Super Companies-- First Cut

The following companies are what I see as “super companies.” They managed high returns on assets, on a 5 years or more basis. Their place in this list does not mean that they are priced right—which is the cornerstone of value investing, buying stocks are the right price. The other precaution is that returns mentioned here does not refer to cash returns. This should be used as the first cut.

Singapore

• Sheng Siong (OV8)
• SGX (S68)
• Micro-Mechanics (5DD)
• Riverstone (AP4)

Hong Kong

• HKEX:1382 - Pacific Textiles Holdings Limited - Declining business.
• HKEX:586 - China Conch Venture Holdings Limited - inconsistent FCF
• HKEX:8138 - Beijing Tong Ren Tang Chinese Medicine Company Limited - nice but too pricy at the moment.
• HKEX:303 - Vtech Holdings Limited - no growth in earnings
• HKEX:1126 - Dream International Limited - nice company.
• HKEX:1234 - China Lilang Limited
• HKEX:2283 - TK Group (Holdings) Limited
• HKEX:2020 - ANTA Sports Products Limited
• HKEX:1093 - CSPC Pharmaceutical Group Limited
• HKEX:837 - Carpenter Tan Holdings Limited
• HKEX:3918 - NagaCorp Ltd
• HKEX:1999 - Man Wah Holdings Limited - statistically good but not cheap
• HKEX:52 - FAIRWOOD HOLD
• HKEX:1830 - PERFECT SHAPE - vested.

Early promises (2-3 years of high ROA)

Singapore

• HG Surgical (1B1)
• MM2 Asia (1B0)
• TalkMed (5G3)

Hong Kong

• HKEX:6858 - Honma Golf Limited
• HKEX:520 - Xiabuxiabu Catering Management (China) Holdings Co., Ltd.
• HKEX:1523 - Plover Bay Technologies Limited
• HKEX:1345 - China Pioneer Pharma Holdings Limited
• HKEX:1500 - In Construction Holdings Limited
• HKEX:2138 - Union Medical Healthcare Limited
• HKEX:1572 - China Art Financial Holdings Limited
• HKEX:799 – IGG
• HKEX:6822 - Kings Flair International (Holdings) Limited
• HKEX:1513 - LIVZON PHARMA

Such companies definitely have attracted the eye balls of investors—whether the business is generating cash, or that it is priced right—is another matter.

A Stroke of Bad Luck

Every now and then, the market throws you a curveball that is impossible to hit.

This is a story about Xinghua Port Holdings (XPH). What started out as a promising spin-off opportunity could end up terribly wrong as I am writing this.

Let’s begin with the investment thesis. XPH is a spin-off from Pan-United. The terms are simple—one share of XPH for every existing share of Pan-U. So it is no surprise that post-spin-off, XPH will experience selling pressure, which it did. Shortly after, XPH announced its full year results and it was not too shabby. To summarize, the earnings per share, without the listing fee taken into account, will mean that XPH is trading at some 10 PE. Insiders has been buying from the open-market while it was selling at 1.1-2. A Frost&Sullivan analyst remarked that the business should experience a CAGR of about 10 percent.

The Speculative “Opportunity That I Missed”

The idea of investing in spin-off is that the price is temporarily under pressure due to selling—hey, these shares are free, so it is normal for a disinterested Pan-U shareholder to dispose them for profits.

Right after I shared this idea with a senior investor in the morning, the stock went up to as high as 1.8 dollars. I didn’t get to “see” it live—it was a few hours after the fact. So the opportunity for me to trade this stock is $1.5. That represents a 36% profit in a matter of days.

I did my math and refuse to sell. The reason is simple: This stock is cheap. It should be earning a EPS of 0.174 HKD per share. At a not-so-extravagant PE of 10, this stock should trade at 1.74 HKD.

So I key in a 1.74 sell and went back to work. The trade didn’t materialized after all.

The Sell-down

So the HKEX being much more volatile in nature, sold this stock from 1.5 to 1.2x. I bought more at 1.28. Every time the market moves down with no economic basis behind it, I will act. Hence, XPH became my 2^nd biggest position in my little portfolio.

The Real Bad News

On 2^nd April, this happened:

And a couple of days later, the company follow-up with:

 

Things can go horribly wrong from here, so this stock will suffer an approximate 20% loss in stock price or more. I suspect this will have a serious drag down on my portfolio. I am now expecting to under-perform any indices out there. In fact, XHP dropped -6.5% yesterday. Together with the sell-down on all my other holdings, I am now less than 5% ahead of the market. Just days ago, the lead was about 10%.

I have clearly only 2 options here:

(a) invest more at -20% (or more!)

(b) sell half and ride the storm; this halved the risk, and I am unlikely to get a decent price tomorrow. This could be followed up with (a).

I have no intent to sell everything as I believe this problem is temporarily. I believe in investing when there are problems-- unfortunately I am now vested before problem struck.

It is certainly easy to invest during a downtrend when there are no news, but this is different.

Portfolio Updates, 2018 First Quarter

The market continues to be kind to my little portfolio. As of 22nd March 2018, the scoreboard is as such, year-to-date:

STI ES3: +2.67% (from Stocks.Cafe)

(STI ES3, from my own calculation, returns 0.053 in dividends, and stands at 3.49, which means it is 3.543. It started at 3.48 this year. Is the actual returns 1.81%?)

Hang Seng Index:  +1.82% 

(this might be wrong, I just did my own maths; no idea about the dividends either.)

My own little fund: about 11.12%, inclusive of dividends. 

The reason for including the Hang Seng index is because a third of my portfolios are now parked in HKEX securities. I found a couple of good opportunities there as well as took the advice for one of them. 

I will write about some of them soon.

None of my holdings are bought based on promising macro news brought about by the media or the brokerages. You will find no Hi-P, AEM, Best World, Delong, etc. Most are picked for their cheapness rather than their shine. I have some confidence that I should be able to do well in the future, since picking stock this way is a) not an activity enjoyed by the majority and b) produce relatively pleasing returns as expounded by value investing principles.

Unlike a typical classroom environment, where students compete to be #1, I am fine with finishing between #10-15 in a class of 40. Returns from investments will not differ too much from general market conditions (unless I really turn out to be smarter than I thought...).

A simple look at HRNetGroup

HRNetGroup is a human resource provider that has announced results recently.
What surprised me is that amount of cash on hand at the moment, a good 289m.
That translate to net cash position of 289m - (all liabilities) 54.698m= $0.2317 net cash per share.

The market is offering us about $0.78 per share. If we take away that figure by net cash per share, that translate to about $0.548252 per share.

Net income goes to 46.342 or $0.04582 per share.

That translate to about a PE of 11.9.

Provided this company continues to do well, I think there is a good chance of undervaluation.