Posted by: donmihaihai | August 11, 2007

SP Chems Aims high and far.

Stock markets around the world slumps, credit markets fare even worse. Buying opportunity? Many ask. Maybe yes but it has not arose my excitement yet or it does not give me the kind of excitement that come from SP Chems when it announced of the venture into building petrochemical plants in Vietnam with their long term plan.

It is not easy to run a company producing commodity products as the nature of the business means that there are cyclical swing, Up and down, add in huge capital requirement to be lay out first. In all, most does not produce high shareholder return over a long period of time. With that, if a company of this sort can produce high rate of return over cycles, the management must be of something superb.

After each reporting period and announcement, I am giving SP Chems higher and higher regard. The numbers are really good, ROE expand from 12% in 2000 to 28% in 2006. SP Chems take on more debts in 2006 compare to 2000 but they are lot of capacities in year end 2006 where production hasn’t started yet. What more these are not achieve because SP Chems goes into higher margin specialise chemical products but producing the same basic intermediate chemicals.

When SP Chems announced in 2004 that they are going to execute their Medium-Term Strategic Business Plan (“MTSBP”) my reaction was like what they trying to do? It is illogical. Neither was I a shareholder nor a good understand of their business and industry. It sound like they are building it and hope that the new more than double capacities can be taken up as time goes by. I was totally wrong, happily admit it and bought some shares when public was totally disappointed with it results last year.

The management of SP Chems always stress that they have a clear roadmap of their future, where they want to be and MTSBP is a just part of their full plan, a medium term plan. A medium term plan that spread over a period of over 3 years with the last portion, production capacity of new product, VCM going online soon. It is almost over. SP Chems keep their promise, never issue new shares. It is not without problem as they are still trying to get the license to operate 2nd stage Cogen and delay of PP4 and VCM production online. As far as I can tell, it is normal for these kinds of setbacks to happen as this MTSBP is not an easy task to execute.

The excitement of SP Chems venture into building petrochemical plant in Vietnam is not just because of the size. At this stage, they are planning to spend US$1.5billion on it which is most likely only for phase 1 of the venture. This is huge compare to SP Chems’s shareholder equity of about SD$200million. There are lot of questions in my mind right now regard this venture but I think taking it easy and wait for more announcement after feasibility study by the company and more announcements before more thinking. What excite me is that SP Chems is planning for long term, 2014 for phase 1 to complete and 2024 for phase 2 to complete. At this point in 2007, SP Chems is already looking 15 to 20 year into the future.

I have never do any long term planning before or attend any planning that last more than 1 or 2 years. But as far as my little brain tells me, this is what long term planning is all about. Not just that, this venture show how ambitious SP Chems is. Everyone has the right to be ambition but having the right capabilities to match the ambition is another story. Out of nowhere, these 2 Indonesian Chinese build a Chemical plant in China during early 1990s. In late 2000s they build up a sizable, low cost China Chemical company and listed in SGX. In late 2010s, will they be managing a world class, cross country chemical company, generating hundred of million of profit(S$)?

The horse may not be the best breed but the jockey is good.

Market caught a credit cold.

I think I got a crystal ball as the stock market caught a cold right after my writing on US housing market, it can be so timely because I am able to travel into the future(lol). From the look of what happening now, it is the fear of unknown unknown. I don’t know what other are thinking or what actually happening(the unknown) but having more Hedge funds failure don’t seem to be the main reason why major Countries Central Banks are injecting thousand of billion dollars into the system. The point is they are doing it together, they are engineering something. The biggest fear I can think of at this moment is that at the back stage, there is a real systemic risk. Some banks are at the edge of failure??

As usual, at this stage many investors and speculators are trying to predict. Many are offering their 5 cents 10 cents views cum analysis. It is always interesting to read and add lot of fun there but the best group of investors is as usual saying, they don’t know, they have no idea. So in order to be the best, my prediction of what going on is I don’t know(lol). Nevertheless, I think if this situation goes on until end of 2007, even of the overall Index does not fall more than 20%. Many speculator or even so call investor will be wash out of the market which in term offers me opportunities to slowly pick up stocks that are cheap and good. I hope for it to happen but let me find my time machine 1st.

Despite all the headline news, the only place that really busted is the credit market, all equity Indexes does not drop big enough. How many of them dropped more than 10%? So is this a buying opportunity for those who invest in funds? I am not sure but at this point, despite the drop in the overall equity Indexes, many are still positive by looking at ytd return. Psychology is at work now. The best time to buy is always when no one is buying, everyone is scare which also means “Is this a buying opportunity? ” is never in their mind.


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