September 2021 Portfolio Update

SPDR Singapore Straits Times Index Fund (ES3): 9.83%
Hong Kong Tracker Fund (2800): -4.37%
SPDR S&P 500 ETF (SPY): 21.45%

My portfolio returns: 40.01%

Transactions made:

1) Complete divestment of SUTL.
SUTL was not a smart investment, and neither was it profitable. I decided to sell it just before ex-dividend because liquidity for this stock is on the low side. Perhaps one thing to learn from this is to never purchase a stock from a RTO. As the Hong Kong market is declining, it makes sense to divest.

2) Large increase of Central China Mangement (9982), a spin-off that should reward me a with modest return. Insiders has been loading up at 1.9, 1.8 and recently 1.4x. The property market is under extreme pressure, with Evergrande and its debt woe, CCP's concern on property prices, there isn't much positives about the property market. Adjust earnings is very modest in the low digits, taking into account of its huge cash reserves.

3) Modest investment in Alibaba (9988). Alibaba is mathematically not a bargain, but on the basis of growth, it is cheap. The stock is now worth 3.34T, 3340B HKD. Ant Group would had been worth 300B USD or 2.3T HKD. Hence the fall of Ant Group was damaging to Alibaba's valuation.

Would Ant Group IPO? I believe it would be valued much lower, but the IPO should still go through because the Chinese govt were part of its earlier investors. They have the incentive to patch the financial risk brought about by its purported leverage, as well as to realize their own investments. The Chinese have enough problems on their hands. So we should have some visibility on this matter soon. 

In terms of cash yield, I think I am looking at 8-9% on my investment. So a business yielding 13-15% ROE is fine with me. Some numbers play at the bottom of this post might interest you.

Alibaba was priced at 176 HKD during its IPO.

Portfolio Weightage

Singapore based holdings is at 66% with the rest invested in Hong Kong. OKP remains the biggest position at almost 31.7%. The other top holdings are Carpenter Tan (12.39%), Centurion (10.9%), TTJ (9.78%) and MapleTree NAC and Central China Management (7.79% and 7.3%)

So 72.5% of my investments are in 5 stocks, and almost 80% is in 6. 

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Some Numbers Play

The bulk of the interest in Hong Kong's decline is attributed to high tech stocks, which a select few are listed below

Numbers were generated from Stocks.cafe and the declines were referenced from Yahoo! Finance.

Notes:

• There is a column call "PE at 25% net margin". 25% is an assumption that if these companies turn profitable/mature (without so much $ pumped into R&D)...a 25% seems like a fine margin to have, not too high or too low. If a company's margin is already respectable (such as Baba's), the actual margin will be used.
• Xiaomi and JD looks ridiculously cheap, but bulk of its profits and cash earnings were only from recent years. So I am not too sure if this can continue.
• Despite experiencing a 77.7% decline, Kuaishou is trading at 5.56 price to sales, which is already on the high side. Hypothetically, a 25% net margin off its revenue would mean the PE is about 26.34-- which is not super high, but you would feel that growth has to be maintained in order for an investor to profit at current prices. The same goes for Netease.
• Ditto for Meituan, although a 44% decline.
• JD Health seems massively overvalued despite its modest CAGR in revenue.
• Alibaba does not have 5 years of financial data available, so the revenue growth is calculated off 4 years. Same goes for Kuaishou.
• Sunny Optical is the only company that did not experience a dramatic decline, but it is also nowhere near cheap. Its financial performance is wedged in between Alibaba's and Tencent's numbers.
• Given the big 2 (Alibaba and Tencent)'s decline, their PE seems most reasonable compared to the rest. Hence, perhaps the crowd is bet on them is well justified.