July 2021 Portfolio Update

SPDR Singapore Straits Times Index Fund (ES3): 11.38%
Hong Kong Tracker Fund (2800): -3.75%
SPDR S&P 500 ETF (SPY): 21.91%

My little portfolio: 40.78%

Transactions made:

1. Complete divestment of Perfect Shape Medical as written earlier.
2. Slight increase in OKP for mother's portfolio
3. Increase in Carpenter Tan for mother's and dad's portfolio for income.

4. Initial position in Renrui HR Tech
Renrui deals with flexible (temporary staffing) of employees, mainly with for new economy (tech) companies. Company is pretty young, started in 2010 and listed only 2 years ago. The price was halved at the start of July due to the loss of their biggest customer, which is likely Bytedance. Revenue is about 30-40% from them, and the bottom line contribution should be about 20-30% (guidance from mgmt).

My personal opinion is that the company balance sheet is healthy and the enterprise value is about 400-500M. Free cash flow is about 140-180M before losing Bytedance. If we are being conservative, the FCF should plunge to at most 90-100M, which means we are paying for a multiple of about 4. 

If there is a real-world economic cost (that commensurate with the market valuation sell down of tech), even earning 50M FCF isn't too demanding. The risk is that the company is too young, and the initial capital outlay for this investment reflects the risk accordingly.

5. Initial position in Fu Shou Yuan
This company was brought to my attention by my broker, and I spent some time reading about it last evening and this. The numbers seems to indicate that owner's yield is about 6% at the moment, which is on the high side in terms of cost.

However, this is a easy company to love. Positive free cash flow ever since listing... Cash return on invested capital/ROIC is about 10-12%, cash conversion cycle is a negative 100 days. Dividend is very low since the management's plan are set on expanding and acquisition, and it appears to be working over the years.

The risk is that non-executive directors do not keep their share options (exercised at around 3-4 HKD, and sold to market at about 8+ HKD). This indicate that market valuation is not on the low side.

So why is market selling down this stock? As long as you are dealing with education, tech, or property management, or anything that could reasonably affect the cost of living (or in this case, dying), it is being sold down. 

Commentary:

Tech and educational stocks were soaked in a pool of blood yesterday and today. While it is understandable for educational stocks (as restrictions pertaining to them are made pretty clear in news), the CCP's plans for tech is much more murky. 

This did not stop the market from selling down their stock by as much as 10-12%.

The Hang Seng Tech ETF, which was introduced late last year, is now priced below its listed price.

The other sector which was sold down was property management stocks, another area where it most directly affect the cost of living for its citizens.

Although the tech/edu sell down was pretty brutal, they do not offer obvious pockets of value and hence I refrain from buying any stock.

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And this month I began to dabble my hands into options, albeit with a very small sum of money. Paper trading has its limits, and using real money reinforce my learning experience with understanding time decay and slippage. I am glad to say that I actually lose money, since I believe the worst thing that can happen while you are learning is that you make money... and start to think that you got it.

Options would just be another avenue where I can leverage in a safe manner. I would never pivot away from the value approach, which is avoiding permanent loss of capital as well as targeting reasonable and satisfactory returns.