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.

Posted by: donmihaihai | March 9, 2022

Late 2019, Sarine analysis.

The dominant player in diamond equipment/ system industry. It is very big in manufacturing equipment and moving toward the same for retail and mining. And there is no replacement for a number of their equipment and Sarine is trying to put a chain from mine to retail with Journey. Unlike previous tries, I think Journey has much higher chances of success and if it does, I don’t see anyone that can knock Sarine out in this industry.

Diamonds mainly go to ladies finger and look to continue for a long long time. Recently, LGD provide an alternative to mined diamond and as far as I can see and I think the management is right, LGD will not replace mined diamonds in any meaningful way. In fact, I suspect the conversion between ladies will go on to label LGD as cheap and inferior or even fake. In a way, LGD will become mass market product and mined diamond will become even more premium. And Sarine equipment works on LGD too so a reduction in mined diamond size will likely be offset by the addition of LGD.

In the last 5 years when Sarine was in trouble, it still managed to produce ROE of about maybe close to 10% and way higher, 20+ to 30+% during good time. All done with lot of cash and little asset on B/S, so this is its earning power of the past. For the future, I don’t know how big Sarine can grow but if I ignore growth, I don’t see why Sarine ROE to be continued below 10%. How high is another matter.

On valuation, Sarine was trading at between $0.30 to $0.35. I could get return of 10% to 15% if Sarine going to do better than last few years but still so-so, and with high upside if its ROE go back up to 20+ or 30+% when buy at close to 1.5X BV. Then the share price went down to below BV for a while. Got really excited when I keep buying while hoping that it will keep dropping.

And I wasn’t worry about the copycat competitor by illicit methods or health of diamond industry. My only worry was LGD and no matter where I poke, I kind of getting one opinion, ladies want real diamond. Doesn’t matter that the technical aspect of LGD is a real diamond, it will not be accepted as one. So, I agreed with the management.

This is it. Simple analysis of Sarine about 2 years plus back.

What is cryptocurrency?

From Wikipedia –

cryptocurrencycrypto-currency, or crypto is a digital currency designed to work as a medium of exchange through a computer network that is not reliant on any central authority, such as a government or bank, to uphold or maintain it.

What is currency?

From Wikipedia –

currency in the most specific sense is money in any form when in use or circulation as a medium of exchange, especially circulating banknotes and coins. A more general definition is that a currency is a system of money (monetary units) in common use, especially for people in a nation. Under this definition, U.S. dollars (US$), euros (€), Indian rupee (₹), Japanese yen (¥), and pounds sterling (£) are examples of currencies. Currencies may act as stores of value and be traded between nations in foreign exchange markets, which determine the relative values of the different currencies. Currencies in this sense are defined by governments, and each type has limited boundaries of acceptance.

When I was a young man. I would change my SGD to say Thai Baht before travel to Thailand and bring some extra SGD along with me. If I spent all my Thai Baht before my trip ended, I would need to find a money changer with a lousy rate to change my remaining SGD, or I will be as good as broke. The only way to spend is to use my credit card but I will still worry about the SGD hidden somewhere in my wallet. All currency other than Baht is as good as useless to those street stalls in Thailand and SGD is actually quite powerful, I have a higher chance that those stalls will accept my SGD when I am out of Baht (Done that before at some crazy rate).

For me, SGD has no value. It is merely a paper where my wealth/or money is stored, perhaps the money I received for working in KFC for a day. If I picked up a SGD50 dollar on the roadside, I am picking up a SGD50 dollar that a guy/lady dropped, his or her lost wealth.  If I am from Indonesia, I am pretty sure that those street stalls in Thailand would never take my IDR when I am out of Baht. The different between SGD and IDR is “in Singapore we Trust or in Indonesia we Trust”. Just a saying, not as in really that. But we all trust strong to weak countries and responsible to irresponsible governments.

I don’t care how unique Crypto or BTC is. It is just another currency, and it will act like a currency. So BTC has no value by itself.  BTC will reflect my money and in whatever we Trust. Here is the problem, that whatever, that reputation seen to be like a god to fan of cryptos and shit to many others. What is what, time will tell.

I know the chart of BTC price. Don’t need to tell me about it. And there is a simple truth. If BTC is dog dung, I am pretty sure that everyone will start looking for dog dung in the park or even kill someone for some dungs. What change is not the dung, what change is the view on dung. Now the value of dung depend on everyone views at any particular time.

If BTC is dung, it will still worth as much until the view changed.

Posted by: donmihaihai | December 3, 2021

Platform, Ecommerce and Dairy Farm

The hardest part of JMH is Dairy Farm. It used to be that supermarket and health and beauty product are decent businesses when run well. It has changed in the recent years with the surge of e commence platforms. Even dinosaur like myself has been buying stuff online(not a lot!). Yeah, it is easy, just a few clicks. But I am a stupid shopper who would just take and pay in a retail outlet so my opinion on these platforms doesn’t really count. But if the world around me shifted, I would shift. No doubt about it but I prefer to not shift because I would need to learn new stuffs. I am keen on learning my kind of stuffs and shopping is not.

E commence is where the money is and being valued at incredible valuation which mean money are flowing to this pot.  With these money, these platforms are swimming naked in a huge tide of money. They are fighting among themselves, fighting against the old retail chains, fighting against just any shop, within or cross border by offering every kind of merchandise at cheap price. 20 years after internet bubble, this is the real assault against physical shop and just like my shift if needed, any shop that refuse to change will be replaced. There is no sorry, these shops are part of our culture, we need to keep them. Capitalism is not charity.

But I don’t think it is that easy to say these platforms, or this or that platform is the winner, or the future is so certain. With the old dinosaurs making the shift when face with change or die choice, and platform keep popping up, anyone with some business sense will be able to see how good they are with little competitions. So, don’t you think that everyone wants to operate some kind of platform and what is stopping the entrants?

Platform, platform and platform, the coolest word around, there are many fake and lousy platforms. How many unique are out there? Just a handful maybe. I don’t see a world full of platforms. Well, my mind always switch off when I read article that say how unique their platform is, etc etc. You don’t need to “sell” me how great is your platform, everyone will know it because it is the nature of thing. And if you are the future unique, I am just not able to figure it out.  

I also do not see a future where a handful of companies control e commence around the world. It just doesn’t make sense. If it does, shopping in the future is very boring. Heng I am not a shopper…..  

This is not a place where I want to place my bet because all I see is blood, blood and blood (competition, competition and competition). Aggressive competition is usually good news for consumer but might not be so for companies and Dairy Farm is part of it. The good thing is Dairy Farm is not elephant enough when I am looking at JMH.

Posted by: donmihaihai | November 30, 2021

Micro Mechanics

The management has every reason to be proud. Micro Mech generated ROE and total shareholder return of > 15% pa since listed over 20 years ago. Shareholders are so lucky that the management was in the 40s then and I don’t think 60s is old. Managing is not a physical contest. While I do not have any data on my hand, this type of return is likely to put Micro Mech right at the top tier for over 20 years locally and globally and possible within top 20 of all SGX listed co. Over a longer period, almost all co. will hit a wall or something. I will really take my hat off to the current management team if they are able to generate 15% pa for 40 years. That will require getting the next management ready, take over and also mature.

I hope that the current management foots are still firmly on the ground. I believe overconfident, arrogance and complacent are the major diseases against long-term performance. Management proudly communicate achievements to shareholders is good. Overdo it might signal the diseases.

Micro Mech is quite a rarity. Honest, hardworking and look to have their own unique culture and good communication to investors. This is the Micro Mech that is firmly printed on my mind. And I think That Micro Mech has changed recent years. Mature might be the better word. I don’t know the exact point, but perhaps since the decision to refocus CMA on semicon critical parts, Micro Mech has become clearer and clearer on what are they building.

The management is clear on communicating on the landscape and the potential(industry with long runway) and how to win against other players( competitive advantage). Which is so un-SGX. I can count the number of companies with just one hand. I know quite a handful of SGX listed co. pretty well.  

But then, I don’t think I will be writing much about Micro Mech any time soon. It is like watching the story of a boring company in a fast-changing industry in a slow-motion movie. Thing might change in the near/mid future as the industry is setting up for a massive excess. Till then or when share price became sensible.

Posted by: donmihaihai | November 23, 2021

Jardine C & C.

The SE Asia arm of JMH. Jardine C & C is a conglomerate, and its main interest is the 50% ownership of Astra International, one of the biggest listed co. in Indonesia which is also a conglomerate by itself. Beside Astra, there are other substantial interests(10% to >40%) in Vinamilk, Thaco, REE, SCC and PT Tunas and direct motor (distribution/ retail of motor in Singapore and Malaysia). Thaco and REE are conglomerate as well. Yes, I exclude Gojek that held by Astra.

Key points 1) Other than direct motor, Jardine does not run Vinamilk, Thaco, REE, SCC and PT Tunas. Astra look like a mixed. 2) Interests in these companies are purchased by Jardine C & C over the years with some over 20 years. In short, Jardine C & C make concentrated investment in companies with a long-term view and let the management run the business as they deemed fit with some or little inputs.

How should I evaluate Jardine C&C?  How well these companies will perform over long term and the prices which Jardine C & C paid for them. From the look of it, these companies range from decent to excellent, so I expect Jardine C & C ROE to move closer to investees blended ROE over a longer period. i.e higher ROE.

To protect Jardine C & C, these investees must run their co. with sound financials so that the kids won’t go to parent asking for money, especially during bad times. To protect itself and investees, Jardine C & C must do the same, sound financials. But I think, Jardine C & C has push this responsible to JMH. From JMH point of view, it is ok or even desirable since Jardine C & C is also a listed co.

The cashflow of Jardine C & C is consist of mainly cash dividend out by investees plus direct motor. Thereafter, Jardine C & C dividend out almost all its received cash. So, to take sizable investment in current or new investee, money must be raised. Minority shareholders will need to share their proportional responsibility with JMH.

Conglomerate discount. Almost never heard that Jardine C & C is being labelled as such. Its share price was always trading at I would say a premium until recently. Who know, Conglomerate discount might follow Jardine C & C from now on if share price continues to disappoint. The opposite is true as in when times is good, even conglomerate trade at a premium.

At SGD23, Jardine C & C has a market Cap of about USD6.7B. Astra has a BV and market cap of USD11.6B and USD17.6B respectively. With 50% interest, Jardine C & C share will be USD5.8B and USD8.8B. Basically, if you are interested in Astra because the share price is trading at fair value or undervalue, it is cheaper to buy Jardine C & C.  

The next question will be what about is the value of Vinamilk, Thaco, REE, SCC, PT Tunas and direct motor. They are of decent size and the carry value of Vinamilk, Thaco and SCC is already about USD2B, add REE and PT Tunas will give a carry value of USD2B to USD3B. Less Jardine C&C holding level debts, will still be USD1B to USD2B. That is about or close to 1/3 the size of Astra. 

The future of Jardine C & C will depend on these names. Astra, Vinamilk. Thaco, REE, SCC and PT Tunas and potential new name. JMH set to benefit the most and Jardine C & C does not need to stay listed. 

Posted by: donmihaihai | October 22, 2021

Jardine cannibalisation

SGX listed companies doing more share buyback in the past 2 years? I don’t know but would like to think so, since a number of companies that I have invested in bought back shares or in the process of doing so. When share buyback is conducted in the right manner, I cheer for it. Also, companies should buyback shares for their share option scheme because it is tax deductible for Singapore incorporated company. Those who doesn’t, only mean 1) tight or lousy cashflow or 2) ignorance of local tax.

I don’t trade. Short term movement of share price mean nothing to me unless it is a 100% or 200% surge. So, when HK Land share price increased from just over USD4 to USD5 while it conducting buyback, I didn’t cheer for it.  I am not selling at USD5 or USD6, so over a longer period, I benefit twice when HK Land is able to buy back more shares with the same amount of money. 2nd when buyback flow to JMH.

JMH is also conducting share buyback and has spent over USD1B in the last 2 to 3 years.  Add that to USD5.5B acquisition of JSH remaining interest, total amount spent to close to USD7B and this amount is on top of operating Capex by its subsidiaries. USD7B is an elephant in the room when it is more than 1/3 of its current market cap and at certain point last year, about 50% of market cap.

But the market doesn’t like it and I hope that not just the market doesn’t like it, it is even better to question and hate it. I don’t need share price to keep going up to feel good.

What is the market value of JMH? If I look at SGX website or elsewhere it will be listed as USD41B. That would be like 721million shares X USD57. What is the market value of JMH when wholly-owned subsidiary JSH own 59% of JMH, ie 59% of 721 million shares. Easy answer really.

What make it so hard when JSH was 85% subsidiary of JMH ie the cross holding?

When JMH spent USD5.5B to buy 15% of JSH which valued JSH at USD37B. Is it cheap? Of course not! JSH shareholders’ equity was about USD36B. But then it was not 15% but 30%, when you will get 50% reduction in share counts when multiple 85% X 59% and JSH was valued at USD18.5B as JMH was buying about 30% of JSH. A discount to BV is appropriate for valuing JMH and JSH because of HK Land.  

There is little interest in Jardine and who care what I wrote. The only article written recently on Jardine buyback doesn’t understand what they are writing about.  

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