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.

Updates to my Portfolio

During the past few weeks, I have made some updates to my portfolio:

On 10/4/17, I purchased shares of AP Oil at a price of $0.27. AP Oil is a value play to me. Its PE is 12.7, PB is 0.8 and is currently giving me a yield of ~4.6% based on my purchase price. It is net cash, and cash in fact makes up ~86% of its market cap. AP Oil has been looking around to deploy its cash hoard. The CEO frankly mentioned that the company is in a business that has low growth prospects. He also said, “We have grown organically for the past 10 years, and now we are at a stage where we can take risks and not die.” Recently, it invested RMB25 million ($5.1 million) in a joint venture that provides financial leasing services in Chongqing, China. This deal is interesting in that it gives AP Oil downside protection + upside participation. Two key clauses were included in the JV agreement: 1) Put Option: After 1 Jan 2018, AP Oil will have the right to sell-back its stake to Zongshen at an agreed market valuation (determined by an approved valuer) at not less than the initial capital contribution of RMB25m. This creates a sort of capital guarantee for AP Oil. 2) Tag-along rights: That ensures AP Oil is able to participate in the same kind of upside as Zongshen should they decide to sell their stake in the JV to a third party. These are deals which tell us that management is savvy at the negotiation table. Revenues and margins might drop in the coming years due to low growth and volatility in selling prices while management tries to diversify the business. Nevertheless, its huge cash hoard is reassuring.

On the same day, I purchased shares in Alliance Mineral at $0.35. As the company was not profit-making yet, I bought a small amount purely as a speculation play – it is and remains the smallest constituent in my portfolio. To me, the rewards of seeing the company successfully hitting its targets one by one was worth the high risk involved. However, my risk averse nature prevented myself from investing more. Enough has been mentioned about the company online so I will not go into the details. Let’s see how this works out in time to come.

On 19/4/17, I bought more into Spackman Entertainment at a price of $0.152 as I felt that the stock was being unfairly penalised for its CEO’s lawsuit. The tension in the Korean Peninsula did not make things any better. Spackman has issued a positive profit guidance for the upcoming quarter and I believe that the company is slowly making progress forward with its acquisitions. Will its upcoming movie – Golden Slumber be a hit? Only time will tell. What I do know, is that Zip Cinema has a very good track record in its producer – Eugene lee.

Lastly, on 25/4/17, I purchased shares in Bund Center Investment at a price of $0.82. Bund Center Investment is a value-yield play, similar to that of AP Oil. It owns the Bund Center office tower and the Westin Bund Center Shanghai hotel in Shanghai; as well as the Golden Center Shopping Mall in Ningbo. As the company adopts a conservative accounting policy of valuing its properties at cost less accumulated depreciation, the current assets are carried in its books at SGD407m, while the carrying value is around SGD1946m according to an analyst report. This makes my purchase price of $0.82 around 31% of its RNAV of $2.58. It is currently in a net cash of $61 million, and is debt free. It also generates strong cashflows of around $70million a year of which an average of $51million goes to dividends. This is $0.067 a share, representing a yield of ~8.17% at my purchase price.

As my recent purchases have shown, I have been looking more at value stocks, especially now when markets and optimism have climbed. I am currently more averse to investing in growth plays, as I feel my portfolio has enough growth stocks in it. As markets continue to rise, we need to be more careful and cognizant of the risks that lie ahead, one of which I feel is overconfidence – the pride before the fall.

 

 

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.