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

3.5M X 5 years = 17,500,000

Cash plus deferred tax liabilities less 50M for operations and 40M for dividends

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.

Posted by: donmihaihai | April 13, 2014

Selling and the outlook is bad for a lazy person

LHT Holdings Limited.

100% sold.

Reasons for purchase were simple. LHT Holdings Limited was a cigar butt approach. The company is recovering from a long down turn and is beginning to invest in their business after lacking for years. Should sell earlier but got catch up by the improving of their numbers. Nevertheless, LHT Holdings Limited is my best cigar butt with a gain of about 100% in 3 years.

ARA Asset Management

99% Sold.

Left with some odd lot and going to dump them aside for annual report.

ARA is changing. Just when more and more bees are surrounding ARA, the company is getting more and more risky. In short the seek for growth is putting this company into lot of risk. Would love ARA that is growing at a single digit.


90% sold.

What is ride! Started reading Sarin when share price dropped below $1 after a very good IPO. First purchase made around $0.60 and last purchase below $0.30 during crisis. Share price did not stop dropping until just below $0.10. Now Sarine is trading at around $2.50 post bonus issue. From a paper lost of >80% to a multi baggers.

What change in the business? Of course Sarine is getting more recurring income but recurring or not, this company is still a big fish in a small pond and look like it is getting a little bigger than before.

Still like the company but not share price.

Straco Corporation

Sold some.

Business is still the same but valuation is getting rich.

Outlook is bad because the price is rich and the pool of companies I am looking at is small because I am lazy. Selling some of the best companies I ever owned is telling because it is almost certain that there isn’t any chance of buying them soon. They are the angels flying high in the sky. I don’t buy angel. I buy throw away.

I see many angels up in the sky. I see throw away too but their businesses are not as good. I must throw away my laziness and start looking at company that are neither angel or throw away. They might be the next throw away and some of them have better businesses.

Posted by: donmihaihai | March 15, 2014

Once a blue moon on HongKong Land Holdings Limited

HongKong Land is the largest property company (including REIT) listed in SGX in term of market capitalisation, total assets and Net Asset Value. A well run property part of Jardine Matheson group that does not keep hitting the news maybe because there is basically no hot “news” for the media or chasing investors.

Getting to know HongKong Land is easy.

Property is about location? Well it has a “to die for” of 12 prime commercial properties and a luxury hotel in Central, Hong Kong. These are carried at about US$22 billion on the B/S. In Singapore, HongKong Land has 1/3 interest in ORQ, MBFC and full interest in ORL. MBFC is the new CBD area of Singapore and ORQ is right beside it and even ORL is circling the new CBD area too. It goes without saying these are grade A again. It is unlikely that HongKong Land is able to replicate these commercial properties in the two countries easily. Hopefully I am wrong. Beside these two financial centres, HongKong Land is in Jakarta, Bangkok, Hanoi, Macau, China and Phnon Penh. It is trying to develop prime commercial properties in the CBD areas of these. Is HongKong Land getting the location right? I don’t know but they are in better position to know.

Is Residential development about land banking? I don’t know. Maybe Quek Land bank will know. But a manufacturer will reduce or stop producing product when there is excess in the market and when the cost is low, margin will be huge. HongKong Land is doing pretty well in Singapore on residential properties through MCL Land and trying to establish itself in certain cities in China. And yes, it has a “to die for” land bank too, especially in China. It is doing developments in Indonesia and Philippines too but too early to say these are one off or trying to be a developer in these countries.

Lastly, it has a “to die for” B/S. Not just about low debts how debts is being managed.

What is bad about HongKong Land?

Its “crown Jewel”. Those US$22 billion of commercial properties. No not that I am worry about the capitalisation rates are too low. It is just too big, all new developments in Jakarta, China and Phnon Penh will hardly move the needle plus it is at the end of a huge property cycle for many countries which mean growth will be slow.

And this is what I like about the management. I might be wrong. Facing the situation of having huge “crown jewel” with little debts will lead most management to go out shopping like crazy. Targeting certain percentage of properties from which country or which segment by certain year. Sound familiar? This is what many are doing but not HongKong Land as far as I am tell. It is using its “crown jewel” to plant more “crown jewel”. Certain percentage is a result not a target. Only gear up when there is a need not to target a certain level of gearing.

Question. What will happen if HongKong Land decided to be like majority? Spending 10 to 20 billion on shopping trips. i.e. gear up.

Lastly will be the question most will ask. REIT and recycle capital, will HongKong Land do it? I don’t know and I don’t think it will. And I am not a fan of REIT and recycle capital. It only make sense if that is a lousy asset and the timing must be right. Which management will tell you that they are a lousy stock operator or property operator? As far as I can see, companies doing recycling of capital is not doing as well as the others. Check the numbers and you will be surprise.

Posted by: donmihaihai | April 15, 2013

Straco – Annual report and QUESTIONS

I am a lazy person. Usually I don’t use a pen to take down note or spreadsheet for all kind of computation while reading annual report. Reading annual report is an easy task. Usually the number just flow so do the story unless I am reading a complicated company.

If I have to pick up a pen, something is wrong. This year the candidate is Straco.


Straco is doing more of the same thing as last year. Things that I don’t like regardless of their business. It is not that the business is doing extraordinary well. It is doing well enough. Maybe it is because of being well enough which is why maybe money is leaking away from backdoor.

Anyway share price is moving upward, bees are crowding Straco. Straco is at best maybe trading at fair value. A simple question like how much money can the company generates from two aquariums with remaining lease period of 22 to 25 years. And what is the history of China government allowing extension or grant of new lease with little cost? And what is the cost of re-building aquariums of the same size in the future. Go bees, I am counting on you.

Dividends to NCI

Dividends in Cashflows statement does not tie with Statement of changes in equity. Why?

Office like Palace?

Majority of Capex was spend in Office  for last two years. Those were in China because Singapore office is getting poorer. What are these for? Is Straco adding staffs like crazy or the royal family is working in royal office.

Fishes and marine livestock

Are they super fishes? Addition is minimum and disposal is non existent.

Impairment in subsidiary, Construction in progress, unutilised tax losses and disposal of land use right

Relating to Chao Yuan Ge Development? Still unknown currently?

Other receivables

Because of accrued interest income? If not then there is a problem

Stock options

Board target is for employees of the Straco to hold up to 10% of the company by 2018. Who are these employees? 38% and 18% of all options granted went to Royal family and its gang and Royal family respectively. Shares purchased is good only when all shareholders get the benefit not when money is flowing to the small inner group.

A short post. Will talk down other companies soon.

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