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.

Feb 2023 Portfolio Update (Centurion, Yangzijiang Finance)

Despite sleeping very early these days, I was feeling perpetually tired throughout the day. That explains why this post is late.

I did a presentation some weeks back on value investing with Boon Tee:

STI Index Fund returns -0.52% (was 2.93% in Jan)
Hong Kong Tracker Fund returns 4.16% (was 7.84%) 
S&P 500 Index Fund returns 6.05% (was 4.19%)

My portfolio returned a measly 4.25% (was 7.15%), largely due to another round of correction by Alibaba and Central China positions. This was very much inlin with expectation; the overhang (of property worries) should continue for years. Alibaba isn't doing so great, in terms of market price movements, but it does look like they have managed to control cost. However, Alicloud and International Operations continue to be loss making. There is still no clarity in how one should value Alicloud and the (potential?) Ant Group IPO.

Transactions:

Purchase 2000 shares of Nanyang Holdings for my portfolio.

Nanyang Holdings is just a very cheap stock which main operations are good old rental and investment. The main investment is of course their Shanghai Commercial and Savings Bank, which is mainly based in Taiwan. I would readily say that banks and financial institutions are far beyond my circle of competence. However, the value is still apparent in other aspects of its balance sheet. I am just uncomfortable with their investment process-- it is too active for its own good.

Discussion on OKP, Centurion and YZJ Finance, as they had released full year (FY) earnings during Feb 2023.

OKP: 

While revenue is definitely higher, so are costs. The balance sheet looks far more fragile than a year ago, so now the investment thesis has become one of projection instead of protection. It was also revealed that 3m was spent in the arbitration with CPG Consultants. I believe, if OKP is successful, would bring significant one-off 'earnings' to the 53m market cap company.

********

Centurion: 

As usual, the dividend is a joke, and the stock price corrected a fair amount (8% intraday at one point). The only bright spot is that the debt is getting reduced. Amusing enough, I think it is far better to be a debt holder in Centurion than a stock holder. It had been 2+ painful years. 

Perhaps Centurion should do a major rights issue to bring down debt? Since the cost of equity (in dividends) is less than a Singapore Savings Bond? It wasn't that business was poor; things are actually picking up. So do the major rights issue, let's clear the debt in the books. In the mean time, management should show that they deserve to be management by:

a) Not increasing their remuneration, or best: be paid with stock options instead. Strike price should be significantly higher, lets say 25%, than prevailing market prices.

b) Voluntarily purchase securities in the open market.

On 22 Feb 2022, I wrote:

Results were much better, and the debt level was pare down by a modest 20 million. However, the dividend proposed was a paltry 0.005$ a share, much lesser than the expected 2 cents a share. The company put up a resolution to restore director and management pay for voting as well. This news depressed share prices, and whatever paper profits from profit alert, prior to announcement, were all but vanquished.

It is disappointing that 1 year from today, the narrative remains unchanged.

Let me put the numbers into context. Centurion is earnings between 70-100m in free cash flow over the years. The figures for 2016-2023 as follows:

	2016	2017	2018	2019	2020	2021	2022
Free Cash Flow (m)	65.037	54.263	54.986	66.554	59.146	70.256	101.679
Dividend Declared (m)	7.399	7.957	8.408	8.408	0	8.771	8.412
Interest payment	21.383	21.545	23.929	28.759	23.319	22.734	28.341
Total Remuneration of Directors (Retrieved from Annual Reports, Sect. 9)	0.38	0.422	2.113	2.422	2.68m	3.277m	2.971m (from earnings release)

 

I think the numbers above does not justify why dividends are suppressed over the years!

********

YZJ Finance: 

has finally released its full year earnings. Examining the balance sheet reveals:

-620.6m of cash

-2264.6m of debt investment, which are current

 407m of debt investment which is non-current.

This is the most important of the lot.

It is noted that 536m of those investments were transferred to YZJ Ship-Arm (parent) before the spin off. I thought initially that it was a protective move by the parent to relieve the child (YZJ Finance) of potentially bad assets. I also viewed the reduction of debt investments in 2022, of 1.7b from 4.57b, to be favourable. Management also stated that the interest income was 312m (see below). I think a yield of 10% for its debt investment is sufficient given the risk.

-413m of financial assets, which are mostly unlisted China equities (see below)

-322m in investment on associated companies. This associated companies are not disclosed, but likely related to YZJ Ship-arm.

On the liabilities side, there is a total of 332m, of which 228 are deferred tax liabilities. These are tax which are not paid and will be paid in the future.

Let's relist the assets and do some brunt discounting.

-620.6m of cash

-2264.6m of debt investment, which are current

 407m of debt investment which is non-current.

413m of financial assets, which are mostly unlisted China equities

322m in investment on associated companies

With cash, there is no discounting needed. The amount of interest income (20.5m) represents 3.3% which is likely reasonable.

With the debt investment, the management presentation slides indicate that about half was performing, with the majority of the other half being non-performing:

One would look at 2021's performing loans of 3.16b and wonder how did it turn up to be only 1.35b this year? Well, 1.6b was redeemed (refer to the first screenshot of this post).

However, I going to be brutal and write off the existing under-performing and non-performing portion from its assets. That would mean the debt investment would be worth only 1348b instead of the stated 2264m.

Obviously this is going to be too conservative since

a) There might be reversal of NPL, and given that management guided earlier that there is collaterals.

b) There is some residual income from the performing loans. Stated amount in the book is merely principal, and does not include interest.

I going to reduce the unlisted Chinese equities by 75% (overly conservative) because there is no way to look at those numbers (since they are not listed!)

I will also reduce the value of the investment in associated companies by 50%.

That sums up to be ...

Asset	Stated Value	Discounted Value
Cash and EQ	620.6m	620.6m
Debt Investments	2671m	1348m
Financial Assets (Investment in Chinese Equities)	470.072	138m (unlisted equities are discounted by 75%)
Investment in associated companies	322m	161m
Total	4083.6m	2267.6m

... a total of 2267m, and if we take away 332m of liabilities, the remaining value of YZJ Finance would be about 1.9b.

YZJ Finance, is listed at 1.46b. That represent a margin of safety of about 25%. Since my average price for YZJ Finance is about the market price, I would refrain from buying more stock. The dividend yield, based on a distribution of $0.018 per share, would be 4.7% for my holdings.

Let's wait and see.

March 2022 Portfolio Update

"Beware the ides of March!"

S&P 500 Index Fund: -7.59% -> -11.04%

Hong Kong Tracker Fund: -2.44% -> -19.99% (ridiculous)

Straits Times Index Fund: 4.36% -> 3.06%

My portfolio: -8.39% -> -15.38%

So in a matter of less than 3 weeks, the Hang Seng index was blipped 17%, and my own portfolio is not too far behind, losing 7%. The S&P 500 is still outpacing my portfolio.

Transactions made:

-Significant amount of Alibaba (9988) in Hong Kong Exchange.

Since 1st of March, Alibaba went from 103.8 to 71.25 HKD. This is purchased for both my parents and my own portfolio.

As I write, the market capitalization of Alibaba in NYSE bears a market capitalisation of 227.87B USD.

This is the back of envelope SOTP I done some time back:

"The e-commerce business, in the latest interim, contributes about 12B USD. The cloud computing and entertainment branch, as well as its "innovation" branch are still loss-making. 

They could possibly spin off the cloud computing branch. The cloud computing segment contributes about 5.6B in revenue for the last six months (or 12B USD annualized). It appears to grow 30%, so let say if we give it a 5x-10x Price to Sales ratio value, that is 60B-120B.

33% of Ant Group belongs to Alibaba. If it had gone through its 35B USD IPO then, Alibaba stake would be worth ~11B USD (~452B HKD). Its latest interim earnings was 1.7B USD

To guess-timate very, very conservatively,

Alibaba current market cap is 339B USD

-E-commerce, if it contribute 24B in annualized earnings, on a P/E of 10-15= 240B-360B

(There were whispers that at current valuation, one is only paying for the e-commerce business and everything else is free. That is only the case if e-commerce is valued highly. I am not sure, going forward, if there is sufficient margin of safety)

-Cloud Computing= 60B to 120B, average it and give it a 90B.

-Ant Group IPO= at 1.7B USD interim, is worth about 3B USD x 15 PE= about 45B. If Ali owns 1/3 of it, that is about 15B.

Sum it up, Alibaba is worth between 315B - 465B."

What happened between then and now? We know that the IPO for ANT Group will be further delayed, with no visibility. We know that there isn't anything promising from the cloud segment yet. If we were to mark down our valuation of Ant and the cloud business by another 30%, that would mean that they will be worth 40B and 10B each, a sum of 50B.

The E-commerce business is perhaps worth 200B (further mark downs)

So there is a total of 250B worth, without considering the amount of unneeded cash in its books. So there is a ~10% margin of safety under very grim considerations.

-Token increase of Central China Management (9982) at the start of the day, before results release.

The results of CCMGT does not look too worrying. A decent amount of dividend is to be dispensed, 0.099 HKD per share. That, along with 0.086 HKD a share earlier this financial year, represent a total distribution of 609m HKD. 

The market capitalisation of CCMGT is a mere 2.6B HKD.

The amount of cash in its book is 1.7B after subtracting all liabilities. This means that you are paying only 900m for the company as a private owner. 

A matter of concern in its book is a 317.552m RMB (389m HKD) worth of Trade Receivables to a 3rd party. This TR is to be settled in a year and the interest payable of 15% is payable to CCMGT by this unknown company. I would assume that this means two things: Times are either truly desperate for both construction firms and banks, one unable to borrow and the other unwilling to lend; and if this party is truly unrelated to CCMGT, the debt issue of this sector is of major concern, and hence they deserve to trade at gigantic discounts over the months.

-Initial amount invest in a gaming company call IGG. It is trading at reasonably low valuation to its books, and is another asset light company (as all gaming firms are). It has a reasonable promising game in the pipeline, which is something to be hopeful for, despite the profit warning issued recently.

I have also noticed that a huge amount of options were exercised, and it definitely contributed to the sell down of stock (post profit warning). By eyeballing the amount of options exercised, and the amount of trade volume, I think it is a decent amount but not a worrisome percentage.

-A small amount of Hong Kong Tracker Fund for my parents only. I do not believe in investing in index funds personally.

Personal Opinion of Centurion Latest Result

I would summarize the performance of Centurion firstly:

Company Performance (in millions)
2021
2020
2019
2018
Shareholder Dividend
4.203995
8.41
16.816
21.019
Revenue
143.017
128.355
133.353
120.07
Net Income
52.679
17.171
99.951
79.326
Fair Value Gains (or loss) to IP
11.416
-27.641
66.266
48.553
Adjust Net Income
41.263
44.812
33.685
30.773
Operating Cash Flow
74.349
60.48
70.247
57.475

As you could see, revenue numbers are not affected badly year on year. This is normal because the business of dormitories is irreplaceable.

If we were to look at net income, it does suffer from addition and subtraction of investment property valuation. One can reasonably argue that property revaluation is reflective of actual earnings, or improvement to infrastructure. I find it highly subjective. As such, I would add it back (in the case of lower valuation in year 2020) or subtract it off net income (all the other years).

The result is Adjusted Net Income, and you could see that it doesn't decrease too badly. Add in the operating cash flow, it does look like the company isn't doing so badly over the years.

However, the dividend distributed decline dramatically.

A look at management salary

Names
2020
2019
2018
2017
Wong Kok Hoe
782
207
NA
Teo Peng Kwang, Kelvin
703
933
750-1000
750-1000
David Loh
58
46
<250
Han Seng Juan
58
46
<250
Chandra Mohan S/O Rethnam
73
81
<250
Gn Hiang Meng
92
103
<250
Owi Kek Hean
70
78
<250
Tan Poh Hong
55
61
<250
Lee Wei Loon
48
6
-
Kong Chee Min
741
861
750-1000
Key Management
Foo Ai Huey
250-500
250-500
<250
250-500
Ho Lip Chin
250-500
500-750
250-500
500-750
Leong Siew Fatt
250-500
250-500
250-500
250-500
Lee Geok Ing Janice
<250
<250
<250
<250
Lim Choon Kwang
<250
<250
<250
<250
Yeo Boon Hing David
<250
<250
<250
<250
Departed Directors
Tony Bin Hee Din
NA
NA
750-1000
Lee Kerk Chong
NA
NA
250-500

There will be a resolution put up for voting this year, and that salary cuts brought in during COVID-19 years be reinstated, which I presume will be back-dated from 1-Jan-2022.

If we look at the figures above, I would argue for a case to reinstate the salary for Mr Kong Chee Min, which have taken a significant cut. I will reserve my judgement for the rest for the wiser, as I cannot claim but to be ignorant of the exact amount paid to personnels under "Key Management."

In view of the declining amount of dividends, as well as the reasonable consistency of earnings over the years, I am ambivalent about voting for this resolution.

I would suggest that a more shareholder-aligned incentive be structured for key management. I am in favor of conserving cash for the sake of reducing debt, but something in these figures hint to me that perhaps the dividends could be higher. On the other hand, it would take many good years to completely eliminate debt without paying dividends. Hence the ambivalence.

Loss Porn

During the last 2 trading days, the HSI lost >5% daily, and the tech index lost a lot more. My portfolio, of course, was not spared. Perhaps the following could be cold comfort for the rest of you out there... life is not a bed of roses.

Heading the list is Didi at a loss of 75%.

Central China Real Estate loss is 52%

Thankfully, both of the above is only about 3% of the portfolio.

The following are among my 6 biggest position in the portfolio

Alibaba Group's markdown is 41%
Central China Management loss is 39.5%
Carpenter Tan is 20.9% down.

The other main holdings are more or less still because they are iliquid Singaporean asset-cheap stocks, with Centurion being the only turnaround play. 

The Perils of Active Investing

In less than 20 days since the last update:

S&P 500 Index Fund: -4.13% -> -7.59%

Hong Kong Tracker Fund: 6.02% -> -2.44%

Straits Times Index Fund: 9.18% -> 4.36%

My portfolio: -1.96%-> -8.39%

The portfolio suffered a heart-wrenching battering in less than 20 days. If I were a professional fund manager, I would no doubt be questioned and face redemptions. However, I face a fate much worse-- I return home at the end of the day, guilt-stricken that perhaps I have placed my parent's fund in jeopardy. 

More so, the self-doubt gets ever louder. I felt more like an imposter each day. The fog of war became unbearable as suspicions if management were not disclosing information. Most of my holdings are downright underpriced, and yet the sell down was relentless. 

Recent days seen some relief for growth and even cryptocurrencies, but, mercy, was not forthcoming on my holdings.

In ascending % of loss in value are:

Capenter Tan and Fu Shou Yuan (10.8% and 3.99% weightage) -15%
I have no idea what to make of this decline, except that FSY is a good business at a fair price. As such, I could accept the market's valuation of such a stock. The market should be worried about price controls by the CCP on living expenses. 

Fu Shou Yuan's board will convene on 18-March and the full year result would be announced.

Market cap: 13.38B HKD
Cash/Eq: 1.3B, and in addition of invested (mainly structural deposits, which capital are NOT guaranteed)  worth 332m. That works out to be about 1.98B HKD

Free Cashflow in the last decade or so
2012: 153m
2013: 85m
2014: 221m
2015: 259m
2016: 405m
2017: 525m
2018: 552m
2019: 615m
2020: 715m
2021-1h: 400m

Let's assume that going forward, this company generates, at a no-growth basis of 600m, that would means a private owner is paying at 18 times free cash flow. This would imply that growth have to continue for the market to price it higher, and that the multiple would be maintain. 

What I mean is that a low-growth company, even with a steady cash flow (e.g. Carpenter Tan), is assigned a very low price multiple. My numbers suggest to me that FSY's ROIC is between 13-16% in recent years. Not a low number, but not a overly promising one. 

So this investment yields about 7% last year. If an investor looks at long term inflation of 3%, a equity risk premium of 4% might not be so tempting. You can replace inflation rate with anything, such as government bonds, and think if investing in this business make sense.

As such, it might not be a great idea to go big on Fu Shou Yuan. As such, I deserve to go 18% down on this company, and perhaps it was great that I didn't put too much capital in it.

Alibaba Group (10% of portfolio) -20.1%

Much have been written about Alibaba. I would not add more.

Central China Management (9.28%) -27.8%

Joel Greenblatt would have been shock that a spin off, with a balance sheet as clean as this, could be sold down so heavily.

It has 2.2B RMB (2.72B HKD) of cash, and 560m of liabilities. This equates to 2B HKD worth of cash.

The market capitalization is a paltry 3.32B HKD. This means a private owner is only paying for 1.32B HKD.

Even at 100m of free cash flow per year, this company is not excessively expensive. The company earns 500-600m RMB (620-742m HKD in the last three years. 

The worries is with the parent, and the earning of this company's earning is still pretty dependent on it (much of it is in Henan). 

I am not too sure what else to add on this.

It is not as if the insiders were not trying. They bought a huge amt of stock, and also did share buy back from company's fund.

Central China Real Estate (3.01% of portfolio) -36%

This would have been more painful if not for the trimming I did some weeks ago. The crushing amount of debt looms large on this company.

Didi Chuxing (1.9% of portfolio) -41%

Unfortunate case of put options been exercise, this is now a sad reminder of my folly, and would probably remain so.

Looking Forward

The portfolio is expected to underperform all indices, especially Hong Kong, and to a lesser degree, Singapore's. There is a lot of value in Hong Kong, and recovery to my holdings will usually means a greater degree, likewise, to the index stocks. Whereas for Singapore, the prices of the banks had already advanced far out of expectation, and that profit margins had to be extraordinary to warrant further increases.

One thing for sure, is that I would not change my investing strategy in order to get a better result.

I would put up an article about Centurion in the next few weeks, following the disappointing amount of dividend.

Feb 2022: Mid Update (Centurion's Profit Alert and Initiation of Nanyang Holdings)

Profit Alert for Centurion

Perhaps the one above had heard my desperation and decided to bestow some good news upon me. 

Centurion had announced that there is a hefty profit alert.

"...the Group is expected to record a substantial increase in the net profit attributable to equity holders of the Company for FY2021 by not less than 200% as compared to a net profit attributable to equity holders of the Company of approximately S$17.2 million for the corresponding period in 2020"

At 33.5 cents a share, the current market capitalization stands at 281.6m. A 200% gain would put net profit at the 50m region, which will make the stock look cheap (at last?).

The announcement narrates the reasons for this improvement:

"(i) the expansion of the Group’s portfolio of purpose-built workers accommodation (“PBWA”) in Singapore and Malaysia since the fourth quarter of 2020; and 

(ii) the steady recovery of occupancy of the Group’s purpose-built student accommodation (“PBSA”) assets in the United Kingdom reaching 82% for the second half of FY2021; 

as well as due to a fair valuation loss of approximately S$3.1 million in FY2021 as compared to a fair valuation loss of approximately S$27.6 million in FY2020 in relation to the Group’s investment properties.

"

The expansion of PBWA is expected, and hopefully should be the main reason for improvement. The increased in PBSA is welcomed, but not expected to be the main contributor since it was not contributing significantly to the top line earlier. The fair valuation loss of 3.1m, improved from an earlier fair value loss of 27.6m in the previous year, means that:

If the profit was 17.2m last year, should we add 27.6m of valuation loss (since it is largely paper loss) back to the bottom line of 2020, it would mean that the net profit was 44.8m.

At an estimated 50m this year, the improvement is not much. Henceforth, I would pay attention to the numbers arising from the PBWA slice of the business. The recovery of the PBSA was always in the cards, it was just a matter of when.

Would Centurion choose to restart its dividend distribution this time?

At 0.02 per share in 2019, that would mean a yield of almost 5.9%, which is extremely desirable. However, with the mindset of a business owner, I would prefer that they pare down its debt with its free cash flow.

Update on 27-Feb-2022:

Results were much better, and the debt level was pare down by a modest 20 million. However, the dividend proposed was a paltry 0.005$ a share, much lesser than the expected 2 cents a share. The company put up a resolution to restore director and management pay for voting as well. This news depressed share prices, and whatever paper profits from profit alert, prior to announcement, were all but vanquished.

Obviously, I am very disappointed, as this company was my best foreseeable hope in 2022. As it stands, my returns are -6%, and henceforth significantly trail the STI and HK indices. This would likely be the worst performance in 5 years.

Initial Capital Injection into Nanyang Holdings (HKEX: 212)

The history of Nanyang Holdings had an uncanny similarity to Berkshire Hathaway. In 2009, it made the painful decision to cease its textile operation, paying up to 40m to end construction of a factory. There were about 20 employees in 2009. Today, there are only 13.

Instead, they decide to turn their focus into property rental, converting the space of the space which the company held land use right of (in the form of joint ventures with their Chinese counterparts in mainland China), to office or factory rental. Their prized property is Nanyang Plaza in Hong Kong. 

Throughout the decade, they invested and increase, through rights issues, in their shareholding in Shanghai Commercial and Savings Bank (SCSB). The major shareholder is also the chairman of this entity, and this shareholding is very likely extremely long term.

Lastly, the company has an investment portfolio that is growing, though insignificant when viewed against its total assets.

Layman Valuation

The sum it up:

As of 19-Feb-2022:

Market Capitalization: 1.35B HKD
Source: https://www.hkex.com.hk/Market-Data/Securities-Prices/Equities/Equities-Quote?sym=212&sc_lang=en 

1) Investment Portfolio: Fair value of 456m HKD. 
"Equities comprised approximately 80.2%
(of which U.S. 41%; European 14%; Japanese 5%; Asia ex-Japan 27% and Emerging Markets 13%),

bonds 11.8% (of which U.S. 85%; European 3%; Emerging Markets 5%

and others 7%), commodities 2.2% and cash 5.8%."

2) Investment in SCSB: 2.2B HKD

3) Nanyang Plaza: 2.47B (based on level 3 valuation, hence least reliable)

4) Total Liabilities: 104.7m

After some pretty liberal discounting:

The Net Asset Value of 3.3B implies at significant 240% margin of safety after very conservative discounting. In case you ask, I discounted the valuation of Nanyang Plaza heavily, because the cap rate is on the low side of 3.x% currently.

Share Buy-backs and Cancellation

It appears that the management recognizes that the company is undervalued, and hence has been buying back and cancelling shares at a heart-warming rate. It is rare to see shares being cancelled away instead of just sitting still in the treasury, or worse, becoming stock options for management.

In case you noticed, there is a huge amount of Share Buybacks (figures in the centre column is in millions of HKD) in 2015, representing 200.745m of shares, at the price of about 33 HKD. This is through a tender offer by management to existing share holders.

The other bulk share buybacks occurred in 2019, 2008, 2007 and 2020. 

The current price of almost 40 HKD implies a significant amount of premium, but when we consider that there were share buy backs in 2019 and 2020, 40 HKD doesn't seems so bad.The amount of float, as in the number of shares in millions, has reduced from 43.9m to 34.16m in 2021. That is a 28.5% reduction over a span of 15 years. That is a 1.7% compounded, yearly.

Dividends

The dividend record is fair. Green lines represent the % yield, and the blue bars represent amount in HKD.

Risks

The share buy backs signifies shareholder alignment, which is great. But what are the downsides?

-inability to continue joint ventures with the Chinese partners due to conflict, regulation (unable to renew land use rights, regulation, etc)

-Significant losses from the investment portfolio due to active management. The company makes decision on its portfolio based on macro and economic trends, far too sophisticated for a value simpleton like myself. There will bound be times where they will trip badly. However, the value of the investment portfolio is not a huge concern as the following, which is...

-Political issues between Taiwan and Mainland China, as SCSB is mainly running its business in Taiwan. SCSB does have stake in SCB (Shanghai Commerical Banks) which has branches in Hong Kong and China.

-Liquidity is on the low side. Hence, do not over allocate too much of your portfolio into such stocks. In the event that you need cash, this would be a burden.

As the value is apparent, I have started injecting capital into this company. 4.25% of my portfolio is vested, and there are currently 12 companies vested, with the top 5 holdings representing 73.08%. I plan to accumulate heavily into this stock.