August 2024 Portfolio Update:

 S&P500: 16.63% was 17.19% 

Tracker: 8.21% was 4.17% 
STI: 10.73% was 8.13%

My portfolio: 25.78% was 23.86%.

I generate this image by asking Gemini to replicate the Disaster Girl Meme but sub the girl with a cat instead. Hopefully my portfolio don't burn like the house.

Despite the portfolio return, the last week was pretty turbulent.
Topics today:
-Brief talk about -10%++ FSY, Cordlife and Best Mart 360. 
-Why investing in Nanyang Holdings is a poor idea.
-Option Income Portfolio update

***

-Purchase of a token amount of Fu Shou Yuan just before earnings, at 4.7$. I thought that earnings for this company would be modest but steady... however, it was anything but that. Management implied that the year before, China's re-opening from COVID released pent-up demand for its services. Unfortunately, the economy does seem to slow down, and earnings and revenue are down almost 30%.

This resulted in an intraday loss of 13% and subsequent falls means I am down 24% on this position. 

To be honest, if FSY's trouble are temporarily, the stock is looking very cheap. HOWEVER, management cut dividend for the first time, which signals that tough times are really ahead.

***

Another stock that has gone nowhere is Nanyang Holdings, who released earnings earlier this month. There isn't anything optimistic about its earnings, and the Shanghai properties' land use right is still under negotiation for years!

The company also tried to be too fanciful with its investments, jumping around different asset classes. Check out the latest interim report's Financial Investment section:

Performance of the world equity markets, in the first half of 2024, was uneven. U.S. inflation fell more slowly than expected and interest rate cuts were pushed back to the latter part of the year. However, during this period, the U.S. equities market continued to perform especially the tech sector. China’s recovery, on the other hand, has been slower than expected and more stimulus was needed to address weak domestic demand and to stabilize the property market. During this period, we reduced investments in emerging market equities and increased investments in investment grade U.S. bonds. For the six months ended 30 June 2024, the investment portfolios, including cash held in the portfolios, increased by approximately 6%. Financial assets at fair value through profit or loss, classified as current assets, totalled HK$419.8 million. This represented approximately 8.3% of the total assets of the Group. They were well diversified and comprised approximately 350 individual holdings. The Group recorded net realised and unrealised fair value gains of HK$22.7 million or equivalent to approximately US$2.9 million and investment income of HK$2.7 million or equivalent to approximately US$0.3 million. Equities comprised approximately 67.6% (of which U.S. 57%; European 17.6%; Japanese 3.6%; Asia ex-Japan and others 9.5% and Emerging Markets 12.3%), bonds 23.5% (of which U.S. 62.1%; European 22.6%; Emerging Markets and others 15.3%), commodities 4.1% and cash 4.8%.

God. If your portfolio size is ONLY 420m, and you have 350 holdings.... that is way too much diversification. Your returns is only 6%, and one could match that with indexing.

(I haven't have the energy to dig out its multi year investing returns. But reading its "strategy", I highly doubt they can make a difference)

Anytime someone said that they have 50 stocks, my perspective is that they had probably hit their portfolio targets and are in defensive mode. The target, would be to match market returns. If one wish to capture market returns, why not just buy ETFs outright?

I wish I could take a plane over and quiz the smart ass management on this. The daughter of the SSH is joined the investment committee recently, and she was ivy league graduate. 

(God, she has 2000 shares in Nanyang Holdings. I can't believe a peasant like myself have more)

I was hoping that things would change, but as of now, nayyyyyy.

If you want to invest proactively, be paid a respectable amount of money, then start pulling your weight.

Cut that portfolio to a respectable amount of, let say, at most 20 stocks. Even if you were to divide that 420m equally, it is still around 20m each. It is not difficult to find good investments to buy with 20m.

Nanyang Holdings' market cap is a mere 810m HKD. The balance sheet contains the following:
-underperforming investment properties, valued at 2.28B

-Financial assets at fair value, both current and non-current, at 2.5B (most of it, around 2B, is invested in SCSB, Shanghai Commercial and Savings Bank ~2B)

-Cash and eq of 100m

Looking at the returns from its real estate business in 2019, it is only ~80m yearly (ignoring fair value gains), and at its stated book value of around 2.2b (again, ignoring that years' fair value gains), that is only a return of 3.6%. Right now, it is worse as rental is soft, and the land use rights is in limbo. 

If I am the CIO of this company, I would move to liquidate the investment properties. Even at 50% haircut, it is enough to privatize the whole market capitalization of Nanyang Holdings!

Don't be the only reason for your existence is to be a lesson for others.

***

Beside FSY, another stock that lost > 10% in a single day ... was Cordlife.

Sometime earlier this month, the Substantial Share Holder (Sanpower), through its investment holdings in Blue Ocean, which is the entity formed for the liquidation of GCBC (Global Cord Blood Corp) , sold a good amount of its shares in Cordlife to an entity call Manital Best, controlled by a person call Kang Lan.

There isn't much information about this person, but some googling (and largely guessing) that she is a high level management in CBC Group. I am going to assume that this is an intelligent bet by an insider (of which I mean an industry insider, no some financial market manipulator).

All this while, NJXJK, which is an entity controlled by Sanpower Group, had been writing letters to the board, outlining its desires to bring the company private and yet also highlighting issues. It was very amusing to me because:
a) Cordlife's board of directors is largely already in control by NJXJK

b) If you really want to ask a lady out, you wouldn't ask 6 times and take a rain check.

So NJXJK did everyone a favor and expressed that they will pass on the privatisation offer on its 7th letter.

This resulted in a intraday loss of almost 13%.

Very fortunately, the group reported on Thursday that MOH has given them the go ahead to resume business. The stock rallied 10%.

Both the decline and recovery were hilarious to me. Cordlife's issue was never if it was cheap or if it would fail to be a going concern (removal of license, or operations made obsolete). It is whether the company can survive the legal issues. It is largely expected with that business would be allowed to resume.

There are a few likely phases that I foresee

a) In a matter of 2 years, we should have clarity on how the group representation (of which there are publicly known to be 2) would go. One is from Peter Lee Chambers and the other, Withers KhattarWong. Both are in early stages of the legal process, and I think they have yet to contact Cordlife.

If the group representation efforts were to fall flat, it is likely to result in value revision of at least 50% from today's prices. The sooner we have clarity on the legal issue, the better it is.

b) Someone would be held accountable, charged and "hang" in public to appease the customers and repair its reputation

c) Aggressive PR efforts to regain trust.

Is Cordlife still cheap?

It has 17.4m in cash, another 8.8m in Pledged FD which is about 25m. Coupled with another 36m in fixed deposits and 5.6m in short term investments, you have about 56m in cash alone.

Its contract assets of 62.5m (hopefully no major impairment)  is matched by its contract liabilities of 62.9m. 

It have interest in other companies as well as the building in Yishun.

Cordlife has no debts, and its market cap is 36.7m as of 31-August.  Its CAPEX is about 3m yearly. If we bump it up to 5m (legal representation and testing fees) for the next 3 years, and that its operating cashflow continues to bleed 10m yearly, it has about 2 years of time to sort itself out before the liquid asset value-price gap closes or ceases to be appealing.

***

Joining FSY, Cordlife in a 10% drop intraday group is Best Mart 360. News broke that its CEO is under arrest, and the stock fell 15%, only to recover to -1%. It was crazy.

And on 28th Aug, the results look... impressive, and they announce a good dividend, so it went up over 11% in 3 days.

I don't have a big position on this stock, so I was ambivalent.

*** 

Option Investing Portfolio

The Tracker Fund have a substantial recovery this month, and most of my sold calls were exercised. I had sold calls on
-a small residual amt of Tracker Funds
-Link REIT. I realized a small amount of loss or break even on this, because of the dividend.

That means all my stocks, except a decent amount of Anta Sports, were called away. I like Anta Sports, and I think it has a respectable amount of volatility. I am also thinking about selling puts on Southwest Airlines, as it undergo pressure from Paul Singer and gang.

On a start up capital of 50000, 

Dividend: 445

Capital Gains: 297 (much reduced due to selling calls on Link REIT with strikes below my cost)

I had little but no choice to sell Link REIT at 35, even though my average cost was 36++. This was because Link had so little volatility, and much of my capital was tied to it. 

Income: 9000

Current returns: ~19.4%

Hopefully I maintain my discipline and not get too aggressive....