S&P 500 Index Fund: -11.04% -> -4.32%
Hong Kong Tracker Fund: -19.99% -> -5.53%
Straits Times Index Fund: 3.06% -> 8.26%
My portfolio: -15.38% -> -4.22%
The onslaught to the Hong Kong market recovered unexpectedly with comments by Vice Premier Liu He, promising to support the market among other things. Markets rallied incredibly, but with some hindsight, levels are still depressed when compared to 6 months back.
Hang Seng Tech ETF 3067
The Hong Kong Tracker Fund
I have no love for Hong Kong tech as I felt that they are excessively valued, despite their long term promise. It was a clear example of what happens when you are a buyer of something when is too popular. How do you know if it is too popular?
5 years ago, you have to depend on the news to tell you so. Now, we have:
-Youtubers
-creation of "sector" ETF (created solely by financial institute to capture the interest through fees from assets under management) to "cater to the needs of investors"
-daily chatter, as observed from chat groups.
Mainland tech firms not only have to contend with regulation and growth in mainland itself, but deal with the narrative of having to expand out of China one day. That could be way more difficult than their present ordeals. From my layman valuation techniques, and that generally people around me are still very hopeful of these companies (a good gauge of market sentiment), I would avoid increasing my position in Alibaba unless valuation declines.
Notable Transactions
-Purchase of Embecta, a spin off from Becton, Dickinson and Co.
Fell from 40.x to almost 27 at one point.
The basic reasons why spin-offs sold down in the initial phase usually follows this narrative:
a) A huge company, ideally an index constituent, decided to spin off a much smaller division/branch of its business.
b) For Embecta's case, existing share holders of BDX gets 1 share of Embecta for every 5 shares it owns.
c) Embecta gets sold off "indiscriminately" by share holders for the following reasons:
-Embecta runs a business that could be perceived by BDX share holders as unexciting (an opinion), of low growth (certainly).
-Stock gets sold because of disinterest. After all, they might be seen as "dividend" from the parent.
-Embecta is not a member of the index and is under 2B market cap (contrasting BDX's market cap of 78B presently). For e.g. a fund manager might be forced by mandate to only hold stock of market cap x and above.
-The spun-off entity could be transferred undesirable assets, such as debt, or legal issues.
The basic reasons why it is a good idea to buy a spin-off:
a) existing management is incentivized to do well since they now hold stock options, and have clearer and more public standards to live up to (stock price, targets to meet to receive additional remuneration, etc)
b) The sell-off could bring prices to conservative levels (main reason for buying Embecta).
At my purchase price of Embecta at 30.8 USD per share, the company's market cap is 1.7B.
It bears a debt of about 1.6B
The last three years of profit is about 300-400m.
If one were to disregard debt, which is convenient enough when credit is cheap, the company is worth only 5x PE at worst. Since one should never disregard debt and value a company like a private owner, Embecta actually cost 3.3B (1.7B market cap + 1.6B of debt).
That isn't a bad price by itself since you are paying 10x earnings.
Unfortunately, my position in Embecta is very modest. Last evening, perhaps the market had realised its folly, and the stock went up 10%, 14 at one point. It is just the problem with the way I inject capital-- very small amounts. I only buy more when the stock plunges 10%-15%.
-The significant amount of Alibaba purchase did not actually materialised last month. How I wish it had! I simply wrote a put contract at strike price of 87.5 HKD, right before the selldown begins. Alibaba went from 100+ to 71 HKD, and the contract spiked up to 800% in value.
(my bad luck with option contracts continues after the Didi Global episode, where I failed to cover my put by 1 or 2 pips that night. The next day, Didi's management announced that they are delisting from America and re-listing in Hong Kong. Its price plunged 20+%, and the option contract spiked 1900%. Very poor luck... never go to sleep before you covered your put!)
I have no luck with options. Thinking that it would be exercised, I wrote prematurely that I had purchased stock. After market rallied (Alibaba went back above 100), obviously the contract holder did not exercise his rights. Unfortunately, that means I only bought 200 shares of Alibaba (direct purchase from market) that month, albeit at a very fortuitous price of 71.8 HKD a share.
-Token purchase of Clifford Modern Living. After which, dividends are cut from 0.027 to 0.022 HKD a share. If I have to guess: illiquidity and its boring, property services business kept the share price from plunging.
Market capitalization is 490m. Growth is modest and its cashflow is reliably positive, averaging 60m a year for the last 8 years. Dividend payout is on the low side, but still respectable at 4.6% yield currently.
-Token purchase of Central China Real Estate-- it is still far from the previous amount of stock that I sold down from. It appears that the situation at CCRE is indeed better than other property developers-- at least they got their financial statements out! Sunac and Evergrande remains in suspension by HKEX...The central china coys positions remains a bet on Mr Wu Po Sum...
-Token purchase of IGG (I Got Games). After a huge profit warning at the start of this year, the stock looks something like this:
The stock gapped down from 6.2 HKD to 5.09 in a single day. The sell down was relentless and continues after result release. If you had bought at 5.09, you would still be looking at a loss of 33% today!
Presently, the price per share is 3.37 HKD a share. The problems (I am always attracted to problems) overhanging as follows:
a) Results paled when compared to the year before, particularly with the divestment of XD at huge profit last year; its current position in its 2 funds are not doing so well.
b) Increasing capex: marketing on existing games, construction of a HQ, as well as R&D on upcoming games
c) Losses from operating in "Russian-speaking" countries due to sanctions.
d) No interim dividend this year. I think this is prudent.
All of these problems, in my opinion, should be temporarily (with exception for the Ukraine invasion). If it continues, IGG could declare an impairment. That could be an opportunity.
Despite looking downtrodden, IGG still has a huge cash position of 1.9B, and the current market cap is 4B.
Figures from Stock.cafe
The stock would be priced on the high end of fair value (almost to overpriced region of 30x for me) under such pessimistic assumptions. The lifetime of its most popular game, Lords Mobile, is reaching the end. Its second breadwinner is achieving revenues nowhere near to Lords Mobile, and the most promising game, Project Yeager, will only be release much later this year. The stock is, imo, cheap, but not irrationally priced down.
Looking Forward
Performance this year should be dull at best, supplemented by an agreeable sum of dividends. Positions adopted this month have increase the number of holdings to 16, which is way more than I like. Top 5 positions contribute to 70.8% of the entire portfolio, and they are:
1. OKP (28.83%) - hopefully the outcome of the arbitration will be positive. There should be news this Sep.
2. Central China Management (11.68%)
3. Alibaba Group (11.27%)
4. Centurion (9.6%)
5. Carpenter Tan (9.44%)
I have (over)subscribed to the rights issue for Lendlease REIT and the results should be unveiled by 20-April (shares are credited on 21st). These positions are for my parents...
Till next month.
No comments:
Post a Comment