End-August 2007 Portfolio Review
The recent market volatility has allowed me to finally add to my portfolio (my second purchase in 2007 so far), and this was a purchase of 4,000 shares of Pacific Andes at a price of S$0.615 on August 17, 2007 (Friday). On this day itself, the Straits Times Index fell more than 190 points during intra-day trading, and a marvelous window of opportunity opened up for me to buy more of a good company cheaply. In fact, many good companies were showing value that day, with Swiber touching S$1.99 and Ezra touching S$4.42. These are all good prices for value investors to accumulate as these depressed prices offer a good margin of safety as compared to the intrinsic value of the company. My only regret was not queueing to buy more of Swiber at S$2.00 as I had to attend to work matters.
Anyhow, below is the usual summary of my investments and related news as at August 31, 2007 (STI at 3,392.91 points). At the request of some of the readers, I have also included my purchase date as well (note: all dividends received are included under my realized gains and NOT used to offset against my purchase price):-
1) Ezra (Vested since October 6, 2005) - Buy Price $1.30 (bonus adjusted), Market Price $5.90, gain 354%. Besides the details of the EGM which I put together in a post two days ago, Ezra has also announced today that their EOC listing has been granted in-principle approval from Oslo Bors subject to certain conditions being met. However, my personal view is that this is a very complex deal and it will still take more due diligence and time before it can be 100% complete. I trust that the company will be transparent enough to keep shareholders updated from time to time on the progress of the listing.
2) Boustead (Vested since September 13, 2006; averaged down November 13, 2006) - Buy Price $1.295 (average), Market Price $2.39, gain 84.6%. Boustead are on a roll as they announced, on August 22, 2007, that they had clinched their largest contract to date of S$300 million to build a township in Libya. Details are as stated in one of my blog posts. The company is expected to clinch more projects in the upcoming months due to their strong competitive advantage in engineering solutions as well as industrial real estate solutions. The net dividend of 3.69 cents per share was received on August 22, 2007.
3) Swiber (Vested since February 14, 2007) - Buy Price $1.01, Market Price $2.84, gain 181.2%. It is obvious that Swiber is growing very rapidly and that the company is engaging in many activities to expand their fleet and raise funds in order to fuel further contract wins. On August 22, Swiber announced the appointment of the VP of FSO operations to spearhead this division’s growth. Subsequently, on August 24, they announced the successful bond issue of S$108.5 million to fund their fleet expansion and for working capital. Further on August 30, they announced a purchase of 4 vessels (3 accommodation barges and one submersible barge) to be added to their fleet from 4Q 2007 to 1Q 2009. The total cost of the vessel acquisitions came up to US$70.6 million, which will be funded from the proceeds of their equity fund raising plus sale-and-leaseback.
4) Global Voice (Vested since November 23, 2005; averaged down January 25, 2006) - Buy Price $0.1775 (average), Market Price $0.175, loss 1.4%. GV snared one more contract on August 21, deploying PrivaNex for Global Connect in Hamburg. For more details on the announcement, please visit SGXNet or Global Voice’s website.
5) Suntec REIT (Vested since December 9, 2004) - Buy Price $1.11, Market Price $1.77, gain 59.5%. There was no news for Suntec REIT except for some changes in substantial shareholding involving Temasek Holdings. There have been no further updates so far on the acquisition of One Raffles Quay. I received my dividend of 2.1 cents per share on August 28, 2007.
6) Pacific Andes (Vested since March 29, 2006; Rights Issue July 11, 207 at S$0.52 per share; averaged down August 17, 2007) - Buy Price $0.665 (rights-adjusted), Market Price $0.77, gain 17.6%. As mentioned, I added to my position on August 17 and reduced my average cost by 1 cent from 66.5 cents to 65.5 cents; thus increasing my margin of safety for this investment. With the growth of the business intact and the 63.9% recognition of CFG to come in 2Q 2008, I see a good chance of high earnings increase potential for the company moving forward. The dividend of 0.54 cents per share was received on August 24, 2007.
Overall Portfolio
My overall portfolio has increased by 104.1% from a new cost of S$46.8K as at August 31, 2007. The market value of my portfolio is around S$95.6K and unrealized gains total S$48.8K. Realized gains from previous share transactions including all dividends received since I started investing come up to about S$4.2K. Most of the gains can be attributed to the strong performances of Ezra due to news of the EOC listing, Swiber’s expansion plans and Boustead’s clinching of the S$300 million Libya township deal. The strong fundamentals in these 3 companies ensured that my portfolio was protected from the sub-prime “storm” (at least for now !).
My next portfolio review will be on Friday, September 14, 2007 after market close.
Note: I will do only one posting this weekend as I will take some time off my investments to spend with my family.
Friday, August 31, 2007
Thursday, August 30, 2007
The Dynamics of Business Fundamentals
We exist in a world where everything is in constant change, and such rapid changes are exacerbated by the use of technology which can instantly connect two people and make information exchanges all the more rapid. The same goes for businesses in this rapidly evolving world – they also change constantly and their fundamentals never stay the same. As any observer can see, industries come and go; products are launched and die out. It’s the life cycle of businesses, companies and industries, much like the lives of human beings as they go through the phases of growth, maturity then decline.
As such, when one looks at “business fundamentals”, one must be aware that this is ever-changing. Most investors refer to the term fundamentals as if it were a static event and frozen in time, but the reality is that a business is fluid and always adapting to its surroundings. If a business remained stagnant for too long, then it would be in danger of being overtaken by competitors or closing down due to poor sales. The life-cycle of a business would depend on its environment (political, economic, legal and social), industry, trends, products, services, pricing and many other aspects. Thus, the “fundamentals” alone would imply that many such factors have to be looked at, and is not just a simple matter of looking at one facet of the company. If it were really so simple, then most people would have figured things out easily and made tons of money. But in reality, most investors and traders end up losing money by purchasing businesses which cannot stand the test of time, and failing to bail out before the crisis.
How does one know when the company’s fortunes are going to turn ? Generally, a keen observer who keeps track of the company will first be aware of changes in the macro-environment, or industry. Industry developments are very important in determining whether a company can continue to flourish, or is on the verge of decline. For example, in the oil and gas industry, I am aware that oil prices will remain high (around US$70 per barrel) and this makes investing in Ezra and Swiber viable as they depend on high oil prices to generate demand for their services. Should there be an instance where alternative fuels threatened to totally replace crude oil (an unlikely scenario) or if the prices of oil dropped to below US$40 due to over-supply, then the intelligent investor would be able to deduce that companies in the oil and gas industry will start to see deteriorating fundamentals. Thus, it is a matter of being alert and pre-empting the decline, as no company can remain on the growth track forever. I will touch on the product life cycle in a future posting, in order to make my point clearer.
A seasoned and shrewd investor will look out for early signs of trouble in the companies he is vested in, in order to quickly assess the situation and sell out in case of a lingering, fundamental severe problem. These would include (but are not limited to) Acts of God (e.g. earthquakes, fires, floods destroying crops or factories), severe competition, permanent and irreversible erosion of margins, obsolescence of products, serious cash flow mismanagement etc. The difficulty, of course, is in distinguishing a temporary or minor problem from one which is going to cripple the company. In this respect, an understanding of the business and industry does help to give a clearer perspective of the problem, and to rationalize it objectively to see whether it will linger or disappear.
In conclusion, I would like to reiterate again that businesses are dynamic by nature, and that past performances or successes are NEVER an indication of future performance (e.g. Creative Technologies and OSIM). Some companies or industries have their glory days but fall into the doldrums after some time, while “long-term” investors always hope and pray for a miracle and that the stock price will somehow fly once again. Such unrealistic expectations only serve to incapitate the investor and cause him to hold on to a company whose fundamentals and business have eroded beyond recognition. Such is the harsh reality of the business world, and we must learn to cope with it or be destined to lose out in the long-run.
Next Post: I will be posting my usual portfolio summary and review of my investments tomorrow as it is the final day of August 2007; after which my next post will probably be on Swiber's announcement of the acquisition of 4 vessels.
We exist in a world where everything is in constant change, and such rapid changes are exacerbated by the use of technology which can instantly connect two people and make information exchanges all the more rapid. The same goes for businesses in this rapidly evolving world – they also change constantly and their fundamentals never stay the same. As any observer can see, industries come and go; products are launched and die out. It’s the life cycle of businesses, companies and industries, much like the lives of human beings as they go through the phases of growth, maturity then decline.
As such, when one looks at “business fundamentals”, one must be aware that this is ever-changing. Most investors refer to the term fundamentals as if it were a static event and frozen in time, but the reality is that a business is fluid and always adapting to its surroundings. If a business remained stagnant for too long, then it would be in danger of being overtaken by competitors or closing down due to poor sales. The life-cycle of a business would depend on its environment (political, economic, legal and social), industry, trends, products, services, pricing and many other aspects. Thus, the “fundamentals” alone would imply that many such factors have to be looked at, and is not just a simple matter of looking at one facet of the company. If it were really so simple, then most people would have figured things out easily and made tons of money. But in reality, most investors and traders end up losing money by purchasing businesses which cannot stand the test of time, and failing to bail out before the crisis.
How does one know when the company’s fortunes are going to turn ? Generally, a keen observer who keeps track of the company will first be aware of changes in the macro-environment, or industry. Industry developments are very important in determining whether a company can continue to flourish, or is on the verge of decline. For example, in the oil and gas industry, I am aware that oil prices will remain high (around US$70 per barrel) and this makes investing in Ezra and Swiber viable as they depend on high oil prices to generate demand for their services. Should there be an instance where alternative fuels threatened to totally replace crude oil (an unlikely scenario) or if the prices of oil dropped to below US$40 due to over-supply, then the intelligent investor would be able to deduce that companies in the oil and gas industry will start to see deteriorating fundamentals. Thus, it is a matter of being alert and pre-empting the decline, as no company can remain on the growth track forever. I will touch on the product life cycle in a future posting, in order to make my point clearer.
A seasoned and shrewd investor will look out for early signs of trouble in the companies he is vested in, in order to quickly assess the situation and sell out in case of a lingering, fundamental severe problem. These would include (but are not limited to) Acts of God (e.g. earthquakes, fires, floods destroying crops or factories), severe competition, permanent and irreversible erosion of margins, obsolescence of products, serious cash flow mismanagement etc. The difficulty, of course, is in distinguishing a temporary or minor problem from one which is going to cripple the company. In this respect, an understanding of the business and industry does help to give a clearer perspective of the problem, and to rationalize it objectively to see whether it will linger or disappear.
In conclusion, I would like to reiterate again that businesses are dynamic by nature, and that past performances or successes are NEVER an indication of future performance (e.g. Creative Technologies and OSIM). Some companies or industries have their glory days but fall into the doldrums after some time, while “long-term” investors always hope and pray for a miracle and that the stock price will somehow fly once again. Such unrealistic expectations only serve to incapitate the investor and cause him to hold on to a company whose fundamentals and business have eroded beyond recognition. Such is the harsh reality of the business world, and we must learn to cope with it or be destined to lose out in the long-run.
Next Post: I will be posting my usual portfolio summary and review of my investments tomorrow as it is the final day of August 2007; after which my next post will probably be on Swiber's announcement of the acquisition of 4 vessels.
Wednesday, August 29, 2007
Ezra – EGM on August 29, 2007
I attended the EGM held by Ezra today at 10:00 a.m. in order to approve 3 resolutions, namely the 1-for-1 bonus issue, company’s share repurchase scheme and the sale of 43% of EOC Limited on the Oslo bourse. The official business of the meeting was quickly concluded (as it usually is) with all resolutions being proposed, seconded and passed without objections. I took the opportunity to meet up with Mr. Tan Tat Ming (Finance Executive and also in charge of investor relations for Ezra Group) to discuss some salient issues regarding the company. Below are a list of issues which we covered and I am just providing a summary as I could not remember 100% of the details:-
a) On the Bonus Issue – Mr. Tan mentioned that due to the high absolute price of Ezra’s shares on SGX, several funds have been reluctant to buy into the company. Doing a 1-for-1 bonus will double the number of issued shares and half the price, thus increasing trading liquidity and also lowering the absolute cost of each lot. He said that several institutions and funds have shown interest in collecting more of Ezra’s shares but have been constrained from doing so due to the lack of liquidity.
b) On share buybacks – Previously, Ezra had purchased 3 million shares at a price of S$5.60 per share from the open market but this was declared a “void” transaction as the company did not have the mandate for a share buyback program at the time. Thus, this 3 million shares will be released (sold) back to the open market and the company will make an appropriate announcement when this occurs. The company has no plans to buy back shares in the foreseeable future.
c) On rationale for divestment of 43% of EOC – I queried Mr. Tan on the rationale for the disposal of 43% of EOC, arguing that Ezra Group will actually recognize lower profits because most of the profits from the new vessels were coming through the production and construction division helmed by EOC. He mentioned that it was to be a trade-off as Ezra wanted to “lighten” their balance sheet, thus by disposing of the 43% interest in EOC, they need not consolidate line-by-line items for EOC from FY 2008 onward. On the flip side, profits will also be slightly lower and will be incorporated into a line “share of profits from associated company” as EOC will now be an associate instead of a subsidiary. The intention, he said, was for Ezra to grow its AHTS fleet separate from the production and construction division helmed by EOC, and their idea was to beef up the balance sheet of EOC as a result of this divestment. I do not totally agree that this is the best thing to do but I am willing to put my faith in the Management, seeing their track record at managing the company so far.
d) On progress of divestment of EOC – As stated in the circular, the agreed upon price for the divestment and subsequent sale of vendor shares was estimated at between NOK 24 and NOK 26, and the final price will be determined once the contract is signed for the listing. Mr. Chan Eng Yew is currently in Norway handling the EOC matter, and everything is going smoothly as planned. A few weeks ago, CLSA came up with a report speculating that delays may occur in listing EOC at an attractive valuation due to the recent weakness in the markets and reduced confidence on the part of investors. Mr. Tan’s assurance was that this was an equity offering (not debt), thus there should be significantly less resistance to it.
e) On clinching another FPSO deal – EOC will be working towards that as the company plans to bid for another FPSO deal some time in the future. Financing was of course an issue but Mr. Tan’s assurance was that once the announcement was made, all the required tie-ups with regards to financing would have been made. The Group is looking towards acquiring an FPSO in the range of US$200 million to US$300 million rather than the super-large types in the North Sea which can go as high as US$1 billion.
f) On progress of conversion of current FPSO – The current conversion of the FPSO “Kitty Knutsen” is progressing smoothly and the vessel has been renamed Lewek FPSO 1. It is expected to be delivered some time in FY 2008.
g) On alternative fuels and whether they can threaten Ezra’s business – Mr. Tan assured me that oil and gas will always have a part to play in society, even if alternative fuels should one day become commercially viable to produce in mass quantities. This is because too many vessels, aircraft and vehicles are constructed for use with gasoline, and this will not change for at least 50 years (my personal estimate). He also mentioned that for bio-diesel, he has heard that the cost of producing it (from corn) is now higher than the price of the output generated, thus long-term feasibility of this procedure is in question.
h) On charter probabilities and rates for 30,000 bhp vessels – According to Mr. Tan, there was a recent charter of a 28,000 bhp AHTS at a spot rate of US$250,000 per day ! This rate is, of course, not sustainable for longer-term charters but will average around US$100,000 to US$150,000 per day, still a very significant amount indeed. As such, the new 30,000 bhp vessels being built by Pan-United Marine are also equipped with state-of-the-art DP3 (Dynamic Positioning) systems. This technology gives the vessels an added competitive advantage and this should enable them to command higher rates.
i) On charter of Lewek Champion (recently delivered pipe-lay vessel) – I wanted to clarify the charter of Ezra’s pipe-laying vessel Lewek Champion as there were two separate announcements regarding the charter of this vessel, one to ConocoPhillips for 1H FY 2008, and another for a sub-sea pipeline installation for a national oil company. Mr. Tan said that the sub-sea charter can be considered a long-term one, while the ConocoPhillips is more of a spot rate charter which will not extend beyong 1H FY 2008; thus the vessel can be deployed to 2 different locations depending on the needs of the charterer. He also clarified that the US$888 million as announced in the press release was the entire project value, but that Ezra would only be earning a part of that (he did not elaborate on the % as it would be market-sensitive I guess).
j) On strategic stake in Ezion Holdings (formerly known as Nylect) – Ezion is involved in semi-submersibles and Ezra had acquired part of the company in order to enable a strategic fit between Ezion and its Vietnamese fabrication yard. The yard is currently expanding and Ezion’s role in future would be to support the new pre-fabricated vessels coming from the yard. Personally, I have no shareholdings in Ezion as I feel there is no value at current market prices. Ezra’s entry price into Ezion was 33.1 cents, thus they are sitting on some good unrealized gains as well. Hopefully, they will be able to integrate Ezion into their business smoothly and enable more profits to be recognized as a result.
k) On their Vietnamese Fabrication yard – This yard is expanding and Ezra will announce something soon on the development and progress of this yard. Staff strength currently number about 300+ (mostly Vietnamese skilled workers including welders) and is set to increase. The yard is constructing platforms, which are used alongside rigs during the oil drilling phase. Platforms and deployed as fixed structures alongside floating rigs in order to stabilize the operations and enable drilled oil to be piped back to the rig for collection. I am guessing that this will be another area of growth for Ezra as it intends to capture a larger portion of the oil and gas cycle by constructing platforms. Mr. Tan did casually mention that Ezra has identified another land parcel for possible expansion of the Vietnamese yard, but this cannot be confirmed unless the company does an official press release.
I have covered the major points discussed with Mr. Tan, and hopefully the company can continue its growth trajectory to make this a value company to own for many years down the road. From what I heard today, I expect to see more positive developments down the road for shareholders and interested investors. Unlocking the value of EOC through a vendor sale of shares on the Main Board of Oslo is only the first step in Ezra’s ambitious expansion plan.
I attended the EGM held by Ezra today at 10:00 a.m. in order to approve 3 resolutions, namely the 1-for-1 bonus issue, company’s share repurchase scheme and the sale of 43% of EOC Limited on the Oslo bourse. The official business of the meeting was quickly concluded (as it usually is) with all resolutions being proposed, seconded and passed without objections. I took the opportunity to meet up with Mr. Tan Tat Ming (Finance Executive and also in charge of investor relations for Ezra Group) to discuss some salient issues regarding the company. Below are a list of issues which we covered and I am just providing a summary as I could not remember 100% of the details:-
a) On the Bonus Issue – Mr. Tan mentioned that due to the high absolute price of Ezra’s shares on SGX, several funds have been reluctant to buy into the company. Doing a 1-for-1 bonus will double the number of issued shares and half the price, thus increasing trading liquidity and also lowering the absolute cost of each lot. He said that several institutions and funds have shown interest in collecting more of Ezra’s shares but have been constrained from doing so due to the lack of liquidity.
b) On share buybacks – Previously, Ezra had purchased 3 million shares at a price of S$5.60 per share from the open market but this was declared a “void” transaction as the company did not have the mandate for a share buyback program at the time. Thus, this 3 million shares will be released (sold) back to the open market and the company will make an appropriate announcement when this occurs. The company has no plans to buy back shares in the foreseeable future.
c) On rationale for divestment of 43% of EOC – I queried Mr. Tan on the rationale for the disposal of 43% of EOC, arguing that Ezra Group will actually recognize lower profits because most of the profits from the new vessels were coming through the production and construction division helmed by EOC. He mentioned that it was to be a trade-off as Ezra wanted to “lighten” their balance sheet, thus by disposing of the 43% interest in EOC, they need not consolidate line-by-line items for EOC from FY 2008 onward. On the flip side, profits will also be slightly lower and will be incorporated into a line “share of profits from associated company” as EOC will now be an associate instead of a subsidiary. The intention, he said, was for Ezra to grow its AHTS fleet separate from the production and construction division helmed by EOC, and their idea was to beef up the balance sheet of EOC as a result of this divestment. I do not totally agree that this is the best thing to do but I am willing to put my faith in the Management, seeing their track record at managing the company so far.
d) On progress of divestment of EOC – As stated in the circular, the agreed upon price for the divestment and subsequent sale of vendor shares was estimated at between NOK 24 and NOK 26, and the final price will be determined once the contract is signed for the listing. Mr. Chan Eng Yew is currently in Norway handling the EOC matter, and everything is going smoothly as planned. A few weeks ago, CLSA came up with a report speculating that delays may occur in listing EOC at an attractive valuation due to the recent weakness in the markets and reduced confidence on the part of investors. Mr. Tan’s assurance was that this was an equity offering (not debt), thus there should be significantly less resistance to it.
e) On clinching another FPSO deal – EOC will be working towards that as the company plans to bid for another FPSO deal some time in the future. Financing was of course an issue but Mr. Tan’s assurance was that once the announcement was made, all the required tie-ups with regards to financing would have been made. The Group is looking towards acquiring an FPSO in the range of US$200 million to US$300 million rather than the super-large types in the North Sea which can go as high as US$1 billion.
f) On progress of conversion of current FPSO – The current conversion of the FPSO “Kitty Knutsen” is progressing smoothly and the vessel has been renamed Lewek FPSO 1. It is expected to be delivered some time in FY 2008.
g) On alternative fuels and whether they can threaten Ezra’s business – Mr. Tan assured me that oil and gas will always have a part to play in society, even if alternative fuels should one day become commercially viable to produce in mass quantities. This is because too many vessels, aircraft and vehicles are constructed for use with gasoline, and this will not change for at least 50 years (my personal estimate). He also mentioned that for bio-diesel, he has heard that the cost of producing it (from corn) is now higher than the price of the output generated, thus long-term feasibility of this procedure is in question.
h) On charter probabilities and rates for 30,000 bhp vessels – According to Mr. Tan, there was a recent charter of a 28,000 bhp AHTS at a spot rate of US$250,000 per day ! This rate is, of course, not sustainable for longer-term charters but will average around US$100,000 to US$150,000 per day, still a very significant amount indeed. As such, the new 30,000 bhp vessels being built by Pan-United Marine are also equipped with state-of-the-art DP3 (Dynamic Positioning) systems. This technology gives the vessels an added competitive advantage and this should enable them to command higher rates.
i) On charter of Lewek Champion (recently delivered pipe-lay vessel) – I wanted to clarify the charter of Ezra’s pipe-laying vessel Lewek Champion as there were two separate announcements regarding the charter of this vessel, one to ConocoPhillips for 1H FY 2008, and another for a sub-sea pipeline installation for a national oil company. Mr. Tan said that the sub-sea charter can be considered a long-term one, while the ConocoPhillips is more of a spot rate charter which will not extend beyong 1H FY 2008; thus the vessel can be deployed to 2 different locations depending on the needs of the charterer. He also clarified that the US$888 million as announced in the press release was the entire project value, but that Ezra would only be earning a part of that (he did not elaborate on the % as it would be market-sensitive I guess).
j) On strategic stake in Ezion Holdings (formerly known as Nylect) – Ezion is involved in semi-submersibles and Ezra had acquired part of the company in order to enable a strategic fit between Ezion and its Vietnamese fabrication yard. The yard is currently expanding and Ezion’s role in future would be to support the new pre-fabricated vessels coming from the yard. Personally, I have no shareholdings in Ezion as I feel there is no value at current market prices. Ezra’s entry price into Ezion was 33.1 cents, thus they are sitting on some good unrealized gains as well. Hopefully, they will be able to integrate Ezion into their business smoothly and enable more profits to be recognized as a result.
k) On their Vietnamese Fabrication yard – This yard is expanding and Ezra will announce something soon on the development and progress of this yard. Staff strength currently number about 300+ (mostly Vietnamese skilled workers including welders) and is set to increase. The yard is constructing platforms, which are used alongside rigs during the oil drilling phase. Platforms and deployed as fixed structures alongside floating rigs in order to stabilize the operations and enable drilled oil to be piped back to the rig for collection. I am guessing that this will be another area of growth for Ezra as it intends to capture a larger portion of the oil and gas cycle by constructing platforms. Mr. Tan did casually mention that Ezra has identified another land parcel for possible expansion of the Vietnamese yard, but this cannot be confirmed unless the company does an official press release.
I have covered the major points discussed with Mr. Tan, and hopefully the company can continue its growth trajectory to make this a value company to own for many years down the road. From what I heard today, I expect to see more positive developments down the road for shareholders and interested investors. Unlocking the value of EOC through a vendor sale of shares on the Main Board of Oslo is only the first step in Ezra’s ambitious expansion plan.
Tuesday, August 28, 2007
The difficulty in being Objective
Today, I will embark on a short, succinct but very relevant post on objectivity. As investors, I had mentioned that the hardest thing to master are your emotions and this is the number one chief reason why so many people lose money in the stock market. Not only must you be able to grasp the company’s fundamentals well and analyze the financial statements; but one must also be able to control the emotional urges that get other investors into trouble, namely fear and greed. Objectivity is another aspect of the emotional equation, in which an investor’s mind tends to be clouded, subjective and biased until he can get past the “vested interest syndrome” as I call it.
Just what exactly is this weird-sounding syndrome ? To put it in layman’s terms, it simply means falling in love with the stock and company ! In all honesty, I may also be guilty of this without realizing it as many of my companies form my core long-term holdings. People tend to seek out information which affirms their beliefs and every investor would do their best to uncover information which is positive for their investments; thereby leading to the dangerous situation where potential negative developments surrounding the company’s industry or fundamentals remain “shrouded” because of selective retention. Investors tend to shun bad news about their investments because it does not conform to their expected view of how their investments should perform. Hence, this is a selective bias which, admittedly, is very difficult to detect and eliminate. It usually requires an objective non-vested third-party to provide a more objective and balanced view of a company.
This is why I strongly encourage feedback on my blog (through comments) when I write on the companies I own. My analysis may be flawed and skewed as I am vested, thus it may impair my objectivity in analyzing the situation as I may only see the rosy side and not the potentially negative side. On my own, I also visit forums to check out quality postings and others’ analysis of my companies in order to obtain a more balanced view. I actually encourage dissenting views and differing opinions which may enable me to view a company from a different perspective, and I try hard to reduce and eliminate the selective perception tendency (which filters out all negative news automatically). Thus far, I have had balanced views on Global Voice, Ezra Holdings and also Pacific Andes and have taken these views into account when I blog about the risks of such businesses. Without such views and opinions in an open forum, I doubt I would have been able to provide both sides of the story regarding a new company announcement or results release.
On the flip side though, while the importance of seeking differing opinions and viewpoints cannot be downplayed, it is also important for a value investor to maintain a certain degree of independent thinking. By this, I mean that one ought to use his own brain juice to think independently on the situation and not be overly influenced by crowd perception. As Benjamin Graham put it: “You are right not because the crowd is right; you are right because your reasoning and facts are correct”. People may have a hidden agenda, vested interest or behave too emotionally when it comes to talking about companies they either love or hate, thus take everything in stride but go through the pertinent facts in order to make your own decisions.
A parting note: Remember to view all facts objectively and impartially, as if you were a third-party observer. Although this had proved to be difficult for most investors due to the presence of emotional attachments to a company they either love or hate, it must still be attempted in order to obtain an unbiased view of one’s investment. Only then can an investor truly work towards achieving a reasonable rate of return on his investment.
Update: Thanks to little willow for pointing out that the above quote (in bold) was made by Benjamin Graham and not Warren Buffett. I have amended the post to reflect this.
Today, I will embark on a short, succinct but very relevant post on objectivity. As investors, I had mentioned that the hardest thing to master are your emotions and this is the number one chief reason why so many people lose money in the stock market. Not only must you be able to grasp the company’s fundamentals well and analyze the financial statements; but one must also be able to control the emotional urges that get other investors into trouble, namely fear and greed. Objectivity is another aspect of the emotional equation, in which an investor’s mind tends to be clouded, subjective and biased until he can get past the “vested interest syndrome” as I call it.
Just what exactly is this weird-sounding syndrome ? To put it in layman’s terms, it simply means falling in love with the stock and company ! In all honesty, I may also be guilty of this without realizing it as many of my companies form my core long-term holdings. People tend to seek out information which affirms their beliefs and every investor would do their best to uncover information which is positive for their investments; thereby leading to the dangerous situation where potential negative developments surrounding the company’s industry or fundamentals remain “shrouded” because of selective retention. Investors tend to shun bad news about their investments because it does not conform to their expected view of how their investments should perform. Hence, this is a selective bias which, admittedly, is very difficult to detect and eliminate. It usually requires an objective non-vested third-party to provide a more objective and balanced view of a company.
This is why I strongly encourage feedback on my blog (through comments) when I write on the companies I own. My analysis may be flawed and skewed as I am vested, thus it may impair my objectivity in analyzing the situation as I may only see the rosy side and not the potentially negative side. On my own, I also visit forums to check out quality postings and others’ analysis of my companies in order to obtain a more balanced view. I actually encourage dissenting views and differing opinions which may enable me to view a company from a different perspective, and I try hard to reduce and eliminate the selective perception tendency (which filters out all negative news automatically). Thus far, I have had balanced views on Global Voice, Ezra Holdings and also Pacific Andes and have taken these views into account when I blog about the risks of such businesses. Without such views and opinions in an open forum, I doubt I would have been able to provide both sides of the story regarding a new company announcement or results release.
On the flip side though, while the importance of seeking differing opinions and viewpoints cannot be downplayed, it is also important for a value investor to maintain a certain degree of independent thinking. By this, I mean that one ought to use his own brain juice to think independently on the situation and not be overly influenced by crowd perception. As Benjamin Graham put it: “You are right not because the crowd is right; you are right because your reasoning and facts are correct”. People may have a hidden agenda, vested interest or behave too emotionally when it comes to talking about companies they either love or hate, thus take everything in stride but go through the pertinent facts in order to make your own decisions.
A parting note: Remember to view all facts objectively and impartially, as if you were a third-party observer. Although this had proved to be difficult for most investors due to the presence of emotional attachments to a company they either love or hate, it must still be attempted in order to obtain an unbiased view of one’s investment. Only then can an investor truly work towards achieving a reasonable rate of return on his investment.
Update: Thanks to little willow for pointing out that the above quote (in bold) was made by Benjamin Graham and not Warren Buffett. I have amended the post to reflect this.
Monday, August 27, 2007
Swiber – Inaugural Bond Issue of S$108.5 Million
On August 24, 2007, Swiber announced the completion of a successful bond placement through CitiCorp Investment Bank (“Citi”), raising a total of S$108.5 million as part of their S$300 million multi-currency medium term note programme established on July 20, 2007. This programme was established with the aim of raising funds for Swiber’s fleet expansion through debt, after utilizing the options of equity financing and sales and leaseback.
Terms of the Bond Issue and Financial Effects
The 3-year bonds are issued in two tranches: S$54 million was raised on a fixed-rate tranche with an interest rate of 4.34% per annum payable semi-annually, while the other S$54.5 million tranche has a floating interest rate which is 140 basis points (1.4%) above the 3-month Singapore Dollar Swap Offer rate and is payable quarterly. The bonds will mature on August 24, 2010 and will NOT be traded on the SGX-ST. After reading up a little on swaps (on HSBC website which was rather technical), I found that they are more versatile than fixed-rate loans in an increasing interest-rate environment; and that swaps are generally used to protect a company against adverse movements in interest rates. Upon further reading from the OCBC website, I found that the Swop Offer Rates (SOR) are fixed daily at 11 a.m. by the Association of Banks in Singapore and it will be based on the date of loan disbursement and NOT the underlying loan amount. Thus, thus rate will actually be fixed and reported in the Business Times after the day the funds are made available. In the absence of a fixed rate, I shall use an SOR rate of 3% (as SOR are supposed to be more flexible than fixed-rate loans, hence I used a lower %) and adjust it accordingly when the company makes further announcements.
From the numbers provided, the computation of the interest rate is as follows: for the fixed-rate tranche, the interest payable per annum is S$2.3436 million, which works out to S$1.1718 million every half-yearly. Since this tranche was taken up on August 24, 2007, the next interest installment payment would be on February 24, 2008 in FY 2008 (which will impact the 1Q FY 2008 results). For the floating-rate tranche, assuming a 3% SOR, the floating rate will be about 4.4% per annum. This works out to about S$2.398 million worth of interest payments per annum, which translates into about S$600,000 every quarter. The next interest installment for this tranche will be on November 24, 2007 and will thus impact the FY 2007 financials. The total interest payable per annum on the entire bond issue is about S$4.716 million (about US$3.1 million).
Based on Swiber’s balance sheet as at June 30, 2007, it shows that they have cash and bank balances of US$8.8 million, which is more than sufficient to service this bond issue. A quick check on their cash flow statement reveals that for 2Q 2007, there was US$2.9 million worth of operating cash inflows generated. If we annualized this, it would imply that Swiber generates about US$11.6 million worth of cash inflows from operations annually; more than enough to service the annual interest commitments for this bond issue. Also, please note that the operating cash flows for 2Q 2007 are not fully indicative of Swiber’s cash generating ability moving into the future, because as more contracts come into force, their operating cash inflows generation capability should also dramatically increase.Gearing will increase from 0.52 (using 2Q 2007 figures) to 1.73, which is a three-fold increase, as a result of the issuance of the bonds. This high gearing is a concern but in this industry, capex is a very important aspect of growing the business and the case was similar for Ezra Holdings Limited (though they preferred to use sale-and-leasebacks and equity issues rather tan debt). The advantage of debt is that it can offer a better rate than raising funds through equity, as investors will demand an equity risk premium to cover them in case the business does not grow as planned. I will be closely tracking Swiber’s gearing and cash flows in future periods to assess if the company can manage their debts well.
Outlook and Prospects
The fundamentals of Swiber have changed as a result of this bond issue, and moving forward, I have to see more contract wins in other regions in which they have not penetrated before in order to bolster my confidence in the company. As the CEO Mr.Raymond Goh mentioned, building the fleet is of course important, but this is based on the assumption that a stronger and larger fleet can help them to clinch contracts of higher value and also allow them to control costs well as they would not need to rely on third-party vessels.
As mentioned in Swiber’s press release, this is the first bond issue from an oil and gas services company and the only bond issue of significant size (not sure what their benchmark is !) from a local company since May 2007. The fact that the bond issue was attractively priced amid current “market volatility” and increased wariness due to the sub-prime mortgage issue in the USA serves to emphasize the confidence which asset managers and insurance companies have in the company. CitiCorp managed to make full use of a window of opportunity given by the Fed cutting bank lending rates by 50 basis points in order to price the bond issue more attractively, which attests to their expertise and experience. Moving forward, I see more synergies created as Swiber continues to work with CitiCorp on future debt issuances from their S$300 million dollar medium term note programme.
Swiber – Appointment of new VP of FSO Operations Mr. Ronald L. Schakosky
On August 22, 2007, Swiber announced yet another appointment of a senior management staff. This time, it was the vice-president of their Floating, Production and Offloading (“FSO”) division. He is Mr. Ronald L. Schakosky, a 59-year old American who has 25 years of experience in the oil and gas industry. His experience and knowledge lie in field engineering, field development, FSO and FPSO projects and operations and he is expected to “inject a new and innovative management style and perspective to the Group’s operations”. By this, it would imply that there should be a new approach to the old way of doing things and hopefully processes and projects will be reviewed and revamped to make them more cost-effective and efficient.
This latest announcement demonstrates Swiber’s commitment to improving their Management team, by hiring senior management personnel with vast experience in the oil and gas sector in order to boost the Group’s competencies and knowledge base. The good thing is that the Company strives to keep shareholders informed of such developments, which is another plus point in terms of voluntary corporate disclosure.
On August 24, 2007, Swiber announced the completion of a successful bond placement through CitiCorp Investment Bank (“Citi”), raising a total of S$108.5 million as part of their S$300 million multi-currency medium term note programme established on July 20, 2007. This programme was established with the aim of raising funds for Swiber’s fleet expansion through debt, after utilizing the options of equity financing and sales and leaseback.
Terms of the Bond Issue and Financial Effects
The 3-year bonds are issued in two tranches: S$54 million was raised on a fixed-rate tranche with an interest rate of 4.34% per annum payable semi-annually, while the other S$54.5 million tranche has a floating interest rate which is 140 basis points (1.4%) above the 3-month Singapore Dollar Swap Offer rate and is payable quarterly. The bonds will mature on August 24, 2010 and will NOT be traded on the SGX-ST. After reading up a little on swaps (on HSBC website which was rather technical), I found that they are more versatile than fixed-rate loans in an increasing interest-rate environment; and that swaps are generally used to protect a company against adverse movements in interest rates. Upon further reading from the OCBC website, I found that the Swop Offer Rates (SOR) are fixed daily at 11 a.m. by the Association of Banks in Singapore and it will be based on the date of loan disbursement and NOT the underlying loan amount. Thus, thus rate will actually be fixed and reported in the Business Times after the day the funds are made available. In the absence of a fixed rate, I shall use an SOR rate of 3% (as SOR are supposed to be more flexible than fixed-rate loans, hence I used a lower %) and adjust it accordingly when the company makes further announcements.
From the numbers provided, the computation of the interest rate is as follows: for the fixed-rate tranche, the interest payable per annum is S$2.3436 million, which works out to S$1.1718 million every half-yearly. Since this tranche was taken up on August 24, 2007, the next interest installment payment would be on February 24, 2008 in FY 2008 (which will impact the 1Q FY 2008 results). For the floating-rate tranche, assuming a 3% SOR, the floating rate will be about 4.4% per annum. This works out to about S$2.398 million worth of interest payments per annum, which translates into about S$600,000 every quarter. The next interest installment for this tranche will be on November 24, 2007 and will thus impact the FY 2007 financials. The total interest payable per annum on the entire bond issue is about S$4.716 million (about US$3.1 million).
Based on Swiber’s balance sheet as at June 30, 2007, it shows that they have cash and bank balances of US$8.8 million, which is more than sufficient to service this bond issue. A quick check on their cash flow statement reveals that for 2Q 2007, there was US$2.9 million worth of operating cash inflows generated. If we annualized this, it would imply that Swiber generates about US$11.6 million worth of cash inflows from operations annually; more than enough to service the annual interest commitments for this bond issue. Also, please note that the operating cash flows for 2Q 2007 are not fully indicative of Swiber’s cash generating ability moving into the future, because as more contracts come into force, their operating cash inflows generation capability should also dramatically increase.Gearing will increase from 0.52 (using 2Q 2007 figures) to 1.73, which is a three-fold increase, as a result of the issuance of the bonds. This high gearing is a concern but in this industry, capex is a very important aspect of growing the business and the case was similar for Ezra Holdings Limited (though they preferred to use sale-and-leasebacks and equity issues rather tan debt). The advantage of debt is that it can offer a better rate than raising funds through equity, as investors will demand an equity risk premium to cover them in case the business does not grow as planned. I will be closely tracking Swiber’s gearing and cash flows in future periods to assess if the company can manage their debts well.
Outlook and Prospects
The fundamentals of Swiber have changed as a result of this bond issue, and moving forward, I have to see more contract wins in other regions in which they have not penetrated before in order to bolster my confidence in the company. As the CEO Mr.Raymond Goh mentioned, building the fleet is of course important, but this is based on the assumption that a stronger and larger fleet can help them to clinch contracts of higher value and also allow them to control costs well as they would not need to rely on third-party vessels.
As mentioned in Swiber’s press release, this is the first bond issue from an oil and gas services company and the only bond issue of significant size (not sure what their benchmark is !) from a local company since May 2007. The fact that the bond issue was attractively priced amid current “market volatility” and increased wariness due to the sub-prime mortgage issue in the USA serves to emphasize the confidence which asset managers and insurance companies have in the company. CitiCorp managed to make full use of a window of opportunity given by the Fed cutting bank lending rates by 50 basis points in order to price the bond issue more attractively, which attests to their expertise and experience. Moving forward, I see more synergies created as Swiber continues to work with CitiCorp on future debt issuances from their S$300 million dollar medium term note programme.
Swiber – Appointment of new VP of FSO Operations Mr. Ronald L. Schakosky
On August 22, 2007, Swiber announced yet another appointment of a senior management staff. This time, it was the vice-president of their Floating, Production and Offloading (“FSO”) division. He is Mr. Ronald L. Schakosky, a 59-year old American who has 25 years of experience in the oil and gas industry. His experience and knowledge lie in field engineering, field development, FSO and FPSO projects and operations and he is expected to “inject a new and innovative management style and perspective to the Group’s operations”. By this, it would imply that there should be a new approach to the old way of doing things and hopefully processes and projects will be reviewed and revamped to make them more cost-effective and efficient.
This latest announcement demonstrates Swiber’s commitment to improving their Management team, by hiring senior management personnel with vast experience in the oil and gas sector in order to boost the Group’s competencies and knowledge base. The good thing is that the Company strives to keep shareholders informed of such developments, which is another plus point in terms of voluntary corporate disclosure.
Sunday, August 26, 2007
Personal Finance Part 2 – Credit Cards
To continue my series on personal finance, I would like to touch on an often controversial, yet unavoidable issue – that of credit cards. It is a well-know fact that developing countries such as Singapore have residents who are increasingly dependent on credit and debt as a way to pursue an “enhanced” lifestyle. Since just one generation ago when Singapore became independent, our lives have become increasingly fast-paced and materialistic. This is evident from the prevalence of sports cars being spotted recently on the streets of Singapore and also from the various interactions from my peers, friends and colleagues. The conversation would inevitably steer towards the “possessions” one has, what car you are driving (if you own one) and what flat you lived in. Perhaps it is a result of Singapore’s strong economic growth which has precipitated such affluence and materialism, but the constant pursuit of money is still a worrying trend. Credit cards are often mentioned in the media as exacerbating this problem by offering cheap credit to people who do not know how to make full use of it. What do I mean by this ? Read on to find out….
Credit cards are basically a form of debt given to a cardholder such that he can utilize this debt to “spend” until he reached his credit limit (this is usually less than twice his monthly salary). The card allows one to do hassle-free shopping (you do not have to bring cash around) and also allows you to spend much more than you normally are able to. At the end of the month, a statement summarizing the previous month’s transactions is mailed to the cardholder, and he has until a specific deadline to choose to pay the minimum sum or the full amount, after which interest (usually as high as 24% per annum) will be levied on the outstanding amount. The pros and cons of credit cards are listed in the simple table below:-
Advantages of Credit Cards
i) Allows one to do hassle-free spending, without having to carry massive amounts of cash for a major purchase;
ii) Allows one to spend more than one normally can as the card limit is usually about twice the cardholder’s salary;
iii) Gives the cardholder a 2-month interest-free “loan”, as the statement usually arrives one month after the date of transaction, while the deadline for settling the account is another month from the date of receipt of statement. In effect, this allows you to retain your cash for 2 months without settling your outstanding bills;
iv) Summarized statement showing the vendors visited and amounts paid: this acts as a sort of accountability statement and record for you to review your purchases for the previous month;
v) Perks and bonuses which come with each card which include accrual of loyalty points, special discounts and good shopping/holiday deals
Disadvantages of Credit Cards
i) Allows one to roll over debts into future periods, effectively incurring high interest charges for those ignorant of such compounding;
ii) Encourages wanton spending as the card gives the feeling of not departing with immediate cash, thus the psychological effect is dissimilar from actually forking out real money or using a debit card (which immediately deducts your bank account);
iii) Creates a “plastic” culture, where credit cards are seen as a way to enhance spending and allow people to roll over their balances. Thus, many people are caught over-extending themselves and living on “borrowed money”.
In spite of the apparent disadvantages, I am of the belief that it is up to the individual to control his or her proper use of the card, as the card can be a powerful tool when used correctly as it gives a 2-month interest-free loan. It is akin to fire in that we must know how to control and use it; it is useful when used for cooking and heating but it can also destroy and kill.
Recently, I came across an ad for the Citi Clear Card , which changes the concept of owning credit cards. Most credit cards come with minimum income requirements but this card has no minimum requirement and people as young as 21 can apply for it. Those above 18 can apply too but require parental consent. I support the aim of this card as it attempts to educate the young on the benefits of credit, while at the same time it also has sufficient safeguards to ensure that these youths do not go astray. Such features are:-
a) Card is automatically blocked once the cardmember misses his/her payment – this prevents the cardholder from incurring further debts assuming that he or she is unable to pay for previous ones
b) The credit limit is capped at S$500, which is a good way to ensure that cardholders do not over-spend. This also allows the cardholder to appreciate the value of money by starting small until he/she goes out to work and earn money.
In addition, the Citi Clear Card also has discounts and privileges at over 600 merchant locations, which is one of the advantages I mentioned above. Not many cards offer a choice of so many merchants and some of the partner include Velvet Underground, Winebar, Heeren Shops, Café Cartel, TCC, Coffee Club, Haagen Dazs and California Fitness just to name a few. One new noteworthy feature worth mentioning is their one-touch biometric payment which allows you to settle your purchases with the touch of your finger ! Truly technology can work wonders and what safer way is there than your own biology which cannot be replicated like normal cards can ? I was also pleasantly surprised when I found out about this feature as I admit to feeling nervous over possible credit card fraud. Online shopping and rewards programs are also available with this card and it would seem that Citibank is having a first-mover advantage by introducing this card to the youths and targeting a new segment of the population.
In fact, with the safeguards for this card and the additional perks, I was even thinking of signing up for one myself as I currently only have a UOB card and it would be good to enjoy the perks associated with the Citi Clear Card. For all those interested in applying, please click here in order to be directed to the relevant webpage by Citibank.
The above is just an example of one of the more recently launched credit cards which incorporate good benefits and also safety features in order to promote good credit habits. Thus, in conclusion, please do make use of credit cards in order to obtain your free 2-month loan but please DO pay the full amount in time in order to avoid the massively expensive 24% per annum interest charges which follow !
To continue my series on personal finance, I would like to touch on an often controversial, yet unavoidable issue – that of credit cards. It is a well-know fact that developing countries such as Singapore have residents who are increasingly dependent on credit and debt as a way to pursue an “enhanced” lifestyle. Since just one generation ago when Singapore became independent, our lives have become increasingly fast-paced and materialistic. This is evident from the prevalence of sports cars being spotted recently on the streets of Singapore and also from the various interactions from my peers, friends and colleagues. The conversation would inevitably steer towards the “possessions” one has, what car you are driving (if you own one) and what flat you lived in. Perhaps it is a result of Singapore’s strong economic growth which has precipitated such affluence and materialism, but the constant pursuit of money is still a worrying trend. Credit cards are often mentioned in the media as exacerbating this problem by offering cheap credit to people who do not know how to make full use of it. What do I mean by this ? Read on to find out….
Credit cards are basically a form of debt given to a cardholder such that he can utilize this debt to “spend” until he reached his credit limit (this is usually less than twice his monthly salary). The card allows one to do hassle-free shopping (you do not have to bring cash around) and also allows you to spend much more than you normally are able to. At the end of the month, a statement summarizing the previous month’s transactions is mailed to the cardholder, and he has until a specific deadline to choose to pay the minimum sum or the full amount, after which interest (usually as high as 24% per annum) will be levied on the outstanding amount. The pros and cons of credit cards are listed in the simple table below:-
Advantages of Credit Cards
i) Allows one to do hassle-free spending, without having to carry massive amounts of cash for a major purchase;
ii) Allows one to spend more than one normally can as the card limit is usually about twice the cardholder’s salary;
iii) Gives the cardholder a 2-month interest-free “loan”, as the statement usually arrives one month after the date of transaction, while the deadline for settling the account is another month from the date of receipt of statement. In effect, this allows you to retain your cash for 2 months without settling your outstanding bills;
iv) Summarized statement showing the vendors visited and amounts paid: this acts as a sort of accountability statement and record for you to review your purchases for the previous month;
v) Perks and bonuses which come with each card which include accrual of loyalty points, special discounts and good shopping/holiday deals
Disadvantages of Credit Cards
i) Allows one to roll over debts into future periods, effectively incurring high interest charges for those ignorant of such compounding;
ii) Encourages wanton spending as the card gives the feeling of not departing with immediate cash, thus the psychological effect is dissimilar from actually forking out real money or using a debit card (which immediately deducts your bank account);
iii) Creates a “plastic” culture, where credit cards are seen as a way to enhance spending and allow people to roll over their balances. Thus, many people are caught over-extending themselves and living on “borrowed money”.
In spite of the apparent disadvantages, I am of the belief that it is up to the individual to control his or her proper use of the card, as the card can be a powerful tool when used correctly as it gives a 2-month interest-free loan. It is akin to fire in that we must know how to control and use it; it is useful when used for cooking and heating but it can also destroy and kill.
Recently, I came across an ad for the Citi Clear Card , which changes the concept of owning credit cards. Most credit cards come with minimum income requirements but this card has no minimum requirement and people as young as 21 can apply for it. Those above 18 can apply too but require parental consent. I support the aim of this card as it attempts to educate the young on the benefits of credit, while at the same time it also has sufficient safeguards to ensure that these youths do not go astray. Such features are:-
a) Card is automatically blocked once the cardmember misses his/her payment – this prevents the cardholder from incurring further debts assuming that he or she is unable to pay for previous ones
b) The credit limit is capped at S$500, which is a good way to ensure that cardholders do not over-spend. This also allows the cardholder to appreciate the value of money by starting small until he/she goes out to work and earn money.
In addition, the Citi Clear Card also has discounts and privileges at over 600 merchant locations, which is one of the advantages I mentioned above. Not many cards offer a choice of so many merchants and some of the partner include Velvet Underground, Winebar, Heeren Shops, Café Cartel, TCC, Coffee Club, Haagen Dazs and California Fitness just to name a few. One new noteworthy feature worth mentioning is their one-touch biometric payment which allows you to settle your purchases with the touch of your finger ! Truly technology can work wonders and what safer way is there than your own biology which cannot be replicated like normal cards can ? I was also pleasantly surprised when I found out about this feature as I admit to feeling nervous over possible credit card fraud. Online shopping and rewards programs are also available with this card and it would seem that Citibank is having a first-mover advantage by introducing this card to the youths and targeting a new segment of the population.
In fact, with the safeguards for this card and the additional perks, I was even thinking of signing up for one myself as I currently only have a UOB card and it would be good to enjoy the perks associated with the Citi Clear Card. For all those interested in applying, please click here in order to be directed to the relevant webpage by Citibank.
The above is just an example of one of the more recently launched credit cards which incorporate good benefits and also safety features in order to promote good credit habits. Thus, in conclusion, please do make use of credit cards in order to obtain your free 2-month loan but please DO pay the full amount in time in order to avoid the massively expensive 24% per annum interest charges which follow !
Saturday, August 25, 2007
Boustead – S$300 Million Contract to Build Township in Libya
Boustead has announced on the evening of August 22, 2007 that it had clinched its largest and most significant contract to date: that of building a township in Al Marj in Libya. The total value of this contract stands at S$300 million and will be jointly entered into by Boustead and their joint-venture partner General Construction and Building Company (GCBC), which is the largest construction company in Libya. According to the agreement, Boustead will own 65% of the joint venture and it plans to build 1,164 single-storey semi-detached houses. Boustead will be utilizing advanced technology in order to augment the township and ensure that it is equipped with state of the art technology coupled with a modern Arabic architectural façade.
With this contract (Boustead’s largest to date), Boustead’s order book expands to close to S$700 million, a record for the Group to date. This success can be attributed to the Group trimming off its “excess fats” in order to focus its competencies on three core business; that of engineering, water/wastewater treatment and industrial real estate solutions. By specializing and possessing a high level of quality, Boustead is able to clinch contracts which span the globe. This is their main competitive advantage and continues to help them to secure new customers (as announced on August 13, 2007 regarding the S$26 million engineering contracts) in locations all over the world.
According to Philip Securities’ latest report on Boustead, the analyst Lim Thian Koon mentions that he expects more projects coming up for Boustead. This is predicated on the fact that the Libyan government is embarking on a long-term project to construct 400,000 homes in the country within the next decade. Boustead, being the first Singapore company to design and build a new township in Libya, would have establish an early foothold and gain a first mover advantage when it comes to the design and construction of more houses in other parts of Libya. In addition, Salcon is also just completing the construction of the largest sewage treatment plant there; thus Boustead’s name should be firmly entrenched within the country. This makes it all the more likely that more projects will be clinched by Boustead in future.
As for the numbers, taking the Philips’ Securities report as a good guide, this S$300 million project will be 65% owned by Boustead, which means a total revenue of S$195 million recognized over 24 months. As at the date of announcement, there are about 7 months remaining for FY 2008. Thus, the project is assumed to be 7/24 (or about 30%) complete as at the end of FY 2008 and this amounts to S$58.5 million. Management has informed Philip Securities that the gross margin for the township stands at 15-20% (this is taken from the report and cannot be independently verified); therefore yielding a gross profit of about S$8.775 million (using 15% because of prudence). I assume net margin is only about 5% of revenue recognized, so net profit will be in the range of S$2.9 million. Although this does not seem very high, please note that it is computed using very conservative assumptions and that Boustead Projects + the engineering division still have a fat order book for FY 2008 waiting to be recognized.
The intangible benefits arising from this record contract are obvious: it shows that Boustead has the ability and capability to clinch multi-million dollar contracts by partnering with other parties, when it was previously assumed that such mega-projects may strain the Group’s ability to properly manage and handle. Another plus point is that the Group is trusted and well-respected in diverse areas of the world which Singapore companies seldom dare to venture into. This gives Boustead a competitive advantage as it means that it can tap on its expertise in property development and high-end engineering solutions to provide a unique offering similar to the one demonstrated in Libya. In time to come, it is highly likely that Boustead would be able to collaborate with other partners in order to clinch more mega-deals, as it continues to focus on its core competencies and sharpen its competitive edge. Barring unforeseen circumstances, I can already envision that FY 2008 will be another record year of revenues and profits for Boustead, making it their sixth consecutive year of revenue and profit growth.
Next Post: More on Swiber’s newly appointed VP of FSO operations as well as their successful inaugural bond issuance amounting to S$108.5 million to fund their fleet expansion. Stay tuned !
Boustead has announced on the evening of August 22, 2007 that it had clinched its largest and most significant contract to date: that of building a township in Al Marj in Libya. The total value of this contract stands at S$300 million and will be jointly entered into by Boustead and their joint-venture partner General Construction and Building Company (GCBC), which is the largest construction company in Libya. According to the agreement, Boustead will own 65% of the joint venture and it plans to build 1,164 single-storey semi-detached houses. Boustead will be utilizing advanced technology in order to augment the township and ensure that it is equipped with state of the art technology coupled with a modern Arabic architectural façade.
With this contract (Boustead’s largest to date), Boustead’s order book expands to close to S$700 million, a record for the Group to date. This success can be attributed to the Group trimming off its “excess fats” in order to focus its competencies on three core business; that of engineering, water/wastewater treatment and industrial real estate solutions. By specializing and possessing a high level of quality, Boustead is able to clinch contracts which span the globe. This is their main competitive advantage and continues to help them to secure new customers (as announced on August 13, 2007 regarding the S$26 million engineering contracts) in locations all over the world.
According to Philip Securities’ latest report on Boustead, the analyst Lim Thian Koon mentions that he expects more projects coming up for Boustead. This is predicated on the fact that the Libyan government is embarking on a long-term project to construct 400,000 homes in the country within the next decade. Boustead, being the first Singapore company to design and build a new township in Libya, would have establish an early foothold and gain a first mover advantage when it comes to the design and construction of more houses in other parts of Libya. In addition, Salcon is also just completing the construction of the largest sewage treatment plant there; thus Boustead’s name should be firmly entrenched within the country. This makes it all the more likely that more projects will be clinched by Boustead in future.
As for the numbers, taking the Philips’ Securities report as a good guide, this S$300 million project will be 65% owned by Boustead, which means a total revenue of S$195 million recognized over 24 months. As at the date of announcement, there are about 7 months remaining for FY 2008. Thus, the project is assumed to be 7/24 (or about 30%) complete as at the end of FY 2008 and this amounts to S$58.5 million. Management has informed Philip Securities that the gross margin for the township stands at 15-20% (this is taken from the report and cannot be independently verified); therefore yielding a gross profit of about S$8.775 million (using 15% because of prudence). I assume net margin is only about 5% of revenue recognized, so net profit will be in the range of S$2.9 million. Although this does not seem very high, please note that it is computed using very conservative assumptions and that Boustead Projects + the engineering division still have a fat order book for FY 2008 waiting to be recognized.
The intangible benefits arising from this record contract are obvious: it shows that Boustead has the ability and capability to clinch multi-million dollar contracts by partnering with other parties, when it was previously assumed that such mega-projects may strain the Group’s ability to properly manage and handle. Another plus point is that the Group is trusted and well-respected in diverse areas of the world which Singapore companies seldom dare to venture into. This gives Boustead a competitive advantage as it means that it can tap on its expertise in property development and high-end engineering solutions to provide a unique offering similar to the one demonstrated in Libya. In time to come, it is highly likely that Boustead would be able to collaborate with other partners in order to clinch more mega-deals, as it continues to focus on its core competencies and sharpen its competitive edge. Barring unforeseen circumstances, I can already envision that FY 2008 will be another record year of revenues and profits for Boustead, making it their sixth consecutive year of revenue and profit growth.
Next Post: More on Swiber’s newly appointed VP of FSO operations as well as their successful inaugural bond issuance amounting to S$108.5 million to fund their fleet expansion. Stay tuned !
Wednesday, August 22, 2007
Personal Finance Part 1 – Pillars of Wealth Building
This is part 1 of a brand new series on personal finance. I will be discussing various methods of building wealth, including how to minimize expenses as well as covering topics such as credit cards, cars, property, loans and other financial matters pertaining to individuals. Investing will of course be touched on as well as part of personal finance, as I believe investing is the only way to grow and build your long-term wealth as CPF simply isn’t enough (yes, even with that extra 1% I am very sure it is still insufficient for retirement !).
I would like to start off the series by introducing my own personal 3 pillar of wealth building: Savings, Insurance and Investment. These are not methods by which one can get instantly rich (try Toto if you want to win instant riches !), but I believe they help us to prepare for contingencies and also to build long-term sustainable wealth which can be passed on to our next generation. Always remember that we are not only earning money for ourselves, but also our loved ones (e.g. father, mother, siblings and spouse as well as children). Thus, it is not enough to merely earn enough for yourself, but it is also critically important to grow our wealth at a reasonable rate (in this case, I mean greater than inflation rate) and to compound our savings so that we can enjoy a comfortable, worry-free retirement. Below are my three pillars and a brief summary of each. As this series moves along, I will elaborate more on each pillar. Feel free to leave comments if you have other wealth-building ideas or if you need to share your own experiences on wealth accumulation.
Savings
Most people under-estimate the power of saving regularly. Although saving itself will not guarantee that we can “grow” our money, at least it doesn’t cause our money to simply vanish (especially if you are one who does not track your monthly expenses). My belief is that one should at least attempt to save 30% of their take-home pay (i.e. gross salary less 20% compulsory CPF contribution to CPF OA). Remember that it is now much one earns, but rather how much one spends which determines how much he is able to save every month. A “high-flyer” earning S$10,000 (net) a month and spending S$9,000 on luxury items, partying and car accessories will only end up with S$1,000 of savings (10%). However, a thrifty person earning a S$4,000 net salary and spending only S$2,500 can manage to save more in monetary terms (S$1,500 per month as opposed to Mr. Spendthrift) as well as percentage terms (37.5% compared to 10%). I personally keep a spreadsheet to track my expenses in terms of meals for the month, transport as well as “other” purchases like movies, books and clothing.
Insurance
Insurance acts as a safety net should anything happen to oneself. Most people who think insurance isn’t important or that they don’t need it obviously have NOT considered what happens should they die or meet with a serious accident one day. Please remember that when something bad happens to you, it is the loved ones around you who suffer (either from lack of your steady income to support them, or expenses incurred in providing you with appropriate and constant care). Thus, insurance is a form of safeguard against financial loss and gives you peace of mind. These days, insurance also comes in the form of savings plans (which I will elaborate on more in a future post) which allows you to save regularly at an interest rate higher than inflation. This allows one to protect one’s earnings as well as save constantly and compound one’s wealth. I personally have 3 insurance policies (2 life and 1 life/term/savings) while my wife has 2 (one life and the other life/term/savings). Notice that I did not mention ILP (Investment-linked policies)…..this will be elaborated on in more detail during my posting on insurance and financial planners.
Investing
Finally, the most important and powerful way of building wealth is through investments, either in property, equities, bonds or unit trusts. If one follows prudent principles for investing for the long-term, one can enjoy very good returns of 11% (30-year period), which is nearly 3 times the average level of inflation (3%). By introducing value investing, I hope to show readers that slow and steady wealth building through long-term investing is a sure way of growing your nest egg. Foolishly exposing oneself to the unpredictable patterns of the daily stock quotes in an attempt to second-guess sentiment and emotions is at best futile, and at worst foolish. I have mentioned the difference between trading and investing in a previous post so I will not go into it once again. Suffice to say that proper temperament and studious research and reading are important pre-requisites for doing consistently well in the market. As this is mainly a value investing blog, I will not touch too much on unit trusts and bonds but I will be making a brief mention on property investing in a subsequent post.
In Part 2 of Personal Finance series: I will explore the use of credit and debit cards and introduce some features of the latest cards to readers. I will also discuss the pros and cons of credit and how we can maximize the use of the credit card.
In my next post: I will touch on Boustead’s S$300 million contract to build a township in Libya and also cover Swiber’s appointment of a new VP for FSO operations.
This is part 1 of a brand new series on personal finance. I will be discussing various methods of building wealth, including how to minimize expenses as well as covering topics such as credit cards, cars, property, loans and other financial matters pertaining to individuals. Investing will of course be touched on as well as part of personal finance, as I believe investing is the only way to grow and build your long-term wealth as CPF simply isn’t enough (yes, even with that extra 1% I am very sure it is still insufficient for retirement !).
I would like to start off the series by introducing my own personal 3 pillar of wealth building: Savings, Insurance and Investment. These are not methods by which one can get instantly rich (try Toto if you want to win instant riches !), but I believe they help us to prepare for contingencies and also to build long-term sustainable wealth which can be passed on to our next generation. Always remember that we are not only earning money for ourselves, but also our loved ones (e.g. father, mother, siblings and spouse as well as children). Thus, it is not enough to merely earn enough for yourself, but it is also critically important to grow our wealth at a reasonable rate (in this case, I mean greater than inflation rate) and to compound our savings so that we can enjoy a comfortable, worry-free retirement. Below are my three pillars and a brief summary of each. As this series moves along, I will elaborate more on each pillar. Feel free to leave comments if you have other wealth-building ideas or if you need to share your own experiences on wealth accumulation.
Savings
Most people under-estimate the power of saving regularly. Although saving itself will not guarantee that we can “grow” our money, at least it doesn’t cause our money to simply vanish (especially if you are one who does not track your monthly expenses). My belief is that one should at least attempt to save 30% of their take-home pay (i.e. gross salary less 20% compulsory CPF contribution to CPF OA). Remember that it is now much one earns, but rather how much one spends which determines how much he is able to save every month. A “high-flyer” earning S$10,000 (net) a month and spending S$9,000 on luxury items, partying and car accessories will only end up with S$1,000 of savings (10%). However, a thrifty person earning a S$4,000 net salary and spending only S$2,500 can manage to save more in monetary terms (S$1,500 per month as opposed to Mr. Spendthrift) as well as percentage terms (37.5% compared to 10%). I personally keep a spreadsheet to track my expenses in terms of meals for the month, transport as well as “other” purchases like movies, books and clothing.
Insurance
Insurance acts as a safety net should anything happen to oneself. Most people who think insurance isn’t important or that they don’t need it obviously have NOT considered what happens should they die or meet with a serious accident one day. Please remember that when something bad happens to you, it is the loved ones around you who suffer (either from lack of your steady income to support them, or expenses incurred in providing you with appropriate and constant care). Thus, insurance is a form of safeguard against financial loss and gives you peace of mind. These days, insurance also comes in the form of savings plans (which I will elaborate on more in a future post) which allows you to save regularly at an interest rate higher than inflation. This allows one to protect one’s earnings as well as save constantly and compound one’s wealth. I personally have 3 insurance policies (2 life and 1 life/term/savings) while my wife has 2 (one life and the other life/term/savings). Notice that I did not mention ILP (Investment-linked policies)…..this will be elaborated on in more detail during my posting on insurance and financial planners.
Investing
Finally, the most important and powerful way of building wealth is through investments, either in property, equities, bonds or unit trusts. If one follows prudent principles for investing for the long-term, one can enjoy very good returns of 11% (30-year period), which is nearly 3 times the average level of inflation (3%). By introducing value investing, I hope to show readers that slow and steady wealth building through long-term investing is a sure way of growing your nest egg. Foolishly exposing oneself to the unpredictable patterns of the daily stock quotes in an attempt to second-guess sentiment and emotions is at best futile, and at worst foolish. I have mentioned the difference between trading and investing in a previous post so I will not go into it once again. Suffice to say that proper temperament and studious research and reading are important pre-requisites for doing consistently well in the market. As this is mainly a value investing blog, I will not touch too much on unit trusts and bonds but I will be making a brief mention on property investing in a subsequent post.
In Part 2 of Personal Finance series: I will explore the use of credit and debit cards and introduce some features of the latest cards to readers. I will also discuss the pros and cons of credit and how we can maximize the use of the credit card.
In my next post: I will touch on Boustead’s S$300 million contract to build a township in Libya and also cover Swiber’s appointment of a new VP for FSO operations.
Subscribe to:
Posts (Atom)
