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.  

Posted by: donmihaihai | August 27, 2021

Join in the fun

Whether it is “Once bitten, twice shy” or “Is the local market dead” plus my “STI lost decade”, none has good things to say about local stocks, which is the current view for local stocks. So, I think I am an outliner since I believe that the future is bright for local stocks.

Isn’t stock market is a place where majority, including the professional underperform the market and quite a big percent lost their money actually. A small percentage of the investors outperform the market over time. So, doesn’t this tell us that Stock market is not a place for group think, and yeah, and the current group think is Singapore stocks suck.

Let use back the same comparison, copied.

Out of the 4 indexes, STI and HSI are in the same situation, gone nowhere since GFC. So it is not surpurising at all that both markets are being ignored current. But let not forget that both markets went through a short bull from low point of 2003(around SARS period) to hit ATH(all time high – current cool words to use) before GFC. Currently, China tech stocks is the saving face of HK market but who is talking about the old economy stocks listed in HK?

From the low point of 2003, Nasdaq failed to recover to while S&P matches ATH  during tech bubble just before GFC. None double from their low point. What happened after GFC, is still eye popping. How many times in history has S&P and Nasdaq been performing like this? It is just like the first time the world see how Usain Bolt broke 100M world record in Beijing. Unbelievable.

still remember WB quiz?

You see lot of US companies in the world biggest companies list in 2021. Well in 1990, Japaness companies topped the list. The Bull was in Asia during 1980s and early 1990s. Nikki wasn’t the only bull market. When Asian Tigers was coined back then. Taiwan and South Korea markets while not as big as Japan, experienced the same kind of bubbles. Singapore market, also enjoyed bull market in the late 1980s till 1993. That bull followed the late 1970s bull market should be the top 2 bull markets in STI, the 3rd and 4th should be the late 1990s after AFC till tech bubble burst and the one right after SARS. Something that is being forgotten.

For HK, there was a 1987 black Monday and another in 1989 Tiananmen. So HK was in bear market or the beginning of the bull that popped during AFC.

To start trading locally in 1990, what is the chances that he was lured by on-going bull market?  Bull market suck people in, bear market throw people out.

S&P and Nasdaq at 1990 was at the mid point of one of the longest bull market in US, started around 1980 and ended in 2000. Certainly not exterme valuation.

I wish there are more researches, stories and books on the history of Asia stock markets.

Posted by: donmihaihai | August 22, 2021

Invest in China

I have always invested in China since the start, not day 1 but close. Either directly in China companies listed in SGX or indirectly through Singapore companies that operate in China or managed funds.

Managed funds is still being called Unit Trust I believe and those funds were called Greater China Fund back then. How things changed. So I was an early believer of China and put some money into it. I last add in 2016 and actually sold a little last year.

Then in June I decided that Aberdeen has lost it way, where top 3 holdings are all China Tech and switch another fund with more old economy stocks in the top 10 holdings since the craziness in China stocks was mainly in China Tech and many old economy stocks valuation are not in excess, that was what I believe and still think so. So with what is happening to China Tech, I think I am lucky. The switch actually locked in and save some money.

In investing, don’t join in the crowd unless you are so sure of getting of out that crowd before everyone does. I switched because I suddenly realised that I was in the crowd and I did not invest in China Fund last year because of China Tech and now not going to do anything until some major drop across the board in China markets or the craziness is back.

I know China will overtake US in term of GDP in my lifetime but that doesn’t mean that stock market will perform just as such. Does SZ and SH charts look like belonging to a country with GDL increasing close to 10% yearly for decades? Remove JKSE and put SSE name in, would more like a stock Index belong to China.

Stock market doesn’t work in a way that say, because the economy is doing well, the market must do well. Personally I think, without the China Tech, China should be the place to be because of its secular bear market since last 2 peaks in last 20 years. I like to invest in places where the charts go nowhere for decades. Yes that include STI and a few others.

Posted by: donmihaihai | August 5, 2021

Sarine, diamond and LGD

Sarine just announced best first half result since 2014. Still can’t believe how lucky I am. Sold close to the peak and bought close to the bottom and now the business is roaring back strongly within a year. It has to be luck since I don’t project/guess what would happen next on year to year swing in business. But I do try project/ assess the company competitive advantage and the landscape it is in.

Diamonds and Sarine are interesting.

With LGD, rather than replacing mined diamonds, I believe it is moving toward 2 tier segments. 1st segment will be where ladies will perceive mined diamonds as real diamonds and 2nd segment where LGD will be perceived as not fake but lesser diamond. And over time, while mined diamonds market size might become smaller and smaller, value of each diamond will increase, and mined diamond will shed off the image of blood diamond.  As for LGD, it will become more and more mass market, ie lower and lower price. I mean how can diamond be rare and forever when it is manufactured in a factory? After some time, differentiation between mined and LGD will be wider and wider despite both are essentially the same thing.

Since Sarine will be servicing both mined and LGD, then the future is very bright because LGD expand Sarine market. For a manufacturer, the equipment they needs will be different from mined diamond, toward the likes of efficient, productivity and cheap which I think Sarine is moving toward the right direction with “diamonds produced by technology – graded by technology”.

Having very strong position on the manufacturing side of mined diamonds, I don’t have much to add except on diamond Journey. This Journey can be so powerful that it can basically chains a diamond from the moment it is mined to on the slim finger of a lady to…… Sarine. I believe Sarine will be losing money on providing Journey but it will gain much more when Journey became the Chain that strengthen Sarine hold on manufacturing side of mined diamond and also make it easier for Sarine to get into the mining side and especially the prized segment – retail.

As long as diamond continue to perceive as rare and forever, Sarine will continue to gain competitive advantage.

Posted by: donmihaihai | June 22, 2021

STI lost decade

Or 14 years.

For the last 14 years, STI has never able to break through 2007 peak.

Valuation of major Constituents 76.8% as of now, in term of P/B, saw compression from 2007 peak and every mid range peak since 2007. I just pick the highest price around the peak period. Roughly right than precisely wrong.

the drop in 2020 is not excessive in term of %, but when it come to valuation, it actually matches Mar 2009.

Ma hou pao.

I had written elsewhere and in my blog that local stocks were really cheap last year. Valuation before 2020 and current is not excessive as well. In fact very reasonable. Last year when I wrote, death of equities (local version) might be the first of the major bear bottom(STI) in the current bear market since 2007, there might another or two bear bottoms for STI going forward. Major bear bottom is not easy to come by in an investor life.

There’s an old saying that bull markets are born on pessimism, grow on skepticism, mature on optimism and die on euphoria.

Posted by: donmihaihai | May 24, 2021

I am so old tech

After ending of my news and magazine subscriptions, I live with feed news, blog and forum and I think my thinking got narrowed or at minimum, stop expanding. Not healthy at all. Look like it is about time to start some digital subscriptions. But my cheapo mindset is still having the upper hand, why pay when I can get them free. Freebies do come with a price.

I live in a googled world which unlike the world when I was a kid, where Iot of time were spent on seeking information (I seldom do), in the current world, information is abundance and getting it without effort. And in investing, information is not about speed, it is about thinking.

With the Pandemic, digital have become like the “god” word. Everyone flock to anything digital like a lemming. Not just investing, startup, news and even older generation start to do more with their smart phone than just calling. Yes, if company doesn’t have a digital strategy, it is doomed when its competitors are upgrading or future proof themselves. But does it mean that having a digital strategy will transform your company and create competitive advantage? I don’t think so. I think it just shift the bar upward, like the good old stories of installing air-con in barber shop. People flock to barber shops with aircon initially but after some time all barber shop has aircon. Well, nowadays which stupid ass will open a new barber shop with fan or which barber ship is competing with installed aircon?

The god like digital word is where the money is. The able and fakes rush to start something digital, AI or whatever. Those with capital but not able enough rush to send money to the able and fake. In my world, the biggest the crowd, the bigger the competition, the higher chances of losing money in long term. In short term, who care as long as the music is playing. For betting on some of these companies to become the next Alibaba/Amazon, good luck on picking a few from the mass orgy. More so if you are unable to think about businesses, industries and competition, etc and being feed from the news.

 In the last year of so, I see quite a few bright industries. One of company in shipbuilding wrote in their outlook on 2 results announcement, ie 6 months that say the global new shipbuilding orders decreased to from lowest since 2004 to lowest since 1996. Mean high cost shipyards were sitting idle! You can be pretty sure no one will start a digital shipyard! There will be more exit than entrant. Then, you got the sudden order book explosion, along with share price but current share price is still more dead than alive.

Another subset of shipping industry is as gloomy as you can imagine. Such as below Q&A reply.

the rapid development of the COVID-19 pandemic and the resultant plunge and volatility in oil price stemming from the sharp fall in oil demand. Our group suffered a stop work situation in 2020 which lasted three to four months during which most of our foreign workers were restricted to their dormitories. Production levels therefore fell with the reduction in available production manpower. As such, where relevant, we notified our clients of the force majeure situation. There was also a slow-down in market enquiries, tenders and potential contracts as end clients suspended or delayed projects. Contract values were also reduced. Vessel charter opportunities also fell away as exploration activities slowed and charter periods were shortened. Activities in relation to servicing and certification of offshore equipment were halted due to travel restrictions.

. Even as recent as April 2021, there are countries in Asia which are suffering significantly from COVID-19 and their unfortunate escalating situation impacts many companies in Singapore within the construction, marine and process sectors. Over the last year, despite the COVID-19 situation, we have suffered a reduction in manpower as a number of workers have resigned to return home to be with family and only in recent weeks, have we been able to secure approvals to bring in existing and new employees to Singapore to strengthen our workforce to enable the Group to take on more fabrication work. Although we have managed to bring in a handful of new workers in recent weeks, the new travel restriction in relation to India will now delay the remaining plans for a month or more and we will continue to suffer from a limited workforce. Although we have enlarged our sub-contractor base to reduce manpower shortages, as travel restrictions continue or escalate, manpower shortages become more of an issue. Our Malaysian employees have returned to Singapore and are occasionally returning back to Malaysia under the Periodic Commuting Arrangement.

Tell me who is going to put their money in here! Which is why I think the future is very bright here. Everyone want to leave this industry and which twenty-something is going to start some digital whatever here?  

The Q&A also touch on a very unfortunate but interesting development. Migrant workers in construction, marine and process sectors. I believe that the current situation will do what the Singapore government has been trying to do for many years but without success. Change the way you do or die off. And of course money is not flowing into these places and with their valuation, the future can be very bright. Bright future grew out of desperation and leftover players enjoy the future.

Ahhh I am so old tech.

Posted by: donmihaihai | May 18, 2021

Stupid Money

Walter Bagehot wrote those words in 1856 about an event that happened in 1720 — The South Sea Bubble. He was describing human nature’s role in turning smart money into stupid money during manias and panics:

A great deal has been written and is being written on panics and manias — a great deal more than with the most outstretched intellect we are able to follow or conceive; but one thing seems certain, that at particular times a great many stupid people have a great deal of stupid money. Many saving people have only the faculty of saving; they accumulate ably, and contemplate their accumulations with approbation, but what to do with them they do not know… Several excellent economists have plans for preventing improvident speculation…but the only real way is, not to allow any man to have a hundred pounds who cannot prove to the satisfaction of Lord Chancellor that he knows what to do with a hundred pounds. The only want of this obvious and proper precaution allows the accumulation of wealth in the hands of rectors, sweepers, grandmothers, and other persons who have no knowledge of business, and no idea except that their money now produces nothing, and ought and must be forced immediately to produce something. “I wish,” said one of this class, “for the largest immediate income, and I am therefore naturally disposed to purchase an advowson.” Every now and then, from causes which are not to the present purpose, the money of people of this class — the blind capital…of the country — happen to be particularly large and craving; it seeks for some one to devour it, and there is “plethora” — it finds some one, and there is “speculation” — it is devoured, and there is “panic.”

Stupid Money • Novel Investor

Older Posts »

Categories