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.