Mid-July 2008 Portfolio Summary and Review

The first half of July 2008 was relatively exciting, as there were several key business announcements and updates from the companies which I own, culminating into a busy half-month in terms of tracking and following my companies’ progress. Fortunately, most of the news reported has been positive (not always the case, when you consider that a fire broke out at Kreuz Shipyard just last month), and encourages me to know that despite the global downturn and the sub-prime problems, the companies which I own are still doing fine.

The most notable news from Wall Street and USA is the collapse of Indymac following a bank run, which basically translates into a crisis of confidence that the USA’s second-largest bank would be unable to honour deposits. The US Government had to provide financial support to the bank and it will now operate as Indymac Federal Bank. Separately, Fannie Mae and Freddie Mac, two of the largest mortgage institutions in the USA, suffered a massive selldown in the value of their shares after a similar crisis of confidence erupted that the two companies were technically insolvent and would be unable to honour their debt obligations. As at the time of writing, Congress had already come up with a plan to bolster the capital of the two companies if need be and they have prepared a rescue package to restore confidence in the financial sector (similar to the Bear Stearns issue back in March 2008). The sell-off across all markets has made valuations a lot more attractive and hopefully the good news will continue in the coming months as equities become more affordable.

The reporting season for 1H FY 2008 for my companies will begin very soon, not counting Ezra which reported its 3Q 2008 recently (and will be reviewed in a separate future post). FSL Trust will report results on July 22, 2008 while Suntec REIT usually releases its 3Q 2008 results close to end-July 2008. Following this would be Swiber 1H FY 2008 (mid-August), China Fishery 1H FY 2008 (end-Aug) and Pacific Andes 1Q FY 2009 (end-Aug).

Below is the summary of my investments and related news as at July 15, 2008 (STI at 2,830.75 points).:-

1) Ezra (Vested since October 6, 2005) - Buy Price $0.645 (bonus adjusted), Market Price $2.27, Gain 250%, YTD Loss 31.9%. Ezra released their 3Q FY 2008 results on July 10, 2008. Net profit was up 78% while revenues were up 85% for 3Q 2008, as a result of the delivery of vessels during FY 2008. Gross margins were down somewhat due to the delays in delivery of other vessels and so Ezra had to resort to third-party charter. In addition, construction projects also traditionally have lower margins and so dragged down the gross margin. I will comment more on their results in a separate future post.

2) Boustead (Vested since September 13, 2006; averaged down November 13, 2006) - Buy Price $1.295 (average), Market Price $2.46, Gain 90%, YTD Gain 2.1%. Boustead had a busy half month as it announced a slew of new contracts. First on the list was Salcon’s largest water contract to date announced on June 30, 2008, worth S$175 million in which Salcon has a 65% stake. Next was a S$37 million contract which Boustead Projects won on July 7, 2008 for building the Singapore Aero Engine Services Facility. Just two days later, Boustead Projects announced a S$67 million contract for the construction of a semi-conductor equipment manufacturing facility. As a result of these contracts, Boustead’s order book is at a record high and there is much anticipation for more contracts to be clinched as the Energy-Related Engineering Division has yet to announce any wins. Boustead’s AGM is on July 30 at 10:00 a.m. and consequently, they will be holding an EGM to approve the share split of 1:1 and also to approve the resolution allowing for the company to buy-back its own shares. Their Annual Report for FY 2008 mentions that the company will begin quarterly reporting starting from FY 2009, with the first quarter results due out in late August 2008. The company cautions, however, that due to the nature of some infrastructural projects, revenues and profits are likely to be lumpy (similar to a property development company). They therefore advise investors to use yearly figures for comparison rather than place too much reliance on quarterly numbers.

3) Swiber (Vested since February 14, 2007) - Buy Price $1.01, Market Price $2.14, Gain 111.9%, YTD Loss 37.6%. Swiber announced, on July 14, 2008, that they had clinched a “substantial” LOI in Vietnam (a market they have been targeting for some time) through their joint venture partner Vietsovpetro since September 2007. The contract value was not specifically stated (probably due to confidentiality reasons) but the company did mention that it will boost their order book past the US$476 million for May 2008. As part of the contract, Swiber will provide project management, engineering, transportation, installation and PLEM, including tie-in and pre-commissioning. The contract is expected to commence in 1Q FY 2009 and be completed by 2Q FY 2009.

4) Suntec REIT (Vested since December 9, 2004) - Buy Price $1.11, Market Price $1.40, Gain 26.1%, YTD Loss 18.1%. There was no news for the company for 1H July 2008. Results for 3Q 2008 should be out by end-July 2008, with dividend to be paid usually by end-August 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 and July 3, 2008) - Buy Price $0.5475, Market Price $0.44, Loss 19.6%, YTD Loss 30.2%. Details of the scrip dividend scheme have been released in a circular, and I had commented on this in detail in a previous post. The AGM of the company will be held at Raffles Hotel at around 3 p.m. o July 30, 2008.

6) China Fishery Group (Vested since November 20, 2007) - Buy Price $1.50 (average), Market Price $1.40, Loss 6.7%, YTD Loss 24.3%. China Fishery announced on July 7, 2008, that it had acquired additional 3 purse seine vessels from a fishing company in Peru for a total consideration of US$11.7 million. This will provide the company with an additional fish hold capacity of 550 Square Metres, bringing their total fish hold capacity to 9,945 square metres or 5.6% of the Peruvian Industry total. The company also formally announced the introduction of the ITQ system in Peru, which will probably be implemented within the next 2 fishing seasons.

7) First Ship Lease Trust (Vested since January 14, 2008) - Buy Price (Averaged Down) $1.105, Market Price $1.25, Gain 13.1%. FSL Trust will release their 2Q 2008 results and DPU on July 22, 2008. It is expected that they will pay US 2.77 cents per unit as per their previous guidance. Guidance for 3Q 2008 is currently US 3.05 cents per unit, pending the financing for the third Yang Ming vessel which may raise the DPU about US 0.02 cents.

Overall Portfolio

The gain on my current portfolio is 35.8% from a new cost of S$89.2K as at July 15, 2008. The market value of my portfolio is S$121.2K. Realized gains remain at S$6.2K until the ex-dividend of Boustead on August 4.

Comparison against STI

Using my new benchmarking technique:-

The FTSE STI had declined by 18.7% since the start of 2008. My portfolio (without FSL Trust and the new PAH purchase) has to date declined 25.1%. Therefore, I have under-performed the STI by 6.4 percentage points.

FSL Trust has gained 13.1% thus far from my date of purchase while the benchmark STI has fallen 12.0% (from my date of purchase Jan 14, 2008 when STI was 3,218.14); I am happy to report that FSL Trust has managed to out-perform the index for FY 2008 thus far.

The new Pacific Andes tranche which was purchased at 44 cents per share on July 3, 2008 will be analyzed separate from the rest of the portfolio. STI as at July 3 was 2,880.45 and STI today is 2,830.75, thus this represents a 1.73% loss. Current share price of Pacific Andes is 44 cents, representing no gain or loss. Hence, my purchase of Pacific Andes has managed to bear the index by 1.73 percentage points.

My next portfolio review will be on Thursday, July 31, 2008 after market close.