Sunday, February 28, 2010

February 2010 Portfolio Summary and Review

February 2010 was a somewhat interesting month, as troubles continued with PIGS (Portugal, Italy, Greece and Spain) amid talks of a potential bailout by Germany and France. Stock markets globally were on jitters due to fears of the potential fallout from these 4 countries, and the Euro currency was also threatened as people dumped it in favour of the USD as the Euro zone countries were perceived to be having numerous problems. There were even some calls for these countries to drop the Euro to prevent it from sliding further against the Greenback. Greece did get a little incensed at the Germans because Germany had implied that Greece had been imprudent with their finances, which led them into their current predicament. In retaliation, Greece demanded for more war reparations from Germany, citing the fact that Germany had yet to fully account for the atrocities they committed during World War II! This mud-slinging is likely to carry on for a while but Germany and France are unlikely to stand idly by and watch Greece sink, as a lot of their banks’ debts are also tied to Greek banks, so if Greece fails, the chain reaction would be catastrophic.

China also gave much cause for concern when it raised its reserve ratio twice within one month, reasons being possible overheating of its economy and also its frothy property market. Since China has remained the “bastion of strength” throughout the entire global financial crisis, managing to grow by a breakneck rate of 8-9% even amidst a global slump, many observers saw the tightening measures as a possible derailment to the global economic recovery. If China were to put the brakes on their red-hot growth, what would the impact be on other nations which are still struggling to overcome the effects of the deep recession?

There are also lingering doubts on the sustainability of the global economic recovery as the data coming out from USA points to a more prolonged slump than originally envisioned. The US Federal Reserve has also hiked up a key lending rate it charges banks on short term loans from 0.5% to 0.75%, signalling that they may be withdrawing their fiscal stimulus much earlier than anticipated.

In Singapore, the Government made a surprising announcement on February 19, 2010 to cool the property market, and implemented two measures to curb speculation and dampen housing prices in the private property sector before they turned into a bubble. The first was to impose a seller’s stamp duty on all sales of property made within 1 year of purchase. Previously, stamp duty was only applicable to the purchase of a property and not its sale. The second measure was to limit the Loan-To-Value (LTV) ratio to 80%, down from 90% previously. What this means is that a buyer is allowed to finance up to a maximum of 80% of the value of the property, instead of the previous allowance of up to 90%. I view these measures as being progressive but probably inadequate to address the red-hot property market, as there are still droves of people heading off to showflats and snapping up expensive high-end condominiums priced at $1,600 to $2,000 psf. I also doubt this will deter those with holding power and the HDB upgraders, who will probably still continue to purchase mass-market condos.

In the Budget Announcement for 2010 (delivered by Mr. Tharman Shanmugaratnam our Finance Minister on February 22, 2010), measures were introduced to help businesses as well as families, with more focus on businesses to grow during the recovery phase. More of the details can be found by visiting the Singapore Budget 2010 Website.

My own portfolio remained fairly dormant as no changes have been made to it since January 2010’s divestment of China Fishery and purchase of Kingsmen Creative. I have been building up on my cash reserves to wait for opportunities to purchase more shares of stable, well-run and growing companies; and hopefully these funds can be suitably deployed in the near future.

For the month of February 2010, some results were announced by the companies I own, as well as some business updates as follow:-

1) Boustead Holdings Limited – There was significant business activity and news for Boustead during Feb 2010. On February 1, 2010, Boustead announced that Salcon had been awarded two projects worth S$11 million from the power industry. Follwing that, on February 8, 2010 Boustead released their 3Q 2010 results. 9M 2010 revenus rose 3.6% while net profit rose 13.7%; but due to the nature of the earnings for Boustead’s project-based revenues, it will be better to review FY 2010 financials due in May 2010. Net cash balance increased further to S$173.8 million and order book is in excess of S$575 million. On February 12, 2010, Boustead announced that its 88.2% subsidiary ESRI Australia Pty Ltd had purchased the entire 100% stake in MapData Sciences Pty Ltd for a cash consideration of about S$3.16 million. It is good news that Boustead is on an M&A path to further strengthen their earnings base; and the acquisition was funded from the cash reserves of the Group.

2) Suntec REIT – Suntec REIT’s dividend of 0.318 cents per share was received on February 26, 2010. Other than this, there was no other news from the REIT.

3) First Ship Lease Trust – FSL Trust‘s dividend will come in on March 1, 2010; other than this there was no further news.

4) Tat Hong Holdings Limited – Tat Hong released their 3Q 2010 results on February 12, 2010 and it was pretty much a disappointment. Revenues dipped for 3Q 2010 and after adjusting for one-off items and exchange gains/(losses), earnings were much lower than anticipated indicating that a recovery was not yet under way. I will NOT be doing a full analysis and review of 3Q 2010 as I had just finished my 3-part 1H FY 2010 analysis. Separately, on February 17, 2010, Tutt Bryant announced a 50-50 joint venture with Fagioli of Europe, a privately owned company and one of Europe’s largest heavy lift specialists.

5) MTQ Corporation Limited – There was no news from MTQ for the month of February 2009.

6) GRP Limited GRP released its 1H FY 2010 results on February 5, 2010. I did a previous posting on it which analysed the results and also gave my views on the prospects of the company.

7) Kingsmen Creatives Holdings Limited – On February 18, 2010, Kingsmen announced that they were appointed as the official events management services sponsor for the Youth Olympic Games (to be held from 14-26 August 2010). Also, Kingsmen released their FY 2009 results on February 24, 2010. I will be doing a comprehensive review soon as well as include my Analysis of Purchase (which is overdue), but a quick summary is that revenues for FY 2009 increased 27%, but net profit attributable to shareholders only increased 5%, due to lower margins from the Universal World Studios contract. A final dividend of 2 cents per share was declared, up 33% from last year’s 1.5 cents per share, payable on May 19, 2010.

Portfolio Review – February 2010

The entire month of February saw more and more bad news trickling in from Greece, China and USA, with USA Consumer Confidence hitting a 10-month low as well. My realized gains had increased to S$53.6K due to the interim dividend from GRP. The portfolio dipped slightly from an unrealized gain of +6% to an unrealized gain of +5.4%. If I had included the dividend received from GRP, unrealized gains would have been +6.1%, a marginal increase from last month. It is expected that sluggish conditions and all-round pessimism will continue for quite some time, and will make conditions very suitable for further investments into companies for the long-term.

For March 2010, it is generally a very quiet month with no corporate updates, and FSL Trust and Suntec REIT will only announce their results some time in late April 2010. Meanwhile, I will be receiving dividends from GRP and FSL Trust on March 11 and 1 respectively. I will then decide how to make use of the cash for re-investment.

My next portfolio review will be on March 31, 2010 (Wednesday).


Dou said...

Suntec is a good pick. Have been trying to get Suntec @ a good price

Musicwhiz said...

Hi Dou,

Thanks, and thanks for visiting too.


JW said...

Wow nice MW...

Your portfolio is $150k now. I'm trying to play catch up :)

Musicwhiz said...

Hi JW,

Thanks. Don't worry, this is a marathon, not a sprint. Just take your time and pace yourself, you will surely get there through hard work and perserverence!

Good luck,


MOS said...

Hi MusicWhiz,

I just wanted to tell you how much I enjoy reading your blog.

I'm an early 30s amateur value investor from Australia. Some months back, I came across your blog while researching Boustead. I found the information about past AGMs and Boustead's CEO very valuable.

Out of all your posts, the "Mistakes" posts resonated with me the most. I too have made a few of the mistakes you listed. All budding investors out there, ought to take Charlie Munger's (Buffett's partner) advice about learning vicariously through others. In other words, learn about the mistakes of others so you can avoid them yourself.

Incidentally, I attended the 2009 Berkshire AGM and got to meet Warren Buffett face to face (for 10 seconds before I was hushed along). I also went to the Wesco AGM where Munger presides. It was an amazing experience. Are you a Berkshire shareholder by any chance?

As you might gather, I mainly invest in Australian companies. I've look at Singaporean companies now and then, as a side interest. I've heard of Tutt Bryant, the one Australian company in which you have an indirect stake. Here in Australia we have an abundance of mining companies. However, I've never looked at a mining company myself (falls outside my circle of competence). Instead, I prefer companies which provide a high return on capital. The benefit is two fold, they consequently tend to have little or no debt. They are uncommon but they are out there.

Anyway, that's a little about my experience. I look forward to your comments.

Keep up your future posts.

Musicwhiz said...


Thanks for your comment and for your description of your investing style. Glad you found the Boustead information useful. I guess by your age we are in the same age group and probably going through the same wealth-building phase of our lives.

Yes, mistakes are what make us learn better and also learning from others' mistakes is much wiser than making our own!

Good to know you invest in Aussie companies, that's where your circle of competence lies. I am awre Aussie has many listed mining companies but Tutt Bryant is more of a heavy equipment provider and is 70% owned by Tat Hong.

I strongly agree on the high returns on capital. The newer companies I purchased all have decent ROE and are all net cash, so the risk is almost non-existent of them going bankrupt in case another crisis erupts. If I protect my downside, the upside will take care of itself.

Yep will continue looking for such opportunities. Thanks for dropping by, I appreciate it!


MOS said...

I guess we are in the wealth-building phase. Although, I imagine it won't be for too much longer, when a certain 'wife and kids' come along. By then, wealth accumulation will probably reverse and become wealth dissipation! Of course, I'm writing in jest.

I've noticed in your analysis that you spend a good deal of time on financial analysis. Have you ever looked at your companies from other aspects? For instance, if we take Boustead, how would you describe the economics of the business? Who are the competitors? How well does it compete against it's competitors? Does it have a commodity or franchise type product? How well does management allocate capital? Does management behave well? In other words, as Buffett likes to put it, how wide is the "moat" that protects this business?

I find that these questions are equally relevant. Although the numbers tell you how well the business is performing, it doesn't tell you why its performing well and more importantly, if it will continue to perform into the distant future.

You do allude to some of the answers in your posts. But I would love to hear your perspective on these questions in your future posts on the companies you own (if you don't mind sharing them with us).

I look forward to your reply.

Musicwhiz said...


Haha those are the "Fisher" type questions which I do tackle when I analyze a company as well. If you had not already noticed, each of my analysis of purchases since Tat Hong also include a lot of qualitative factors, and I do discuss competitve moats and barriers to entry as well. In addition, I do factor in cash flow generation ability, net cash position and also working capital requirements of the Company in question. All these create a holistic picture of the Company and provide more information on the investment decision.

I guess I can discuss more on the competitive aspects of the Companies I own, but as you said yourself I do allude to these points in my review and analyses. A short breakdown would be as follows:-

1) Boustead - Internationally renowned Engineering Services company. Salcon is internationally recognized and many of their real-estate solution clients are MNC and international companies. This gives them an edge when bidding; plus they are operating in nearly 50 countries around the world - a truly global company!

2) MTQ - Only 1 of 3-4 players in SEA providing oilfield engineering services. In Middle East though, there are a couple more competitors. This is in consideration to their planned Bahrain expansion. As for Engine Systems, I don't think there's much barrier to entry; but the Bosch deal should give them an increase in the scale/breadth of products and hence that is an edge in itself.

3) KC - You can refer to the KC Analysis of Purchase Part 1 comments section for more details.

4) GRP - From their revenue and profit track record alone, they operate in an industry which is niche and they can provide consistent products there.

5) Tat Hong - One of the largest crane companies in the world. Their scale is tough for competitors to replicate, and their JVCs in China also stand them in good stead for expansion.