Wednesday, May 26, 2021

Random thoughts: BT article on "5 investment pitfalls"

 I read an BT article on 5 investment pitfalls. I thought I blog about it to crystallize my thoughts. I hope I will be able to illustrate the various points made by the author with my own examples.

"If something is too good to be true, it probably is" 

I wonder what is considered "too good to be true"? Dividends yield of more than 10%? I remember I used to own APTT, LMRT, Sabana Reit and even SPH at $3.6. Most of them have yield around 10%. except SPH.

Even suspended Qingmei gave an yield of 15% for me, once. 

I think there is big difference here between trailing yield and future yield. Looking back, buying counters with trailing yield of around 10% or more usually does more harm than good to my portfolio. There are indeed years where I harvest the above 10% yield, but it is not sustainable. 

LMRT issues dilutive rights (present tense is not a grammatical error), Qingmei is a fraud, APTT could not sustained the payout. I was receiving about 11% yield from APPT and lucky for me, I got out of this counter before any damage. However,  I wasn't so lucky all the time, and I suffered capital loss in excess of dividends received.

I do currently own counters of yield about 10%, like Hotung, Lung Kee,  MIT. They grow into it, when I first bought them, they yield 6-7%, and it is during market correction that throws out such yield, before that, the yield is even lower. 

In the area of growers, I get very excited when I find a company that grows around 20-30% in both their topline and bottom line for the last 5 years, and yet trading at less than 15 times PE. I am a novice in "grower" criteria and I do not own a single Tech Stock in my portfolio. Hence, I find it hard to come up with hits and misses. I bought into CSCP believing in their pipeline of drugs (More being developed over the years), and Raffles Medical Expansion into China. I have no track records for both yet, so I will reserve judgements.  

"Turnarounds seldom occur" 

My investment school of thought is influenced by Peter Lynch Turnarounds and Cyclical Plays. So, trying to buy a counter when it is out of favor is indeed something I do very often. 

I remembered SIA Engineering, YZJ, Sembcorp Industries, QAF, Singtel, SingPost, Golden Agri and SPH, Pan United are all purchases based on cyclical upturn analysis.

I have both hits and misses. 

Those that faced disruptive forces are counters didn't turn out well. SingPost, new growth area is e-commerce and SPH's property, both companies did not fare well. Both counters are in the red. I deliberately left out Sembmarine but bought into SCI. Nonetheless, I believed SCI will turnaround together with SCM. It is with a stroke of luck that SCM is demerged. I am betting actually on SCI doing infrastructure trusts like Keppel, but it turns out better than I expected. When they are demerged, I sold SCM.

The lesson here is clear, it is difficult to turn ship with a heavy load (baggage). It is easier for companies to outlast an oversupply situation or unfavorable market conditions, than overcome structural disruption. For example, with ESG becoming a corporate culture in boardrooms, I think fossil industry will likely face structural decline in the future.  I think I will swear off fossils plays. (Although I did own SInopec, but China is a different story)  

The next lesson here is management's alignment to shareholders' interest. LMRT is frequently doing highly dilutive rights and buying assets of questionable quality. Sabana bought a 50% occupied high tech building and has problem filling it up. and management Incompetence aggravated the problem. First Reit has the same owner as LMRT, and they also did a dilutive rights issue, but I see management competence the biggest difference between FR and LMRT. Sabana seem to be faring better now after Kelvin, its ex-CEO left.

QAF has a suffering pork business in Australia, Rivea (I hope I get the name right), it dragged the earnings down. I bought it as I believed that is a cyclical business and the high cost of feeds is due to weather factors that might not be recurring. True enough, the business did better, again (It is not the first time it happens, QAF has been trying to sell the poultry business twice without success). QAF is one of my better performing counter in SGX yielding 7% with capital gains. 

Another factor to look at is profitability in the face of downturn. Yes, profits will fall, but keeping company profitability means the chance of permanent capital loss is low. YZJ is the star that comes to mind, having navigating the downturn well with its sideline of HTM business. It is not easy to get a good yield from YZJ and it is difficult to quantified the risk of it HTM business. Nonetheless, I believed these are accounted for in it valuation in terms of PB as compared to industry peers.

Source: DBS research

I also fare better with companies with information on industrial indicators aplenty. For example, in the analysis of Pan United, the price of RMC and construction demand figures are easily available in URA website, this makes modeling of earnings possible. And in the case of YZJ, freight rates, bulk rates, newbuild numbers,  are also easily available in numerous websites.  Even with these information, I am mindful it is still very much a guessing game. So I practiced diversification in investing.

So how do we know if a company competitive strength is intact. In the case of APTT, the last 8 quarters show a consistent fall in basic cable TV subscribers and while premium digital TV subscribers are increasing, the ARPU is falling. It shows a lack of pricing power with the industry. The broadband segment is touted by analysts as a growth area due to 5G rollout. However, ARPU is also falling and the EBITA is not growing. Taiwan at the verge of a possible lockdown, and I assume its premium TV might be do very well in such circumstances, but after looking at it numbers, it did not instill confidence. 

Hence, I believe the better days of turnaround are far from near, although it is worth monitoring.

Selling a winner too early

Well, Venture comes to mind. What would have been a possibly 3 baggers became a 30% gain. For context, I bought Venture at average price of $8, and sold it off at $11

I have also seen Lee metals (Now bought over and merged with BRC Asia)  50% gains evaporated in front of my very own eyes when I didn't sell. 

Lee metals earnings get a bump up due to its opportunistic and profitable EC venture. Given that is is non-recurring, I should have sold when the earnings improved as I expected it. The catalyst is non-recurring and I could not understand why I not sell then.

Cogent, which is privatized by Cosco, is another example. It is another 3 baggers. I didn't believe the rumors of an offer. I bought it at 28 cents, and the offer came 2 years later, iirc at 80 cents.

I think if the operating numbers did not deteriorate too much, it might be wise not to sell too early, unless it is OVER-valued compared to fairly valued. Since if the competitive strength is intact, it should continue to grow or recovers from the down cycle. 

I am consistently tempted to sell some of profitable counters, but I now reminded myself to sell only if operating numbers show loss of competitive edge over a few quarters. 

Buying into false promises

Silverlake Axis comes to mind. Granted, the false promises comes from both management and the delusional myself. I correctly predicted an upturn of earnings as the big projects scored by company seem to be underappreciate by the public and how usually IT system get obsolete after 4- 5 years. I predicted and upturn should come sooner than later. correctly in 2019.

I did make some good money earlier on, buying at 40 cents and selling at 55 cents. But I bought more than I sold, and I average down at 30cent at 24 cents. My thoughts is business will improve after Malaysia MCO is over, and the big projects win will continue. Yet, it is long wait without improvement

I am actually willing to wait it out, given that no one could predicted COVID-19. The red flag is the suspension of dividends. The used to give out dividends in 3 quarters, and while they promised during AGM Q and A that they understand dividends payout is important to investors, they skip an quarter of dividends and blame it Half-Yearly reporting. When is 1H reporting, they have the cheek to skip it again and declare that they will only give year end dividend.

So, I said "GoodBye" to the counter. Doesn't matter if they do better again. if I cannot understand a management or trust it to be aligned to shareholders, then it is a sell. 


If you have reading until here. Thank you. My mind is slightly clearer, I hope you are not too confused. I welcome your thoughts.

Monday, May 24, 2021

Company Prospecting: China Resources Cement 1313

 I did another round of screening for dividend stock for both SGX and HKEX recently.

The criteria I selected are:

1) PE less than 10

2) ROE >20

2) ROIC >15

3) ROA >10

4) Net margin >10

5) Quick and Current Ratio >1

6) Debt to equity < 0.3

7) Dividend yield > 4%

Of the close to 40 counters that appeared, only 3 came from SGX. (Which is quite sad)

After that, I went on to check for consistency or improving trend of the above mentioned metrics, companies that do not give out dividends regularly, or have earnings that are doing a yo-yo are eliminated. I do allow earnings to drop in 2020, given it is a covid here. 

About 3 or 4 counters are left. 

China Resources cement is the only one that made me pulled the trigger today. First, some numbers 

Source of data are from FSM Screener.

The numbers look great for a 7.5% forward yield company, isn't it, with payout ration of less than 50%, and FCF yield of above 10% if you take the 5 years average. 2020 and 2021 Capex is high at 5 billion HKD, company already guided for 2022 Capex of 2 billion which is more like the norm.

Going forward, Q1 results is good, EPS grow 15$ YOY.  (

It is my speculation, that post Covid, China will spend more on infrastructure, and this is the thesis, that lead me to buy into Lonking, which has pans out well so far. 

 Due to the low base effect of Q1 Covid on China, the numbers show a big jump, while margin is lower.

By QoQ the pace of expansion (Turnover)/ and profitability has decreased, margin has fallen too. 

It is highly likely the reason why the company is trading at such low valuation, as people are betting 2021 will be worse than 2020, and this is indeed a risk.

Given the track records of the company, and the emerging theme of "Going Green" and "Going high Tech", “IOT" of the New Economy, I believe any reduction in infrastructure in a bump on the road rather than any structurally decline. 

Hence it is a risk I would take. 

Wednesday, May 12, 2021

Company prospecting: Tianneng Power 0819

 TianNeng Power is a company that I recently accumulated due to price weakness. It is the only company nearing the Threshold of 5% of my Portfolio now, and is particularly rare, as it is a Hong Kong Counter, but I find it too attractive to ignore. 

First, a few pictures.

Number wise, earning is improving over the last 5 years, FCF is stable over the last 5 years, debt is stable or reducing over the last 3 years. In fact, if you look at the latest Q1 results of TianNeng Battery listed in STAR, which is a subsidiary but form 80-90% of its earning, it is again an impressive Q1 of more than 40% growth. 

Valuation use, PE trailing is 5X, if you expect the earning growth to continue, it will be even lower than this. Dividends is low but decent, 3% with about 20% payout (Hardly punishing.) FCF yield is so-so, in the 7-8% range, but not too shabby, given ROE is 32%. Debt is low, with debt to equity at 0.19. 

Valuation of Tianneng Battery is double or triple of what it is doing in HKEX, which does not make a lot of sense to me. 

So the number part is pretty impressive. 

So the story part? 

It is even more puzzling that TianNeng is flying under the radar. In the years where ESG and EV are all the rage, it is very puzzling than Tian Neng is so grossly neglected by investors. 

Granted its battery is used mainly for light electric vehicle, bicycles etc, which is lead-battery powered, but Tianneng has moved into Lithium-ion Battery business and also in Oct 2020, supplied storage battery for a Power Plant. Both sector has the hottest theme and story of ESG. Granted competition is going to be stiff, but the pie is growing, and its low valuation should provide the buffer. 

The lead battery market is Hugh, and battery need replacement every 0.5 years to 3 years. It is the market leader in these area. 

China is promising to be a carbon peak country at 2030, and neutral at 2060. EVs and renewables are 2 ways which there are moving towards. Tianneng is going to have a bite at both pies, and is not like the core business of lead battery is being disrupted as they pursuit growth. 

They have been growing at 30-40% for that last few years, and for such a grower, you get PE at 5 times?

Yes, it has almost double from its 52 weeks low, this is the only explanation I can find, where traders rotate out of it. However, I find value and is willing to get 3% yield as I wait for capital gain as well as dividend growth. 

It will be a matter of time market rerate this counter if it continues its growth. 

Monday, May 10, 2021

Random thoughts: My son taking PSLE this year

 This year is the year my son is taking PSLE. Many thoughts keep swirling in my head, and thought I just pen down my thoughts, incoherent it might be.

It is difficult for him. My wife and I have pushed him hard, and I must say his attitude has improved compared to last year, and there is more effort from him. As a primary school teacher, I knew in terms of efforts, or/ and capability, he is nowhere near the top or comparable to diligent pupils who are hungry for success. 

Yet, seeing him trying is good enough for me. (I speak only for myself)

We did discuss about a secondary school that he should aim for. I am not sure if he is really interested anyway, likely he is not interested in the school and more interested in the school where most of his friends would apply to.

It is a very surreal experience this year, teaching both my son and my pupils. I have been teaching graduating classes for many years, and this is the year where I really stop and ask myself, does a particular secondary school really matters?

I know it matters because the pupils of that school would become your child friends, you might want to stretch his capabilities by keeping him constantly challenged by other pupils equally smart or smarter. Given school tailored their programs according to the profile of the pupils, definitely different schools offer different programs. However, I am of the view, what he gets, is where he goes. If he did very well, good, and fine. If he slips, he go to a lower tier school, I am fine with it. 

What I cannot accept is not putting in effort in the pursuit of academic excellence. Stress, is inevitable in my opinion, and the pupil who got the worst end of the deal and those who do not grumble. Those who are lazy whine the most, although there are always exceptions.

I went to a notorious school. However, it was the best experience in my life. Pei Dao Secondary School used to be in Toa Payoh. The school is a powerhouse in volleyball, there is no focus in CCA, no such thing as DSA in my time, we trained hard, and that means everyday except Sunday during the holiday, and we were duly crowned the National Champions in C division. As I need to help out in my dad stall, I decided to change my CCA in secondary 3, but that experience is really invaluable.  I was made the head prefect in my school, I was a useless one at that, but I at least learn to talk to all pupils from both express and normal stream, and try to assist my teacher in whatever way I could. 

Looking back, I believed my life is shaped by many moments, and Secondary School, is really about my social view, I never have a problem of a being a snob (I hope others feel the same), I find "ah bengs" rather nice people. If you ask me, the real "gangster" during my time is so much more "gentleman" than the gangsters nowadays. I enjoy the company of anyone, as long as they are honest with me. I had more problems with guarded "successful" people. Maybe It is sour grape mentality. 

As I look at pupils in my school, and know of their "life stories" (some are pretty drama), I feel quite sorry for most of them. Are they living the dreams of others? Do they even have a dream? I didn't, but I studied for myself, and as and when as I wanted and feel like. I got 226 for PSLE. I do not feel ashamed about it, neither and I proud of it. It was what I could manage under the circumstances then.

I did volunteer work during my college days, I think that is one of those life-defining moments. Friends that I am still in contact with are friends I know when I volunteer at a hospital. I am still in contact with a few secondary school friends, but we do not meet up anymore. 

NS also did shape some of my values. 

So, my son, and my pupils. I love you regardless of your results. I hope all of you think academic excellence seriously, and overcome challenges that come in that pursuit. If life is a bed of roses, you need not study so hard. It is not for that last mark, it is to build up that reservoir of resilience. I wonder if you ever feel that the adults have ulterior motives in helping you. I really do not have any, although I do get disappointed when you do not do well. 

All the best. It is still 5 months away, but it will be over in a blink of the eye. Take care

Sunday, May 9, 2021

SPH: Told my family members to cut loss

SPH restructuring is a bad deal for shareholders, in the near to middle term.

While a demerger from Sembmarine did Sembcorp good, there are several differences. 

1) Sembcorp Industries shareholders receive Sembmarine Shares. SPH shareholders get nothing, in fact, they lose NTA value for "nothing"

2) SCI post demerger can focus on renewables, and while one can argue that SPH can now focus on property, SPH is now a property company commanding a valuation that is on par with Capitaland and don't see how it can be compared to Capitaland. In fact, UOL is trading at 0.65 book value, and smaller but established players like CES, Centurion with students accommodation business and also workers accommodation business is trading at 0.47 PB.

HongKong Land, btw trades at 0.3. 

I would agree that SPH would have a different asset portfolio but I think you get the drift. 

3) Valuation wise, we can also value a company by dividends yield. SPH used to be a dividends stalwart, I used to owned it too.  Stripping away revaluation loss, SPH earns about 150 mio for the last 2 years. Assume 30% payout, it is 2.5 to 3 cents dividends. If you think think 3% yield is fair price, then for 3 cents to give 3% yield, SPH is $1. 

Hardly compelling, unless you say SPH is going to double its earning in the next few years.

4) Operational or strategic expansion

Finally, I wouldn't really want a CEO with no control over its own emotions to be heading a company. 

To be fair, SPH faced a lot more constrains then a normal listed company, the NPPA makes selling the business to another party highly tricky if not impossible. 

But, there are profitable ones too.

The top 2 are well known and all are listed entities.

And why throw it the towel in the middle of a pandemic ?