FY 2017 Sillyinvestor Inc Annual Report

Chairman statement:

Dear all, the theme for 2017 is to retreat when the market is good. There are various investment mistakes,  but we are glad they are not crippling. As mentioned in 1H report, we sold YZJ and Venture for 30% and 40% profits. They turned out to be a 2 baggers and 3 baggers respectively. We are yet again humbled by the market and acknowledge our lack of competency in using trailing stop to protect our profits. We apologized.

Yet, it’s not all doom and gloom. Our total portfolio size has increase from 85K to 106K. Last year we have vested capital of 42K worth 44K. As of today, we have 39K of vested capital worth 41K. We recently exited Lee metals at negligible profits, and hold cash. Total cash holding is 65K. 

It was a Bull year for STI, we could have done better, but will never throw prudence out of the windows.

Outlook:

 There were many reports about sustained rally in the market, driven by strong economic recovery and the US tax remake boast. 

The fact that we are holding 65% cash mean we see more risk than opportunity ahead. We could be wrong. If for no other compelling reasons, the fact that we are 9 years into this bull, we would think a pullback should be inevitable and happening soon, as valuations are hardly attractive at current level, although there are pockets of gems which we hope to exploit if it conincides with the general correction of market.

Operations review:

In the 2H of the year, we sold Lee metals, some of silverlake axis for a small profit, and bought M1 and Raffles Medical Group. 

Dividend collected for the whole year is $2170 as compared to $3849. 

However trading gain in 2017 was $4700 as compared to NIL in 2016. And we are please that unrealized profits for portfolio remain in the green for 5%.

Total returns on Assets in 2017 is 6.5%.

We expect lower returns in 2018.

CSR:

Beneficiaries added include Sian Chay Medical Insitution and Thöng Chai Medical Insitution. 

Company hope perhaps to do some direct volunteerism in some small ways in the year ahead. 

Random thoughts: Circle of competence

I realize despite more than a decade of investing, I am

Not sure of my circle of competence. 

There are several reasons for this, I list a few below:

1) I do not track my returns or loss through an excel sheet. I track my thoughts and returns through pening my thoughts in a blog post. 

2) I do not have a track record through Bear-bull-bear cycle. I think I went through a bear-bull market already somewhat. I should know my circle “soon enough” and I need not wait another decade. 

3) I am still searching for a coherent strategy. Those who found it, swear by it. Value investing, buy and hold, momentum trading, whatever. I know my best records come from “growth prospecting”, and its by investing in alpha companies through cyclical cycles. However, even such strategy has a lot of misses, in terms of selling too early and missing the property and banking upturn totally etc. Conviction is also lacking, when the price get beaten without any apparent news of earning downgrade etc. I do not dare to nimble on the way down if there is no news to confirm my thesis to be correct or wrong. 

There were many cases where there are clear growth drivers, and the price has run up somewhat, and I hold off buying only to continue see it head north. 

I am just talking about the strategy where I have a better track record. I have tried cyclical plays, turnarounds and asset plays before with rather poor records and I decide to let them “go”

Hence, I am better at determining circle of “incompetence” than competence.

As I prospect for earning recovery or growth, I have found nothing so far. The only investment idea I have is to buy into the aerospace recovery.

I only owned 2 lots of ST engineering and I intend to get more of it and some of SIA engineering over the next 12-18 months if the prices correct further.

From my calculation, the recent cyclical and structural woes of aerospace, especially in the area of MRO is hardly disruptive, it is caused by better design of new aircrafts than need longer periods before the aircrafts need maintenance and repair. And according to ex-CEO of ST-engineering, he already see it coming a decade ago and do not see it as disruptive. The trend will be cyclical and will be captured sooner or later with the increase of aircraft. The most intensive D checks (and also most costly from the perspective of airlines but most lucrative for MRO companies) of aircraft was 5 years in between checks and became 6 years in between checks. Reading SIA Engineering annual reports, the drastic fall in no. Of D checks was in year FY14/15. If u look backwards further, the bulk of D checks run consecutively for 2 years and will taper off. So the next upturn will be for FY 19/20 or 20/21.  That is 3-4 years away. In terms of PE and PER, current price of SIA Engineering is fair, but if one is willing to buy into the potential growth, the next 12-18 months will be a good Window to keep the eyes wide open. 

Of course, it is not just the D checks, the A checks and C checks number are also dwindling and it could be due to newer and better aircraft that need less frequent checks ( more fly hours before check) or due to competitions by other airlines also going into MRO business. 

The number of checks has a high correlation with revenue and profitability. My apologies, u can verify my info through looking at the annual reports, I am lazy to create excel sheets.

I do think SIA engineering is still keeping its competency and competitiveness intact judging by the recent years announcements of renewal of contracts and strategic alliances. The earnings might not yet show due to the cyclical nature.

Why am I sure of the “growth” and that it is going to be cyclical. Order books and deliveres are increasing, it is a matter of time these crafts need servicing.

The graph show the delivery of aircraft by Boeing and Airbus over the years

Then the airports around the world are expanding to meet this future demand. Just google airports with expansion plans. 

I think aviation growth is quite a no-brainer with our govt also placing big bets with Terminal 5 from 2026 onwards. That is a very long term projection ImHO. 

Remember when Buffett talk about investing, he said he believed in US economy and that it will continue to grow. So if u believe Singapore can still be a hub in aviation for years to come, it is not difficult to buy into Singapore Aviation.

U just need to buy 

ST engineering and SIA engineering 

SATS

SIA

4 companies and u have it all.

I just go for the upstream first. But I need to wait at least 24-26 months. Now that is really a boring wait. 

CDG-Uber tie-up

It is confusing.

I cannot quite understand CDG JV with Uber. In the surface of it, it make sense, CDG has a app that works better and consumer can call for both cab or non-cab, and decide if they want surge charging with PHv or just plain peak surcharge. If that is the sole reason, they should just work with Grab and let the CDG drivers use their app. Definitely cheaper than buying Lioñ Rental 

But given CDG Pay so much for Lioñ rental, it would means CDG believe the future taxi business is one of PHV and perhaps some flag down opportunities for thos who dun use app. ( maybe tourists? )

It then can laterally transfer drivers, or for taxi drivers who wanted to become PHV drivers, to stay within the family. But this is a reduce bleeding strategy, not a growth strategy.

So how lucrative is the business ??

“

The aggregate cash consideration for the above acquisition is estimated at S$295 million and arrived at based on the net asset value of approximately S$642 million based on the value of about 12,450 vehicles. “

Each vechicle is worth about 45K. In the news media, it is said that Lioñ City Rental has a fleet of about 14k.  I think CDG has a good deal in the sense it assume about 90% of the fleet can be rented out at any time. 

45k can only pay for COE in recent years but we all know vechicles are depreciating assets. 

The rental rate of vechicle for Uber drivers is up to $58. If u renting for private consumption, it cause a bit higher. Let’s assume a rate of $50 for simplicity sake. 

A attrage is for rent at $47. 

Assume the car is rented out for 360 days in a year. 1 year of revenue is 18K. Assume CDG can achieve economic of scale and manage the fleet at low cost and achieve margin of  about 50%. It needs 5 years to break even. I think most cars will have a COE or at least 7-8 years since Lioñ Rental City is only started by Uber in 2015. 

Yield accretive but nothing to shout at. 

However, it does give it a immediate sizeble Market share of the PHV. From what I read, it’s range from 40k vechicles to 60K. At least 25% market share with a blink of an eye. 

Uber also has various incentive for drivers who clock a certain no. Of rides so I would think my calculation above is liberal and the margin lower. But Uber dun seem to be as aggressive in giving out promo code. 

It’s a good counter move by CDG strategically but if anyone wants to see fireworks in terms of earning, think they will be disappointed. 

Random thoughts: A book and a YouTube clip

Have wanted to blog about these.

This book is amazing.

 

I didn’t really believe it, but thought there is no harm reading and see if I can apply a skill or two into my teaching.

I am blown away. The methods actually work. My friend was teasing and challenging me  to memories 心經。I did within 3.5 hours. Some of you might think 3.5 hours is a long time and 心經 is not really long anyway.

But I did it with the TV on, and having conversation with my son and wife. If I focus, I am sure I can do it within 2 hours. I also never thought I can mermorize 心經 because it don’t makes a lot of sense to me.

The beauty is after I mermorize it, I can retrieve it at any point, I dun have to start at the beginning. I can retrieve that sentence and ponder over its meaning. 

As for video,  I really 2 which I saw. One about 9 life 

Lessons which I totally agree and have the same frequency with

The other is this. I was feeling a bit down at work, and this video perks me up. It’s not about the content but how the guy stays cool and sincere throughout his speech.