Posted by: donmihaihai | January 8, 2016

Market talk 8 Jan 2016

Lets talk about the market. The most common things around for start of 2016.

Markets in red since the start of 2016 and dropping pretty fast. What will happened next and what to do? I don’t know.

What do I know.

  • There are many investors blogging online, having huge readers, giving out advises and even provide courses. To be honest, I don’t know most of them and pretty sure they “pop” out quite recently. I always say the same thing. Bull market suck people in, bear market throw people out. Never change since the day when I bought my first share. Lot of investors back then are either MIA or doesn’t blog or forum much. Not going to think how many of these current investors will still be around few years down the road.
  • Investors who are a little longer in this “game” always say GFC as if the crisis is one we should avoid or buy like crazy. When I started, we keep saying about tech bubbles and Asian crisis. Sound old? Stock market has hundreds of years history and we are just babies.
  • Last 13 years or so was good! Was either a bull market or 2. I don’t know and really doesn’t matter. But I do think that it is a secular bull market and not sure if it has ended. Because of this, I think the next up will be secular bear market. Which mean the return for the next 10 to 20 yrs(after secular bull market) will not be as good.
  • It is stock market and you will never know. How many investors predicted that stock markets dropped on the first trading day of 2016? How many investors predicted the bull market of Japan? What about the slump in commodities? The great US secular bull market from 1980 to 2000? Japan bubbles? Taiwan bubbles?
  • If I have a crystal ball, I will short commodities and long Japan equities for the past 2 years to 3 years.

Pretty much end of my market talk. Pretty much all backward looking because I don’t know what is going to happen going forward.

 

Posted by: donmihaihai | January 1, 2016

CDL, conglomerate & RNAV

Realised that I loves to read conglomerate, especially those with many listed subsidiaries. I am a generalist and reading conglomerate is one way to learn more industries. And yes, I don’t feel conglomerate complicated, at least not those listed in SGX.

Conglomerate also force myself reading reports from places like England,  NZ and Indonesia etc. Even English version of Indonesia annual report is hard to read because of the way it is.While I do not know the tax and law in Indonesia, I do understand why there are so many tax disputes, rulings, notifications, etc due to my experiences in work and reading.

CDL considered itself a conglomerate and its main businesses are property related. Property development, investment properties and hotel. Pretty easy to understand but the way I look at CDL changed after reading 70 overs reports which exclude the listed subsidiary in Philippines. I don’t think many peoples know CDL well.

Not revaluing investment properties projected a conservative image, but CDL is aggressive, gear up when needed and hide it well or this is the way CDL operates. Over capitalized listed subsidiaries and leveraged CDL. Eating up these listed subsidiaries over the years. This is one of the reason why CDL dividends has been low over the years but it might change. over capitalized listed subsidiaries ensured they won’t be asking for money from CDL and M&C acted as first line of defense for CDL REIT and First Sponsor. Smart move, really. Sorry Aberdeen, I do not agree in investing all the listed subsidiaries. Invest in snake head is better.

It is hard not to write about NAV or RNAV when it come to property companies. NAV of a property company is about the method of accounting being used, willingly or forced. This is the first layer. RNAV is about how you  want to trick other. If CDL want to trick other about how high their RNAV is, all it need to do is to revalue investment properties, hotel properties and project all profit to be made from all land banks. Here it goes, RNAV surged.

And what next? It can always tell other, “look at my leverage after RNAV, we can borrow more.” Ok sure, new development, new Investment properties and new hotel. So RNAV increased again! What a trick as long as bank is willing to finance it and most banks are willing! The only block is to make those so called analysts and investors believe in it. Now everyone started to use RNAV and a promotor will always find the highest RNAV.

End of the day, it is not about RNAV. It is how the company grow NAV. Growing NAV mean ROE. This E can appear in P&L or B/S. Realised or unrealized. Lumpy of course, due to industry and accounting. ROE goes back to quality of earnings. Which is Margin, asset turnover and leverage.

Property industry is no different from other industries. With or without RNAV. Earning is earning and money is money. Trying to make it unique doesn’t mean it is.

 

 

Posted by: donmihaihai | July 13, 2015

More of the same

Behavioral and culture,  independent, we don’t talk about IQ, never mention at all. If you can find a way round Omaha, you have high enough IQ. It is about other elements, playing a different game. Culture and conviction. Focus investing is a highly focus activities.

Boost his team and his team bounce it back 24/7. 4 peoples team managing 3 – 4 billion of assets.

New ideas does not automatic pop on the desk every Monday morning. Doesn’t work this way.

Focus investing can be a big advantage. Why play the game everyone is playing? Focus can be an edge if do correctly,  repeatable.

David Rolfe Of Wedgewood Partners

Sound just like good company with good products. Like I always say “More of the same.”

Posted by: donmihaihai | July 4, 2015

Some thoughts 4 July 2015

The article in this weekend The Edge Singapore confirmed my view that new is not always good especially in aerospace MRO. Nope I have not been reading ST Engineering or SIA Engineering nor went through their number in details. But this does not stop me from understanding and forming opinions in this industry.

Aerospace industry is pretty simple. People travel more yearly and more goods will travel in the sky. This mean more airplanes. Who is/are the winner? Of course that few airplane manufacturers. Airlines have never benefits from it except a few LLCs but if the increased in LLCs are faster than traveler then LLC will not be of exception of competition.

Companies like ST Engineering and SIA Engineering operate in the backend or workshop of air travel/ airplane. With increasing airplanes flying in the sky, their future are bright especially with a sizable market shares and I assume working toward better than today. Airplane Manufacturers will come out with new model and the players who are able to service these new model usually belong to the existing players doing a good job for current model.

But there is a twist! New model does not mean higher profitability. These MRO are working like clock work in the current model which produce those profitability. New model mean start again. Maybe not to zero but getting to clock work required time and effort and available plane. Next, Airline does not like MRO but the plane need it. Manufacturers want to produce more planes, with buyer coming back for expensive components and new model to repeat the cycle. It doesn’t want old plane flying in the sky that does not produce much to bottom line and risk of another crash that hurt their reputation. Which mean MRO is getting the stick!

ST Engineering and SIA Engineering, I assumed are the better players will fight it by doing the job better, offer more for the same thing and most likely do pretty good as well. Investor should so ok as long as the price is right.

SIA Engineering is a good lesson on extrapolation. Few years back, there were few expressing opinion in the internet on the impressive upward movement in profit and dividends from associates and JV which base on the historically look very likely to  continue and produce impressive growth for the company. I disagreed. And now the trend stopped. Extrapolation does not tell us that trend is illogically. If its continue, these associates and JVs will be the best companies in the world that require little or even negative equity. Trees can’t grow into the sky.

Other than extrapolation, there are many other ratios are in fact not so useful when use wrongly or even if two are use together. Ratio must use right with good understanding. One good example is debt/equity and interest coverage. WB recently talk about interest coverage of BNSF. Why BNSF and not BH level? Because most likely BH will not be helping. If this is the case, which debt/equity should we be looking at BNSF or BH?

And this go back to my current favourite Jardine C & C. Exclude financial services company – Low Debt/equity, even lower net debt/equity. Interest coverage is about 20X. Include non controlling interest, equity stood at USD10.8B. With rock solid B/S and cash generating businesses, why there is a need for right issue just because Jardine C&C is buying an investment at around USD0.6B? Cash on B/S is over a Billion USD. The Debt/equity does not tell us that tell us that Jardine C&C is a conglomerate with listed subsidiary and associates. Majority of businesses, assets and liabilities belong to its listed subsidiary Astra which is another conglomerate by itself. Segment information say Jardine C&C equity exclude Astra stood at USD382.5M and net cash of USD60M.

Astra with its huge businesses and B/S will not be funding its immediate holding company Jardine C&C because of the simple facts that shareholders of the remaining 49.9% not owned by Jardine C&C will not allow it to do so. Debts taken for this investment has to be served by Jardine C&C unlisted subsidiaries profit and dividends from non wholly owned subsidiaries, associates and investments. Debt/equity and interest coverage don’t tell you this.

Another time.

Posted by: donmihaihai | May 26, 2015

Sarine 26 May 2015

Words like “unmatched”, “most cost effective”, “worldwide leader” and “de facto worldwide standard” is nothing without the figure to back it up. How can an equipment seller enjoy such profitability while their customers are all having profitability issue.

Domination is the word. The result of this domination is the kind of profitability where many companies can only dream of. But it doesn’t mean that every new product out of the lab will resulted in same domination or every push to a new field will resulted in domination.

Sarine Light, Sarine Loupe, Sarine Profile & Allegro, all exciting but will these new field resulted in same kind of domination? I don’t know and it is too early to say. Retail segment is bigger with filled with retail chain/brand. Tiffany is Tiffany not because it has a Tiffany profile. Why should Tiffany want to share its profit with another company? Unless it is force to as in every competitor is using it and customer demand it. It is exciting if Sarine get a stronghold in this segment but the landscape is different.

Sarine current field is such so good that every serious manufacturer needs Sarine equipment if it want to compete. I won’t bet against Sarine equipment selling in black market if the country close the door to Sarine.

If Sarine is so good why is it doing so badly recently? Where can you hide when you dominated the industry and the industry is doing badly? Consistency is a dirty word and it is not profitability. Profitability over consistency. Not concern on the drop in profit but concern about what they are not doing during bad times. Sarine must not cut down on R&D. Must not stop hiring good peoples. Must not slow down the push toward retail segment.

Capacity to suffer. Tom Russo said it and it hurt current profitability. But current profitability is not everything. Market domination is.

Posted by: donmihaihai | May 2, 2015

Straco Corporation 2 May 2015

Many companies has the problem of finding getting capital to invest but not Straco Corporation. It has the problem of reinvesting. Acquisition of Singapore Flyer is a case of curse of good cash generating company or smart capital allocation? We will know soon.

My simple model of outcome says Good, average and lousy.

Good – Generating the same kind of return that matches existing businesses. Probability is very low as the current businesses are hard to come by. In order to achieve the same, cost of the asset must be low, next utilization must move up and lastly, ability to increase price not discount or lower ticket price. S$60 a ride anyone? In 2025? No? I doubt it is happening.

Average – Generating 10 to 15% ROE. A big possibility. Has to trust the management knowing what to do. Shouldn’t their spreadsheet approved it?

Lousy – Never write lousy off. Especially when sitting with lot of cash.

It is easier to get lousy outcome than good one.

Not happy with 10 to 15% kind of return except for a reason, when managed well, Singapore Flyer opened the door for Straco, changed their future where an unknown operator become some operator and able to fight in another stage. The future look brighter.

So it is kind of stupid or crap to find and/or spread that Singapore Flyer is profitable except to find way to profit from movement of share price. Anyway the number say it is ebitda profitable and red at ebit. But it doesn’t mean much to me until Straco is able to operate it well, and hopefully don’t be lousy.

Anyone say that Straco chooses to or has to depreciates the investment property? Now there are more ways to look at it if you are able to flip number well.

Posted by: donmihaihai | April 26, 2015

ARA Asset Management 26 April 2015

Fund Management is a good business. Read about small fund manager trying to stay in the business but hardly read a lousy huge fund house doing badly operational wise even if performance of their managed funds are not doing as well.

ARA is a fund management house and has been doing very well in term of numbers. ARA cares how other look at them as well. Always dressed up, give good stories. I can see it, and always take note of it. Always wonder what ARA will do if they are unable to make the number.

No it is still doing very well(not as good of course) and guess I was wrong about watching expenses as it grew faster than revenues. This is a people business, people company. Need to invest to grow and noticed that they are getting more and more names in the AR. Planting seeds. Good move I guess.

It doesn’t matter whether ARA has a full range of products or platforms to grow. What matter in fund management is size and performance. With a growing overhead, AUM must grow but not by launching small fund. 80 million fund must be a joke. Investing own equities without getting sizeable fund is not fun as well. These are not the reasons why fund house is a good business.

Key to watch – fund size(private).

Next key to watch – fund performance.

Already happening – people.

Lastly, watch how ARA dress up FY2015 results.

Side note: Hate the word platform. Same goes to recurring, moat, value investing, etc. As if you are doing value investing just because you are using value investing. Calling companies with moat mean it has great moat. With platform mean the company is unstoppable and growing. I think kids can do better.

Posted by: donmihaihai | April 6, 2015

Micro Mechanics 7 April 2015

If nothing goes wrong, FY2015 will easily be the best year for Micro Mechanics.

What is good about Micro Mechanics?

Buying a growing industry(Semicon) without a need to choose the winner. Average ROE of 16% for past 15 years(FY2000 to FY2014) or 25% on cashflow basis. All the while the company is having excess cash and will be better if not for trying to grow another business CMA.

Pretty good chance that the future will be the same for Micro Mechanics – up and down but above average return on over a longer period. And this is for semiconductor tooling business.

For CMA, it is tough. Not my first time saying it and won’t be my last time. Management sound positive on it on the most recent AGM minutes which make me think that it is turning. But let face it, in order for it to produce the same kind of return as semiconductor tooling, it need more volumes, which mean Assets turnover need to be higher. No trick. 24/7 got to work very well. Which is why the management is keen on it. Bigger market.

But just like semiconductor tooling, the harder it is, the more competitive advantages it will enjoy when the company is able to break the code and do well. Can Micro Mechanics breaks that code?

Owned the shares for over 10 years and my last purchase was during the crisis. Despite all the dividends, my return is just So-so. Rightfully so. Because I did not buy cheap enough and the company is not growing fast enough and neither has the share price gone crazy. A lesson on paying a fair price for a good business that has lot of bumps.

The next 10 years look better than the last 10 years. Better if they broke the code of CMA.

Posted by: donmihaihai | April 4, 2015

Hong Kong Land 4 April 2015

Re- look into Hong Kong Land and what are important.

USD28billion of investment properties. All are top grade in the respective countries.

USD3billion of development properties. Trading stocks. Require billions to develop and some will last for another 5 to 10 years.

USD4.3billion of debts at subsidiaries level. Low cost debt with a good portions due 10 years out. Debts level in main JVs are not high as shown in FY2013 AR and it is repaying. Hong Kong Land share of debts in main JVs was likely to be 35% of USD3.5billion.

So Debt to total Assets should be around 25%. Perhaps a little more due to the nature of development properties. Interest coverage is around 8 to 10X. Most will be covered by income from rental. Debts on development properties is abit tricky due to the nature of cash flow which make a little more complex with different ways of selling houses in different countries. Thing to note is majority of these land banks are undeveloped and unsold. Not going to guess how much it will take to develop them and what kind of profits Hong Kong Land will earned as these are going to work out in the next 5 to 10 years. Most will be self funding after initial capital from Hong Kong Land. Well this is the nature of development properties.

Main Investment properties coming online In the next 4 years

Jakarta Land – WTC 3(50%)

Phnom Penh – Exchange Square (100%)

Beijing – WF Central(90%)

Beijing – CBD (30%)

These will not move the investment properties needle much and most likely just north of USD30billion by using the current value of current investment properties.

Together with the downturn of properties cycles in Asia, Hong Kong Land growth will not be excited.

I do care about growth. But stay away from companies that grow at any cost which also mean companies that do not have the capacities to grow that fast. Hong Kong Land has the capacities to grow.

It was just in Hong Kong in 1990. Now it has added Singapore, Jakarta, Bangkok, Hanoi, Macau and Cambodia in term of investment properties. And it look like Hong Kong Land is walking faster, of course the capacities to walk faster is there as well.

Let hope that there is no major issuing of shares in the future. At this stage, getting an investment property wrong or development property wrong is not as painful as getting a major acquisition wrong or do a major issuance of shares and produce return way less of it.

Posted by: donmihaihai | May 3, 2014

3 years later.

Got into Haw Par Corporation three years ago base on this

At $6.00, return from operating businesses will be around 3%, assuming return from UIC and UOL to be 7% of their equity while UOB at 10% then return on will be at the range of 13% to 15%. The businesses in Haw Par Corp include outstanding businesses like Tiger Balm and Underwater World that have problem growing and average businesses in bank and property that has all kind of opportunities to grow.

Three years later, the weather is good so let me try to figure out what is the fair value of Haw Par Corporation.

UOB NBV @ 31/12/13 = 15.36
No. of shares = 67,952,169
1.8X NBV = 27.43
Total value = 1,863,929,995

UIC NBV @ 13/12/13 = 3.61
No. of shares = 67,558,000
1X NBV = 3.61
Total value = 243,884,380

UOL NBV @ 13/12/13 = 8.77
No. of shares = 41,428,805
1X NBV = 8.77
Total value = 363,330,620

Hua Han Bio
Total value as per BV at Haw Par = 115,845,000

Investment Properties
@ full value = 222,139,000

Healthcare products
@ 15X PBT = 388,000,000

Leisure
3.5M X 5 years = 17,500,000

Cash plus deferred tax liabilities less 50M for operations and 40M for dividends
=172,000,000

Total Value of Haw Par
= 1,864 + 244 + 363 + 116 + 222 + 388 + 18 + 172
= 3,387 M
Total no. of shares – 218,697,173
Per share = $15.49

No trick here. Getting $15.49 just by putting up some fair but not excessive valuation on these stocks. Call it sum of the parts method if you want. Is using NBV for UIC and UOL aggressive? Don’t think so. Neither do I think using 1.8X NBV for UOB is aggressive too. And with UOB making up more than 50% of the total valuation it is worthwhile to think what is the real valuation of UOB.

Really doubt that Haw Par Corporation will trade at $15 but well it has always been in stealth mode. Not just under radar stock but Haw Par is a stealth growth stock as well. Like company like that.

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