Over the past week, I made a couple of transactions in the market. Firstly, on 30/3/17, I sold off TunePro at 1.41RM, giving me a loss of 12.4%, but as the SGD had appreciated against the RM during this period, I made a total loss of 19.19%. This goes to show how currency risks can potentially affect your portfolio returns. I sold off my shares because I became unsure of the competitive advantage the company possessed after listening to an interview with the CEO. Moreover, I did not like the fact that management expenses increased so much causing its profits to drop substantially in 4QFY16. Currently, the share price has dropped to an attractive level, but I would not be comfortable holding onto it due to the two reasons above.A couple of days later on the 3/4/17, I sold off all my shares in Kingboard Copper Foil at $0.40. This gave me a total return of 23.72% within 5 weeks. I sold off my stake as the appeal went in the company’s favour which was essentially a game changer in my initial speculation. Furthermore, I did not want to wait for the company to buy over my shares just to save on transaction costs as I was eyeing a few counters and wanted to be able to act when the opportunity arose. Overall, I feel it was a very lucky bet which materialized within a short time.Lastly, I purchased a stake in Micro-Mechanics Holdings at a price of $1.05. The company designs, manufactures and markets high precision tools, parts and assemblies for the semiconductor, medical, aerospace and other high technology industries. The industry is competitive, but what attracted me was the quality of the management. There are a few interviews and articles written online about the strength of the management, and this has been clearly shown in the results of the company. The CEO, COO and CFO have been with the company for a long time, and the CFO has shown his prudence in managing the finances of the company by steering away from debt and derivatives. In 2008, he mentioned that, “We understand the semi-conductor industry is not a straight line business. It is one of the reasons why the firm has paid up for its three buildings in Singapore, Malaysia and the United States. If there is downtime, we just pay the salaries. Having no debt is a buffer for the bad times.” He was also quoted saying, “Every week, all sales are sold into forward contracts with the banks. In addition, the company tries to sell in local currencies.‘It’s simple and conservative. We didn’t listen to banks which tried to sell us some derivatives. I tell my boss, forex we can’t earn but we try to minimize the loss,”.
The company is net cash and has been churning out healthy and increasing cashflows throughout the years. Group revenue and net profit has shown a general increase since FY12, although there was a slight dip in FY16. Moreover, gross margins have been increasing while operating expenses have been on a decreasing trend since 2012. These are all indicators of a well managed company. Annualised FY17 ROE is 26.2%, a respectable figure considering there is no leverage being used. At my purchase price, Micro-Mechanics is trading at a TTM ex-cash PE of ~10 and dividend yield of 5.7% based on last year’s dividend of $0.06. This is definitely not a cheap price, but what I would consider as a fair price to pay for a well-managed company.
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.