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Friday, March 31, 2023

March 2023 Portfolio Review

"stressed, tired-looking middle-aged man painted in Van Gogh's style"- by Dall-E

Year to date,

STI Index Fund returns +0.25% (was -0.52% in Feb)
Hong Kong Tracker Fund returns +1.8% (was 4.16%
S&P 500 Index Fund returns +4.95% (was 6.05%)

My portfolio returns year-to-date is currently 6.11%. This excludes a substantial amount of Singapore Saving Bonds and T-Bills which I purchased on behalf of my mum. Bulk of these bonds will be redeemed or will mature in 2H 2023.

The returns look positive due to OKP. The market granted kindly a 23% revision upwards-- largely because OKP had been awarded a princely sum of 43m from its arbitration proceedings with CPG Consultants (market cap for OKP is still only 59m). CPG consultants were ordered to pay up 28 days from 3-March. The last I checked, OKP is still checking with its legal team if they have to make an announcement in SGX, when they are awarded the sum. 

The returns were offset by colossal sell-downs by Central China Real Estate (CCRE) and Central China Management (CCMGT). The reason why I am extremely concerned by the wellbeing of these two holdings, due to the substantial amount of capital, valued at cost, invested. The amount represent #2 of my holdings (Alibaba is a distant #3). If the Chinese property sector does not recover, it would also impact Yangzijiang Finance (also a top 5 holding), which hold bonds mostly in China.

In just the past month alone, CCMGT lost 24%, and CCRE lost a blood-curdling 42.1%.

This is the second time in less than 2 years, which I have to endure drawdowns of this magnitude. 

During the earnings release for CCMGT on 22-March-2023, the controlling shareholder, Mr Wong Po Sum ("Mr Wong") was extremely upbeat. He declared that the worst is over for CCMGT. 

But the market vehemently disagreed.


Within a matter of days the stock fell from 56 cents to 48 cents. That is more than 15% in less than 5 days. While there was a rally of 9% today. I could find nothing to attribute such a market movement, and certainly there is nothing within CCRE's earning (that I just read) release to suggest that all is well.

Last but not least, Alibaba announced that they are splitting the business into 6 separate units, paving the way for spin-offs. The theoretical gap between market price and its sum-of-the-parts value could finally be bridged. I am not overly excited because I think there wasn't a huge value proposition-- too much assumptions regarding the cloud and fintech value (regarding the latter, I placed zero weight to private valuations by investment banks, regardless how prestigious they are).

Alibaba regained 16.41% in the last 5 trading days alone. In terms of cost, Alibaba is #3 in my portfolio, so it helps.

Earnings Release Review

There were many companies in my portfolio which release earnings this month.

I had just digested the release from CCRE and language does not appear to be upbeat, and neither were there any positives to take away. Dividend was withheld, which is sensible. There is a sum of 900m in bonds to be paid this year, and a default in any of them will trigger a cross-default to bonds maturing much latter. How strongly would the local banks of Henan support CCRE? My guess is as good as anyone.

The results from CCMGT isn't positive as well-- they appear to have lost their #2 position in management leadership in central China. The wisdom of the crowd surprises me, the price corrected to a 5% yield. So the market did not over-correct... Market efficiency should usually be respected. 

A quick back of the envelope calculation suggest that the current price of CCMGT is at net current assets, with some blunt discounting of its receivables.

I just digested the results from Clifford Modern Living and the IT services segment was the only negative surprise. Dividend is maintained on a yearly basis. Cash in the books has increased, but the cashflow statement is not published in the unaudited release. I would examine it when the annual report is published.

Nanyang Holdings' result was out earlier this month. It has been a year and there is still no land use rights agreed upon for its Shanghai operations. It disappoints me greatly that the management persist in managing its investment in a overly-active manner, and to makes matter worse, the controlling shareholder has decided to rope in his daughter as an advisor (she had brilliant academic credentials but unfortunately is working in a unit trust/fund as well). 

The Nanyang Plaza main tenant (of which about 15% of its revenue was attributed) has moved out. While the share prices for SCSB has risen since the rights issue, I think we may mistake symptoms for the cause. Only time could tell.

Despite the downcast report, Nanyang Holdings' price did not move at all due to illiquidity. 

Transactions in March

I made a huge increase in OKP after earnings release. I think two things are probable here: 1st, CPG Consultants should be able to pay up; 2ndly,  OKP's earnings should improve with its biggest order book in the last 5-6 years, since the incident.

There are areas which I am dissatisfied with this company (nothing is perfect in this world). I hope to be able to discuss this with management or like-minded shareholders next month during the AGM.

As of now, OKP is 33% of my entire holdings.

Comments

While I am grateful towards the increased share prices for some of my counters, the intellectual satisfaction was not there. I have held OKP for good 5-6 years since the incident, and Alibaba is a popular holding. I can't help feeling bitter by the manner which TTJ and Centurion owners treat its shareholders..

I find it deeply ironic that since young, I have a special place in my heart for the downtrodden, and this was a minor reason for buying such shares (the big reason is that they are undervalued, have problems, and have plenty of avenues to recover). It is regrettable that the attitude of these two companies management is no different from the market's as well.

If authors of investment books were to look for examples where management could be attributed for the poor share price performance of their companies, Centurion and TTJ would currently top the list.

Hope my fortune turnaround in the coming months.

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