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.