Monday, November 19, 2018

Random thoughts: Silly Inc Corporate updates

Dear Readers,

It was stated last year the Silly Inc will no longer do half-yearly intern report, but so much has happened in Q3 that I, as the Chairman, find it necessary to give a update.

First of all, the rule of diversification of that our counters in our portfolio should be around 5-10% by cost value is broken. The company accumulate Silverlake Axis prior to its strong Q1 report and the company itself now takes up almost 15% of the whole portfolio value. We still have about 50% of the portfolio in cash.

Rationale for the accumulation is Silly Inc believed the company should be in the cusp of recovery due to capex recovery from the banks. The average purchase price of the counter is 50 cents, and break even price after accounting for dividends received so far is 43 cents, so we are still in the red. However, the company believed that Silverlake is undervalued and market will re-rate it sooner or later if it continues to announce stellar quarter results. The last quarter show a 70% improvement in net profits and doubling of cash flow. However, it is a big disappointment that it did not match last year dividends given its strong cash flow. This could be the reason why the counter is under-performing despite directors buying. We believe and hope the company will pay out more dividends from 2nd quarter onward. 

Secondly, Silly Inc made it first purchase using CPF monies to buy ST engineering. It was bought to ensure as and when it is necessary to purchase shares using CPF monies, there will not be teething problems. We are pleased to announce that this trance of investment is in the green as it is bought at a price of $3.2. Silly Inc has also tried exploring the iFast Fund SuperMart  (FSM) platform, and the company wanted to be ready to purchase certain ETF that is available on its platform. However, the company find the platform very user unfriendly with the need for transfer of cash into investment account. It is now monitoring the Shanghai Exchange Link from its UOB kayhian Acc instead and will most probably be buying its first overseas counter soon. The purchase is also to sort out any teething problem for such purchase as and when it is conducive to do so.

Silly Inc has made several purchases in the Q3, they are

1) Sarine Tech at 51 cents
2) SIA engineering at $2.9
3) Netlink trust at 78 cents (cum dividends)
4) APPT at 16.9 cents

APPT is a speculative position with only 10 lots taking 1.5% of the portfolio. Please rest assured the company made the decision on its own and it is purely coincidental that a celebrity blogger is also making big moves in that counter. Silly Inc made the purchase before we saw the post by the blogger, and we will continue to DYOD. SIA engineering is not doing well in terms of price, but we are not worried. We believe we might not be able to get our purchases constantly above our purchase price, but we believe that if we get the business right, its cash flow and profits right, the risk reward profile will be in our favour. The heavy capex D-checks should start increasing over the next 3-6 quarters if we calculate the number of years the down turn of D-checks start and the longer window of 6 years per check.

There are already several corporate updates aka blog posts on Sarine Tech so we shall not bored the readers further. Netlink is a company with obvious growth drivers. If the growth continue, it should be able to pay out its projected dividends purely from cash flow from 2020 onward without any need for borrowings. Silly Inc will monitor this company closely as market did not seem to buy into its growth story that is brought forward by Starhub exiting its cable network earlier. NBAP connections should be next growth drivers as Singapore gears up to be a digital ready nation and also with the network coverage buildup of the 4th Telco TPG. While the yield of 6.2% is nothing to shout about, we actually bought into the company expecting both capital gains and dividends increase with its growing revenue.

In terms of sale, the company has sold M1 in the open market, and has decided not to wait for the privatization offer to be finalized. $2.1 sale price would be a 13% gain including dividends over a 18 months period.

Conclusion of the first 9 months

Trading gain = $270
Dividends = $2012
Total returns = 2270

ROA = 2.06%


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