Friday, October 28, 2016

Company prospecting: Talkmed

(not vested)

I have been crawling through medical companies, especially those offering direct services to patients. But have not go into those upstream, the manufacturers of medical equipments, products.

One thing that struck me is the high lofty valuation of above 30 PE is more of norm than exception. It is a sector that seems that it can do no wrong, however, looking at the companies, I would think that this is a myth. Of course there are well-managed companies like Raffles Medical, and companies with visible growth potential etc. There are also companies who are struggling

I am at first attracted to ISec, but when it bought Singapore clinics, I stopped looking. It reminded me of healthway.

Talkmed is a company that is a super multi-baggers from its IPO, even after recent correction, it is still a 5 baggers. I thought it would be another company with insane valuation. But nope, it is at PE 18, and surprise surprise, have a dividend yield of 4%, and is debt free.

It's has its link with Parkway, with refererral of patients through SCC and Parkway agreement, I am not sure when this arrangement will end, but the bulk of revenue is concentrated with its CEO, while this is itself a risk, I believe his "reputation" is more valuable than the referrals,however, to build up his "disciples", the referrals might be important.

Talkmed has stopped "growing" over the last few quarters, and there is associate "loss" with its Hong Kong investment. However, my thesis is this is an misunderstood counter. Here is why?

1) A new hospital cannot possibly break even within a year. It is wonderful results if it break even after 1 year, 2 years perhaps is a more reasonable timeline?

2) it's has run up so much, it is the most over-valued. If u look at the healthcare universal of listed companies in Singapore, it is the most attractive if you look at it in totality, balance sheet strength, yield and PE. Even "growth" is more visible if u ask me.

I have no idea how HK company will work out, reading through the doctors' CV, and it does seem impressive, typical your premium private care doctors. The concept of one-stop cancer care, and most importantly, comfort, it does seem to appeal to what the rich would want if they are diagnose with cancer. If u compare this with the doctors ISEC bring into their fold, even with profits guaranteed clause. Vietnam Venture has already yield results although it would be a long while before it could contribute meaningfully.

I would have invested if my cash level is high. But, I would keep my powder dry.

On a side-note, I also do not think think healthcare is a "ever-green" sector. Yes, Singapore is aging, there is demand for healthcare, but not all companies will benefit from this trend universally. I also find the healthcare insurance system in Singapore a timebomb.

Many are being persuade to buy the top IP plan, and the insurers are raising premiums because there is wastage.

Look, if u are ill, u go to A&E at a premium hospital, even if u are not that serious to need hospitalization, what would u do? Pay for the consultation and medicine in cash or ask to be hospitalized and then claim? Will the private hospital has the incentive to reject your request?

Is private care really worth 300- 1000% premium over govt. care? There is some muttering about regulation in private care, if it happens, I suspect there would be some pressure on "premiucare"

Thursday, October 27, 2016

SingPost - the first catalyst has happened

The alibaba deal is on.

Next is the confirmation of CEO.

The better than expected results due to peak season of Christmas and Year end Celebration

2017, awaiting the SP mall to contribute.

Am I dreaming?

Why not? Greater fool theory? Alibaba is willing to pay 1.75 for SingPost new issue shares. I am not complaining. The capital injection would Rediced the debts.

I believe the analysts will stir fried the news . Lol

Saturday, October 22, 2016

A reflection of my investing approach

For quite some time, I found it hard to explain my approach. Value investing? Dividend investing? I am not going to pull my hairs over the words, but I realized I have many unanswered questions as I reflect on my investing journey.

First of all, let's go into the buy side of investing.

I am definitely not pressing the "buy" button using numbers as the only decision. Not that numbers are not important, but no way am I going to base an decision by some ratios like ROE, P/B, PE etc. The numbers are never static, and it is the future numbers that are more important, and the future numbers are determined by growth, and the current numbers determine the margin of safety.

Now, I think I have 2 approaches to finding "growth" in stock, and 1 approach in finding "safety"

1) Buying alpha cyclical stocks, wait for reversion to mean, and for "growth" to take place in the form of "recovery"

Those counters that I have bought using this approach include Golden Agri, Yangzijiang, Sembcorp Industries.ST engineering, and most recently M1

I would say my track record for this approach is horrible, as I usually bottom fish too early. Of all the counters listed above, I did average down for all except for M1 (too recent), I usually average down when a counter is down another 15-30%.

It works well for me for Yangzijiang, ST engineering, I made a decent profits from YZJ (The previous round of buy-sell net 30% profits is 2-3 years ago) Averaging down for ST engineering allowed me to reduced stake at break-even price, and stayed above water.

But I was "burnt" for averaging down for Sembcorp Industries. It had fallen some 40% from my average price at its trough, and I have cut loss at 30% for half my stake. 

Taken in totality, including dividends, capital loss and gain, both realised and unrealised, it would be a nett-loss of about $300. 

Verdict- Failed. 

At highsight, I could have improve this approach in 2 ways. 

Buy later. Whatever I have wanted to buy at first salvo, wait for another 10% fall. 

Sell earlier when average down fail. 

2) Find potential growth drivers that is likely to materialize, but with stock price yet to be chase up. 

Those counters that are brought under such approach include MIT, SingShipping, Ascendas Reit, SingPost, Lee Metals, Cogent and APPT

Of course, the key words are "likely to materialize", and I could still get it wrong. With the exception of Lee metals, I have no need/chance to average down, although I did bought back after selling, which I think is different from averaging down.

There are plenty to reflect on in this approach. 

Lee metals' growth is AustVille TOP. It did happens, and I was sitting on 20% gains excluding dividends. However, when as Austville is an opportune one-off windfall, the "story" of investment then become that of cyclical play and also the third approach which I will talk about later. 

APTT growth are Taichung penetration, cross-selling of products and also broadband market. It didn't work out and my wife exited with capital loss. I was lucky that exited earlier due to the need of cash, and I exited earlier.

Now, taken in totality, even without taking into consideration dividends, it was a gain of $3400.

That is taking into consideration that APTT did not have the growth materialized. 

However, the gains would have been much lower, have I not offload A-reit and SIngshipping when market is at 3300-3400. The irony is I also sold Cogent too early, it will be muti-bagger instead of a 30% gain.

Verdict- Passed with a stroke of luck. 

On hindsight, how could I have done better? I am not sure if I could have hold on to Cogent longer? Perhaps I could have done staggered profit taking instead, like I did for Singshipping? I would have missed the opportunity to sell A-reit all at once, but nett-nett, it would still be more profitable. I am also not so sure about selling on confirmation of good news. If I have waited for Cogent to confirm its Jurong development project, I would have also waited for APTT super drag feet entry into Taichung, and like my wife, exited with capital loss.

I should not have change the story from growth drivers to cyclical plays, in the case of Lee metals. When the story changes, the actions should have been different there and then

The third approach, I was not looking so much for growth, but stability and attractiveness of yield.

3) Stable companies with attractive yield

Those bought under this approach include LMIR, Sabana Reit, Silverlake Axis, Venture, HPHT, Accordia Golf Trust, Parkson Retail. Putting them together suddenly make me realized with the exception of Venture and Sabana Reit, all of them have their operations overseas. LOL

One need not agree with my choice but I considered LMIR stable then as Indonesia retail scene is booming, and Accordia Trust has survived Japan Quakes very well in terms of distribution. 

With the exception of LMIR, again, none need averaging down.

Again, taken in totality, I seems I have make a good profits on $2300 without taking into considerations dividends again.  

Verdict- Passed with a stroke of luck. 

How can I improve? I am not so sure about this group. Venture I sold and bought again, LMIR I just endure the capital loss and receive dividends and it is recovering well with the rest of the reits. (I think I am in the money now, with dividends.)

FSL- The odd one - Catalyst play.
Expect resumption of dividends to boast share price. Exited at 5% profits. At one point it was a 35% paper loss, but I didn't average down nor cut loss. I kinda of loss with this. So I will say bye bye for this for the time being. 


Cyclical plays should be treated with utmost care, I will bear this in mind in dealing with Yangzijiang, and to a lesser extent, Lee metals. Yield, if sustainable, does provide some support to falling prices. 

Profit taking should be staggered. 

One cannot mixed growth drivers investing with cyclical plays, such as in the case of Lee metals and perhaps to a certain extent, ST engineering. 

My results would be better have I stick to approach 2. In fact, Capital Commercial Trust fit nicely into approach 2, but I stopped short because of the lame excuse of "over-exposure" to leveraged instruments
This is a personal reflection on entry and exit, and is meant for my personal consumption. How well researched on a company business model and track records is still first and foremost the most basic trail of thoughts. 

Wednesday, October 19, 2016

Has the fundamentals of M1 and SPH caught up with valuation

I doubt anyone would disagree with me that the fundamentals of these 2 companies are being affected by competition. M1 by a highly possible 4th Telcom player and SPH by alternative news digital platforms.

But that is only half the question, a better question would be "has the challenging outlook being reflected in the shares price, and has it overshoot to the downside?"

Personally, between the 2 companies, I would go for M1, notwithstanding the fact that its latest quarter results sucks. It blames the fall in net profits to higher depreciation and ammortization costs, but there is more than meets the eye.

If you look at 9 months result, there is indeed a significant increase in amortization and depreciation from 86,1mio to 93.3 mio, but if you look at 3Q results by itself, the difference in YoY depreciation and amortization is a mere 1.3 mio. The real cause is the reduction in ARPU. The lower handset sales while affect revenue will also cause higher cost of sales, so in a while, it will offsets one another.

Is reduction of ARPU worrying? You bet, since the competition has not even started.

I have assume the following in the face of a 4th Telcom.

1) It costs a 10% fall in ARPU to the price competition
2) It manage a 10% market share within 2 years, and cause 25% reduction in M1 mobile's market shares.
3) M1 continues to pay out 80% of earnings.
4) M1 is able to maintain its NP before the "war" begins

I expect a 5% dividend yield with the reduced earnings in 2018, and the price should be $2.2 I made a bid for today but did not get anything. But I will not bid anymore tomorrow.

Because as you can see, assumption 1 should be worse since without competition, it had already worsen by 10%.

Since I gave a damning report, why did I still say I chose M1 over SPH. 

Any real fight with the 4th Telcom will only starts in 2018 earliest (10% market share), I assume of the 10% loss, half of it comes from M1. It might not be too bad.

I do think with a reduced earnings, M1 can sustain its operations albeit at a lower earnings. There are also 2 silver linings in M1 report, cash flow is still strong, and they are still growing their subscribers base. However, it is due to a higher penetration rate, and I suspect Singtel and STarhub will both report an increase in subscribers. 

With SPH, it is not going to easy. It has already increase ASP, but its reduced dividends of 18 cents is already above 100% payout. 

I do not think print will go the way of the dodo, but I seriously do not know the "bottom" and hence I cannot predict what price is a fair price since I cannot predict future earnings and hence yield. 

However, SPH shares price's fall is not as bad as M1. If you ask me, SPH competition is 2 folds. One is direct advertising competition, such as google and other online platforms. Next, readership. If readership of papers continue to fall the attractiveness of advertising through print is going to be even lower. 

SPH is in news business. Beside speed of updates in news, there is another issue of news print. I get news alert from 4 different news apps on my phone. If I want my finance news, I go for reuters and bloomberg, there is no need to wait for Straits Times to reproduce their news. 

Then why is the price holding up relatively well. I think its due to the speculation of timing of injection of Seletar Mall into SPH reit and the possibility of special dividends. 

However, I will watch M1 closely. 

Thursday, October 6, 2016