It would be fair to say that the Singapore stock market has taken a fair amount of beating recently. While stocks are generally less riskier when the prices are lower, I do observe a handful of practices adopted by the investing populace that will do them no good, no matter how the general market is behaving.
Purchase of securities with high dividend yields
With price falling, dividend yields naturally goes up. However, the popular saying that "yield is a proxy for risk" holds. Consider the curious case of Starhub. A long-time favourite among income investors, management reduced yearly dividends from 20 cents to 16 cents. This might seem prudent until one dished out his trusty calculator (or excel) and pored through financial statements in its recent history.
The issue wasn't that Starhub had a huge amount of debt-- it simply did not have free cash flow to pay off 16 cents of dividend yearly _even if it maintains its profitability_. In other words, in a business environment that had become more challenging, Starhub has to grow its earnings to meet dividend payouts. What are the odds?
I would agree with some value hunters that Starhub could become a value play since a) it might cut dividend again, this time to a sustainable amount, and b) falling out of index means a lot of indiscriminate selling without regards to its value. I would suggest that we wait until the management cuts the dividend drastically. But in my humble opinion, now may not be the time to make speculative investments. The Singapore market is a lot more efficient in pricing.
Catalyst Stocks
The other popular operation is to bet on stocks where there might be a catalyst or event in play. For instance, Duty Free International (DFI), a business that has been running duty-free shops around Malaysia. The company is now contesting a legal claim that it has to pay duties of about 41m to the state of Perak. DFI has about 370m cash in its books. On the surface, this looks like a pretty risk-free operation.
One might note that earnings from this company has been on a steady decline, and its high dividend payout is unsustainable from its cash flow. Records shown that it had been paying over 100% of its earnings for the last six years. While the company had bought back some shares late last year, one notes in its latest un-audited year-end report that over 100m new shares were created via placements since 2016. Its share buyback of 10.4m shares while commendable, has some way to go. Ultimately you are betting that business operations will improve since it isn't cheap compared to its assets.
Either that, you are an expert in legal matters... but there are too much timing involved.
Large, unpopular companies
Lastly, steep price declines of blue-chips. Investing in such operations is actually recommended by Graham in The Intelligent Investor. One such example is Yangzijiang (YZJ). YZJ had fell a stupeflying 40% since Jan this year (1.60 to 0.96 as I write).
One must note that YZJ has about 14b worth of "financial assets," representing a considerable amount of its total assets of 42b. Understanding these assets are beyond me. If one were to consider that there are 27b worth of liabilities on its book, the stated book value of YZJ at 1.4 SGD may provide a lower margin of safety than it suggests. At the risk of being perceived as overly prudent, one should wait for a further discount instead of being suckered into buying... especially from the attention YZJ gets from the media for its share buy-backs.
In short, one should consider the odds without the influence of news or recent price decline. Is this company cheap? Are the problems temporary? Is this uncertainty or is it risk? Losing the opportunity does not equals to losing money.
Thursday, May 31, 2018
Wednesday, May 30, 2018
Charges involved with CPF investing
https://www.cpf.gov.sg/Assets/members/Documents/INV_AnnexD.pdf
According to the documentation above, it would appear that the charges for investing with CPF is pretty hefty.
Assuming that I am investing 1000 units of Singapore (Z74), trading at 3.3$ a share.
That would be a cost of $3300 PLUS the following charges
One Time Fees
-brokerage fee $25
-CDP clearing, SGX Trading Access Fee which is 0.04% of trade amount (in this case, $1.32)
-CDP settlement fee of $0.5
-Up to $2.50 per 1,000 shares/units, with maximum charge of $25 per transaction (for shares, REITs, corporate bonds, ETFs and statutory board bonds) which means it will be $2.50
suppose you are buying a $0.30 a share stock, this can be potentially expensive
So for the Singtel example, we are looking at $29.32 total for one-time charges. Since when we sell it, it will be another round of cost, which is $58.64 in total.
Recurring Fees
-$2 per counter per quarter, minimum of $5 per quarter.
let's assume we are holding for a period of 3 years, that would be $60
Total charges after 3 years is $118.64
Assuming we get a 2016-era dividend yield for the next three years with zero capital gains, you would have received $525 in dividends.
Net profit after three years is $525-118.64-60= 346.36
For an investment of $3300, your net gain is 10.5% after 3 years. which works out to be actually a 3.5% yield.
The odds are, if you are careless with your valuation work, you are likely to lose money investing small amounts with CPF, as compare to the 2.5% yield (as of writing) in CPF-OA. This is more so if you are investing in stocks less than a dollar per share.
Hence, the motivation to buy high yielding, >5 dollars per share stock is high with CPF.
According to the documentation above, it would appear that the charges for investing with CPF is pretty hefty.
Assuming that I am investing 1000 units of Singapore (Z74), trading at 3.3$ a share.
That would be a cost of $3300 PLUS the following charges
One Time Fees
-brokerage fee $25
-CDP clearing, SGX Trading Access Fee which is 0.04% of trade amount (in this case, $1.32)
-CDP settlement fee of $0.5
-Up to $2.50 per 1,000 shares/units, with maximum charge of $25 per transaction (for shares, REITs, corporate bonds, ETFs and statutory board bonds) which means it will be $2.50
suppose you are buying a $0.30 a share stock, this can be potentially expensive
So for the Singtel example, we are looking at $29.32 total for one-time charges. Since when we sell it, it will be another round of cost, which is $58.64 in total.
Recurring Fees
-$2 per counter per quarter, minimum of $5 per quarter.
let's assume we are holding for a period of 3 years, that would be $60
Total charges after 3 years is $118.64
Assuming we get a 2016-era dividend yield for the next three years with zero capital gains, you would have received $525 in dividends.
Net profit after three years is $525-118.64-60= 346.36
For an investment of $3300, your net gain is 10.5% after 3 years. which works out to be actually a 3.5% yield.
The odds are, if you are careless with your valuation work, you are likely to lose money investing small amounts with CPF, as compare to the 2.5% yield (as of writing) in CPF-OA. This is more so if you are investing in stocks less than a dollar per share.
Hence, the motivation to buy high yielding, >5 dollars per share stock is high with CPF.
Tuesday, May 15, 2018
Buying Good Companies- Perfect Shape (HKEX:1830)
From my list of "Super Companies" earlier, I dived into a couple of them and found this company called "Perfect Shape."
I also blogged about this earlier ; earlier on, I did not reveal the name of this company as I still wish to accumulate my holdings.
Unfortunately, the company probably attract more than a few attention today with its profit guidance last night and a 14% or so surge in share price. Perhaps for the sake of education (and profits, since I am vested). I shall go through why purchasing this stock is a little compelling.
A) Consistent return in assets with little leverage
Looking at its profile in Stocks.cafe here , the returns on asset (asset light company) is pretty consistent over the years. I am keen to know why they are able to achieve this. After reading a few years of annual report, the strategy is to make headway into cities that are affluent. The key to this company is the branding.
This moat is likely to persist unless the company loses its reputation (which I would say is pretty easy and permanent once it does).
B) Most important reason: Adjusted Price to Earnings based on assets.
The highlighted items are highly reliable assets.
Reproducing the items below (with adjustments for ball park figure)
AFS financial assets (mainly stocks of tencent tech) - 50m
Deposits and pre-payment- 28
Trade Recv- 80
Other Recv. deposits - 38
Term Deposits (no discount needed) - 70.206
Pledged bank deposits - 29.117
Cash and eq - 226.199
Total reliable assets : 521.522m
Total liabilities: 323.757m
Net reliable assets: 197.765m
Market cap is now, as I write: 1.46b or 1460 m
Taking market cap of 1460 - 197.765 = 1262.235
Assuming earnings is not improved: 96m in profits last year
This works out to be a price-earnings of 13.1 (1262.235 / 96).
Since there is a large increase of about 100% in operating profit (to be subjected to a tax of 22% thereabouts), we talking about 140.4m in post-tax earnings.
At the current market cap of 1.46 billion (closing stock price 1.33), The PE of this company, without considering its high-reliable assets, is about 10. There are still avenues for growth for this company.
This company was trading at about 15 PE yesterday. That means this company should be trading at, at least, 2.1B market cap. This presents a price discrepancy of just over 40 percent. Of course, there is a tendency for the market to be "forward-looking."
A good idea without possible pitfalls is a bad idea
There are things to look out for: a possible dividend cut due to declining business, and a damage to reputation that will be harder to control with more branches.
There are also trade receivables that one should look out for, along with the usual checks on cashflow.
Good luck.
I also blogged about this earlier ; earlier on, I did not reveal the name of this company as I still wish to accumulate my holdings.
Unfortunately, the company probably attract more than a few attention today with its profit guidance last night and a 14% or so surge in share price. Perhaps for the sake of education (and profits, since I am vested). I shall go through why purchasing this stock is a little compelling.
A) Consistent return in assets with little leverage
Looking at its profile in Stocks.cafe here , the returns on asset (asset light company) is pretty consistent over the years. I am keen to know why they are able to achieve this. After reading a few years of annual report, the strategy is to make headway into cities that are affluent. The key to this company is the branding.
This moat is likely to persist unless the company loses its reputation (which I would say is pretty easy and permanent once it does).
B) Most important reason: Adjusted Price to Earnings based on assets.
Reproducing the items below (with adjustments for ball park figure)
AFS financial assets (mainly stocks of tencent tech) - 50m
Deposits and pre-payment- 28
Trade Recv- 80
Other Recv. deposits - 38
Term Deposits (no discount needed) - 70.206
Pledged bank deposits - 29.117
Cash and eq - 226.199
Total reliable assets : 521.522m
Total liabilities: 323.757m
Net reliable assets: 197.765m
Market cap is now, as I write: 1.46b or 1460 m
Taking market cap of 1460 - 197.765 = 1262.235
Assuming earnings is not improved: 96m in profits last year
This works out to be a price-earnings of 13.1 (1262.235 / 96).
Since there is a large increase of about 100% in operating profit (to be subjected to a tax of 22% thereabouts), we talking about 140.4m in post-tax earnings.
At the current market cap of 1.46 billion (closing stock price 1.33), The PE of this company, without considering its high-reliable assets, is about 10. There are still avenues for growth for this company.
This company was trading at about 15 PE yesterday. That means this company should be trading at, at least, 2.1B market cap. This presents a price discrepancy of just over 40 percent. Of course, there is a tendency for the market to be "forward-looking."
A good idea without possible pitfalls is a bad idea
There are things to look out for: a possible dividend cut due to declining business, and a damage to reputation that will be harder to control with more branches.
There are also trade receivables that one should look out for, along with the usual checks on cashflow.
Good luck.
Sunday, May 13, 2018
Are you really an investor?
There
are numerous "investors" out there who had blogs and a huge following
(the reputation system in InvestingNote is a joke). They often
rationalized their ideas in excruciating details. I am extremely amused
because I think the shorter you can explain an idea, the better it is.
Nevertheless, these "investors" liquidate their positions as soon as they have a 10% gain or so. This is pure nonsense. Let me explain:
Assume I buying a stock because I think the book value is worth $1, and the market is trading at 90 cents. I would be extremely reluctant to buy it. I would love to buy a stock if it is 60 cents or below on very promising stats.
So I bought this stock at 60 cents, I would never sell it at 70 cents. I might be tempted to sell at 85 cents. But never at 70. You can get to 70 based on market fluctuations alone.
Neither would I sell a stock if it fell from 60 to 45 cents-- I will definitely buy more because I usually don't allocate all my capital at one go right from the bat.
Nobody buys a stock on a 10-15% discount to their value. This is nuts. How can 10-15% be an adequate margin of safety? I only consider myself moderately right on an idea when I get a 20% gain.
You can pick two person with fairly similar investing knowledge, perceived value on the same stock, but the temperament will set them apart. When a stock goes down 20%, one is a seller and the other buys more. Psychology plays a major part in investing and it is your actions that tells you what kind of investor you are. I have been on both sides of the boat.
Listen to the rationale of the investor and not his (or her) reputation. Some guys just have a big portfolio but they are unlikely to get their net worth from investing. This is pretty obvious from their investing ideas and reactions to the stock market movements. You can spot the real investors only when the market disagrees with them. Nothing is more sexy and inspiring than conviction.
Nevertheless, these "investors" liquidate their positions as soon as they have a 10% gain or so. This is pure nonsense. Let me explain:
Assume I buying a stock because I think the book value is worth $1, and the market is trading at 90 cents. I would be extremely reluctant to buy it. I would love to buy a stock if it is 60 cents or below on very promising stats.
So I bought this stock at 60 cents, I would never sell it at 70 cents. I might be tempted to sell at 85 cents. But never at 70. You can get to 70 based on market fluctuations alone.
Neither would I sell a stock if it fell from 60 to 45 cents-- I will definitely buy more because I usually don't allocate all my capital at one go right from the bat.
Nobody buys a stock on a 10-15% discount to their value. This is nuts. How can 10-15% be an adequate margin of safety? I only consider myself moderately right on an idea when I get a 20% gain.
You can pick two person with fairly similar investing knowledge, perceived value on the same stock, but the temperament will set them apart. When a stock goes down 20%, one is a seller and the other buys more. Psychology plays a major part in investing and it is your actions that tells you what kind of investor you are. I have been on both sides of the boat.
Listen to the rationale of the investor and not his (or her) reputation. Some guys just have a big portfolio but they are unlikely to get their net worth from investing. This is pretty obvious from their investing ideas and reactions to the stock market movements. You can spot the real investors only when the market disagrees with them. Nothing is more sexy and inspiring than conviction.
Saturday, May 12, 2018
Portfolio Transaction Q2 (comments on Asset Play and Good Companies)
Since end of March which I release results for my Q1, there have only been 3 transactions done. Without elaborating, I am currently leading STI by 4%. The market has been pretty kind to me.
Reduced half of Xinghua Port Holdings
Sold half of Xinghua Port holdings due to likely poorer results from Stop Work Orders by the government. I perceived the problems to be temporary but this small loss is necessary to control unforeseeable risk.
As of now, one of its ports has resume operations but the insider buying has ceased as well. I will adopt a wait-and-see attitude and resume buying when there is a huge discount from what I feel is its intrinsic value. I will assess if the problem is likely short term. Expected results release for Q1 is late July, if any. HKEx companies usually only announce results twice a year, so it may be October before I get any news.
I do not expect myself to lose too much money from this stock on a 3-5 years basis.
Initiated a small stake in Hanwell; and my opinion on "asset plays"
Hanwell is a company that has a terrible consumer business but is cheap due to it trading at just below its net current asset.
With companies like these, you are buying with the mindset that there the downside is limited. I like buying these type of companies but Hanwell's dividend is on the low side. More importantly, Hanwell is not alone in its cheap-to-asset situation. But it has some anchor investors within. The dividends is the main reason why I do not want to allocate too much capital. I do not intend to hold on to this stock forever (this is exactly what some value investors call, value trading). Cigar butts are not meant to be held forever.
LTC Corp is a good learning opportunity. While it brought some investors 30-60% gains, some folks who got on the bandwagon really early had pitiful annualized gains. It was priced really low to its understated book value.
I still believe diversifying widely on asset plays is the way to go. I had a simulated portfolio of 20-high-ROE-low-PB stocks that returns me a big fat 0 year to date. This experience also reminds me that pure quantitative stock picking techniques don't work too well.
There is an asset play opportunity in HKEx which I intend to invest on a small scale as well. Will talk about it in due time. However, I wasn't the person who discovered it (a clever mate of mine did). So this idea has to be kept secret until it comes to fruit.
Started buying "Good Companies"
The typical purchase of my portfolio in the past will include mainly stocks that are cheap by book value and had a good record of building its net-asset value. The weight of bad news is a major plus (such as Ascendas H-Trust quite some time ago; along with Chuan Hup). Debts must be minimal.
Nevertheless, when you are buying cheap companies, you are hoping that the market is wrong, and value reversion comes one day. However, time could really be the enemy of the mediocre-- the value of a company might slip due to macro conditions. I would confess that I never looked at macro when investing.
Hence with a bit of cash hoard on my side, it is timely to start investing a little on good companies.
I shall not reveal the name of this ..."good" company in question as I wish to accumulate more. This company is not trading at stupid cheap valuation (Xinghua Port is way cheaper at the moment) and have a risk that only myself would perceive as so (I am a strange man). I shall not describe this risk as it is pretty unique to this company.
This company has mathematically good returns on assets over quite a few years, no debt, good cash hoard and trades at a low adjusted PE. It is trading over 2x book value.
The business main source of revenue is from Hong Kong and the company is still working on the major cities of China, appealing to the population with stronger spending power. My hope is that the returns on assets came from the brand and perhaps sound management; this would be a long term play. Looking at the results from its first half earnings, there could be a slight mis-price based on its PE. The adjusted PE based on its cash is 6. I intend to allocate a higher than normal capital in this idea once the risk I saw is no longer there.
Reduced half of Xinghua Port Holdings
Sold half of Xinghua Port holdings due to likely poorer results from Stop Work Orders by the government. I perceived the problems to be temporary but this small loss is necessary to control unforeseeable risk.
As of now, one of its ports has resume operations but the insider buying has ceased as well. I will adopt a wait-and-see attitude and resume buying when there is a huge discount from what I feel is its intrinsic value. I will assess if the problem is likely short term. Expected results release for Q1 is late July, if any. HKEx companies usually only announce results twice a year, so it may be October before I get any news.
I do not expect myself to lose too much money from this stock on a 3-5 years basis.
Initiated a small stake in Hanwell; and my opinion on "asset plays"
Hanwell is a company that has a terrible consumer business but is cheap due to it trading at just below its net current asset.
With companies like these, you are buying with the mindset that there the downside is limited. I like buying these type of companies but Hanwell's dividend is on the low side. More importantly, Hanwell is not alone in its cheap-to-asset situation. But it has some anchor investors within. The dividends is the main reason why I do not want to allocate too much capital. I do not intend to hold on to this stock forever (this is exactly what some value investors call, value trading). Cigar butts are not meant to be held forever.
LTC Corp is a good learning opportunity. While it brought some investors 30-60% gains, some folks who got on the bandwagon really early had pitiful annualized gains. It was priced really low to its understated book value.
I still believe diversifying widely on asset plays is the way to go. I had a simulated portfolio of 20-high-ROE-low-PB stocks that returns me a big fat 0 year to date. This experience also reminds me that pure quantitative stock picking techniques don't work too well.
There is an asset play opportunity in HKEx which I intend to invest on a small scale as well. Will talk about it in due time. However, I wasn't the person who discovered it (a clever mate of mine did). So this idea has to be kept secret until it comes to fruit.
Started buying "Good Companies"
The typical purchase of my portfolio in the past will include mainly stocks that are cheap by book value and had a good record of building its net-asset value. The weight of bad news is a major plus (such as Ascendas H-Trust quite some time ago; along with Chuan Hup). Debts must be minimal.
Nevertheless, when you are buying cheap companies, you are hoping that the market is wrong, and value reversion comes one day. However, time could really be the enemy of the mediocre-- the value of a company might slip due to macro conditions. I would confess that I never looked at macro when investing.
Hence with a bit of cash hoard on my side, it is timely to start investing a little on good companies.
I shall not reveal the name of this ..."good" company in question as I wish to accumulate more. This company is not trading at stupid cheap valuation (Xinghua Port is way cheaper at the moment) and have a risk that only myself would perceive as so (I am a strange man). I shall not describe this risk as it is pretty unique to this company.
This company has mathematically good returns on assets over quite a few years, no debt, good cash hoard and trades at a low adjusted PE. It is trading over 2x book value.
The business main source of revenue is from Hong Kong and the company is still working on the major cities of China, appealing to the population with stronger spending power. My hope is that the returns on assets came from the brand and perhaps sound management; this would be a long term play. Looking at the results from its first half earnings, there could be a slight mis-price based on its PE. The adjusted PE based on its cash is 6. I intend to allocate a higher than normal capital in this idea once the risk I saw is no longer there.
Saturday, May 5, 2018
Super Companies-- First Cut
The following companies are what I see as “super companies.”
They managed high returns on assets, on a 5 years or more basis. Their place in
this list does not mean that they are priced right—which is the cornerstone of
value investing, buying stocks are the right price. The other precaution is
that returns mentioned here does not refer to cash returns. This should be used
as the first cut.
- Sheng Siong (OV8)
- SGX (S68)
- Micro-Mechanics (5DD)
- Riverstone (AP4)
Hong Kong
- HKEX:1382 - Pacific Textiles Holdings Limited - Declining business.
- HKEX:586 - China Conch Venture Holdings Limited - inconsistent FCF
- HKEX:8138 - Beijing Tong Ren Tang Chinese Medicine Company Limited - nice but too pricy at the moment.
- HKEX:303 - Vtech Holdings Limited - no growth in earnings
- HKEX:1126 - Dream International Limited - nice company.
- HKEX:1234 - China Lilang Limited
- HKEX:2283 - TK Group (Holdings) Limited
- HKEX:2020 - ANTA Sports Products Limited
- HKEX:1093 - CSPC Pharmaceutical Group Limited
- HKEX:837 - Carpenter Tan Holdings Limited
- HKEX:3918 - NagaCorp Ltd
- HKEX:1999 - Man Wah Holdings Limited - statistically good but not cheap
- HKEX:52 - FAIRWOOD HOLD
- HKEX:1830 - PERFECT SHAPE - vested.
Early promises (2-3 years of high ROA)
Singapore
- HG Surgical (1B1)
- MM2 Asia (1B0)
- TalkMed (5G3)
Hong Kong
- HKEX:6858 - Honma Golf Limited
- HKEX:520 - Xiabuxiabu Catering Management (China) Holdings Co., Ltd.
- HKEX:1523 - Plover Bay Technologies Limited
- HKEX:1345 - China Pioneer Pharma Holdings Limited
- HKEX:1500 - In Construction Holdings Limited
- HKEX:2138 - Union Medical Healthcare Limited
- HKEX:1572 - China Art Financial Holdings Limited
- HKEX:799 – IGG
- HKEX:6822 - Kings Flair International (Holdings) Limited
- HKEX:1513 - LIVZON PHARMA
Such companies definitely have attracted the eye balls of
investors—whether the business is generating cash, or that it is priced right—is
another matter.
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