Landuse Master plan 2013- What is my favorite?

Under the landuse master plan, they plan to add 200,000 housing by 2016 and 700,000 by 2030. There are plans to develop Tampines North, Bidadari and punggol. 

See: http://www.mnd.gov.sg/landuseplan/e-book/

Under the Draft masterplan 2013, there are further details on how existing estates will be further developed.

They seems to be plenty of construction of buildings to go on till 2016 and beyond

What counters will benefit?

Property and construction counters come straight to mind.

Property counters are still affected by cooling measures and with the Hugh supply of housing, maybe their launches will be affected adversely too. So construction companies seem to be a good buy.

The problem with most construction companies, or buying into a construction company are as follow:

1) Fierce competition causing margins to be low. There are many construction companies in Singapore. Some of the stronger companies might not have problems winning contracts, but the problem is their margins. In the case of piling specialist CSC, they have a good track record of improving topline but not bottom line.

2)Some have net margin of around 5%.Also, it is highly capital-intensive and most construction companies need to gear up rather significantly to fund their operations. Then, there are problems of cost overrun, like the recent case of industry leader Yongnam. As such, the FCF, or oven OCF is highly volatile

How about upstream companies of construction, companies that supplied steel, concrete to the construction.

These companies are my favorites, there are Transit-Mixed Concrete Limited, Lee metals, Pan-united and the likes.

However, the choice get further dwindle down, when

1) Transit-mixed concrete is highly inliquid, the bid and sell spread can be wide and most days, there is no trading at all.

2) Counter already had a good run and is fairly valued, like pan-united.

Lee metals and BRC asia supplied reinforced steel and welded steel needed for construction of building. Both are market leaders in the area and are authorized suppliers to HDB. Competition in this area is also increasing. Between the two, I prefer Lee metals for 3 simple reasons.

1) Lee metals has higher topline, and bigger market share

2) Lee metals is a more stable cash-generating business. Lee metals is rather highly geared for its inventories, but the OCF for the past 6 years is highly positive, in fact they have a average FCF (cash after capex and finance costs) of 1.3 cents. Even in years when they went into a JV of property development, they still manage to generate FCF. 

3) It is consistent in paying dividends.

In their business prospectus, their customers include LTA and they supply steel to the north-south MRT line project before, whether that is under its merchandising arm or fabrication arm, I am not so sure. There is a strong pipeline of MRT related projects too, although I am not too sure if Lee metals will supply steel to companies building the stations. Yongnam seem a more direct beneficiary of this, lee metals at best, is a sub-sub supplier. 

 

 

Nam Lee Pressed Metals - deserve a second chance?

Nam Lee announced it full year results, with dividends of 1.5 cents declared.

It Is still burning cash.

QoQ data is particularly ugly

 

Although topline improve, cost balloons and profits is the lowest in 8 quarters.

Cash Conversion cycle worsen.

Inventory and receivables are still high, and the cash burn continues.

looking at Yearly figures

 

Capex cycle seem to be returning, expect capex to remain high since they just move to new premises and Sungei Katdut 

Cash per share is only 9.2 cents now, with negligible gearing

Given all the bad data, perhaps we should sell and forget about it, cut loss, instead of nursing higher wounds.

I however, will give it another chance. It will give it another year this time. Here is why:

1) Revenue is at 7 year high, they are still positive about their aluminum business, which is the biggest contributor.

2) Management claim gross profits took a hit due to cost overrun of a particular project which is now substantially completed. The construction boom continues unabated, United Technology is still bullish in outlook, the capturing of higher demand is evident in the increase in top line, if the cost overrun is one-off, and the topline continue to improve, and we wait for capex to settle back to its norm again. We might just be able to ride through this.

3) Dividend falls, payout ratio increases. The company has not been generous but has been fair.Employment option scheme terms reasonable.

4) Still financial steady, the risk is in overpaying, there is no risk of loss or insolvency yet. Looking at the historical valuation, there is no margin of safety but price is hardly excessive. I would not be surpised to see it testing 52 week low soon

 

Well, I am not falling in love with the stock, but trying to "make the marriage work",but giving a chance to a company that is not yet hopeless. hahaha self-delusion 

 

 

 

Its all about trusts! HPHT and APTT

I have initiated a small position on APTT after HPHT.

I think confidence on business trusts have been low, with almost none doing better than their IPOs, but the fact that I am picking up the trusts at 20%-30% below IPO price means something to me.

After learning from NICK about FCF, I decided to be even more conservative and calculate FCF as 

FCF = OCF - capex - finance costs - income tax

As such, I think I can arrive at a rather conservative or if you like, worst case scenario valuation.

It looks bad, that would mean only 1.9 billion HKD per year, and a yield of 3.9%

But that is the so-called worst case scenario, can it get any worse, sure, but I think we have to be reasonable in our stress tests too. Not too much a turn off.

I tried to do a stress test for APTT too, I am comfortable that it is not going to the dogs but I am quite sure payout will fall further after the 2014 forecast of 8.5 cents dividends. 

I assume they drawn down the remaining loan for tax settlement and capex, and fiance cost balloon to 48 mio per annual

I assume they do not do a acquisition of franchise zone, and set up shop all over again, and they can keep capex to 50 million (they forecast capex of 40 mio in 2013) , and 2012 capex was 47 mio.

Assume income tax is 30 mio

Assume OCF of 176 mio (av of 4 years OCF including forecast of 190 mio in 2013)

We have 176-30-50-48=48 mio

We have 3.3 cents dividends, at purchase price of 77 cents, we have yield of about 4.3%

Then lets assume Mr Market demands 7.5% yield at trusts.

In the worst case scenario, price of HPHT and APTT will be:

COINCIDENTALLY 44 cents for both.

Hmm... I am over-paying definitely in a worst case projection. However, I expand HPHT to improve operations numbers, and I believe APTT will be able to give 12 cents over the next 1.5 years, and operations will not fall off the cliff.

So, It is about trust... with trust and faith in my own judgement, I took the plunge, If it turns out to be a silly decision, well,   it suits my nick. hahaha

Random thoughts - Joe Dever's Lonewolf in IOS and andorid now!

I was a fan of Joe Dever's lonewolf since I was a kid. When I am in university, and tried to find the books, but they are no longer in publication. When I have the money to buy, the books are not available. I found an online version, but its rather painful to read books online for me.

I was rather excited when the game came, there is no cheating, no bookmarking, graphics is good, but the best is still the narrative story and the rather realistic game environment. What really surprised me is the battle. It is really a class of its own, its not a mindless slashing, and you cannot mindlessly down potions, or upgrade your weapon. There are cooldown periods before you can repeat a certain command. You cannot upgrade or buy weapons or potions frequently, there is only 1 shop.

It is a turn-base battle as well as a real time battle, you have a fix time to carry your command during your turn, but the enemies can dodge, parry or even hit back, although most of the time, they take damage. When its their turn, you take damage.

I spent almost an hour trying to figure the battle system, keep dying while I am learning.

You can squeeze as much commands as you like during you turn, restraint by cooldown periods, and you energy level and kai power. So you need potion to boost them and then carry the command again, but remember, you cannot keep drinking potion, so you have to plan your move.You have the almighty sword of sun, but using it will deplete your kai power. So it might not be wise to use it sometime. You do need the Kai skill of healing though, without it, you cannot really proceed far in the game.

There are even quick attack,heavy attack and balance attack, and there are skills to learn in every attack, but for it to be successful you need to execute certain action like taping the screen quickly, hit the screen at the right timing or swipe the right pattern etc.

Mesmerizing! If the enemy are too strong, and you die, you can choose to fight again,using a different strategy (it really make a different, doesn't mean you lose, you are bound for failure, sometime it is a tactical mistake) or choose to re-fight the enemies with a weaker setting, but the rewards are less tantalizing. Some battles you just can't get past...

only complaint, it is too short. After I master the rules of battle, I complete the art in 3 hour, and the next  acts will not be out till 3 months later... sigh...

APTT 10.7% yield- too good to be true?

A disclaimer, I am really attracted by the yield but as I read deep into the prospectus my thoughts keep running, I am writing mainly to crystallize my thoughts and not doing any advertisements. I am not vested and have not make up my mind whether to invest in this.

What are some key risks and my thoughts.

1) Competitions

Taichung city will see 2 competitors soon, they are now building up the network and I believed licences will be granted to them. I however think loss of subscribers to them will be minimum and as content are generally the same, most importantly,it will be another 2-3 years before they can compete agressively since it is only in May 2013 that the 2 competitors began constructions.

Similarly, I think TBC will have problem encroaching others area of franchises, although that is one of the growth strategy.

Taiwan rules against any cable TV operator having more than 1/3 of the nation subscribers, so the competition is mainly with the smaller players.

2) Suppliers

There is only 1 supplier for  APT for basic TV content, but there are 4 such suppliers in Taiwan, and APTT holds 15% market share, so bargaining forces should be neutal, and not so much of worry.

As for premium contents, they have multiple suppliers, but the issue here is costs. Some content might be demand inelastic.

3) Loans.

They have ready loans to drawn down but there are a few problems that will increase loans substantially. Although post IPO, loans has already fallen, a few factors will cause loans to jump again.

i) Tax provision. They have made tax provision for 46 million and is confident to reach a resolution with Taiwan Tax Authorities, but the actual tax demanded by the authorities is  actually 122.4 million, almost twice their provision.They have earmarked $197 million to fund future ongoing growth capital expenditure and the tax settlement, if the tax provision is not settled properly, there will not be much left for expansion.

ii) Capex due to expansion into other area of franchise. Since they need to build out the network before they can even get the license, it will be capex without yield until years later. In prospectus,they did not give a gauge of how big the capex will be, saying it depends on negotiation with NCC. So that is a big wild card.

iii) When the 197 million loan is drawn down at 4% interest about another 8 million will be added to Finance costs, putting in doubt the sustainability of distribution beyond 2014.

In my opinion, the best strategy would be to grow organically. That would keep capex and loans under control.

4) Substitution

Personally, I do not quite understand why people still pay for cable TV, at least for the residential consumers. They are so many substitution. I am not quite sure if the pie will grow. The pie is not growing and NCC is encouraging competition, doesn't seem too business friendly here...

So... worth a buy???

HPHT update: Learning from Nick of valuebuddies

Hi all readers,

I made a mistake in my calculation of FCF of HPHT. I hope I didn't cause any loss. Below is my exchange with Nick from Valuebuddies.

------------------------

[quote='Nick' pid='67279' dateline='1384748216']
Hi Greenrookie,

I was reading your recent post and I don't think the FCF figures are entirely accurate -

[quote]3) Price paid, I am paying for a 7% yield at current price, using the conservative DPU of 36 cents. No brokerage houses IIRC forecast a DPU as low as mine. If they are right, I am happy. [b]To pay this amount, they need to payout about 3.6 billion HKD. 9 months OCF is already about 3.7 billion[/b]. If you annualized it, you should get 4.9 billion. To have a FCF of 3.6 billion is not a tall order, accounting for capex of 1.3 billion in for the whole of 2013 would mean a capex of about 700 million in 4th quarter, not too liberal in my view, given that 9months capex is only 584 million. Even if capex increase to 1 billion, yield will still be above 6.5%. To me, a 6.5% -7% yield is sustainable in current circumstances for years to come, with potential for upside.

http://sillyinvestor.wordpress.com/2013/11/17/initiate-position-on-hpht-at-85-cents/[/quote]

I do not think it is correct to assume that OCF - Capex = FCF since the Trust have substantial minority interest in the various ports that they own with majority stakes but consolidated fully into the Group financial statements. This means that the more accurate FCF = OCF - Capex - Dividends Paid to Minority Interest.

In 9M 2013, HPH Trust have registered a cash out-flow of HK$1.8 billion to Minority Interest. So the real FCF that can be distributed to unit-holders in 9M 2013 is around HK$1.5 billion. In 2012, no dividends were paid to Minority Interest in 4Q 2012 so I think the dividend paid to MI is fixed for the year. This means that 4Q 2013 FCF needs to be rather substantial to meet your forecast. Another means to meet your target would be to drawdown debt to finance capex.

The same problem occurs in trying to compute HPH Trust EV/ EBITDA. The EBITDA has both HPHT and the Minority Interest EBITDA combined, the debt fully consolidates both entities but the market capitalization only considers the value of HPHT stake. I faced a similar problem with CM Pacific since its largest expressay is only 51% owned - the minority interest needs to be paid its dividend too so I have to adjust the FCF for that. Similar EV/EBITDA cannot be calculated directly - I had to use a reverse EV/EBITDA to see if numbers make sense.

Please correct me if I am wrong. Keep up with the blogging mate !

(Not Vested)
[/quote]

Hi Nick,

Thank you for pointing out my mistake. I will repost your comment on my blog. I admits I don't quite understand how non-controlling interest work even when I google it and investpedia it. Now, I am much clearer.

Hmm.... I will have to reassess my numbers...

Thanks!!! again

-------------------
To get to my forecast... it means OCF has to be 5.53 billion HKD instead. Or 1.38 billion per quarter. In the case of 2013, 1.83 billion OCF in Q4. Look likes HPHT have to either further postphone capex or draw down loans.

I use a simplistic 0.65:0.35 shares of dividends in my calculation, if Yantian grows and Hong Kong slows, then such ratio again become inaccurate. For the lastest quarter, the ratio is 0.69:0.31.

It seems like I overpaid for it again.. hahah :P

School fees to Mr Market:(

Random thoughts- investment temperaments= unfeelings??

In investment, we value cool mindness. We frown upon panicky, emotional decisions that will cause us pains. We look at companies in a unemotional way, looking deeper than price crashes and business competitiveness etc.
Recently, I was quite taken by surprise by the free flow of tears when my boss of nine years is given a transfer. I like my boss, I look up upon him as a fatherly figure as he cares for his staff, I am apprehensive about my scholar-type new boss. My boss gave me many opportunities and I will not where I am today at the workplace without him. So I am genuinely grateful to him.
We organized a good farewell party, with good pictures and videos of past years, most of the staff are in tears or having red-eyes, and for me, while I feel a tinge of sadness, I am perfectly unaffected emotionally.
I took its only the ladies who are emotional, nope guys too. I wondered aloud: he is leaving us for another department, it is not as if some misfortune befall him (touch wood), neither is he retiring. He is still well and around. Why are we crying for him when the Philippines typhoons flatten a city and no one is crying. Why is aid trickling so slowly and no one is panicking??
I suddenly remember words from 鲁迅, his literatures alway talk about human emotions as a drama theatre. We amplify simple occasions with dramatic emotions.
I wonder if my investing practices is making me unfeeling, or is the world really so dramatic?

Initiate position on HPHT at 85 cents

Me bad, I couldn't wait for 84 cents.

I am willing to accumulate further if it drop further.

Why I am buying and what should you be concerned with:

1) Labor costs will not cause a dent to earnings even if you give an 20% increase in staff cost, as staff cost is small. Inflation will be a bigger scourge. Staff cost just make up 2% of revenue.

2) Quality of assets. This is more qualitative than quantitative, the shortest concession is 30 years for Yantian Phase 2 ports, Hong Kong ports have 34 years concession, better than some of the industrial properties leases. Yantian is the biggest port in Shenzhen, and I seriously do not think trading at 2 such places will be dying anytime soon. If economy of US and Europe improve, these 2 ports should improve. Ports are evergreen industry, it is choosing the winner ports that are important. Forget about the fast growth in both Yantian and Hong Kong though, Billionaire Li will not sell them if they are still fast growing like Shanghai, but it should get better with better economic numbers.

Also,  "Guangdong, is applying to establish a Guangdong-Hong Kong-Macau free trade zone, which is likely to be approved by Beijing by the end of this year. Different from the newly established Shanghai free trade zone, the Guangdong-Hong Kong-Macau free trade zone will cover multiple cities at the Pearl River delta." (source: sino-shipping news http://www.sinoshipnews.com/news_content.php?fid=3w3c1989). Yantian should benefit from such development

Yantian still attracting looping calls from P3 shipping companies despite not owned by any of the P3 shipping companies. (Source: http://www.hellenicshippingnews.com/News.aspx?ElementId=f399e77e-3694-4f39-b5c6-a4bbe764cf14 Hellenicsshipping news), losing only to Shanghai  and equaling Singapore.

In short, I felt the worst in terms of operating numbers for the ports should be near, barring economic crisis.

3) Price paid, I am paying for a 7% yield at current price, using the conservative DPU of 36 cents. No brokerage houses  IIRC forecast a DPU as low as mine. If they are right, I am happy. To pay this amount, they need to payout about 3.6 billion HKD. 9 months OCF is already about 3.7 billion. If you annualized it, you should get  4.9 billion. To have a FCF of 3.6 billion is not a tall order, accounting for capex of 1.3 billion in for the whole of 2013 would mean a capex of about 700 million in 4th quarter, not too liberal in my view, given that 9months capex is only 584 million. Even if capex increase to 1 billion, yield will still be above 6.5%. To me, a 6.5% -7% yield is sustainable in current circumstances for years to come, with potential for upside.

4) They refinance their 3 billion USD loan recently, there is no information of tenture of loans, will have to wait for AR2013 to study them, but risk of interest rate hike impact earnings should be few years down the road.

5) Unlike reits who can buy and sell properties to renew that overall leases, HPHT has a fix concession to ports assets, so one should treat the investment as a return to capital type of investment. It is not an investment whereby you can sleep on it for passive income for decades.

6) Selling pressures from Capital Group. Capital group do not own HPHT directly but act as manager for their clients and their funds, apparently, they do not like HPHT, and they have been selling down since IPO. They only bought once, and is a forgettable amount. DBS is a net seller, although it bought recently at 72 USD cents.

This is not a buy call, I have no idea the price movement over the next few weeks. If it fall below 80 cents, I might buy further. Its your money, take care. Just sharing my thoughts and doing some "advertisements", you need to do your own research, I will not be liable for any losses.

HPHT is nearing my re-entry price target

I used to own HPHT, I sold it off after the Q2 results.

I thought I will have to hold on to it through the thick and thin, but I was surprised that several brokerage firms actually give a buy call after the results. I managed to collect 1 full year of dividends and managed to exit with a small profit.

I was very puzzled about the research reports then, as far as I can see, no one mentioned about:

1) The capex that has been postphoned, that should happen this year, my conservative estimate will be 1.5 billion in developing Yantian.

2) They mention the weaker results are due to the strikes at HK ports, but most ships are directed to Yantian, so the impact on HPHT should be rather muted, and the strikes should not be used an reason, but it does provide a convenient excuse.

3) The eroding net margins

One brokerage company correctly pointed out that HPHT will face labour costs increase due to the renegotiation of salary after the strikes at the ports.

I realized at prices then, we are just looking at about 6% yield, and hence there is no margin of safety. I also have better alternatives then, so I sold out and bought Sabana Reit, which didn't turn out too well either, but there is no loss of capital from HPHT or sabana.

After doing some quick calculations, assume operations do not worsen drastically, and factoring labor costs  increases, HPHT should yield 7.5% at 80 SGD cents, I would think that would be a good price to pay for HPHT. But I might take the plunge from 80 cents to 84 cents. Some 5 cents away from my target, will it get there? I do not think the assets will go to the dogs and should recover with the economies of US and Europe, 80 cents should provide some margin of safety and potential of upsides.

Well, I am not in a hurry.

No nasty surprises for Yangzijiang and Golden Agri Q3 results

There were no nasty surprises for Yangzijiang and golden agri Q3 results, although golden agri profits deteriorated rather badly. Golden agri's China division turn in a loss again, within my expectations and again pointing to the fact of how unreliable is China's operations to golden agri bottom line.

I bought into these 2 cyclical knowing results might be bad, if things turn well earlier, it will be a bonus for me, if not, I will just wait out the bear cycle. There might be a few triggers for sell, and luckily, I did not need to do it.

They are:

For both companies

1) Loss making quarters (Their operations and scale should allow them to weather the storm)

2) Significant gearing for diversification beyond their core business (I like companies who focused on their core competencies unless they have a track records for other businesses)

Yangzijiang

1) Big jump in default rates or bad loans

2) Drastic fall in margins

3) Delay in deliveries

In conclusion, story intact, continue to hold. In terms of price, I would think that Yangzijiang is fairly priced now, with expectation of turnarounds priced in somewhat, golden agri is still weak.

I was hoping for more information from YZJ in terms of their LPG/ LNG carriers orders, and also their application for a banking license, there was none. Yangzijiang has diversify rather successfully, and the property development of the old xinfu yard will start to show results, that will be keenly watched. Given how Chinese are obsessed with properties and I not really worried about the residential and commercial properties selling.

Given Yangzijiang is a s-chip, there is always concerns of it being a fraud. I am quite happy that my recent research into taxes paid by YZJ to Jiangsu tax bureau show up no red flags. YZJ is the top 20 tax payers in Jiangsu for the past 2 years, unfortunately, I can't find the actual figures, but the risk of it being a shell company is rather low.

Assume YZJ Q4 results do not fall drastically, they should be able to reach EPS of 17 cents, and should be able to pay out 5 cents dividends (30% payout), when I bought into Yangzijiang, I am prepare for 4 cents DPS, as I am not sure how much longer the doldrums of shipping will impact Yangzijiang, so there is already a consolation for me.

Random thoughts- Bucket list and Financial freedom list

I was asking myself some rather silly questions recently.

If I have a bucket list, what would it be?

1) I would like to start a social enterprise.

2) Do something about poverty overseas.

3) Teach in a school with highest FA pupils

4) Visit Europe

Then the next question, if I achieve financial freedom and have a million to spare, what would I do? What am I looking forward to after achieving FF?

1) Slower pace of working

2) More time with family.

3) So that I can work on 1,2, 4 (any combination) of my bucket list.

Then I realized how much I have already achieved in terms of wishlist for FF but not before I kick the bucket.

I don't mind a slower pace, but it is not actually killing me, and I do spend the evenings and the weekends with my family. I can even do 3) of my bucket list without achieving FF (financially free). I have some idea of 1) and 2) but not sure if I can carry them out in my life even if I achieve FF, but perhaps it is easier in terms of time commitment after I achieved FF.

I have shared my bucket list with my wife (of course I didn't use the work bucket, and I didn't share 4 yet, that is the last of my priority because it is the easiest to achieve as long as one has the money ), she is supportive of setting up a social enterprise.

I am young, I have many decades ahead of me, I hope I do achieve/ do something about either 1) or 2) before I kick the bucket.I also realized how much life would not be difference with or without FF. It is not actually stopping me from achieving most of what I wish I could do. (Sour Grapes or self-denial at work perhaps.. hahaha)

珍惜眼前，活在当下

Lee Metals Q3 results- generally within expectations

Lee metals report a glowing results from 1st glance, Compare to a year ago, 48% increase in net profits and YTD 68.6%

2012 is a weak year, I expect earnings to be good, they have delivered but they are some concerns.

QoQ Revenue fall from 180.9 million to 149.5 million.

The fall of revenue from steel merchandising is a given, but the rate of fall took me by surprise. QoQ turnover fall from 78 million to 48 million. Fabrication and manufacturing hold up well, with turnover of 100.7 million compare to 102 million last quarter. QoQ profits would have hold up as well as last quarter have it not been the big drop in the business of steel merchandising.

Lee metals is getting more and more like a fabrication and manufacturing company, although margins is better, I consider the merchandising arm a integrated part of its  business operations. 

Debt fall with inventory, and more cash get collected. No surprise there.

All in all, a result I would expect. Story intact.

 

LMIR results review-- A mix bag

LMIR report its Q3 results

The headline comparison of results from a year ago is misleading, since the acquisitions of new malls contribute to income only from Q42012.

QoQ DPU actually fall.

Operational wise, there was disappointment. Although overall occupancy held stable, and there are positive rental revision, the impact on DPU is still poor due to currency weakness.

Pluit Village, the biggest mall under LMIR actually has a slight fall in occupancy after carerfour move in. Occupancy rate is moving too slowly, beside carrerfour, they seem to have difficulty filling occupancy.

Medan Plaza did well, but the next 2 biggest malls The Plaza Semanggi and Sun plaza actually report a fall in occupancy.

Given the strong consumer spending in Indonesia and the influx of western brands trying to get into indonesia, such operating results mean weak competitiveness.

 

So, am I throwing in the towel?

No, there are still a few things going for it.

1) Growth by acquisitions, there are 15 malls whereby LMIR has a first right of refusal from sponsor. Gearing is at 28%, and most properties are unencumbered, they will most probably issue rights to fund the acquisition of malls

2) Q3 show the most volatile period of IDR depreciation and record the lowest of IDR exchange to SGD, yet DPU is just mildly impacted.

3) When the 2014 debt get refinanced by the issue of MTN notes, interest rate hike risk will not be significant till 2015, since the MTN notes are secured at comparable rate as the bank rate of 4% that will expire in 2014

4) Given status quo, yield is still attractive at 7.6% at current price. Reasonable enough given the weakness of IDR and one of their malls are going through AEI.

In conclusion, LMIR pass the currency stress test, but occupancy rate will be closely watch over the next few quarters.

 

Golden Agri -- 6 months review, Is the story intact?

Golden agri is now above my purchase price, is the story intact, getting worse, or getting better?

I think the story is intact, but it is not getting better.

I bought golden agri for it high correlation to CPO price, I felt CPO is already in doldrums, and given golden agri vertically integrated operations and healthy balance sheet, it should be able to ride out the doldrums and worth much more when CPO price recovers. Golden agri is also a purist, as compared to wilmar, it business is mainly in CPO, China form just a very small part of its operations.

However, I felt the recent run(close to 15%) in price is not actually back by fundamentals.

1) CPO price still depressed

2) Golden agri should/might have its first revaluation loss in years (lowest 3-year average price of CPO, and production plateau, means no way to use volume to offset weak margins )when they announce full year results

3) Indonesia currency weakest in recent years.

Wait a minute, shouldn't that means story is worsening.

No, because with the exception of point 3, I already expect point 1 and 2 when I invested, and I expect Q3 to be a weak quarter, as long as no loss is incurred, I will not waver. Given the Indonesia subsidiary is still eking a profits, I believe a weak profits is not a tall order.

Some good development too, although I wouldn't count on them.

1) Biodiesel law  in Indonesia and Malaysia could increase demand for CPO, a natural choice for Bio-fuel mix for diesel. Reuters report Golden agri is building a refinery for bio-fuel, although there is no confirmation from golden agri

2) Inventories continue to fall, and stablizes, China operations has stablizes too.

3) Scathing attack on Wilmar by greenpeace when golden agri is going on a "responsible corporate promising sustainability in CPO industry" PR drive... I hope they are really doing the good work, which they should.

Point 1 will take years to make an impact, point 2 situation is highly fluid and might reverse anytime. Point 3 seem achievable.

There are many a times when golden agri goes near the 50 cents mark and I feel like accumulating, but I will stick to my plans of accumulating when it falls by more than 10% if the story is intact, if the story changes for better, I might accumulate more. The story is unlikely to change over the next quarter. Will update if there is nasty surprises or good news in their Q3 report. For me, I expect a QoQ fall in profits, but not a loss. I believe many did not factor in valuation losses in full year results, which is non-cash in nature, I believe I will still have a window of buying opportunity