Posted by: donmihaihai | January 2, 2012

The market and activities

Market
The market in 2011 was well it dropped. It created more fear and uncertainty.

Checking STI stock chart from yahoo, it says, STI almost bulled non-stop from the low in Mar 2009 until it reached the high in Nov 2010, bounced off somehow and almost touched the same level in Jul 2011. That was incredible. If it continues that way, we will be in wonderland very soon. So somehow, lot of negative events hit and dropped about 18% from its high.

Just by looking at charts alone, I would say the market is taking a break before going for new high. But well, people read news, and news sound worse than the market.

What will happen in 2012? I don’t know and try not to predict. Generally, valuation is not as depressed as compare to last crisis but neither does it look excessive.

Activities
I invest in Unit Trust using CPF money and despite so much noise, these investments ended the year at breakeven.

In 2011, I stepped into some of the worse regions and countries. Purchased quite abit of Europe and Japan. Beside that also purchased small amount of Singapore and Greater China. What is my plan for 2012? Well if the market keep going down, I will use up the available amount in my CPF (not much left actually) and just dump in any new money that flow into my CPF. But if the market goes flat, will buy bit by bit every 2 to 3 months. Nothing new actually.

Stock
2011 was a year of activities.

Sold out of Pfood after FY2010 results was out. Despite pricing at discount from Book, I have no idea when the low profitability earned by this industry will last. Especially after watching businesses in China from my little world, I am very negative on the way capacities are being add in all range of industries. Let see how it goes. Thankfully, I think I sold at around the high for the year.

Sold out of Full Apex and left with some odd lot. The industry and business is not doing well but I intended to hold because price is good. But I hate it when insider and minority shareholders keep “fighting”. That is a lose lose. I sold out once I know what Pope was doing. Thankfully, I think I sold at around the high for the year. Good luck hit twice.

Almost sold out of ARA Asset Management. Started in 2010 progressively until it reached about the high of the year at about $1.7. The decision was purely valuation. What left over are just for annual report. Or maybe just that I refuse to sell out for a good business.

Sold 1/3 of Sarin Technologies when it almost touched $1. Decision was purely valuation again.

Sold 50% of Food Empire when it reached the high of about $0.50 and sold out of it when it falls back to my purchase price. The decision was part valuation and part disappointment of the management and business. At $0.50 hit my sell price unless the business improves which it did not. Sold the rest at purchase price when I had better ideas.

Sold out of Banyan Tree at just below my purchase price. Reasons were mainly valuation as market was producing better ideas. Perhaps it was also my mistake to purchase it close to Book and did not sell it off then watching the it traded close to 1.5x Book.

Purchased Haw Par Corporation. Consisted of difference businesses if their stakes in UOL, UIC and UOB are considered. On the whole, these businesses range from average to good and managed by people who I consider at least average but conservative. It has been acknowledged that Haw Par Corp should trade at a discount to Book but it is this discount that I like. With these businesses and management, I can wait for a day when market decided that a discount is not required. If that day never come? The businesses and management should carry me over.

LHT Holdings Limited was purchased in a very difficult environment. Almost zero liquidity and a $0.005 to $0.01 change in price mean a big change in valuation. What more, a director has been sucking up what sellers were offering. After the wash out in the early 2000s, the industry should provide better return for remaining player which mean LHT Holdings Limited profitability will be better. But I am still negative about whether current profitability will be enough for future capex. Still there is one thing I believe is if LHT Holdings Limited unable to earn back Capex, the market will adjust itself. The next negative is their expansion into other countries. Oversea expansion doesn’t always mean growth; it can also mean new intense competition. And I doubt that after so many years of cutting and barely profitable and in one of the industry where ‘talent’ don’t like to work in, they have the right management to bring them forward. But well, an average(or even below average) business with very good price make the cut.

Starco Corporation Limited was purchased in a very difficult environment especially when I refused to pay anything more. Add in repurchase by the company. But this was also the only company that I pay above Book.

Hong Kong Land was purchased during the year. I have not read a single good country that is positive on property market. But then this is the period where company can be purchase on cheap. I might be early but I like this management and how it is being managed.

SC Global was purchased during the year. Two things that associated with SC Global will be government measures and high leverage plus unsold inventories. I have a different view. SC Global leverage is not high. The interest payment that worried me but this worry goes down when development reach TOP. Next debt to fund working capital is different from debt to fund Capex. Especially so for property developer. And let say current government measures work(more will be coming if it don’t), it will cause price to drop or at least flat. It will hit cost and revenues. In this industry, any player with access to low cost land will generate good profit. Completed unit is liquid. Better still if these units come from low cost land.

Increased in Asia Enterprises Holding during the year when price dropped. Business is still the same so the purchase was base purely on valuation.

Increased in YHI International during the year when price dropped. Businesses should be the same except that it is moving into direction that I don’t really like it. But I like the valuation better

Increased in Wheelock Properties during the year when price dropped. Despite all the noise on government measurement, business is still the same and valuation makes the cut.

Increased in TPV during the year. The industry suck and I don’t know what will happen 10 years down the road. But there are good indications going forward. Less change and weak players fall out. Hopefully it will go the way of LHT Holdings Limited. Valuation makes the cut.

Changed?
Maybe so maybe not.

I have been placing my bet on increasing stocks rather than concentrating on a few. Why is it so? I would like to think of it due to 2 reasons.

1st is due to increasing the pool of company that I watched. This might resulted in buying more companies.

2nd which I think is the more likely reason is valuation. Despite the dropped, good business with good management are not cheap at all. The best is just fairly reasonable. I think average and lousy companies are way cheaper. Many companies hit the price I would like to buy but it never goes free fall after that. So there is no way I would goes for concentration.

So what will happen if the market goes free fall in 2012? I will goes overdrive, leverage if need. Dump holdings and goes concentration.

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Responses

  1. What do you think of TPV for 2012? I understand that it has acquired rights to some parts of Philips business. But the stock seems to have been hit by this deal suggesting perhaps it is a better deal for Philips than it is for TPV. I am vested but I am thinking of shoring up my stake in this, or Etika International.

  2. Spare me by not talking about what is in for 2012.

    Who is suggesting or who are dreaming?

    I save my commnent on Who is getting the better deal. But how much will it cost TPV if this is a lousy deal. —– operating expenses.

  3. Generally the acquirer overpays in the deal. Looking at your point, operating expenses will increase, but would it be offset by the increase in revenue, ie better margins?

  4. My ignorance!

    Just finished the circular.

    Yes operating expenses but might resulted in hundreds of millions of reported losses.

    What should I say…. read your circular and form your own opinion!

    From me and hate me :

    One of investing sins is read around from mag, newspaper, forum to blog but never the offical document.

  5. For YHI are you concerned about their attempts to “internationalise” the company?

  6. ucypmas,

    Sorry I don’t get you.

  7. Hi donmihaihai, sorry for being a smart aleck.

    You mentioned that you did not really like the direction that they are going. My question is are you actually concerned about the pace they are investing in the OEM rim manufacturing business? I think you have made a solid pick in YHI, but I am ambivalent about the rim business as I think it is something that can be commoditised easily.

    The only benefit I see is they get the obtain the expertise needed to get their proprietary brand going. It is however quite an expensive venture so far given that they have spent a fair amount of accumulated profits on the plants, and taken on debt to do so as well.

    Cheers.

  8. I don’t think there is a need for a company to has manufacturing plant in order to start some kind of proprietary brand.

    Manufacturing business is capital intensive and it is the same for rim manufacturing. YHI has pumped in lot of capital. ditto the same for Stamford Tyre and Lizhong Wheel.

    This venture started way back before IPO the YHI has earned quite some return back then. ditto the same for Stamford Tyre and Lizhong Wheel.

    Capital intensive business require debt financing and this is the norm.

    This is a commodity business, especially so when the company put other brands on the finished products. But that doesn’t mean it can’t earn good or average return on capital. There are ways to do it as long as the company don’t get the cost side of the equation wrong. Many businesses are in the same situation.

    I think it is the common knowledge that to be be a player in rim manufacturing business mean lot of capital and size. If only a small handful does that and being sane, I would love this business. But that is usually not the case.

    I am not that concern. This family business ran an international distribution business cum manufacturing. Their record says, they will hold the horse if there is a need.

    Also since I am not paying for anything extra(comparing valuation against profitability), I am not worry.

    For example, I was looking at Boustead Singapore and still looking at it. But I have not touch it yet. Why? Because I am concern about the potential “premium” I might be paying and I passed each time when I think of what kind of return I would get with the management and businesses. It will be way easy if it is trading at about 25% cheaper.

  9. Thanks for the extensive remarks. It helped me connect some dots.


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