Portfolio review 17 Nov

Quite a bit of movements in my portfolio.

Sold SPH and APTT for a profit of 12% and 18% profits respectively.

Both are "victims" of my switching strategy. It might be a bad strategy, see here

The money raised was vested into Sembcorp Industries and the rest kept as cash.

I will just hold out for a while longer.

I will like to increase exposure on my existing counters, in particularly Lee metals.

Lee metals has 2 quarters of poor results, and the price has fallen more than 20% from its peak.

However, I think Lee Metals has a lot going for it.

A lot of people point to the falling revenue and high debt as red flags.

Lee metals has 2 business segment: 1) Fabrication and Manufacturing and 2) Merchandising

The poor demand in steel price and trading has cause Merchandising revenue to plummets.

The expansion of the Manufacturing and Fabrication business seems to be happening at a bad time when weaker steel price offset higher volume, net margin is also affected by higher costs of expansion.

So, Why do I still think it is getting valuable.

1) Track records (read here )

2) Dividends
This year, due to the one-off gain of Austville, 9 months EPS is already 5.99 cents. Assume Q4 EPS is 1 cent, full year EPS would be 7 cents. Lee metals give payout of 30% to 50%, 1 cents would be already be given out , we are then looking at final and special dividend of 1.5 cents to 2.5 cents.

3) Discounting merchandising and trading arm
Theafter, assume Merchandising business is non-existence, it should not add too much to the cost, its warehouse facilities etc are fix costs for its Manufacturing business anyway, no trading of steel, no profits, hardly any reason to believe that this Merchandising will push Lee Metals into loss.

Assume the expansion of capacity did not yield growth in EPS but status quo, just the Manufacturing arm would have yield 4 cents EPS. 2 Cents DPU seem sustainable, and the worst case scenario of 1.5 cents DPU  would also yield a decent 4.5%

4) Outlook
The steel overcapacity has already claim one casualty in China (http://www.hellenicshippingnews.com/china-major-private-steel-company-files-for-bankruptcy-protection/)

I think we are closer to the bottom of steel than we think, how long we stay at the bottom is anyone guess. The important fact is, how much lower can steel price go, since market supply is already doing self-adjustment.

As for demand, the MRT building will continue to provide the demand although competition will be a problem.



5) Debts

Most of Lee metals debts are bills payable to banks, which are short term loans for the inventories. Unless there is no demand for the inventories, the bills get paid once the inventories move. The bills payable to banks is directly correlated to inventories, there is no evidence of build up of inventories, in fact, Q3 inventories in lowest YTD despite the expansion of capacity.

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

I am also tempted to trade golden agri.

Why do I say Trade?

Golden agri do not have time on that side.

Compare Golden Agri and First Resources, their old profile of their trees is unfavorable. Management has not laid out plans for replanting, and I have never heard of them update their liberia fund, which is supposed to provide the growth in plantations.

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

As for the worst performing LMIR, I have already blogged about its earlier Quarter result.(Read here)

I think the Kemang Mall is yield accretive and at worst, status quo.

In the short term, there might be some admin and fiance costs relating to the equity exercise that will affect distribution, but the longer term consumer story at LMIR is still sound.

I will not be adding though, as there are pockets of concerns, particularly with Pluit Village mall

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

I might also add ST engineering. I will just wait for a while.

My radar of companies is now bigger so I believed there are plenty of chances to redeploy the cash from sale of APTT.