and assembly contract due in FY 2010. This is the second fabrication project which was clinched in Vietnam by Ezra, the first being a US$103.1 million contract announced on October 16, 2007 won by Saigon Shipyard Limited (also wholly-owned). One point to note is that fabrication project margins are significantly lower than those of offshore chartering, and I am assuming a net margin of only 10% for these projects. Thus, these two contracts may add about US$15.85 million to net profit for FY 2010 onwards. It remains to be seen if they can contribute significantly to Ezra group’s bottom line but at least it is a new business unit which the Group is exploring in order to open up more revenue streams.

2) Boustead (Vested since September 13, 2006; averaged down November 13, 2006) - Buy Price $1.295 (average), Market Price $2.26, Gain 74.5%, YTD Loss 6.2%. On February 22, 2008, the company announced that the disposal of the warehousing facility at 80 Alps Avenue was completed. Please refer to the previous announcement on January 21, 2008 for more details on the numbers involved.

3) Swiber (Vested since February 14, 2007) - Buy Price $1.01, Market Price $2.42, Gain 139.6%, YTD Loss 29.4%. Swiber has successively announced another 2 contracts won on February 24 and 26, 2008; amounting to US$31 million and US$20 million respectively. Details can be found on the company’s website under announcements and news room. The company is building up its competencies but has yet to be able to clinch a mega-project on the size and scale of their Brunei Shell project worth US$146.6 million. Still, the latest contract wins include another oil major in Malaysia and this means that Swiber has the endorsement of 3 oil majors to date; Brunei Shell, an undisclosed oil major (Chevron ?) and the most recent one in Malaysia. I am still keeping a close watch on their joint ventures with Rahaman (Brunei), Petrovietnam and Vietsovpetro JV (Vietnam) and Principia (France) to see if these bear fruit, and am optimistic on a follow-up drilling contract after their first drilling one clinched on November 13, 2007 worth US$25 million. This drilling contract commence in March 2008 and will last for one year, with extension options.

4) Suntec REIT (Vested since December 9, 2004) - Buy Price $1.11, Market Price $1.51, Gain 36.0%, YTD Loss 11.7%. Suntec REIT has announced the issue of convertible bonds of up to US$250 million to finance the purchase of ORQ. The conversion price is set at S$1.968 per unit, with interest rate set at 3.25% p.a. and a yield to maturity of 4.25% p.a. Suntec REIT’s dividend of 2.279 cents per unit was received today, giving me an annualized yield of 8.21% at my purchase price.

5) Pacific Andes (Vested since March 29, 2006; Rights Issue July 11, 2007 at S$0.52 per share; averaged down August 17, 2007) - Buy Price $0.655 (rights-adjusted), Market Price $0.50, Loss 23.7%, YTD Loss 20.6%. Sorry for the delay on PAH’s review and analysis but was pretty busy these 2 weeks. I will be doing the review for PAH after I have done the Swiber analysis.

6) China Fishery Group (Vested since November 20, 2007) - Buy Price $1.50 (average), Market Price $1.72, Gain 14.7%, YTD Loss 7.0%. There was no news for CFG for the period ended February 29, 2008.

7) First Ship Lease Trust (Vested since January 14, 2008) - Buy Price (Averaged Down) $1.105, Market Price $1.11, Gain 0.5%. There was no significant news from this shipping trust during the period. The dividend of S$3.428 cents per unit was received on February 22, 2008, representing an annualized yield of 11.72% based on my previous purchase cost of S$1.17.

Overall Portfolio

My overall portfolio has increased by 60.6% without taking into FSL Trust’s cost. If included, the gain is 44.0% from a cost of S$80.4K as at February 29, 2008. The market value of my portfolio without FSL Trust is S$93.6K, and if FSL Trust is included then the portfolio value is S$115.7K. Realized gains remain at about S$4.9K and there was only a marginal change from my portfolio on February 15, 2008.

Comparison against STI

The FTSE STI had declined by 13.09% since the start of 2008. Without FSL Trust, my portfolio has declined 19.8% thus under-performing the FTSE STI yet again.To date in 2008, my portfolio has under-performed the new benchmark FTSE STI by 6.71 percentage points.

My next portfolio review will be on Friday, March 14, 2008 after market close.

Thursday, February 28, 2008

Stagflation - Stagnation and High Inflation

The term "stagflation" has reared its ugly head once again, after being almost unheard of since the 1970s. Basically, the term is actually a combination of the two words "stagnation", which refers to economic slowdowns akin to recessions; and "inflation", which means steadily increasing prices which erode the value of today's dollar. As mentioned in an article in BT today, stagflation gets very toxic and dangerous if it is prolonged and saps the entire economy and population of spending power and resources. Normally, recessions and economic slowdowns are supposed to (according to economic theory) have a negating effect on inflation.

So why is stagflation coming into the picture right now ? From what I've noticed, many companies (including several "prominent" China ones like Jiutian and Synear) are facing increasing cost pressures as the prices of commodities such as oil, wheat, pork and steel rise unabated. This is a good example of worldwide commodities inflating due to strong demand and lack of supply, and this inflationary pressure is likely to continue for quite some time (or so the experts say !). Thus, it will be good to get a handle on the current situation as it applies to companies you own, in order to see if there will be any adverse impact. Already, forecasts are being revised and expectations lowered for the forseeable future till more earnings and margin clarity has been established. As a result, I am also cautiously examining the companies I own to see if they will be greatly affected by increased costs. My margin of safety should provide sufficient cushion against any business downturn, but the key is to see if the effects will persist over the long-term or if it is just a short-term anomaly.

The US economy is also heading for slower growth, and some economists and analysts are predicting a mild recession which should end by FY 2008. The sub-prime problems have led to the collapse of the housing market bubble and home prices are falling across the board, leading to record foreclosures. Banks, financial institutions and bond insurers have had to deal with worsening credit conditions and assets on their books which cannot be valued, thus the impact will be great and will last for some time since there is quite a lot to write-off and write-down. As a result of the weak economic data flowing from the USA, the USD has been sold off sharply in recent days, hitting a new 11-year low of 1.397 against the SGD. The combination of high oil prices, slow to zero growth and a weak dollar have not been seen since the oil crisis in the 1970's, when oil prices also surged to an inflation-adjusted price of about US$103 per barrel.

In times like these, risks are being perceived as being more significant, and everyone is more cautious with investing in companies as companies will undergo cost pressures and possible bad debts as their customers may face cash crunches. Thus, a re-pricing of risk is being done and many companies on the SGX now trade at single-digit PER. This is to be expecte in view of the macroeconomic environment and is part of the business cycle, so one should not even pay too much in the first place to purchase a stake in these companies.

As long as one is prudent and objective in assessing a company's potential and purchases with a margin of safety, one does not need to fear a permanent loss in capital. Of course, a long-term view is also encouraged as Mr. Market can be very manic in the short-term (which is defined as "over-reaction bias" which I will cover in future under my "Behavioural Finance" series).

Sunday, February 24, 2008

Investment Sins Part 3 - Vanity/Pride

As the saying goes: "Pride goes before a fall", and this means that one who is proud will eventually fall because of his over-inflated ego. This investment sin is a very intruiging one as it discusses one's ego and shows how it affects one's investment decisions and philsophy. Vanity is a direct result of pride and being vain in investing simply means that you start worshipping yourself as if you could do no wrong.

Surprisingly (or maybe unsurprisingly), a survey conducted shows that men have a higher tendency to show excessive pride and an inflated ego when dealing with investments, and this could stem from the proverbial "male ego" which makes men aggressive and "kiasu". The "must0win" mentality may translate into fierce (and misplaced) pride in one's investing acumen and lead to one's eventual downfall. Women may also be prone to this but the survey mentioned that it is to a lesser extent. I am not going to go into a debate of the sexes but just wish to highlight that there are subtle differences in the way that men and women invest which are central to the topic I am discussing in this post. Perhaps I will discuss the differences between male and female investors in a future, more detailed post once I have collected sufficient "evidence" to form a theory.

Basically, to elaborate on the sin of pride, we look towards investors who "have to be right", no matter what ! This is a sure sign of pride at work but it is hard to be objective about oneself, so most will not be able to see that they are blinded by their own narcissistic tendencies. Some investors may have hit it big once or twice with certain investments, and suddenly they feel they are experts in a particular industry or subject matter. There are also others who may feel over-confident in their "system" used to beat the market repeatedly and let down their guard, only to be proven wrong in a big way thus incurring significant losses.

The danger of this sin is that it is rather insidious and creeps up on one slowly. As one's wealth grows as a result of successful investing, one may get more and more proud of his accomplishments and feel "invulnerable". This is a danger signal and is the start of a downward spiral into vanity and excessive pride in one's abilities. There is a term for this kind of misplaced pride: HUBRIS. Hubris can blind an investor and cause him to behave irrationally.

Below are some examples which are highlighted in Mr. Maury Fertig's book regarding investing behaviours that are signs of hubris:-

1) Refusing to sell an investment because you cannot admit you made a mistake - This is a classic case of refusing to acknowledge mistakes, and is a value investing no-no as well.

2) Throwing good money after bad - This is an extension of point 1 above and as the investor feels he could NOT have made a mistake, decides to average down to prove his point. Unfortunately, it may be the case of throwing money down the drain as the company's fundamentals may be deteriorating. Thus, one has to objectively evaluate a company to see if the fall in price is a result of worsening fundamentals, or simply sentiment-driven.

3) Possessing an unbalanced portfolio - This actually means that you are over-concentrating your investments in one narrow area (e.g. retail companies or just oil and gas companies) which may not be a bad move assuming you know the inside out of the industry and the nitty-gritty details. But if one is suffering from hubris, he may THINK he knows a lot when he actually does not, and thus fails to properly diversify his investments. Only if one truly understands one's investments should one concentrate them, as even Warren Buffett mentions that diversification is a protection against ignorance.

4) Making esoteric investments or following an arcane strategy - Overly proud investors usually like to be the first (pioneer) to discover a new type of investment or to dip their foot in the latest hot fads to show that they are "up-to-date". This behaviour may backfire badly if insufficient research has been done or if he is just trying to be different from the crowd for the sake of it. Remember that investing is not about showing off one's style but to achieve personal goals of wealth and financial freedom.

Thus, the above illustrates what could happen if one was "infected" with hubris. I am sure that all of us, at some point in time, have been guilty of the above sin in one form or another. The important thing is to recognize the sin and take active steps to prevent it from recurring, and to correct the mistake if already made. Make a conscious effort to examine yourself and your investments objectively instead of letting ego and pride go to your head. In this way, we can be assured of investment success in the long run.

Wednesday, February 20, 2008

China Fishery - FY 2007 Analysis and Review (Part 2)

To continue the second part of my analysis and review, I will be touching on the Cash Flow Statement (CFS) and also discussing some strategies which CFG will be undertaking in order to boost their business and grab a larger market share. Some of the points discussed are worthy of debate as to their effectiveness, but the idea is to put them out on the table so that they can be objectively analyzed and commented on, so please feel free to criticize each point constructively.

Cash Flow Statement Analysis

Operating cash flows were healthy for FY 2007, with a net cash inflow of US$173.9 million. This is mainly due to the higher volume of business (which generates higher cash flows) and also a decrease in other receivables and prepayments, which caused a net cash inflow on the indirect method of preparing cash flow statements. The decrease in other receivables resulted in a net cash "increase" of US$51.8 million compared to a decrease of US$38.0 million for FY 2006. There was also an increase in trade payables which resulted in a net cash inflow of US$19.0 million compared to less than US$1 million inflow for FY 2006. This would indicate that CFG is getting better credit terms from its suppliers as the increase is significant (about 10% of net operating cash inflows). Readers should also take note of the adding back of interest expense (which is essentially a profit and loss item and is non-cash) of US$25.5 million and deduction of actual interest paid of US$20.8 million. There is thus a net cash inflow of about US$4.7 million as a result of the difference between accrual accounting and cash outflow recognition. The expense which was recognized in this period will probably be paid out in the following FY 2008, so US$25.5 million is a good gauge of FY 2008's probable cash outflows for interest expenses. Overall, interest expenses and income taxes have increased significantly which is not surprising considering the increased amount of bank loans taken by CFG and the expansion of their Peruvian operations which necessarily entails higher tax expenses.

Note that CFG has, for 2 consecutive financial years, incurred a strong net cash outflow when it comes to investing activities. This is due to their aggressive expansion into Peru and Peruvian fishing grounds which involves purchasing more vessels, fishmeal plants and a dock. Readers can check out the previous announcements from FY 2006 through till October 2007 for a summary of their acquisitions. The bulk of the spending was on purchase of PPE, fishing permits and prepayment of charter hire. Thus, CFG incurred a net cash outflow for FY 2007 of US$281.3 million, slightly higher than the outflow of US$208.1 million for FY 2006.

For financing activities, CFG has also issued in January 2007 (through a secondary offering) 29 million shares at S$3.98 (US$2.58) per share, raising gross proceeds of US$74.82 million. Net proceeds are thus reflected as US$72.9 million as some part of the proceeds would have to be paid to the placement agent. CFG also took on additional borrowings of US$23.3 million (note this is a NET figure) in order to bolster their expansion plans. All these activities resulted in a net cash inflow of US$68.7 million, which was lower than FY 2006's inflow of US$240.9 million. However, this was due to the issue of senior notes in FY 2006 of US$216 million due 2013. Hopefully, in time, CFG can slowly repay the loan and reduce their gearing so as to rely less on debt, as the current credit crunch could prove dangerous for highly leveraged companies.

In summary, it will be a positive sign to see higher cash inflows from operating activities in future to offset the repayment of bank loans and purchase of PPE. This should only kick in once CFG properly establishes a firm foothold in the fishmeal market in Peru and South America. I anticipate that Management's strategic plan should take at least 3 to 5 years to crystallize and realize its full potential.

Strategies and Future Plans

CFG has lofty plans for the future as their expansion goes underway, and they plan to become a dominant player in the global fishing industry in time to come. I do not have the exact statistics for their position within global fishing giants, but suffice to say they are in the Top 10 and are striving to improve their market share and also their margins. CFG currently have a fish hold capacity of 9,395 cubic metres and have increased their fishmeal processing capacity from 381 tons/hour to 545 tons/hour. This is 6.1% of the total processing capacity in Peru.

According to CIMB's report dated January 16, 2008, Russian authorities have announced an increase in the TAC (total allowable catch) for Alaskan Pollock to 1.46 million tonnes from 1.31 milion tonnes. This would imply that CFG is allowed to catch more and with their expanded fleet, they should be able to achieve this without too much additional effort. Russia's Federation Council has also approved an amendment to laws to double the term of renewable quota shares to 10 years from the current 5 years, and this provides more stability and long-term visibility for fishing companies for their strategies fo the long-term.

Fishmeal prices have also stabilized and CFG should see prices slowly trending upwards as commodity prices are steadily increasing across the board. Higher inflation of 11% in China will also push up selling prices and provide some support for the current US$950 per tonne price. In the long-term, prices should trend upwards slowly but steadily and CFG also has plans to acquire more fishmeal processing plants to allow their vessels to unload their cash more quickly and seamlessly.

Management at CFG are also on the lookout for more potentially earnings-accretive acquisitions of fishmeal plants and vessels; and are also searching for additional VOA which will increase their vessel fleet and allow them to catch more fish. In 2Q FY 2008, the Group will deploy 3 new upgraded and elongated super-trawlers to the South Pacific Ocean to increase catch volumes. This ocean is still relatively untapped by CFG and represents new fishing grounds for them.

The 4th VOA is also currently being re-structured from a daily rental hire to a prepaid charter hire which will weigh less on the Income Statement.

All these developments will come under scrutiny during the company's upcoming AGM in April 2008. I will be engaging the Management on these issues and hope to obtain satisfactory responses. At the same time, it will also be good to obtain the latest business update from the horse's mouth itself.

Monday, February 18, 2008

China Fishery - FY 2007 Analysis and Review (Part 1)

China Fishery (CFG) released its FY 2007 results on February 14, 2008 and they were largely in line with expectations, except that at a glance, it can be seen that costs have increased significantly as compared to revenues. This resulted in an 84.5% increase in net profit on the back of a 160% increases in revenues. I will be analyzing the financials using my usual method of moving through the Income Statement, Balance Sheet and Cash Flow Statement in order to gain a holistic overview of how the company has fared in terms of capital allocation and profit generation. Finally, I shall touch on strategies which the company may be employing to grow their business further in FY 2008 and also CFG's long-term prospects.

Income Statement Analysis

As a result of the increase in the scope of their activities, CFG's revenues have increased by 160% from US$156 million in FY 2006 to US$406.4 million in FY 2007. Recall that the company had secured their 3rd and 4th VOA (Vessel Operating Agreement) in early 2007, which helped to increase their fishing catch volume by increasing their trawling fleet size from 14 to 23. Their expansion in Peru and penetration into Peruvian fishing grounds through the acquisition of 16 purse seine fishing vessels and 3 fishmeal plants also helped them to build their numbers strongly. Throughout FY 2007, they concentrated on building their fishmeal processing capability by acquiring (among other assets) a canning plant, fishing vessels and a dock; and their most recent acquisition was on October 10, 2007 when they purchased their 7th fishmeal processing plant. Readers can look into more detail by reading through their press releases on SGXNet, but the crux of what I am trying to say is that CFG has expanded very aggressively in FY 2007 which justifies such numbers. One testament to their rapid expansion is also the massive increase in costs, especially for cost of sales and vessel operating costs which increased 732.8% and 152.4% respectively.

The establishment of the Peruvian fishmeal operations in its first year obviously took its toll on CFG's margins, as the incremental costs needed to set up new operations would be high when compared to a lower base. I anticipate that when economies of scale kick in, CFG can then better streamline its costs and enable synergies to be achieved among its operations. Gross profit margin fell from 38.2% in FY 2006 to 34.8% in FY 2007 as a result of the aforementioned reasons. It will be important to watch out for CFG's results in 1Q FY 2008 and 2Q FY 2008 to see if they have managed to keep costs under control and restore margins; otherwise it could be the case where higher revenues do not justify the higher costs.

Selling expenses also increased by 738.6%, again due to the low base used for FY 2006. Now that CFG has taken on a new business unit (i.e. fishmeal operations) as compared to just trawling in FY 2006, selling expenses have understandably increased as well. Finance costs are a worrying aspect of the business as these are likely to persist as a result of the issue of their 9.25% Senior Notes due 2013; but this can be argued to be a necessary evil in order for them to expand their operations and acquire assets to build their vessel fleet. If one takes a glance toward their Cash Flow Statement (CFS), it can be seen that they are generating very healthy cash flows of US$173.9 million from operating activities. Thus, I do not forsee any immediate problems in servicing this long-term debt, and CFG has indeed shown that they can deploy capital efficiently in order to grow their operations. What may not be immediately apparent are the economies of scale which are necessary to restore margins to respectable levels, and I shall be watching out for how Management controls costs, as well as to engage Management in conversation during the AGM on plans to grow the business. For information, net margins fell from 30.7% in FY 2006 to 21.8% in FY 2007.

Balance Sheet Analysis

As CFG has a rather complex and detailed Balance Sheet, I shall attempt to run through various sections of it one by one to enable easy understanding; and to avoid using overly technical accounting explanations as, after all, I am analyzing CFG from the perspective of an accounting analyst.

Current Assets for CFG have decreased from US$167.8 million as at Dec 31, 2006 to US$120.7 million as at Dec 31, 2007. As explained in Note 1, this was mainly due to the decrease in the balance owing from the arrangers of the first three VOA. Cash and bank balances also fell from US$57.7 million to US$20.6 million due mainly to the cash outflows from investing activities (I will elaborate more when analyzing the CFS in Part 2). The current portion of deferred charter hire increased as a larger portion of it became "current" from "non-current", thus providing a small boost to current assets. Current Ratio for FY 2007 was only 1.01 compared to 3.46 for FY 2006, due to lower current assets and significantly higher current liabilities.

Current Liabilities increased nearly 300% from US$48.4 million to US$118.9 million mainly because of the increase in bank overdrafts and current portion of bank loans. The CFS states that about US$23.32 million was borrowed from the bank during FY 2007 to finance the acquisitions which were made during the financial year, and thus total bank loans (adding current and non-current) came up to US$67.32 million for FY 2007 compared to US$42.3 million for FY 2006. Total debt to equity ratio stood at 112.7% for FY 2007 compared to 228.8% for FY 2006; but CFG reported debt to total assets ratio which they stated at 44.9% as at December 31, 2007. In terms of liabilities, CFG has its senior notes which significantly bumps up its total liabilities. One must remember that the purpose of these notes is to enable them to acquire assets to boost their fleet and capture a slice of the Peruvian Anchovy catch, as well as increase their fleet of supertrawlers and purse seine vessels. Even though value investing principles would eschew avoiding companies with high debt, my personal view is that I have faith in Management being able to grow the business for so many years, and that they will eventually be able to reduce their liabilities. One indication of this is in the CFS which I will touch on in Part 2.

One would realize by now that total long-term liabilities did not increase much year-on-year. In fact, it was more a case of an increase in current liabilities as a result of bank borrowings which worsened the current ratio and caused the higher debt-to-equity ratio. With strong operating cash flows, CFG should be able to gradually reduce their reliance on loans and generate more FCF to fund their operations. Of course, it would have been nice if CFG had a "war chest" of cash such as Boustead has, but the nature of their capital intensive operations in terms of expansion into Peru and South America necessitates the use of debt, and I will not argue against this as it is an alternative way of financing growth rather than relying on equity which will dilute shareholders.

In Part 2 of my review, I will touch on the CFS and also CFG's plans and strategies for growing revenues, margins and profits for FY 2008.

Friday, February 15, 2008

Mid-February 2008 Portfolio Summary and Review

This half-month consisted mainly of full and half-year results releases, and all eyes are now trained on companies as they report their earnings report card. As far as I can tell, the Business Times is sometimes not accurately reflecting the underlying core net profit because some companies’ net profit was boosted by a one-off gain or a revaluation of property values. The discerning and intelligent investor should take note of each company’s numbers and business and therefore not rely too much on the summaries provided in the papers. After all, the hard work involved in analyzing a company should never be neglected !

China Fishery and Pacific Andes both reported their FY 2007 and 3Q FY 2008 results on February 14, 2008 respectively. I shall be undertaking an analysis of their results in due time and will share my analysis and insights for each company. More of my focus shall be on analyzing China Fishery as it is their fishing business which represents the growth driver which is powering earnings for Pacific Andes as well. Swiber should be releasing their FY 2007 results close to the end of February 2008, and I shall follow-up with an analysis and commentary as well.

Below is the summary of my investments and related news as at February 15, 2008 (STI at 3,088.68 points).:-

1) Ezra (Vested since October 6, 2005) - Buy Price $0.645 (bonus adjusted), Market Price $2.35, Gain 264%, YTD Loss 29.2%. There was no news from the company for the half-month ended February 15, 2008.

2) Boustead (Vested since September 13, 2006; averaged down November 13, 2006) - Buy Price $1.295 (average), Market Price $2.30, Gain 77.6%, YTD Loss 4.6%. There was no news from the company during the half-month ended February 15, 2008.

3) Swiber (Vested since February 14, 2007) - Buy Price $1.01, Market Price $2.32, Gain 129.7%, YTD Loss 32.4%. Swiber announced a joint venture collaboration with Principia on February 12, 2008 which I had written a blog post about recently. On February 14, 2008, they announced that they had clinched a contract extension worth US$35 million from an oil major. This LOI is an extension of their win in Nov 2007 from the same oil major and the total contract value is about US$66 million. The work is expected to commence in 2Q FY 2008 and will be completed by the end of FY 2008 and involves the transportation and installation of three pipelines in the waters off Indonesia. It is hoped that with Swiber’s expanded fleet, they will be operational ready to capture more contracts or larger value to boost earnings.

4) Suntec REIT (Vested since December 9, 2004) - Buy Price $1.11, Market Price $1.55, Gain 39.6%, YTD Loss 9.4%. There was no significant news from this REIT for the period ending February 15, 2008.

5) Pacific Andes (Vested since March 29, 2006; Rights Issue July 11, 2007 at S$0.52 per share; averaged down August 17, 2007) - Buy Price $0.655 (rights-adjusted), Market Price $0.50, Loss 23.7%, YTD Loss 20.6%. As mentioned, PAH’s 3Q 2008 results were released and I shall be doing a review on them soon.

6) China Fishery Group (Vested since November 20, 2007) - Buy Price $1.50 (average), Market Price $1.84, Gain 22.7%, YTD Loss 0.5%. CFG also released their results for FY 2007 and declared a final dividend of 2.19 cents per share. I shall be reviewing their financials and strategic plans shortly and am expecting the Annual Report to arrive by April 2008.

7) First Ship Lease Trust (Vested since January 14, 2008) - Buy Price (Averaged Down) $1.105, Market Price $1.10, Loss 0.5%. There was no significant news from this shipping trust during the period.

Overall Portfolio

My overall portfolio has increased by 61.7% without taking into FSL Trust’s cost. If included, the gain is 44.5% from a cost of S$80.4K as at February 15, 2008. The market value of my portfolio without FSL Trust is S$94.2K, and if FSL Trust is included then the portfolio value is S$116.1K. Realized gains remain at about S$4.9K as CFG has not gone ex-dividend yet with their 2.19 cent/share final dividend.

Comparison against STI

The FTSE STI had declined by 11.3% since the start of 2008. Without FSL Trust, my portfolio has declined 19.3% thus under-performing the FTSE STI yet again. This is not too much of a concern as the portfolio is meant to be long-term and what I am doing is simply using short-term (half-month) yardsticks to measure performance against the FTSE STI. The “true test” will probably be about 3 to 5 years later to see how my overall portfolio has performed, and hopefully I will still be blogging by then !As a result, to date in 2008, my portfolio has under-performed the new benchmark FTSE STI by 8 percentage points.

My next portfolio review will be on Friday, February 29, 2008 after market close.

Tuesday, February 12, 2008

Swiber - Joint Venture with Principia

This evening, Swiber announced that they had entered into a Joint Venture (JV) with Principia Recherche & Development SA ("Principia") to undertake the supply and sale of studies, design of offshore and marine facilities as well as related services in the offshore and marine industry in South-East Asia. The proposed JV will be 51% owned by Principia and 49% owned by Swiber's wholly-owned subsidiary, Kreuz International Pte Ltd.

The interesting fact is that Principia is a subsidiary of AREVA within the AREVA TA Business Unit; and this unit specializes in scientific engineering studies and in the design and sale of software applications which serve the worldwide offshore and marine business. AREVA is the world leader in nuclear power and is the only company to cover all industrial activities within this field. Principia, being a subsidiary of AREVA, provides services to customers primarily involved in high technology production. This would imply that they are technologically advanced in terms of the solutions and sofware they provide to their customers, and that Swiber is leveraging on their expertise to offer value-added services within the oil and gas industry in South-East Asia.

From the press release, it is not immediately clear what the JV is for: is Swiber intent on pursuing a separate business unit in which it helps to develop and sell software relating to the oil and gas industry; or is it using such technology to enhance its competitive edge within its EPCIC niche market ? The announcement does not make it particularly clear on this as Raymond Goh (CEO and Chairman) merely says that it demonstrates Swiber's commitment to become an "integrated service provider" and that Swiber's philosophy is to associate with "world class organizations". All well and good, but what's the tangible benefit to come from it ? Thus far, the JV with Rahaman in Brunei and PetroVietnam in Vietnam have yet to bear fruit and show concrete numbers (i.e.. contract wins). One can argue that the company is consolidating their base and building a foundation with which they can then start to aggressively bid for larger projects (assuming they have not done so already). Still, too much of a delay would indicate that they may have failed to fully leverage on these JV and may be spreading themselves too thin. Time will tell if these 3 JV will actually bring about more business in terms of contracts and LOI for Swiber.

The next paragraph in the press release on what Mr. Goh says offers some hints as to the purpose of the JV, though overall I would say it is still vague as this kind of technology is alien to me and rather technical by nature. Mr. Goh mentions "increasing demand for such services", which implies that the new JV will be offering services in the form of solutions for companies which require cost-cutting and innovation. It would seem that Kreuz and Principia will be working together to develop, market and sell such solutions; instead of Swiber making use of such solutions themselves to sharpen their competitive edge. Mr. Goh is also "excited by the enhanced prospects for growth which this JV offers", but this point has to be clarified because I am unsure what exactly the company is trying to grow ! This is not an existing business of the company and appears to be a departure towards technological-based solutions, and I am puzzled as to why the company is taking this direction instead of focusing on its core competence of EPCIC.

The best way to find out more about this JV is to attend the upcoming AGM for Swiber which should be held some time in April 2008. The FY 2007 results should be out by the end of February 2008 and I will be doing a review on that as well. Only by talking to the Management and understanding their underlying motivation for this JV will investors get a better picture of what is happening and be more assured that the company is not making a radical departure from their core competence.

Saturday, February 09, 2008

Behavioural Finance Part 2 - Over-Confidence

Part 1 of the behavioural finance series talked about the effects of mental accounting and how it can distort our perception of money and influence our decision-making process. The second part of this series touches on a very common problem among human beings, that of over-confidence. Over-confidence is an insidious condition which can rob a person of normal rationality and cause him to take risks larger than what he is supposed to be comfortable with. Thus, this figures high on the list of behaviours to watch out for when investing in the stock market.

According to the book "The Essential Buffett" by Robert G. Hagstrom, an overwhelming majority of people (when interviewed) claimed that they were good drivers, which leaves one to wonder where all the bad ones are ! Also, according to him, doctors state that they can diagnose pneumonia 90% of the time while the actual percentage is closer to only 50%. These examples show that human beings have the tendency to over-estimate their abilities and to feel that they are superior to other human beings. The truth is, of course, that only a minority of people are actually very good and consistent when it comes to stock market performance; and these are the people who understand about temperament and emotions and learn to master them instead of letting their emotions take control.

Confidence itself is a good thing when it comes to investing, as it implies that one is certain and confident of his investment strategy and that he can execute it competently enough to ensure consistent profits for his investments. Over-confidence is excessive confidence in one's ability and can lead to one making silly and stupid mistakes as a result of an inflated ego. But just how does over-confidence manifest itself during investing ? Some examples would include someone "getting it right" a few times in a row when it comes to picking "winners", thus he feels that he has found a secret formula or that he can do no wrong. Therefore, he recklessly picks his next few investments and plonks large amounts of money into them, only to lose massive amounts of cash in the process.

Another example of over-confidence may be someone who thinks he has stumbled on a secret "system" to beat the market every single time, and thus far it has worked very well and generated consistent profits. One instance of this behaviour was highlighted in a New Paper article showing how an Singaporean under-grad studying in Australia had managed to make a small sum from "contra" trades, only to lose an amount close to S$700,000 over three months after over-confidence took control of his senses. There have been forumers on various share forums in Singapore who also displayed excessive optimism on their own stock picking abilities, only to fall prey to the moods of Mr. Market which their "perfect" system could not detect swiftly enough.

Personally, I have also been guilty of being over-confident at times, as this is a perfectly human trait and we are not infallible. At such times, I have to constantly remind myself not to gloss over the facts of the case and to remain focused; because even though I have had some success in picking good companies, it does not mean that I will ALWAYS be successful in picking good companies. Being mindful of one's fallibility makes one more humble and also allows one to admit mistakes made, in order to learn and improve on one's investment acumen.

Thursday, February 07, 2008

Happy Lunar New Year !

Have been really busy these few days, thus too busy to provide any updates. I will be continuing my series on Investment Sins and Behavioural Finance after Chinese New Year, as well as reviewing the soon-to-be-announced results from PAH, CFG and Swiber.

Here's wishing all Chinese readers a very Happy and Prosperous Lunar New Year ! May the year of the Rat bring about more opportunities to grow your wealth and find more margin of safety in your investments ! For non-Chinese readers, have a good holiday and use this holiday to re-charge yourself.

Check back soon (3rd or 4th day of CNY) for an update ! After all the visiting, I will probably get down to blogging once again.

Saturday, February 02, 2008

Investment Journey - Continuous Learning

This is a short post to highlight the importance of continuous learning as we embark on our journey to be a better investor, and towards financial freedom. Throughout out investment life, we will encounter all sorts of different companies, different challenges and new obstacles. It is the job of the intelligent and conscientious investor to read up more on the companies he is interested in, and to do objective research and analysis on aspects of industries which he does not understand. Knowledge is infinite, and learning is a lifelong experience (as MM Lee puts it), so we must continually upgrade our skills set and knowledge base in order to remain relevant.

Warren Buffett himself is an avid reader and readily digests WSJ, Economist and other major publications on a daily basis. For him, reading is part of understanding what goes on around him, while it also highlights opportunities for him to invest BRK's money. As a retail investor, we too must have the appetite for knowledge and to find out more. The recent sub-prime problems, inflation in China and Singapore, credit crunches and Federal Reserves Interest Rate Policy: these are all topics which we should have a firm understanding of in order to get a grasp of how it relates back to our investments. Remember that Mr. Buffett does not advocate predicting the economy or wha the Fed will do, but he does not say we should not understand and absorb how these actions will impact the economy and the environment around us. For one thing, an example would be banks tightening credit to each other, thus making the provision of loans rarer. Companies who rely heavily on debt may find it harder to borrow to expand.

Recently too, I had a crash course and an in-depth discussion on shipping trusts, as I had recently conducted some research and reading on the structure of shipping trusts and of FSL Trust. Suffice to say that without this continuous learning mentality, I would not have bothered to delve deeper into the pros and cons and to understand the financing structure of such trusts. A lot of credit has to go to forumers on Wallstrait who have enlightened me on how to value FSL Trust (using DCF or IRR) and hence to ascribe a value to it; in order to determine margin of safety. Thus, the process of continuous learning means that I have to continue to delve deeper into what I do not know, in order to gain more clarity and confidence in my investment. Perhaps one can argue that I should have done more due dilligence before I invested, but the available public information was limited as this is a new type of trust. Hence, I had to leverage on the experience and vast knowledge of forumers (expert value investors) in order to learn more. This post is also to show my appreciation to them for helping me along in my investment journey.

So why not start now by reading up on investing ? Pick up good books from the bookstore or surf some websites on value investing in order to enhance your knowledge. Knowledge is power, so they say; and when used correctly it can be a powerful tool for wealth building.