Random thoughts: Right valuation usually appear only during the wrong time

In investing, if we want to manage risk, there are a few ways.

Last week, I talk about diversification. I was referring to diversification into more counters as compared to concentrated bets. 

That is just one side to diversification. The other side is diversification across asset classes, so u are not heavily vested in just equity. Textbook theory talks about Bonds and Equity. I guess for me, my only meaningful asset class diversification is CASH. 

Today post is more about valuation.

It is a key part of FA, a great business with good fudementals must go hand in hand with a great valuation.

The ironic is, given market is effecient most of the time, u can only get great valuation at the wrong time.

2 ways IMHO, and both happens in the wrong time.

1) You get the good valuation in the future.

The company valuation seem high by today standards, but u projected the earnings for the next few years (I could only do it with confidence maximum of 1 year projection, beyond that is usually just a good guess) and see a compressed valuation.

So u dun get a good valuation NOW/ YET, u let the company grow into a good deal.

2) When bad news that do not really affect a company structurally in the medium to long term break, and sentiments are weak, u get a good valuation NOW, but u have to wait out the poor results that u expected (yet overly punished in terms of shares price) and for sentiments to normalised to get your good valuation.

Conclusion:

The company (mainly, although I could find a lot more examples) I have in mind when I write this article is Alibaba.

It is more of 2) Than 1)

Of course, regulatory risks is scary. Would they suddenly declare all platform companies should be for "non-profit", like what they did for the education and tutoring sector? 

If the tutoring sector "dies" parents still get tuition, they just can't go to the centers. If a significant number of pupils do not have tuition, it is aligned with making education more equitable.

As for platforms, they are a "livehood" for many workers. The cost for big internet companies should increase, as the central pushes for more benefits and safety net to these gig economy workers. 

While without doubts, as this trend unfolds, margin will get squeeze and some merchants might quit the platforms ( with data restriction and privacy issues, it might not be as easy to find customers ), but net net, improving the lives of gig workers is a worthy cause if u ask me. Merchants, platform owners and consumers should be able to find a compromise to share the "social cost"

Tencent, Alibaba and other big internet companies are also pushing into various strategic areas that the CCP hold dear, AI, cloud etc. Will the CCP deliberately make them weaker? I seriously doubt so. 

Of course, there are other political reasons beyond the balancing "invisible hand" and "centrally planned hand" of the economy, but to say is all about toeing the line, it is properly untrue, since Tencent is the quiet poster boy and had it equally hard. 

I did accumulate more of Alibaba when it hits the trigger rule of 25 percent drop. I am not sure how it will turn out. Guess if I fail, there are lessons to be learnt again.

Cut loss: Diary Farm 30 Percent loss.

I finally decided to part way with Diary Farm.

Maybe years down the route, they might recover, or maybe mainland visitors will start visiting and give a boast to the health care and beauty segment. Maybe YongHui loss is one off.

Well, I need not bother myself with all these anymore. 

The consolation from this experience is pays off to diversify, at least for a silly investor like me. 

The loss of Diary Farm hardly make a dent to the overall portfolio, since DFI is less than 5% of my portfolio, am  mindfully restricted any investment at cost to below the ceiling of 5% of total portfolio value. DFI is already close to 5%, I have many counters in the range to 2-4%. 

The reverse is true too, if a few counters gain more than 30%, it also hardly move the portfolio. 

I need most of the counters to concurrently run to make any meaningful gain. 

I must admits the easy money period is over. Time to just sit back and enjoy the dividends. 

Having some cash release, might not be a bad idea too. 

I know concentration bets is  the rogue in recent years.  I do allow 1 counter to go above 5% if it is a highly conviction stock, but never will I allow it to breach 10%.

That is my own rule. No figures for comparison, but I am happy with the returns thus far, especially if I can sleep well, and it is not difficult to cut, as and when required.

Company prospecting: Olam

Just sharing some of my thoughts here.

Olam is a food commodity trader, processor, producer and distributor. There are a few pieces of good news that I thought but Olam shares are trading a recent low. (Post rights theoretical price should be around $1.6) 

Yet, they recently announced record earning and has firmed plans for demerger of OFI to primary list in LSE and secondary listing in SGX. 

Given commodity prices has a good run, and with 1H earning of 11 cents, even if they only 4 cents in 2H (Which is highly unlikely given the elevated food prices, as well as worries over supply disruptions and inflation etc), Olam will be in the PE range of 10. 

Olam also increase dividends in 1H, signaling the confidence of management. 

In terms of valuations, this is the first time in a decade that you will have a chance to get a "discount" in terms of PE of 10 (Lowest), and with PS and PB below 0.15 and 1 respectively. (Barring big writedown of assets due to big swing down of commodity prices.)

If earnings is good, expanding, and there is no obvious dark clouds in the horizon, why such low valuation?

Next, when Capitaland announce it's restructuring, everyone cheers!

When Olam announce it's restructuring, people cheers then start dumping? 

Next, is commodity super cycle coming?

Since June 2020 the price of food is on a tear, 

Even the high prices continue, it is a bonus, if it doesn't, I hardly think with the restructuring going on, the new IPOs will command a valuation that is lower than the 3 metrics I mentioned earlier.

So in conclusion, I think Olam is underappreciated by the market now.  

 

Random inner demons

In just a few weeks, it will be Teacher's Day.

Truth to be told, it is one of the days I dread.

When I see some of my colleagues showered with gifts and I have less. When I see long messages filled with thanks and gratitude but couldn't find mine.

When I see my pupils showing appreciation to others but not me.

I feel pretty lousy and sad

Laugh all u want. This is a random inner demon post, what do u expect. 

Perhaps it is a time of self-reflection. But truth to be told, the self-reflection already started years ago. I do not think I have not tried my best for pupils under my charge, and I believe that I  have cared for them holistically, beyond their grades. 

It is a inner demon and well, one I could live with. Having dread a day but being happy for most of the year is still a good deal.

The PSLE oral examination is finally over. I used to grab hold of pupils along the corridor and do 1 to 1 practice with them. Listen to audio recordings one after another, having zoom sessions to practice with the weaker pupils. 

When I am doing it, I can't wait for it to be over. It is tiring, a 3 minutes recording takes more than 5 minutes to return and track for corrections(another 5 minutes) and u multiple that by 30, it is hours and hours of focused "marking" a few times a week. 

However, it is also during this period I build bonds with the children and our conversation sometimes goes beyond the curriculum and they start to ask questions and share problems. Maybe they feel comfortable and safer in those 1 to 1 session and many a times, I get to know them as a person, understand the challenges they are facing at home.

Children are indeed a marvel. Some of them could be having a difficult time at home, and yet when they laugh and smile, u would think that everything is fine. I am not quite sure I could be as "happy" in their shoes, maybe a trait of child is "forgetful" and it works both way.

Sorry, I digress. 

In my past years, given how much hard work I put in to prepare them for their PSLE, I always appreciate it when my pupils update me how they feel about their exams.

It could be a "yes! I did it", "Cher ! We practice that before!" Or "老师，我很紧张，我觉得我考不好！” it doesn't matter, but I just like to hear from them. 

Usually, quite a handful will give me a update voluntarily and I feel appreciated that I am one of the first thing in their mind when their exam is over. 

This year, none gave me a update.

I guess I have been too pampered in the last few years and I reminded myself it is my job to teach, and their jobs to learn. Professional and transactional. Full stop. 

I wonder if I will post this and will this be a draft? 

Quick Updates on portfolio and follow up actions

Most if not all, Singapore companies under my portfolio has report their results. In general, I expect better results or at least stable results for most companies, except Koufu due to heightened alert phase that prohibit dining in. 

So there are 3 categories of companies. Below expectations, which should be followed by a stop loss limit imposed, and a sell action when price stabilizes. Within Expectations means earnings are stable, or growing as expected. Hold, will suffice. Above expectations, look for opportunities to add when market pull back.

Pretty much most of the companies are in Cat 2

Cat 1   

Diary Farm. 

Multiple disappointments in various fronts. The reasons behind buying is the groceries business will turnaround, and the pandemic will make the business even more resilience or even sticky. When the reopening the starts, the healthcare and beauty segment will then pick up the pace of recovery, and it will be firing at both cylinders.

To be fair, the groceries business turnaround is still intact, and I accept the reasoning that the panic buying create a high base for YOY comparison (Is the same for Sheng Siong). However, Yong Hui swing to loss is not properly explained. It could be something structural about this associate. I mean goods can be flying off the shelves less quickly, but how did you swing to a loss?

I also wonder aloud if HK beauty and Healthcare business is ever going to recover. It is one to the major contributor to bottom line although it is light on the topline. I wonder when will mainland tourists flock to HK again, and even if they did, are they welcomed such that they would want to come back

Numbers wise, they did the nuclear option of cutting the dividends AGAIN, and the double whammy is the cut dividends of 3 cents is still lesser than net profits. 

CSE

Order book is on a downtrend. Topline and bottom line too. Oil price recovery did not lead to more contract wins, although they made some improvements in the infrastructure.

I believe there is a lag time between actual oil price and commitment to CapeX. But with Biden trying giving mix signals on his renewable energy agenda (promising to spend big and go big in renewable, and yet asking OPEC to increase production), the future of "brown" energy is questionable in the longer run. I wonder if the tide will come that will lift a subcontractor like CSE.

Cat 3.

 

Hotung

Hotung already has a record earning year last year, riding on the technology rally wave. So 1H results is already almost equals to 2019 earnings.

Hotung yield is above 10% based on dividends given out last year. It is likely that Hotung will do as well or better (if 2H is as good as 1H).

Even if Hotung sustainable earnings is that 2019 earnings (which is the lowest in the last 5 years), the yield is still above 5%. Hotung investments in Tech and the home ground advantage in Taiwan which is experiencing a tech industry resurgent, puts it in a sweet spot for 2021.

Kayhian 

Similar to Hotung, this company could continue its good performance into 2021 despite the high base. And the reason why it is in Cat 3, is the odds of increased dividends payout. 

HOtung gave most of its earnings back as dividends, 2020 is the year where they gave less than 90%. Kayhian gave 50% of NP.

Given Singapore is a major market for commission income, tracking the SGX announcement on trade velocity and volume is a easy to "project" Kayhian future earnings. 1H turns out well as expected. 

Cat 2 companies are mostly hold companies. which I shall not labor.

I will do a HK review after their earning session is over.     

随心笔：老师的舞台

老师就像个演员、歌手。

他在演艺界，表演给观众看。

舞台上，有些也会犹豫、紧张。

渴望着观众的掌声，

让观众的鼓励给自己动力，

让自己做得更好。

有些演绎小丑，有些是文人，

那些年轻颜值高，多少有些优势吧。

上了舞蹈，就想忘了台下的疲惫。

观众们，舞蹈上的我，也希望你们的支持。

渐渐地，舞台越来越大。

已经不记得自己的观众是谁了。

最喜爱还是天真无邪的笑容。

什么时候，参加了竞赛。

舞台下的观众都是评审。

什么时候，演得自己都不知道在演什么？

什么时候，评审的嘉许或批评也不怎么放在心上。

我就希望有个小舞台，

让我尽情地唱歌。

唱我喜欢的爱的歌，

唱着你的悲伤，我的无奈。

舞蹈上的表演，

越来越不由己。

最可笑的，

都说是为了观众，

却不给我机会和观众拉近距离。

散席了，还在彩排。

不能独奏，说什么合唱、团体表演比较吃香。

我知道，观众的掌声，是肯定。

观众的嫌弃，是改进的机会。

让我在表演中学习，然后认真地彩排。

我是表演者。

我不是策划人。

不要问我舞台怎么设计，

不要问我销售量，

不要、不要。

不要问我哪个市场。

让我尽情地表演。

没人喜欢我的时候，

我会悄悄离开。

不知道哪一天是最后的表演。

每天带着感恩，与疲惫，

表演。

唱你的无助，我的虚伪。

演你的渴望，笑我的疲倦。