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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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.

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.

Sale of TunePro & Kingboard Copper Foil and Purchase of Micro-Mechanics Holdings

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.

Purchase of Kingboard Copper Foil, Tai Sin Electric & Best World

kingboard

On 23/2/17, I purchased shares in Kingboard Copper Foil at $0.32. My thesis for this trade is a speculative special situation play as the risk reward ratio seems to be attractive. My hesitation did actually cause me to miss the rally from $0.29, but I still felt its current price was undervalued. The company is currently pursuing an appeal against a court ruling that did not rule in its favour. A further EY report sought by the company has shown findings that are consistent with the court’s ruling. In essence, if the company loses the appeal, there is a possibility that the majority shareholders will have to buy out the shares held by the minority shareholders, at a price to be determined. Currently, the NAV of the company is around $0.67, which might provide an indication of where negotiations might anchor towards. The hearing is set for March, and this is a very short term speculative bet, probably the most speculative trade I am entering into so far.

tai-sin-electric-limitedOn the same day, I also purchased shares in Tai Sin Electric at $0.405. The company produces and supplies materials to the construction industry, like cables, switchboards, electrical products and accessories, along with a test and inspection arm. According to an article on The Edge Singapore, it commands a 30% share in Singapore’s cable manufacturing market and its testing and inspection business is the second-largest in the country. It is a potential beneficiary of increased public infrastructure spending in the region. I have been impressed with Tai Sin’s stability and its management’s ability to grow the business steadily over the years. Revenues and earnings have grown in four out of the past five years. The company was also profitable during the crisis years of 2008-2009. In a 2010 interview with The Edge Singapore, Bobby Lim, who used to run the company and is the father of the current CEO, mentioned that one of his biggest takeaways from investing in other companies is to never over-borrow to expand the business. I am optimistic about their overseas expansion into neighbouring markets in Southeast Asia, especially Vietnam, which is experiencing a construction boom. In the previous year, revenue from Vietnam almost doubled. At my purchase price, PB is around 1.07 and PE is around 7.63. Tai Sin is more of a yield play to me, with dividend yield around 5.8% at my purchase price. The company has also reached a net cash position of $3.2 million as at end 1QFY2017.

best-world-international-limitedMy last purchase of the day was in Best World at $1.995. To be honest, I have been skeptical of Best World’s growth, as the company has just grown tremendously in the past year. A lot of reports have been written online about the prospects of the company, and I shall not go into detail. To me, I feel that buying shares of Best World now may be abit delayed, but I wanted to be sure that its growth in China was materializing, and not just a rosy picture painted by management. The recent earnings release answered my doubts, as China’s quarterly revenue grew tremendously from the previous year, ie. 143%, and FY16 revenue grew 193% yoy. I still feel that the stock could rerate upwards as it obtains more recognition from investors. At my purchase price, shares of Best World are trading at a PE of 15.9, which I feel is not expensive considering its room for growth. Dividend yield is around 2.5% at my purchase price. Best World is a growth stock, but as I am still wary of companies which do most of their business in China, I will be keeping a close eye on this.

 

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.

Purchase of CapitaRetail China Trust and AIMSAMP Reit

capita-retail-china-trustOn 15/11/16, I purchased shares of CapitaRetail China Trust at $1.375. I have always thought that the two Reits under Capitaland have been managed well. However, CapitaMall Trust always seemed to be trading at a premium to book value and I felt that its growth prospects were not as bright as that of CapitaRetail China Trust. CRCT has been sporting growing revenues and distributions ever since its IPO in 2006. I took the opportunity to load some shares when the market was a tad pessimistic during the last month. One key issue that I am concerned about would be its land lease agreement with the government, in which the company is not able to give a definite answer what would happen after the title expires as there has been no precedent with regards to an actual expiry of the land use title among its properties. I am still a strong believer in China’s urbanisation and its rising middle class which will provide tailwinds to CRCT’s growth. The threat of online retail, eg. AliBaba, TaoBao, etc is strong, but people will still need and want to patronise restaurants, cinemas, supermarkets, and entertain themselves.

At my purchase price of $1.375, the PB is 0.89 and the annualised dividend yield based on the 3Q16’s distribution would be 6.87%. 3Q16 earnings were hurt by a double whammy of a tax provision and appreciation of the SGD against the RMB. I classify CRCT as a long term holding in my portfolio.

 

AIMSAMP

On 18/11/16, I bought into AIMSAMP Reit at $1.29. I like the management of AIMSAMP Reit, where they have been actively managing their portfolio during the current industrial downturn. AIMSAMP Reit has been a long term holding in my portfolio since its initation in 2013 and I still hold on to my original thesis that it can still continue to grow organically by redeveloping its own properties. At my purchase price of $1.29, the PB is 0.88 while the annualised dividend yield based on 2Q17’s distribution is 8.53%.

I bought these two Reits to provide the income element and will be on the lookout for more yield stocks to add into my portfolio.

 

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.