Saturday, February 27, 2021

A review of my company prospecting process: More hits than misses

Less than a year ago, after a screening process, I highlight 4 companies

Of the 4 companies, Maxi-cash, Muti-chem, Hotung, and Overseas Family education,

I only invested in Hotung. 

Maxi-cash and Muti-Chem gives capital gain of 50% and 70% had in invested in them, and Hotung, just 15%, excluding dividends. 

What went wrong? I think I have current yield bias, and aversion to company with high loan to equity ratio. Could I have done better? I am not sure. I guess missing out on gains is better than holding on to losses.

I predicted improving dividends for 3 counters in blogpost here

Of the three, YZJ kept is earnings intact, Kayhian did increase it, and Verdict is not out yet on CSCP. Companies that pay out dividends as a ratio of earnings could see higher volatility of dividends but it might made timing the turnaround more rewarding. BAE system also guided on 50% payout, and with improving earnings (Projected), I hope to repeat the success of it. 

Third, using Free cash flow yield

1) Lung Kee (HK 0255) (15%)

2)Yangzijiang (13%)

3) Lonking (HK3339) (13%)

4) *Diary Farm International (13%)

Closely followed by Silverlake Axis and Singpost in the 8-9 % range.

In terms of capital gains, with exception of lonking, all are in the range of 10%, DFI and Silverlake are loss making and I have exited SIlverlake after they suspended dividends in 1H.

I recently also found another company 0819 TianNeng Power with FCF in excess of 10%, PE in the range of 10, in the sector of making batteries for EV and etc. An growing company in a growing industry should deserve better valuation and due to the min lot size of 2000 shares, it is my biggest HK purchase. However, I am already 10% underwater. 

FCF yield need longer runway before they can appreciated by market? 

The better counters, such as SATS(>50% gain), has nothing fundemental improving, although the outlook is defintely better. 

The concluding thought I have, is hence:

I really hope to count on luck, and hence diversification is important. After I sold off Silverlake, non of my counters hold more than 5% in my portfolio. In fact, most of then are in the 2-3% range. 

Hence, although i do have some counters than are gaining 70% or 50%, as a portfolio, it is just 6% gain based on COST. 

Hope I continue to be lucky. 



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