Thank you OKP.

The agreement to terminate the viaduct contract with LTA. 2018.

Bread and butter projects for OKP-- maintenance.

Some questions wrote in prior to AGM

It took a long time to build up a position in OKP. This was 4-November-2020.

AGM in 2023, where its fortune were starting to turn for the better.

OKP was probably the first company I bought based on the basis that a company is under some sort of duress but is likely to recover. The very first shares were acquired in 2017-8.

The viaduct collapse was followed by mutual cancellation of the project. Shortly after, employees and directors were hauled to court. 

All troubles do come to an end. Things start turning for OKP, beginning with Mr Or Toh Wat having his charges withdrawn. Then in 2019, the arbitration between CPG Consultants and OKP came to a close, awarding some 40++m to OKP. At the same time, the valuations of the shophouse properties began appreciating as the world fought COVID. 

When 40++m were finally transferred to OKP, the market was very disappointed when there are no special dividend. Instead, the management was awarded directly by bonuses. Whether the investors believed the explanation given by directors during the AGM then (it was family tradition to withhold all dividends payout to the directors for one year, for financial prudence) or that the market has a short memory, the price did recover a little.

During the last two years, OKP won tenders for various cycling track projects, and they turned out to be extremely capital-efficient (high gross profit margin). The management was quite confident that the margins could be maintained.

Yesterday's result release reflected that confidence. A special dividend was also declared (2.5 cents).

The amount was probably the biggest since the period 2009-2012.

The share price was then between 50-90+ cents a share.

Perhaps today's move signifies some kind of recovery. But I am pragmatic-- I believe that being project-based, earnings are volatile and hence thinking in terms of price-earnings ratio is a little inappropriate.

***

I think I will remember today for some time.

OKP is, by far, my biggest position, ever. I had over 540,000 shares at one point. For years I have been telling my friends to buy OKP when prices was depressed (around 19 cents). I shared what I knew but few are convinced.. and even those who were convinced could not withstand its lack of liquidity.

The lack of liquidity means there will be no exit doors should my friends wish to sell. I had to adsorbed a modest (retrospectively) amount of shares from a friend, using the open market, on the day's bid-sell price, because that friend could no longer endure the liquidity.

I looked stupid for almost seven years.

Today's +20% move elevated my portfolio beyond S&P 500's return (at last). My portfolio was severely impacted by realized losses in Central China Real Estate. That realized loss alone, was 20% of my portfolio size, and it crippled my confidence and XIRR.

Those losing years brought back a little sense of empathy. I began to understand why some of my friends bought crypto, or meme stocks. I probably wouldn't feel so sympathetic if I never have lost money. Success in my earlier years blinded me from pain.

Losing money in investments in 2022 and 2023 wasn't the only

I started having issues at my workplace in 2023. My mum health (and still is) had issues, and I seen the inside of an A&E more than I wished to.

***

Truth to be told, I was looking at my phone with wet eyes as the market opens. I was at TTSH with my mum... and I told my mum we can afford a little luxury today. 

Instead of queueing up with 30 over people for coffee in TTSH's canteen, I went next door and bought us a couple of latte. Instead of just having bread and butter sandwich prepared from home, I bought a pot of hotpan chicken from the Korean food stall.

Thank you very much, OKP. Gratitude is all I have for what I experienced today.

Apr 2024 Portfolio Update (Hong Kong Recovery, Cordlife Teaser)

Don't ask me why there is a shoe missing. Maybe it reflects a missed opportunity on Anta Sports..

Topics Discussed:
-Recovery of Hong Kong market and how it affects my option income portfolio
-Teaser post on Cordlife

S&P 500 (ytd): 9.3%
STI: 2.35%
Tracker Fund: 1.09%

My portfolio: 17.3%

Portfolio upsurge was contributed by the surge in OKP's share price, which stands at currently 40% of entire equities portfolio size. Clifford Modern Living announced a special dividend which brought the share price modestly. At this writing, it has already gone ex-dividend.

Other notable transactions made:
1) Complete divestment of very small holdings in Fraser's Hospitality Trust.
2) Purchase and increase of Cordlife; more on this later.
3) Huge increase in Clifford Modern Living, as detailed in the earlier post, "The Maths of CML"

***

Recovery in the HK Market and its effect on my option income portfolio

Not long after my remarks that option income strategies are far inferior to directional ones, the market decided that it is time for an upturn and the Hong Kong market staged a recovery of sorts.

Of the few stocks that I have interest on, and their last month performance, as follows:
1) Anta Sports (+9.7%)
Anta Sports was a very good opportunity missed. It was languishing around the low 70s and even 60s. Valuation at 70 was very good-- its current back-of-the-envelope valuation as follows:

Cash + short term investments: 36b RMB
Long term fixed deposits: 11.8b RMB

Debts (of all maturities): ~15b

Net Cash of 32.8b RMB, or 36.18

Earnings: 11.7b this year, 8.9b last. Give or take 10b, which is about 11b HKD

Market Cap: 253b HKD,
it was 200b HKD if its share price was 70 HKD

Market Cap less net cash: 217b HKD
that would be 164b HKD if its share price was 70 HKD

Given the rough earnings of 11b HKD, it is not very high price to pay about 15-16 times multiple for this kind of growth company. Anta is a owner-operator, so management motivation should not be a concern..

Unfortunately, opportunity loss. I was too concern with selling puts and selling calls, and I have a limited net asset value to maintain. 

So I only have 400 shares of Anta Sports. I was quite bullish, even to to the point of selling in-the-money puts on Anta. They have since expire worthless.

2) Hong Kong Exchange (up 9.3%)

I do not think HKEX was cheap pre-recovery, so I wasn't too sore about this.

3) Link REIT (recovered 9% since 19-Apr). 

Link has been quite volatile these days. Pre-recovery, I am looking at a loss of 25% on 1000 shares of Link, which means I could no longer sell calls without making a loss.

4) Tencent (up 15%)
Unfortunately, I am out of Tencent as they are called away. My opinion on the valuation of Tencent is not too dissimilar from HKEX's. It is not dirt cheap but it still feels like an opportunity missed.

5) Alibaba (up 9.5%)
My positions are still way underwater for this recovery to be meaningful.

On the whole, I count myself lucky that I covered the sold-calls on my Tracker Fund before the uptick. There is now a modest capital gain (my avg price is 17 HKD).  I have sold calls at 18.5 till end of May, which net me a small premium of 0.275 per contract. That is a yield of (0.275/17) 1.6% for 1 month.

Assuming the HSI does have further legs upwards, I would use the funds on Cordlife, or to adopt a directional strategy on Hong Kong (using synthetics), or to sell put spreads, or even migrate over to America if there is a selldown.

***

Cordlife is a very interesting opportunity, which I would try to expound on in the next post. Its troubles began way before Nov-2023, the day where MOH began their investigation on the tanks. As I leafed through the annual reports for the last ten years, I think this is a pretty good opportunity. More later.

Another Year Passed (OKP AGM 2023)

It felt like just months ago that I attended OKP's 2022 Annual General Meeting (AGM), and yesterday, I attended 2023's.

I remember what happen in 2022's AGM (took place in Apr 2023) very well. At that point of time, the arbitration award was just been announced, and everyone was quizzing the management about the certainty of payment. I was persistent and questioned the financial controller about when it could be reflected, and she said that we will see it in Aug (i.e. the mid year results announcements).

Fast forward a few months, it was Aug 2023.

The 43m was in the balance sheet, but a not so special dividend was announced. Management was paid handsomely through bonuses. Investors were very disappointed. I remember the share price dropped quite badly.

OKP was (and still is) by far my biggest position. My portfolio and personal life was terrible in the last 2-3 years, and then when your biggest position goes up 20%... you thought that things are turning around ... only to lost it all in weeks.....

It was soul-destroying... I had been holding OKP for 5-6 years. At the same time, management of a few other companies, in my portfolio, was... disappointing. . My Alibaba position wallowed in the depths of the ocean (still is!), and my Central China positions absolutely destroyed my portfolio.

My portfolio went from leading the S&P by over 80%; today it is 60% behind. My XIRR went from a 18%++ to 12%.

I was thinking: When will I see the sun again? Do... I really deserve this?

***

After 2022's AGM, I was leaving the meeting (I did not stay long after the meeting was concluded), a young chap was right walking behind me, and asked if I am who I was. He had watched the video that I did with Boon Tee some time back. 

We started chatting about Central China Management. At that point of time, there were about 12 private investors that took up placements with the company. He said that it was very strange that a cash rich company like CCMGT would be involved in such a deal. I was having reservation about the identity of those personnels, and the timing of it all. 

***

I have since sold out of all my CCMGT holdings, and the stock is still suspended since weeks ago. This young chap is not around at this year's AGM. 

This year, I stayed on after the meeting, to join the management during their food/refreshment to hear what some investors have to say and ask. I learnt a bit here and there, things that perhaps I shouldn't write here...

But I conclude that perhaps I should hold on to my shares. 

The stock has recovered and some since those awful times, standing at 0.275 a share. Its balance sheet is stronger than ever, and projects are being awarded at a delightful pace. Everyone looks very cheerful.

In contrast with pre-2023, the arbitration was still on-going, and everything was doubtful. Daniel Or was there as well, and although he was still the same candid and straight-talking  person today, his behaviour during the doubtful times (pre-arbitration, pre-sentencing) could be mistaken as defiance. The mood, this time round, is happier. I did not ask any questions but was listening before and after the AGM.

Before 2021, my investment journey had been too smooth sailing. It felt like I aged a lot after that. 

I hope, as always, that life treat us kindly. 

-boonsong

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.

June 2021 Portfolio Review

Straits Times Index Fund: +11.07%
Hong Kong Tracker Fund: +8.61%
S&P 500 Index Fund: +15.34%

My Portfolio Returns: +41.57% 

Transactions:
-Sold off a petty amount of Perfect Shape at 9.2$
PS still weighs at 28.4% of the entire portfolio. Results would be release on 30-June. Another announcement made, just this evening, is the reduction of board lot size from 4000 to 1000. This would no doubt increase liquidity (and speculation). The other action that would fuel further recklessness would be to split the shares 1-to-4.

I am still eagerly waiting for the results although I am leaning towards divestment. More on that later. 

-Modest increase of OKP at 0.187-0.189
As I see no other opportunities in the market, coupled with the growing amount of unused cash for my parent's portfolio, I made a modest amount of purchase in this engineering company. 

OKP is my second biggest position, standing at 22.9%

Days Sales Receivables Watch - Perfect Shape

While I am more than grateful for the capital gains (both unrealized and realized) brought about by this company, I am carefully watching the Day Sales Receivable (DSO) for this stock.

DSO refers to the amount of days it takes, with respect to the revenue, to turnover the receivables. A company can increase its revenue unfairly by booking more sales (charging customers on credit). Unpaid sales are classify as receivables.

If a company has 10m in revenue, and 2m in receivables in 2019, and have 50m in revenue (an astonishingly leap in growth), one should look at the corresponding growth in receivables. 

If receivable total to 10m in 2020, it doesn't raise much eyebrows. But should the receivable be 20m?

2019's DSO = Receivables / Revenue * 365 days = 2/10 * 365 = 73 days.

2020's DSO = 20/50 * 365 days = 146 days.

Perfect Shape's DSO is outlined below:

When I first purchased the stock in 2018, I was pretty concern in the jump in DSO. Looking at capital gains of 41% in a matter of 3 months, perhaps I could be forgiven for selling out.

Figures in 2019 abate slightly, and 2020's first half interim report suggest a healthy drop in DSO as well. But I am constantly on my toes for possible financial fraud in this company, especially when the board tends to act like cheerleaders.

But I bought stock on a quantitative basis and was rewarded more than I am deserved. I am very grateful.

Who doesn't wish to hold on to a stock that yields double digit dividends? It is every value investors' dream to buy and never have to sell. I do wish this to be so for Perfect Shape, but at times, the fiduciary pressure of handling my parents money compels me to become a seller.

A short note about banks

Since I have a token amount of OCBC shares, I was able to request for a hard copy of its annual report. Reading off paper allow me to take notes, scribbling comparisons between the local banks. While the reputation across all 3 of our local banks is stellar, they are also remarkably safe based on Basel III. Its CET1 scores hover at 15%, a figure hard pressed to find elsewhere.

No wonder it is common wisdom among local investors, to simply buy the banks during a trough. 

There were unique differences between the banks. OCBC seems to have just a little more income off non-interest income. It has a well known insurance arm in Great Eastern, and also increasing presence in Greater China. 

I had some free time recently and was looking at the big 4 Chinese banks. In terms of ROE figures, ICBC and CCB did best. They, too, held the lowest cost-to-income ratios (about 25%). ABC was the worst at 29%, and BOC did slightly better.  Interestingly, all of them have about same amount of Non-Performing Loans. ABC's CET1 was 11.04%, ICBC 13.18%, CCB 13.62, and BOC 11.28%

Hence the market could be right in marking down the share prices of ABC and BOC, as compared to the other two banks. The former two yields at 8+% in dividend, whereas the latter, 6+%.

All of them are better bets than Credit Suisse, whose CET1 is about 6+%. Or could the figures be trusted? I have no real chance in assessing the quality of a bank's books. Any bets would be modest.