Annual Portfolio Review (2016 -2017)

During the past year (24/10/16 – 23/10/17), my portfolio grew 30.44% compared to the STI index’s 20.44% return, giving me an outperformance of 10%. The strategy for this year was to invest in a mix of growth and yield stocks. However, I also experimented with value stocks to see whether it suited my temperament. I was considered lucky as I had minimal exposure to banks and property developers – the main drivers of the index’s growth in the past year. Most of my gains were concentrated in the tech manufacturing space, eg. AEM, Micro-Mechanics and Valuetronics. There were also lucky bets that I profited from in a short timespan, eg. Kingboard Copper Foil and GLP.

This year’s performance has indeed surprised me, as I was never fully invested in the market. For most parts of the year, my cash holdings hovered around ~20% as I wanted to keep a warchest during a period of market exuberance. Nevertheless, a year of good performance means nothing if I am unable to do it over the long term. It is only after a whole cycle, which includes a bear market, can my performance truly be judged.

For the coming year, I intend to focus more on larger bets in ideas that I am convicted about. Currently, I find myself more suited to value growth investing as compared to pure value investing. Thus, I will be looking out for more growth companies to invest in. It has been an eventful year in the stock market, with the local market rising strongly. As market valuations get higher, it is important not to get carried away but to remain disciplined and prudent. I am indeed looking forward to 2018, and the challenges that come with it.

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Purchase of Memtech International, HRNet Group, Nordic Group & Sale of QAF Ltd

Over the past two months, I have made a couple of purchases in the market. Firstly, on 11/8/17, I bought into Memtech International at $0.965 when it retraced a little from its highs. My purchase of Memtech’s stock is purely on a valuation perspective, as I felt it was still relatively undervalued compared to its other manufacturing peers. It was trading at a PE of ~8 and PB of 0.85 at my purchase price. The company is expanding in the automotive industry, where it is said to be a supplier of plastic parts to Tesla. Its consumer business, where it supplies to the earphone maker Beats, is also growing. However, as I feel I am sufficiently exposed to the manufacturing industry through other holdings, this position is not core and I might sell once the market recognises its value.On the 27/9/17, I bought shares in HRNet Group at $0.72. HRNet IPO-ed at a price of $0.90, which I felt was too richly valued at that point in time. Thankfully, it dropped a couple of months later and I was able to pick up some shares at a price which I felt had value to me. The company is Singapore’s largest HR recruitment agency, owning many popular brands like Recruit Express and Search Asia. I believe that the HR recruitment landscape is a competitive one, where many firms vie for a slice of the pie. In this scenario, scale gives one a huge competitive advantage. At my purchase price, HRNet was trading at a ex-cash PE of ~12. The company has operations in many countries, mostly within Asia Pacific. I nibbled at this purchase as it was in a downtrend, and I wanted to space out my buys. The price has seen recovered a little, but I am monitoring this as I hope to increase my stake in the future.

On 6/10/17, I bought into Nordic Group at $0.51. Nordic was a classic case of a well managed company which I waited too long to act on. I had been monitoring it when it was trading at $0.38, but failed to pull the trigger as I wanted a bigger margin of safety. I think Chang Yeh Hong is a prudent and good allocator of capital as shown in his investments made: (1) Multiheight in 2011 for around S$29 million, (2) Austin Energy in 2015 for around S$26 million, and (3) Ensure Engineering for around S$17 million in April this year. All three investments have added a different dimension to Nordic’s business profile and made it a stronger business as a whole. Furthermore, all three have “contributed profits from day one”. Chang also said in an interview that Nordic’s acquisition strategy “revolves around at least one area of familiarity – either the target acquisition has the same customer footprint and a new product or service, or there is a different customer footprint, with the same product or service.” Nordic has taught me once again that quality management is the foremost driver of a company’s prospects in the long run. One may buy low, but if the management is not apt, the company may go to the doldrums still. Good management will help to compound the earnings over the years, in which case the stock only gets better with time to come. Value stocks on the other hand, require one to consistently deploy one’s capital into another value stock after a successful sale of an undervalued company. As the valuation is a tad high for my liking at a PE of ~14.5, I only nibbled and will be waiting for an opportunity to further add onto my position.

I also made the decision to cut my losses in QAF Ltd at $1.24 on 6/9/17. Total losses from this trade stands at -9.49%. My original thesis did not pan out as the company has mentioned that it is looking at listing its agricultural business instead of selling it. I still feel the agricultural business is a drag on the company’s returns, and the company would be better without it. Returns from investing its capital into the bakery business seem much brighter. I will still be watching this space in time to come.

In addition, I took advantage of the weakness in the share prices and increased my positions in InnoTek on 28/9/17 at a price of $0.28, ISEC on 2/10/17 at $0.305, Jumbo on 5/10/17 at a price of $0.555. My annual portfolio review is due at the end of this month, let’s see how my performance matches up against the STI index then.

Sale of GLP & Purchase of Addvalue Tech

As news about GLP’s buyout continued to surface and finally seemed to have reached an agreement, I realised that I did not blog about the sale of my shares earlier. On 19/5/17, I sold off my shares at a price of $2.91, giving me a gain of ~31% based on my earlier purchase price of $2.20. I sold my shares as I felt there was still much uncertainty about the buyout price, and the risk-reward ratio was getting less attractive with the surge in its share price. Nevertheless, although I feel it is indeed a strong company to hold for the long term, this buyout offer did give me a good return and I am grateful for that. On hindsight, I should have waited (the final offer price was $3.38, not inclusive of dividends!), but we always have to make the best decision we can at that point of time. Just like in a game of poker. 😉 On 15/7/17, I continued to add to my investment in ISEC Healthcare at $0.33, as I feel it is still undervalued as compared to the industry. I had wanted to add more at $0.315 but was greedy and decided to queue at $0.31 instead. Unfortunately, my bid did not get through. At $0.33, its absolute PE is still high, but I am rather optimistic about this. Let’s visit this space again in time to come.

 

On 21/7/17, I bought into Addvalue Tech at a price of $0.049. I feel the risk reward ratio is attractive to me at the current price, and the recent entry into the Thai market for its iFleetONE products is good progress. Catalysts remain the sale of its subsidiary Addvalue Communications, contract wins for its iFleetONE product and commercialisation of its Inter-Satellite Data Relay System. Nevertheless, the firm has been loss making for the last few years, and it might take some time before the numbers are back in the black again. This is a speculative position, and I will consider selling if losses continue and their business divisions do not show signs of growth. As this is still not my typical kind of investment, my stake is very small. Position sizing is very important in portfolio management.

 

Disclaimer: The author owns shares in the abovementioned company. The ideas expressed in this blog should not be construed as an enticement to buy or sell the securities, commodities or assets mentioned. The accuracy or completeness of the information provided cannot be guaranteed. Readers should carry out independent verification of information provided. No warranty whatsoever is given and no liability whatsoever is accepted for any loss howsoever arising whether directly or indirectly as a result of actions taken based on ideas and information found in this blog.

What is it that We Live For?

It is 2.12 am as I write this. As I had difficulty sleeping, I decided to pen down some of the thoughts that have been running through my head. Life seems to have accelerated so much since 2014. Ever since I came back from my exchange in Thailand and starting to prepare for graduation, life has indeed become so much richer. What, then do I mean by richer? To some, being richer might simply mean having more money in their bank; being able to afford that flashy car and house, or being successful in the corporate world. On the contrary, being richer is to me, not a financial state, but rather the experience of life’s moments in its varying vicissitudes. During the past 3 years, I have experienced pain, loss, betrayal, spite and failure to great extent, both in my private and work life. However, during the same three years, I have also felt joy, hope, loyalty, respect and success. It is this roller coaster of emotions that makes life so much richer. Can the peaks of life be truly savoured if one has never been in the valley? I doubt so. Failure makes success all the more sweeter. Ever felt that soothing sensation when you popped a sweet in your mouth after taking some bitter medicine before? If you have, you’ll know what I mean.

In 2013, a good friend of mine contracted a debilitating illness that essentially damaged extensively his ability to think and speak. He was 25. It was this first hand experience that struck me that life is really fragile. When we really feel the brevity of our lives, do we then start to observe that time passes so, so quickly. It literally flies by. Our choices on what to pursue and make out of life then, becomes so much more important. Your time is limited; some more so than others. And when we all come to die, as all must and will, our accomplishments and titles will not mean as much then. Death is a common destination we all share, and our names will be forgotten in time to come. Does it make much difference if we are a million richer than our neighbours? Or will it matter if we are sitting on a higher position than our peers? Honestly, no one cares. Neither should we harbour too much bitterness against loved ones and friends who have done us wrong. Forgiveness is a powerful teacher. Kindness knows no limits. It is only with the extension of love and kindness to others, does life then seem so much more meaningful.

I want to live a life of meaning. A rich life. Question is, what about you?

Have a blessed week ahead.

Purchase of ISEC Healthcare & Valuetronics Holdings

On 2/6/17, I bought into ISEC Healthcare at a price of $0.34. International Specialist Eye Centre (ISEC) is a comprehensive medical eye care service provider based in Malaysia and Singapore, whose vision is to provide high quality, compassionate, world-class eye care at affordable level. It is a net cash company (~$21m) with no debts, and is currently trading at a PE of 26x FY16 earnings. This may seem high at first glance, but I like the management’s opportunistic acquisitions at pretty decent prices, eg. the acquisition of JLM GP and aesthetic clinics at a PE of 12 to complement its current operations. From my interactions with medical professionals, eye surgery is seen as a lucrative business, and this is reflected in ISEC’s strong net margins of ~20% compared to the estimated industry average of ~13%. The company has seen increasing revenues in the past 5 years, but this has not necessarily resulted in rising profits due to the firm’s loss-making Mount Elizabeth Novena Specialist Center. With the cessation of operations in 2015 along with contributions from new acquisitions like SSEC (Southern Specialist Eye Center Sdn Bhd) in Malaysia, profits in 2016 rebounded strongly from $2.8m in 2015 to $6.4m in 2016. ISEC intends to continue expanding in Malaysia and into the region. Countries like Vietnam, Myanmar, Indonesia, Taiwan, Philippines and China are targets. At an annual dividend of $0.011 per share, the company is trading at a 3.23% dividend yield at my purchase price of $0.34.

On the same day, I bought more of QAF at a price of $1.355 as I still felt it presented value, especially with the ongoing strategic review of its primary production business underway. With the purchase, QAF is one of the more significant holdings in my portfolio.

On 12/6/17, I purchased shares of Valuetronics at $0.765 after its shares were sold off sharply, possibly due to the drop in US tech shares the night before. I have been eyeing Valuetronics for some time, but its recent gains have made it hard for me to pull the trigger, especially from the valuation perspective. Valuetronics is an integrated electronics manufacturing services (EMS) provider with key businesses in consumer electronics (CE), and industrial and commercial electronics (ICE). Honestly, I still feel I lack the competence to understand the semi conductor and electronics industry, and these include my investments in Micro-Mechanics and InnoTek. However, I find comfort in their management, especially Micro-Mechanics’. As for Valuetronics, I am optimistic as I believe it is a beneficiary of two major trends in IOT and autonomous driving. In 2016, there was a steep fall in revenues and earnings due to the exit from the low margin CE LED business. This used to be a big business for the company. However, it was not long lasting, as management steered the company back to growth with the introduction of new products, like smart lighting with Internet-of-Things (IOT) features. I must admit that the comeback and return to growth was indeed quick. At my purchase price, the company is trading at a PE of ~12 and a yield of 5.2%, based on a FY17 dividend of HKD$0.20. The company is net cash, with around ~$130m in cash. Valuations are not exactly compelling for an OEM provider,  Let’s see how this company performs in the coming quarters.

With the recent purchases, I am around ~80% invested based on my investment portfolio, and around 60% invested based on my total portfolio, which includes my emergency savings. I am still building up my cash cushion, so I will need to save more in the coming months.

 

Disclaimer: The author owns shares in the abovementioned company. The ideas expressed in this blog should not be construed as an enticement to buy or sell the securities, commodities or assets mentioned. The accuracy or completeness of the information provided cannot be guaranteed. Readers should carry out independent verification of information provided. No warranty whatsoever is given and no liability whatsoever is accepted for any loss howsoever arising whether directly or indirectly as a result of actions taken based on ideas and information found in this blog.

Updates to my Portfolio

                                                                                  

Recently, there have been some updates to my portfolio. On 16/5/17, upon waking up, I made a hasty decision and bought into Golden Energy Resources at $0.44 after its positive earning release. I intended to do a short term trade as I thought the market would react positively to the results. I was proved wrong and the share price dipped below my purchase price. Fortunately, I was presented the opportunity to exit a few days after on the 19/5/17 at $0.445, giving me a minute loss of 0.47% after taking into consideration commissions. I will have to be more disciplined in my trades, and stick to what works in the long run rather than wild guesses at where the stock prices will head in the short term. I guess Howard Marks did make his impression on me, especially in the area of risk management. In the same regard, I sold off Alliance Mineral on the 25/5/17, pocketing a small gain of 4.06% at a price of $0.37. I realised that investing in these two commodity plays caused unrest within me, and I often found myself continually checking their share prices within the day, hoping for a quick gain. Perhaps my temperament is not suited for highly volatile stocks, of which commodity companies are a large part of. Upon further introspection, I realise that a main reason why I fretted over Alliance Mineral was because of the uncertainty that shrouds it. The company might continue to rise sharply in the next few months if things work out in its favour, but there is nothing currently set in stone; which makes it so risky. I guess the litmus test for me in ascertaining whether or not to hold onto a stock is to see whether I find myself worrying over it as I go to bed. Having sold off these two stocks, I did actually breathe out a sigh of relief.On 22/5/17, I bought into InnoTek Ltd at a price of $0.37. InnoTek is a precision metal components manufacturer serving the consumer electronics, office automation, and mobility device industries. The company was loss making in 2014 and 2015 and had turned around in the previous year due to a change in management. Profits were growing from quarter to quarter in FY16 and I was interested in the company as it was trading at a PB ratio of 0.68, PE of 7.3, and an ex-cash PE of 4.9, which was attractive to me. Moreover, its turnaround does look legit, and its ROE in the last FY was around 9.23%, which is encouraging considering it is net cash and holds a significant amount of cash on its balance sheet. At a distribution of $0.005 per share, it is yielding around 1.35% at my purchase price. The company had also given its first dividend in 3 years, as it was loss making previously. I am looking forward to a better FY17 under the leadership of Mr Lou Yiliang, who is the current CEO of the company.

 

On the next day, I purchased shares in Boustead Projects at $0.86 as I felt it was undervalued after analysing a report by CIMB. I will not go too much into details as the report is comprehensive and talks about the moat that the company possesses in the industrial design space. The firm is the market leader in the industrial real estate D&B field, with a solid track record in delivery of high spec built-to-suit industrial facilities to MNCs and local customers across industries including aerospace, pharmaceutical, high-tech manufacturing and logistics. It has amassed a portfolio of 18 cashflow generative industrial assets and secured partnerships with investment funds to develop industrial projects in Singapore and China. As mentioned in the report, “Being a knowledge-based business with all construction works carried out by subcontractors, the D&B business of BP carries very little fixed assets and does not have large overhead expenses (it has no foreign labour quota issue as faced by many construction firms); this allows BP to manage its cost efficiently. Apart from the flexible cost management, we believe another advantage of the D&B model is the self-financing feature of its projects – BP typically receives upfront payment from clients before it pays its subcontractors based on work performed. As such, we think BP’s payment terms are more favourable than those of general construction contractors, which usually have to put aside a sizeable amount of cash for project financing purposes.” As a result of its high value adding design services, the company has been able to command strong gross margins, ranging from 14%-20% as compared to single digit margins of general construction companies. 

If the report is indeed accurate, then the market may not be recognising the full potential of the company which possesses a superior business model yet trading at a significant discount to developers and REITs. Based on my entry price, and using CIMB’s RNAV of $1.73, it is trading at a price to RNAV of ~0.5. The company is also net cash, which is something one would hardly see in developers or REITs. It is giving total dividends of $0.025 a share, comprising of a final dividend of $0.015 and a special dividend of $0.01. There might be plans to launch a REIT in the near future, but I am not banking on that. In summary, the company is attractive to me mainly due to its undervaluation despite having a much stronger business model as compared to its peers.

 

 

Disclaimer: The author owns shares in the abovementioned company. The ideas expressed in this blog should not be construed as an enticement to buy or sell the securities, commodities or assets mentioned. The accuracy or completeness of the information provided cannot be guaranteed. Readers should carry out independent verification of information provided. No warranty whatsoever is given and no liability whatsoever is accepted for any loss howsoever arising whether directly or indirectly as a result of actions taken based on ideas and information found in this blog.

Sale of AEM Holdings and Purchase of QAF Limited

On 9/5/17, I sold off most of my stake in AEM Holdings at a price of $2.63. Due to the 1 for 2 bonus issue, my average cost was $0.58. This gave me a return of ~352% in a span of approximately 4 months. AEM had a really good run, and was my first 4-bagger. I sold most of my shares off as it made up a significant proportion in my portfolio and I wanted to rebalance it. With that, the remaining shares in AEM are free-of-cost.

On the same day, I bought a small stake into QAF at a price of $1.38. Not many would know of the company, but I’m sure many would have heard or eaten its “Gardenia” brand of breads. I have always wanted to own a piece of QAF, having been a consumer of its products since young. However, I have always steered away as I was not comfortable with its business in primary production. Rivalea, its business unit, is the largest producer of pork meat in Australia, and also a large exporter of pork products internationally. I admit there are economies of scale being the largest in the country and also by having a vertically integrated operation, but I feel that the business is afterall a commodity business. It is still a price taker, and the volatility in feed and sow prices can make or break a quarter. Returns on agricultural businesses aren’t fantastic, as usually huge assets (land, machinery) are required to make such an operation sustainable. Thus, when the company announced that it was conducting a strategic review pertaining to Rivalea through a full sale or a listing, my eyes lit up. I believe QAF would be a leaner and stronger business if it focuses more on the expansion of its bakery business in the near future. Competition is intense, but I’m confident the strong brand of its Gardenia products would help it grow. At my purchase price of $1.38, the company is trading at a PE of 13 and yielding 3.62%, assuming a yearly distribution of $0.05. I nibbled for this stock, as it is still not considered cheap to me. Nevertheless, I’m sure the bread would taste even better now. 🙂

 

 

Disclaimer: The author owns shares in the abovementioned company. The ideas expressed in this blog should not be construed as an enticement to buy or sell the securities, commodities or assets mentioned. The accuracy or completeness of the information provided cannot be guaranteed. Readers should carry out independent verification of information provided. No warranty whatsoever is given and no liability whatsoever is accepted for any loss howsoever arising whether directly or indirectly as a result of actions taken based on ideas and information found in this blog.