Yangzijiang: results within expectation but look out for HTM investment costs

I am generally please with YZJ's results.

Dividend is maintained at 5 cents.

Shipbuilding margin is stable.

Offshore arm showing progress with YZJ confirming the signing of 2+2 semi-submersible rigs (with PPL), although YZJ did not consider the contract effective since no deposit is received. I consider this prudent management.

Some progress made in the property development arm too, with new acquisition made.

However,  total cost of RMB256 million was incurred for the Group’s Held-to-Maturity Investments, which were due to tax expenses mainly consisting of sale taxes and its related levies on interest income. A result of the clampdown on shadow banking?

I am ok with HTM supplementing YZJ revenue stream, but not very comfortable with it increasing, it is 14 billion rmb now. Also, it makes a lot of difference if such costs is recurring yearly or worse, quarterly. I hope the subsequent investor briefing will shed some light on this.

I am still holding to this though.

1) I believe the shipping cycle is still on upturn

2) Ren Yuanlin has proved to be a shrew and effective businessman that is able to close deals, and expand the business. Shipbuilding business is smooth, offshore making headway. Property arm will come into play over the next few years,given it is a joint venture, I believe Ren will learn quickly, but it is still a wildcard now. It has 5 business segments now. My FAT HOPE is that he will spin them off into separate entity when they grow big enough, just like Keppel. FAT HOPE? Well, not going to happen anytime soon, but who is to say it is not possible?

Buy more? Nope, it is already the biggest counter in my portfolio. I do not want over-concentration risk, at least not at this price, with the HTM future still uncertain.

Random thoughts: My second horrible experience with UOB card

Readers would know that I feel cheated by the telemarketer of UOB one card.

I didn't use the card anymore, but have not terminate it.

I thought it is good to have another credit card from another bank.

I still have  a $50 rebate not used. Think my appeal the other time work.

But I just cancelled all my cards with UOB, very upset with how they work.

I think a few years ago, I receive an UOB visa card. I didn't activate it. I have no use for it.

I didn't receive any statement from it, so although the account number appear in my online account, I thought it is dormant.

To my horror, I receive an consolidate bill with my UOB one card, stating that I have 90 over dollars outstanding. Huh? I never use the card.

Ok, $35 for membership, $60 for late payment penalty.

I want nothing to do with UOB card from now on.

Talk to the bank to waive it? Forget it! I will view UOB cards like I feel most s-chips companies, unscrupulous. I want nothing to do with it anymore.

I will use Lim and Tan to buy shares from now on. There will not miss a small pathetic customer like me, but they can forget about earning another cent from me.

 

Random thoughts: watching my son chase bubbles

Went to the botanic garden together with my family.

Seeing my son chasing bubbles and laughing with glee when he pop a bubble is a nice experience. The simple joy of a pure young kid.

Bubbles are beautiful, chasing after them are fun, but only those with a pure heart like a kid, will not think too much about the bursting of the bubbles.

Life is like that, isn't it. Most of us have a life of abundance, but we refuse to chase the bubbles, thinking it is silly since it will burst anyway.

We spent time thinking of ways to have the bubbles permanently flying around, the sight is beautiful, take a photo at least.

Pure happiness is taking the moment, chase with all your might, but laugh it off, let it go when it burst, there is another patch of bubbles coming, lets not live life crying over burst bubbles or the purpose of chasing bubbles.

When its time to go, keep the bootle. The memory is there, the enjoyment is there, why the need of keep asking why. We can always have "another time, son"

Lee metals: Year of record earnings and record dividend payout

Lee metals is the only counter thus far that provide results that I expected.

Lippomall and Sabana are both disappointment.

Dividends increase from 2.5 cents to 3.5 cents.

At closing price of 39 cents, it is giving a yield of 8.9%. Beating most reits or trusts.

Is it sustainable?

Yes, IMHO, but only for 1 more year, as earnings from Austville will be realised this year. The EPS of 5.2 cents from that project itself (for calculation, see http://sillyinvestor.wordpress.com/2013/10/30/property-counters-determining-future-earnings/), should allow payment of DPS of 3.5 cents, a perhaps some "special" dividends. 2015 onwards, it will have to depend on operations, but dividends of 2 cents, is normal dividends, which I believe the management can manage.

Take away the 1 off-gain of amost 3 million from disposal of subsidiary, Lee metals will still be earning 37 mio net profits, still a record earnings.

With the higher EPS, the company has been fair to shareholder, with payout of 40%, which to me, is not demanding on the company finances. (Lee metals have payout of 30% to 50%, if we do include anormal years of 10% and 70%, which happen only once in their decade history )

FCF is 22 million, payout is 16.4 million. No strain on finances. CCC has increased to 114 days, the second highest in a decade. As for ROE, ROA, ROIC, inventory and receivables  t/o, there is no red flag. Most are stable.

So what is the catch?

After 2015, competition is expected to increase, and supply are expected to exceed demand. That is the outlook of BRC asia, an competitor of Lee metals. Lee metals also expect competition to increase, but they are still expanding.

Lee metals have a good 10 year track record, I will enjoy the ride first. Given that it is so thinly traded, it doesn't take much for the share price to breakout to the upside or downside.

Random thoughts: keeping a tab on your finances, but what about yourself

We usually keep a close tap on our finances.

Although I no longer update my expenses everyday, I used to do that. Although I proclaim to be a long term value investor, I look at the SGX to check the prices of my counters at least 3 times a day.

I read a lot of finance news everyday, Hellenics shipping news, valuebuddies, bloomberg, Nextinsight, and the aggregate of fiancé blog, Singapore finance almost everyday.

I think about how to do my work better every morning, I reflect on the quality of my work after every "projects".

I forget to reflect on myself everyday. What are the negative thoughts or deeds of the day, what are some of the things I could have done differently, have I strive to be the person I want to be, happy to be, or did I took the easy path to hide in the dark.

I left is to random pockets of time for reflection. If we leave it to random opportunities to buy a stock or save money, we would surely frown? So money is more important than ourselves?

Random thoughts - curbing anger

I have a anger management problem.

No, I am usually fun loving, and have no problem mixing and connecting with different people, although I never like parties or crowds. Staff dinner? Family day? Please count me out. But I believe in my purest honesty that I am approachable and generally nice to people.

But when I flare up, it is very intense. I don't care WTF u are anymore. Although I will never resort to violence or yet to, smashing things around do happen.

It seldom happen, but when it does, there is plenty of clearing of mess to do, I am not talking about physical mess.

We usually have the most anger for people closest to us. Because they are the ones that we cannot just ignore, they are the ones whom we give our very best most of the times, that's why we can accept unreasonable demands from boss, but get upset when we receive it from our closed ones. At least it is true for me.

I did some deep soul searching, and have come to the following understanding of matters.

1) Arrogance precede anger. I had a smooth career path in recent years, everything is going well, investing is doing fine, although my results is dismayed by others benchmarks, it did not bother me, I feel I am more intelligent that others, wiser than others as I defuse quite a few conflicts at work, think I know more than others. So , ever wondered why u never smash something at your boss office? U may not respect the boss, but most would not show arrogance in front of him, the fact that he is higher there would keep u in check. Accord your loved ones the respect u would to your bosses.

2) arguments can never be pleasant, and will be totally unfair or false. So seek to persuade, convince, not agrue.

3) It does not matter what is said of u, keep that pure heart as much as possible, whatever unfairness, whatever evil actions of adding oil to fire, let it be. Make sure you dun burn yourself, karma works in strange way, respect it.

4) last, apologized sincerely. There are underlying matters to be addressed, addressed them later, dun make an impulsive decision, most of the time, it is the wrong one, since u are feeling miserable, angry, confused and betrayed all at the same time.

5) look at the big picture, look at the person and not what is said or done. Talking is a art, that's why we can sell 60 years condo in the name of retirement and sell it like hot cakes. Loved ones dun always switch on a sale pitch mode whenever we talk, it might be desirable but just too tiring. Look beyond the words and actions. If there is something that really need to be change, discuss it, come to a census when everything calm down

6) guard against the evil of vengeance, at the heat of the black face, nasty words, it is easier for us to have thoughts like "I will make you pay", "see what awaits u"... It might be inevitable, but dun let it grow.

7) know what calm you down. Work? Beach? Friends? Talk to different people, not just good friends who most prob also see things at your angle( your same frequency is what make u close friends at the first place, talk to people u can trust) for me, a temple visit calm me down a bit.

8) continue to be kind, regardless how worthless it might seem at times. I am glad I have different friends guiding me to the right path step by step.

For someone with anger management problem to give advice on anger management is like a patient treating another patient, a loser teaching someone how to invest ( oops sound a bit like me), but Internet allow free speech and thoughts, and anyone can let off some steams. So pardon me.

LMRT - An operation mystery solved

An short recap of operation numbers and my thoughts:

Lippo DPU falls to 0.56 cents

It is due to several results
1) currency weakness affecting revenue conversion back to S$
2) Some one off finance expenses due to the MTN notes which was repayed in Q1

I am not overly concerned with the above reasons, because 1) while valid is not something that company can control, 2) should fall to more reasonable level for Q1 onwards, when gearing fall back to 26%.

I am more concerned about its operation and is rather puzzled with the following:

Operating wise, occupancy rate is stable at 95% overall, NLA has a small 1% increase due to completion of AEI, from 719695 m2 to 725601 m2. It is still having positive rental revision with lease renewed. SO net net gross revenue for LMRT in IDR dollars should be stable or increasing.

YET, it falls from 326,105 million IDR in Q3 to 315065 million IDR in Q4

How is this possible? Any impact on revenue due to AEI should not contribute to a 5% decrease in total revenue, since Ekakokasari mall which is going through AEI has NLA of only 26000 m2

I send an email to IR and this below is our correspondence:

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

I refer to your Q4 results.

The gross revenue in IDR has fallen from 326,105 million in Q3 to 315, 065 in Q4 million when your occupancy rate is steady at 95% with positive rental revision for the past few quarters, can you explained why?

Thank you for your kind attention

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

The reply:

Thank you for your email. To answer your query, there are at least several reasons:

1. Generally speaking, Q3 revenue is higher than 4Q due to Indonesian Lebaran Festivals (a nationwide festival throughout the whole month of Aug) which stimulates spending nationwide.

2. The MNK operating agreement, whereby we outsource mall's operation to third party MNK and only collect 77% of the net operating income. As operating expenses were finalized in 4Q, the net operating income was seasonably lower than first three quarters.

3. Positive rental reversion is good indicator but it only applies to the renewal leases, so that it cannot represent the overall income level.

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

Further questions:

1. Generally speaking, Q3 revenue is higher than 4Q due to Indonesian Lebaran Festivals (a nationwide festival throughout the whole month of Aug) which stimulates spending nationwide.

Isn't rental income, or rent collected from tenants fixed? Do you mean you have a clause that allow rental increase or decrease due to the sales of tenants?

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

IR reply:

There are certain proportion of GTO tenants in every shopping centre whereby GTO rent is linked with tenants' sales volume. And this is only one of the reasons that can explain the drop in our revenue when you compare QoQ.

Hope the above clarify your query.

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

My thoughts:

The reasons offered seem reasonable, and I accept them. But its does mean revenue is going to be a bit volatile, depending on how well the malls are doing. A longer tracking of their IDR revenue is needed to see if competitiveness is lost.

Random thoughts: Unending inherent conflicts

(Random series have nothing to do have finance and investing)

There are plenty of inherent conflicts, the solution is always to balance it. 

Can it be balanced?

Or is it just a question of seasonality, we should just let it come and let it go.

Can we have a warmer winter? If we do have a warmer winter, most probably we will have a colder spring.

The longer we refuse to let go, the harder it is for things to get balance, in the end, we can only have constructive destruction. I always find terms like that, along with phrase like mass customization too "chim"

Go deeper, our emotions, can we manage them?

Sure! But there is a price to pay for over-managing them, you might be a colder winter.

Let it flow like water? What happens if the water is considered toxic by others, and should not be flowed freely.

Inherent conflict, can only be solved by inherent conflict, or perhaps it can only be solved by the passing of time. 

In business, there are always trying to build "personal" relationship. How about building a "working" and "business-like" tone in personal relationships too? Things might get better. Or, we could just leave things to time, like the four seasons.

Too much metaphors? Sorry, too hard to put in the details 

HPHT - My tainted view of FY results

Market has given HPHT the thumb down for it Q4/full year results.

NPAT and NPAT attributable to unitholders for the 4th quarter was 34% and 47% lower than last year. It seems like operations are deteriorating. First some number crunching.

1) OCF is 5.1 billion HKD compared to 4.4 billion a year ago. Q4 OCF is 1.4 billion.

2) Yantian did show better throughput of about 1% but is offset by the 12% decline in HIT ports.

3)   There were several one-off items, below are the items and the amount

a) Expenses incurred for acquisition of ACT; est. 110 million HKD

b) Additional interest expense due to refinancing of loans; est 7 million

c) One-off concession to liners due to the disruption of HIT ports due to strikes; preliminary calculation - 600K

d) Currency loss/gain- I would not classify it as one-off

4) recurring higher costs

-> Worker fees hike ->Full year impact to be felt, est. 230 mio (refer to previous blogpost for its calculation)

-> expiring of Yantian tax credit, assuming 10% growth in Yantian profits and resultant in total tax increase = 200 million

Assuming operations stay status quote, the one-off costs are insignificant and not enough to offset higher costs from tax expiry and higher workers' pay.

Yet, against all the odds of a lower distribution than projected, this is the third year HPHT has meet its distribution target. It did mainly by postponing Capex and management of working capital.

The management of working capital is especially amazing, given that cost of service, and various expenses all increase in Q4, it still managed a OCF of 1.4 billion, compared to OCF of 1.2 billion in 2012Q4.

Management has expect throughput to improve, which is likely if trade rebounds and HIT recover from post-strikes problems.

The question is how much must OCF improve in 2014, so that the 40 cents distribution can be put on solid sustainable footing, without postponing capex  (management guide CAPEX as 1.5 billion to 2 billion ), or drawing down more loans?

Answer: about 30% (Assuming Capex of 2 billion and dividends to minority interest of 1.8 billion, OCF need to be 7.2 billion)

IS that an tall order? You bet!

Will 2014 distribution be cut? Unlikely, HPHT has not missed projected target of distribution for 3 years in a row, they will most probably resort to further postponement of capex and use cash or loans to deliver the shortfall. Net gearing is about 50%. If we use 10% growth is OCF and a more reasonable capex of 700 million, there is no need to drawn down loans at all.

What is then a sustainable distribution going forward? 31 HKD cents. A FCF of 2.73 billion after capex and MI,at current price, it means a 5.4% yield after 2014 is reasonably achievable and sustainable.

In conclusion, do I think HPHT is still an attractive investment?

My average price for HPHT is 81 cents, there would give me an 8% yield for this year and the next. I do not think I have a high risk of capital loss if I hold it, but the returns will suck if the rebound in trade do not surprise on the upside. 

I have better alternative. I will look to take profits in strength, but will not be in a rush to sell.

 

 

 

known unknowns and unknowns unknowns

The confusing phrase first used by Donalds Rumsfield during the invasion of Iraq.

Let me do a summary of the known unknowns going into the year of the horse. (list not exhaustive, is what I know)

What can go wrong: (Just a list, some of them are interrelated)

1) China shadow banking flare up. (WMP, trusts or SIVs)

2) Bursting of property bubbles

3) Conflicts in east china (China vs Japan; 2 Koreas; China and the South China Sea countries)

4) Currency turmoil in emerging markets

5) Asset price collapse of emerging markets

6) SEA elections frauds and conflicts

 

What can go right

1) Recovery and expansion of the DMs (US, Europe and Japan)

2) Euro breakup not happening

3) Piigs geting more competitive (Although unevenly)

 

Looks like we have plenty to worry about and less to cheer about. These are only the knowns unknowns.

What other black swan can happen?

No one knows, unless you are a oracle

What should we do?

Turn to our known knowns.

Companies. Take a bottom up approach (Many will not agree with this)

I have LMRT that is exposed to the risk of Indonesian currency and one of the weaker EMs. If I had not vested in it, I might wait for a better entry price, but am I going to panic and start selling to get in lower.

I have a decent yield, occupancy rate is strong, although I would prefer that they fill up occupancy faster, the mall has plenty of anchor tenants that sell essential goods, so I do not see occupancy to be badly hit. Although Putin Village Mall is begining to look more and more like an bad buy. If the business is still going strong, wait it out. Yes, the price might go even lower, but that will be an unknown unknown.

I have golden agri too. Am I selling, definitely not, in fact, I am waiting to accumulate.

Some might say, wait till the price to get lower, then your MOS is getting even wider.

Well, there will be an unknown unknown too. Look I got YZJ at STI 3200, it is my strongest counter, I got HPHT at av.price of 81 cents when markets is at such level, does it give me such price now? We never know if market will quote us the price we want, just know what you are paying for, and if you are comfortable with your price and volume, and have a plan if market does correct further, you should be held hostage by unknown unknowns.