Posted by: donmihaihai | November 21, 2022


Its share price is doing great, way better than spin off YZJFH and I believe better than most other stocks.

So, let write about it.

At $1.32, YZJSB is worth just over SGD5B, that make it trading at about 1.6X BV. A big jump compared to 2020, when it hit a low of about $0.70, about 0.5X BV or even lower. Well, that was pre-split, so the number include YZYFH. In term of giving YZJSB a re-rating or higher valuation, it seen to work but I don’t know whether it is because of that or just plain getting more orders.

YZJSB results has yet to improve much for various reasons, but I believe the main reason is simple, don’t take book orders at face value. The surge came at a period of very dry cyclical low point. The initial orders were of low margin, well the yards are almost going to sit idle soon, so margin will be better when the company is able to pick and choose. ie more recent orders. I don’t know for sure, but don’t take order book at face value.

Some say when shipbuilding was at the down cycle, loan portfolio gave YZJSB another leg to stand. Maybe it was but I see it differently. It was just excess capital from shipbuilding that was put to work that produce about 10% ROE. Even at the lowest point, shipbuilding ROE did not drop below double digit pretax. The more YZJSB expand its loan portfolio, the lower its ROE will be. plain math. Without the loan portfolio drag, ROE can be explosive at cyclical high. It is just the nature of the business.

YZJSB did not just accumulate a portfolio of loan, it also built a portfolio of vessels during down cycle and will has the same effect of explosive ROE at up cycle. This is also clever use of capital, but this segment is unlikely to grow big and make no sense to be direct competition against customers.

Standing at the bottom of a down cycle, the future always looks great. That was 2020. In 2022, still great but I have enough of YZJSB, not buying or selling for a long time. The company looks focus trying to be the best shipbuilder in the world.

The reasons to invest in 2018 and followed by buying as much as I was able to in 2020 was simple. One of the best shipyard around, with the right numbers and excess capital plus focus. What more buying at deep down cycle. 2018 was already very good but 2020 was extremely good. All lights off. I don’t mind buying in the dark.

Posted by: donmihaihai | October 22, 2022

Environment change, profitability change

If we are moving forward with higher interest rate, bank will benefit with the less pressure as the spread between loan and cost of loan widen. This will result in higher profitability until time when higher interest rate actually hurt the customer result in higher defaults which mean that profitability will not be ever increasing. I would be looking out for higher profitability for bank on their loan book with some problem on during transition period because of the long term lock in effect on both loan and cost.

And banker matter. Higher interest rate will kill more borrower and we will know which bank is taking more risk soon and whether the so called AI is really up to the task of accessing credit profile, rate and risk. I believe AI will fail big time not because human is better. Just look at those human failures. Those in risk management always call those events the so-called unthinkable, once in XXX years, things that never consider will happen that actually happened. These AI has to reach higher level than human to avoid human failure. There are a small group of people who are way better than average but these are minority. I am doubt that machines will be learning from these people.

Then we have the borrowers. Unlike the banks that faced years of pressure on narrowing of spread and need to work harder for profitability, borrower was in a period of reducing interest cost. What used to be unworkable, marginal profitable became workable and highly profitable. This resulted in higher profitability among company with high debt load. IF we are in a higher interest rate environment, interest cost increase.

Just take a simple example, FLCT, in FY2022, it boost its cost of borrowings at 1.6%. Total finance cost was SGD45M of which interest expense on loans was SGD35M. FLCT debts stood at SGD2,682M. Recent HDB 5 years green senior bond at 4.09%. A 4% cost of borrowings will increase interest expense on to SGD87.5M which reduce earning by SGD52.5M. SGD52.5M amount to a direct hit of $0.014 to DPU of $0.0768, close to 20% reduction.

I know some peoples and even management won’t be saying how bad it will hurt. Some even point to how smart the management is by the high percent of loan in low fixed rates. Yes and good. Then the question to ask is and then what. Just like the transition period for bank, post transition, company will not be able to win against the environment, higher interest cost will set in. And a 7% yielder became a 6% yielder.

The next question to ask is and then what. Is 5 to 6% interest rate look reasonable? What is the chance of even higher interest rate?

Basically I will try not to overcome this problem. Guessing the direction of interest rate is too hard for me, I give up. Avoid company with load of debts. A 30% leverage is reasonable good but at a high side for my likely and I would not be interested if the company ROE is close to 6% and pay a price to get a 7% earning yield.

Just as cost of borrowing will hit company hard in higher interest rate environment, I don’t see any way, as of now that the company will able to offset this cost and earn the same rate of return, ie ROE will drop.  

Welcome to a period of lower profitability if interest rate remains high.

Posted by: donmihaihai | September 24, 2022

The near future

The huge increase in Capex and building lot of chip fabrication facilities in China, US and Asia look like to be the direct response to the tailwind partly caused by the pandemic.

The substantial increase in inventory level as a direct result from end user stockpiling had indirectly increase the tailwind partly caused by the pandemic.

I know we are sort of entering a digital age (I thought we are already in one), future usage and demand for semiconductors has only one direction, which is up.  And if everything goes smart and AI, that up can be really UP. But that doesn’t mean there won’t be periods of oversupply and companies dropping out of this train along the way.

Extrapolation of the recent past into the future is the dumbest thing in using a crystal ball. Thinking that if the company is so dominant in the industry that it can defiance the gravity of lower profit or losses or consequence of just being too powerful is close to the dumbest thing as well.

While Micro Mechanic might not avoid being hurt in the near future, it looks like it will avoid being in any worse situation because of its competitive position. The same cannot be say of most of the players in this industry including dominant companies.

Posted by: donmihaihai | September 7, 2022

Group think

I don’t know how to read the market, but it does look like it is going nowhere. Rally a little and get knock down. Crash some and rally back. Something quite different from recent history.

If the current market trends continue, which I really hope it will, it will resulted in very cheap stock price years down the road. And that is for US market and yes when I say years, I literally mean YEARS, maybe a decade or two. If that happened, who want to own it? Think about HSI or STI for the last decade to two and how you got laughed at when you said STI is cheap in 2020/21. And if you started the journey fully invested…

Of course, I was talking about the market and US market in particular. If you are picking stock like I am, then it is different. Individual stock can outperform as long as you are able to pick the right stocks. The problem? It is damn hard to pick the right stocks. Even if you are able to, valuation can be lower. Maybe say half of what they are trading at in 2021.

Since I am at it, I would say this. Do I believe that it is wise to invest in the same few names that everyone appear to be holding on? No. Group think doesn’t work well in investing unless this is a special group. Nah, they are just trend followers.

Interest rate is going up. SSB coupon and fixed deposit rates are higher. A 10 year SSB has a rate of close to 3%. Good, it will remove some yield chasers from stock market and savers are getting more for their money.

The problem? People are guide by greed and recent history. I can still remember my first FD rate at 5% and the FD rate dropped to 2 something % a year later upon renewal. I was like what why so low. I knew nothing about interest rate and the only two things I know then was I got 5% in the previous year and that was way more money. And I have never place any money in FD since then. A few years later, all my money are in stock market with extra money in bank account and I sleep like a pig while the market swing. Oh yes, I hardly log in and check stock price too. I like the feeling of seeing price jump/crash 50% so why check when price swing 10 to 20%?

I am wired differently from most but I still acted just like everyone.

Recent increase in rate cause many to jump. Wasn’t it just 1plus % recently? Oh yeah, how many those that refinanced your mortgage loan 6 months to 1 year ago actually went for the fixed rate? I said good job to my colleague recently when she said she the rate jumped after she re financed one of the two loans under fixed rate. But in my mind, I was like why just one loan and not both? Didn’t I say, the rate was really low historically, and if you believe inflation is coming(war started, hard/soft commodities going up), then fix the rate. Wasn’t that what your banker told you? Of course, for those who buy/invest in property in the last decade or two, the experience was don’t fix the rate, float it.

Now, everyone seen to like long duration FD or SSB. Luckily, SSB can be redeemed any time before maturity date. It won’t be a costly mistake if group thinking turn out to be wrong again.

Posted by: donmihaihai | September 2, 2022

Share buyback.

I don’t have any data to back it up but it certainly look like more companies are buying back shares. Some of the purchases are for reissue under share schemes while others are plainly because the management deemed their company share prices are cheap. Leave aside on whether the price is really cheap for a second, knowing that more management is recongising that buying back their own shares is an alternative capital allocation option is heartening.

Jardine companies, China Sunsine, Sarine, YZJFH, YZJSB,PEC & YHI are companies that I know somehow but there are many others such as few STI components to smaller companies like Tiong Woon. Thumb up! Jardine did not buy back in any big scale about 10 years back where their shares were traded at some premium but last few years, they are big buyers. Not just their own shares but listed subsidiaries and I think bought shares in right subsidiaries. Certainly I don’t like the idea of buying DFI and Mandarin Oriental International.

At what valuation these companies should be repurchasing share, I am somehow more relax these days. What is more important is that they are buying back in big quantities at at least reasonable price than at deep discount. Those names that I mentioned need to learn from Jardine. Share buy back is not about share price gone up after repurchasing but at what quantity and at discounted price so to reduce outstanding shares. If I am rich enough to buy 1% of JMH and JMH reduce the outstanding share by 50%, my interest shoot up to 2% without spending another cent. The prospect of JMH remain the same as long as capital allocation is done right. How nice for long term shareholder.

Share buy back must be done in a responsible manner too and companies in need of cash are in no position to buy back share. For companies that are sitting on lot of cash such as Haw Par, PEC, Sarine, Sunsine and reasonable share price, I hope the management start to or increase their buying.

I believe that when we look back to the current period, it would be clear that this is one of the rare period where we have many healthy cash rich companies trading at very reasonable share prices. Of course, some people will always say, If I knew it, I would do it.

Posted by: donmihaihai | August 29, 2022

Haw Par 11 years later

Actually close to 11.5 years. Return is so so, just more than double from about $5 post split. About 7% annualised return, half of my expectation.

Main reasons for investing in Haw Par were it is a cheap way to indirectly invest in UOB, UOL and UIC plus getting 2 wonderful businesses leisure and healthcare and other so so businesses for free.

For the first part, after UIC acquired by UOL, only UOB and UOL remain. And I am doing pretty good here because this is the easier part as profit will flow through to Haw Par even if accounting standard doesn’t really show and Haw Par share price outperformed UOB & UOL by about 50%. Share price do swing and the gap has closed somehow if I ignored the other businesses. It can always swing the other way.

Then I got two negative surprises, first is Underwater Sentosa, a wonderful business that was being milked by Haw Par and got killed by S.E.A. I can write more about it but then the key is I have never foresaw it. None, not once. Lesson learned? Be careful of company milking their businesses. You can’t keep milking it without trying to or being forward looking. Management.

Second negative got to be Hua Han. Nothing to say here except that I wasn’t even paying attention on it. Haha, such sloppiness.

And finally, the biggest surprise, thankfully a positive one is healthcare business of Tiger Balm. It is a very good business, best among all businesses in Haw Par and the double digit annualised growth of revenues and profit before got hit hard by travel restriction in 2020 & 2021 with minimum capex. Way out of expectation and very impressive. So I no longer see it as healthcare plus other business worth another 500m of valuation. Healthcare worth way more now.

In summary, 11 years provide return of about 7% annualised return and valuation close to where I invested then if I offset the reduction in discount in UOB & UOL with a heavily discount but still higher valuation for healthcare.

Posted by: donmihaihai | July 11, 2022

Inflation, interest rate and valuation

We all know about the current inflation but what causes inflation? My limited understanding, not the academy definition, is that it is either cause by cost inflation or money printing or both.

How do I know which is which? I think the answer is pretty easy. Because of trade, cost inflation will be felt by all countries, how much the degree will depend on the structure of each country. As for money printing, it will be country specific. If Singapore is printing lot of money, then SGD will lose it purchasing power over time, same amount of money will buy less and less stuffs. But it doesn’t affect Malaysia because Malaysian uses MYR not SGD.

Side track to printing money. It is actually not an act of printing real money. ie money in circulation. Not any more. Money in circulation will always be way less than total money. Well, I certainly has more money than the SGD in my wallet and don’t receive money from my government through mail, it goes right into my bank account. And below is a chart of extreme money printing on exchange rate. So while it is common to point at US for printing lot of USD, my question is why USD still trade within range of all major currencies? The answer will be either a) US haven’t been printing money or b) all major countries are doing some sort of money printing. I choose b) of course.

Since I think the current inflation is due to cost, it will end with cost is under control. A little inflation won’t kill.

Interest rate follow inflation, how closely, i don’t know but I would be surprise if it doesn’t. I think some basic will be if you are talking loan for housing and expect interest rate to go up, you should go for fixed rate but when you are putting money in FD, then short term FD is the way to go. I see people doing just the opposite. Maybe I am wrong and inflation and interest rate are dropping from hereon.

Now the most interesting part. Valuation when you have higher inflation and interest rate. The short answer is just what WB said, interest rates are like gravity to valuation. But before that, let talk about how higher inflation and interest rate impact on business.

For inflation, it will pass through companies over time, how fast or slow will depend on industry specific. If retail rental is in over supply situation, then it doesn’t matter what other say about property being inflation hedge, the landlord will not able to increase rental until demand supply balance itself and at the same time, other cost such as employees, HQ bills, etc will be going up. Now company specific, if a REIT is in similar situation with substantial debts, then cost of debt, ie finance cost will increase as well. If interest coverage is 5X and finance cost double, profit drop by 50%, if interest coverage is 2X and finance cost double, profit drop by > 100%. Companies who extended itself in low interest environment will entered a high interest rate environment in a very bad shape.

A REIT don’t usually construct a new retail mall, just assume that it does because there is demand, then it will need to spend more on Capex as a mall cost more after all these inflation with less profitability. So stronger companies will standout in whatever environment but they are just the second best. The best companies are those with pricing power without the huge capex needs.

How much you are going to value these companies? I would pay less even for the best companies in this environment. Paying 3X BV for a company with ROE of 20% sound expensive at a 5% interest rate environment even if the company has pricing power without huge capex needs but it will not be as crazy as buying a REIT at say 6 to 7% current yield, ie without taking the increase in finance cost into consideration.

Generally, in a higher inflation environment, stock valuation will be way lower, especially compared against the recent history. I am looking forward for it and it might be a long wait.

Posted by: donmihaihai | May 4, 2022

Number never lie part 2

CICT (FKA CMT) again.

Wrote in 2017

Corrected some errors and put up a table with addition number.

It is getting really wow. DPU gone 8%, straight down from 2015 and only 30% higher than 2003. 30% beat inflation? Maybe not unless I use pre Covid DPU but still hardly beat inflation.

Ok 2021 is a Covid year but hey NPI of the Tampines Mall, Junction 8 and Funan increased by 15% from 2015. Covid or not, those 3 properties were doing better.

The only winner is the fund manager. Total assets increased by 1,583% and management fee by 1,106%. How nice of the fund manager that the increase in management fee is not as fast as total assets.

The main point is, will the past repeat itself? If so, will you invest in a REIT where DPU in the future will likely to be lesser(ok maybe just little more) after adjusted for inflation?

Oh yes, remember to check on the increase in total assets and management fee. These are the REAL main points.

Posted by: donmihaihai | May 3, 2022

Market and funds

Unless you are in those techs that enjoyed one hell of a bull run, the market just shakes a little. In Singapore, STI hardly move. Individual stock is another story, anything can happen and those that you think can produce endless growth, can easily cause you endless pain. Stock picking matter and markets do shift, if the market is shifting, those techs that are at 50% down, can easily down another 50% to 70%. Why not?

A lot of those fast growing tech companies are the product of excess capital. A company need capital to grow and if one can get lot of capital at time where music and wine are flowing, there is no stopping the better one to grow fast. In fact, the faster one grow, the faster capital will be push toward them and it is not always positive. Just talk about e commerce. Yes, it is growing super fast but competition isn’t just about online. Offline matter too and the overall pie isn’t growing like crazy, overall pie is a slow grow market. Is supercharged(from excess capital) topline grow the strategy to win? I think not because they are forcing and teaching offline players how to fight, and while some offline players will be gone, most are likely to stay and each new player will know how to play the game. I don’t see them winning here and when they are not winning plus the conditions for excess capital is not longer there, these companies have to learn how to earn capital the normal way when capital is being used up. I don’t know the ending but the outcome will unlikely be the ones many are predicting and a nice movie for me to watch and I am too stupid to know who will win many years down the road. Oh yeah, it is not just e commerce, there are EV, SaaS, Paas, etc. How you name your names doesn’t excite me.

Actually I am a little excited recently because US tech, the last bull standing, is hitting the wall. Look like this bull is ending. I have never really invested in US tech except being one of the fools who walked into a bank in 2000/2001, I don’t remember the exact year. Took out all my CPF money(OA & SA) and invested in 3 funds, Tech, healthcare and a balance fund. And I lost money in all 3 when I sold them off in I believe 2002/2003. Bulk of my CPF money was invested in Tech. I told myself this was not the time to invest in tech or US equities when selling and keep telling myself the same even during 2008. That was the times I should be buying. Haha, I was looking at my losses and news headline. Luckily when I sold off my healthcare, somehow I invested some CPF in another healthcare fund few years later. Why this fund and not that fund, I don’t know but what I did next is do close to nothing. Sold off a small amount in 2015 I believe and finally sold everything during Covid. I got out close to even for the balance fund, still lose out quite because of SA interest. Overall I did badly even with the gain from healthcare which was a few hundred percent. Had I do nothing, assuming that the funds are still around(I don’t know where the tech and healthcare are anymore), with the help of this Tech bull and Covid, I would come out ahead, way better if I do nothing. Time is the friend of being on the right ship even if I paid somehow more.

I was always looking for the right ship and possible right captain. 2 of my earlier ships that I boarded were China and India. Of course I was a lot more positive on China than India. And my action reflected that. Invest more in China over the years(I sold some but not alot) but way little in India and I sold India within 2 years with a nice gain of 70% which I was really happy. It was my first real gain from investing in fund. And what happened? I did not invest anything back and currently, the price is about 5X my entry price and at time high, it was about 7X. What about China? Did decent until the recent China Tech bull run and crashing back. Oh yeah, I am holding on to quite some gain because the current price is still higher than most of my earlier purchase prices and I sold quite some along the ways, locking gain when the market was good.

Talk about luck. Tech and healthcare, China and India. I betted on the slower ship each time. I came out ok but haha. There were more of course, I betted on commodity related fund, thinking the bull has many years left. Bet on a captain but did not follow though. Those were earlier. And how can I not talk about Japan equities. During that earlier period, I invested in Japan, thinking that it was getting out of its long term secular bear market. It is true that Japan was in a long down market but I got suck in at a period of mini bull when the news headline keep popping Japan then it clash back, together with the rest during 2008 and further into early 2010s. So I keep buying, slowly till the bottom. On the reversal, I told myself good job and started to sell slowly when I was up I believe 30 to 40% on my average cost. Japan was very corporative and keep going higher but I somehow kept a 10% remaining. At the moment, it is up about 70% from my average and no one is even talking about Japan. Haha. After righting my wrong, why did I start selling? Because the future of Japan look lousy maybe. Had I not sell, I would be happy to keep them for a long time until Japan go crazy.

Despite all these, my return from investing in funds is still quite decent. High single digital percentage pa. I need to forget earlier experiences. Don’t walk into a bank and say I want to invest. Never do it anymore. Then ignore the favorites of the times. I am doing it too. Lastly, don’t try to sell early.

Talk about last 2 years, in early 2020, I bought into Europe, Singapore, Malaysia and Thailand. These were the goners. Who want them. Currently, I am starting to buy a little of Europe and China. China was cheap in early 2020 if you ignore China Tech. And after China Tech crashed for more than a year after its peaked, seeing Aberdeen China crashed like 40% from ATH, I jumped ship luckily, now I am happy to buy more, just need it to continue going down.

Still I am waiting for the last bull to be gone. And it will be painful for many peoples and their money. Lot of money will be lost and new bulls will be formed elsewhere slowly but surely.

Posted by: donmihaihai | March 27, 2022

Back to normalcy

Not yet but getting close.

From the moment we know that the vaccines are not elixir but still damn good vaccines and greatly reduce the fatality rate of a highly transmissible Delta, the only logically move is take the vaccines and let Covid pass through us, count the losses and move on. I don’t see any other way out unless someone created elixir and I am glad that my government realised and move toward it after roti prata a little. Nobody will get it right all the time, in fact I believe able to change after knowing it is a mistake matter more than brain.

Covid doesn’t scare me, even without vaccine but I doesn’t want to count the losses. What scare me more during this period is the hatred, the you, me, west, east, we did well in handling the covid but not you, etc etc. I think it is getting quite boiled and not sure if it will get worse before getting better.

If the east and west, China and US, Chinese and US doesn’t know how to work together, live peacefully, then it is not a bright or happy future. I am Chinese, seeing all the anti US sentiment coming out of my fellow Singapore Chinese mouth, make me wonder when did we go so low. If the other fellow doesn’t move, why can’t we take the first step.

I am hopefully. Seeing everyone around me adapt and live with measures from my roti prata smart government say we can change, for the better.

As for Covid, the end game will always be back to normal. No mask, no vaccinated status check and free to travel. Yes we need to pull the anti vax group back as well. If there is no new dominant variant, omicron is actually helping us alot, just think for a second if delta is still the dominant variant…. And yes, China will be the first country to start the abnormal life and last or last few to get out because its government doesn’t know how to roti prata.

The first thing to do in a shit hole is stop digging.

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