Tuesday, 15 August 2017

Top 10 Counters Quarterly Reporting (July to September)

With the exception of Micro-Mechanics, the rest of my top 10 counters have reported their quarterly report. I will update this post with MMs results when it is out later this month which I believe would be a good.

With the divestment of Best World in July, my recent purchase of VICOM has taken the last place of my top ten counters. I will post on the purchase of VICOM soon.

The tables below summarize their performances for the latest quarter.

Fantastic quarter by Valuetronics as it continues its turnaround with strong momentum in wireless lighting business and continuous growth in automotive segment. NPM average 6.9% over the last four quarters, much higher than the average of 6.2% in the preceding 4 quarters. A good decision made by management to exit LED business and go into automotive segment. 

The company also produces a presentation for 20181Q report which provides a good read of the company's business. Barring unforeseen circumstances, I expect the business to continue to do well for this year. Hence, I will continue to hold on to my shares.

Straco has a good quarter as its revenue and net profit continues to grow. With the exception of UWX, the rest of its attractions - SOA, SF and Lixing cable car saw higher visitor numbers.Straco's NPM has always been above 30% and with little capex, it is generate lots of cash that allows it to pare down its debt.

I am hopeful for an increase in dividend either for this financial year, if not by next financial year.

Micro Mechanics
Expect a good quarter from Micro Mechanics. To be updated.

ParkwayLife REIT
ParkwayLife continues to improve its DPU y-o-y and q-o-q. With the distribution of its divestment gain over the four quarters, the return is even more impressive. Management has good track record in improving DPU and has make gains from its divestment. They are also forward looking and in the latest report has indicated the decision to diversify their portfolio by investing in properties used for medical manufacturing & storage facilities & education facilities (target 5% of portfolio). 

The price has run up quite a bit in the last few months and it is indeed tempting to lock in some profit. However since I still believe in its long term growth, I will hold on to my current holdings.

Frasers Centrepoint Trust
FCT reported a stable quarter with slight decline in its DPU. With its AEI for Northpoint 90% completed, DPU should improve next year. With a low gearing of only 30%, one possible catalyst would be acquisition of Punggol Waterway Point within the next few years. 

I will look for opportunity to accumulate more if the price softens.

Food Empire
Food Empire continues its turnaround story with an exceptional increase in both revenue and net profit y-o-y. However, q-o-q the results is not as impressive and the its NPM is not very stable. 

In Q1, Indochina's weaker performance was attributed to a change in festive season date. However, Q2 results does not see a big change. Hence, as management highlighted in the report, they are facing tough competition. The strongest segment is their Other Markets which improves both y-o-y and q-o-q. 

Based on past record, it seems that their 2H performance is better than 1H. If they are able to achieve the improvement in Q3, I will up them to the A Band.

Strong growth in revenue but net profit suffers due to intense competition in India. NPM remains high at above 20%. Singtel should be able to maintain its dividend and hopeful for special dividend when it records its gain from its divestment of Netlink.

Revenue and net profit continues to drop due to decrease in car inspection because of COE cycle. However, company has pretty much maintain its dividend and has up its dividend policy to 90% payout.Strong net profit margin of above 20% and if it is able to maintain similar dividend for just a few more years, its revenue and net profit will grow again.

Will look for opportunity to increase stake.

Raffles Medical Group
Slightly better than 20171Q, with revenue up by 1.0% and net profit up by 0.7% as compared to 20161Q. Q-o-Q, the improvement is better. 

The report highlighted weaken demand from foreign patients but it still generated more than enough sufficient cash to support its expansion. Raffles Hospital Extension will open in Q4, Raffles Chongqing in 2018 second half and Raffles Shanghai in 2019 second half.

The market responded badly with this Q2 results, causing the price to drop to below $1.2. I will take the opportunity to further accumulate my holding at the correct price. Expect to see the benefits from its expansion from 2020 onwards.

Starhill Global REIT
DPU continues to drop due to poor performance for its office segment and AEI for Plaza Arcade. As with Q1 report, I stay satisfied with the current DPU and actions taken by the management.  I expect a better performance in 2018, hence may buy more if the price is good.

Saturday, 5 August 2017

Average down plan

Recently, Raffles Medical Group tumbled around 8% after it announced its 2017 Q2 results. As I still believe in its long term story, I did not sell the shares and was contemplating on averaging down. 

The questions are at what price? And buy how much?

After some thinking, I decided that for the growth stocks in my core holdings, I will adopt the following plan to accumulate more when there is a sell down. 

Firstly, will look at the business and financial and decide if there is any major change in its fundamentals. If there is deterioration in its fundamentals which increases in uncertainty and risk in holding on to the shares, I would have to decide if I need to cut loss. 

On the other hand, if fundamentals still hold strong, I will accumulate. I will average down when the price dropped by 20% from my average purchased price. Each time, I will add 20% of the original share count. Within the next 6 months (2 reporting quarters) of the first averaging down, I will continue to average down when price dropped by 20% of the last purchased price. After which the cycle will be reset.

I have 10000 shares of ABC company at $1.000. If the price dropped to $0.80, I would add 2000 shares. With that, I would have 12000 shares at $0.97.

Within the next 6 month, I would only continue to average down if the price hit $0.64 ($0.80 x 0.8). If it does, then I would add 2400 shares at $0.64 ($0.80 x 0.8). With that, I would possess 14400 shares at $0.91. 

On the other hand, if the price has not dropped to $0.64 within the six months of the first average down, my next average down would be 2400 shares at $0.77. ($0.97 x 0.8). With that, I would possess 14400 at $0.93.

The plan provides a guide on how I will response when the price of my counter drop. I believe with this guide, it takes part of the emotion in my decision and hopefully it will turn out to be good. Having say that, I will not following the guide religiously. I am sure there will be occasions which require me to be more flexible.

I have not executed this plan yet on Raffles Medical Group as its price has rebounded last week. I do hope it will drop more in the coming weeks which will allow me to accumulate more shares in this outstanding business.

Saturday, 29 July 2017

Buy and sell actions in July

Lots of action this month as I made my maiden purchase of US stocks. The new adventure inadvertently changes my investing view. Suddenly, I have access to so many solid companies to purchase that my interest in some of the local companies decreases. Will talk more about this in another post.

Going once...going twice...gone
1. Sold Jumbo at 0.63. Bought at 0.655 for a punt of its expansion in China but decided to drop it as I am unsure if it will be successful given that I have little knowledge on it. Also, with its growth story hit a snag in the last quarter, I think I should be more careful with this counter since it is at a PE of more than 25x. Made a small loss of 3.9%.

2. Divested 75% of Best World at 1.37. Click here for reason for divestment. Since then, I have divested the remaining at 1.545.

3. Sold Duty Free International at 0.315. Originally purchased for its large cash flow and was hoping for good dividend. Did not turn out as expected, so decided to sell even though company is buying back shares. Took a loss of 11%.

4. Sold Keong Hong at 0.49. My first foray in a construction firm. Interesting company but still can't quite grasp its business cycle. Made a profit of 7.7%.

Shopping spree....
With the cash from the various divestment, I have bought into these counters.

1. Mapletree Greater China Commercial Trust at 1.085. Primarily for its yield of 6.8% and also increasing distribution since it was listed. For some reasons, I have mistaken that Festival Walk is around Tsim Sha Tsui Avenue of Stars. So I thought the foot traffic must be very good. In any case, just a small stake and will see how it will do with its 3 properties in Hong Kong, Beijing and Shanghai.

2. OUE Hospitality Trust at 0.755. I last purchased and sold OUEHT at 0.900 in 2014. Thanks to dividend received, made a 3.1% profit. Decided to take a small stake again primarily due to its dividend yield and gut feel that it should continue to do well with the opening of T4.

3. Food Empire at 0.665. Continue to increase my take in the company as I am confident of a good Q2 results.

4. Starbucks at USD at USD 58.50. My maiden purchase Singapore. Click here for why I buy.

5. Chipotle at USD at USD 340. Affected by e-coli virus 2015 and company is re-building its reputation. 20171Q showed a glimpse of recovery but unfortunately recently affected by another isolated case of norovirus and mice infestation in another outlet. This caused the price to drop and provided me an opportunity to buy a very small stake as I believe that long term it should recover.

6. Tractor Supply at USD 51.80. Price dropped due to a poor 1Q. Felt that it was oversold and picked up a tiny stake.

7. Mastercard at USD 128.80. Stable brand and believe in its long term growth.

Monday, 24 July 2017

My first foray into International Market

After 17 years of investing, I finally venture beyond the Singapore shore. What took me so long, I also do not know. Maybe I was too comfortable with Singapore market...maybe I was too lazy to find out more about overseas market...maybe my capital was too little, hence do not see the need for further diversification. It is a pity as due to my procrastination I have missed the growth of many great companies. In any case, I can't change the past and here I am, starting my adventure.

The first company that I decided to invest in is none other than Starbucks Corporation. 

A familiar brand in a familiar industry. Starbucks is a place that I will spend some me time. In fact, some articles in this blog was written while having a cup of coffee at Starbucks. In the past year, it has also become an option for weekend breakfast. I noted the price has gone up from $6.50/$6.90 last year to $7.50 this year. Also, with its partnership with AIA on AIA Vitality Programme, I will visit Starbucks more. Even my father who does not visit Starbucks commended that the store is always filled.

A quick look at the data from Morningstar shows that from 2012 to 2016, its revenue has grown by 12.5%, net income by 19.4% and EPS by 20.5%. Excluding dividend, the share price has more than double for the same period. I am impressed by the numbers and certainly feel a sense of regret again for not venturing into the US market earlier.

Of course the next question is will Starbucks be able to repeat this performance in the next five years. After reading through various reports and their past few years' shareholder letters, I am quite confident that they will be able to pull it off. So what are some of the growth factors.

1. In 2014, the management has set a goal to grow its then revenue of 16.4B to 30B in 5 years. They achieved 21.6B revenue in 2016. So it does look like they are pretty much on track.

2. The launch of Mobile Order and Pay programme in 2015 has gained traction in 2017. I think MOP will represent more of Starbucks' revenue going forward.

3. The success of Starbucks Reserve Roastery in Seattle has prompted the company to open a few more in the next few years, notably Shanghai, New York, Tokyo and Milan. At the back of my mind, I do not think that they might make an impact on the financial but I believe these Roastery will further cement the brand.

4. The success of Teavana in US and its expansion in China/Asia Pacific.

5. The plan to double the 2500 stores in China by 2020. This is huge and if successful, they will definitely hit their goal. Things are looking good with their 2017Q2 comparable store sales up by 7%. Also, recent development such as partnership with Tencent Holdings to launch a social gifting programme known as 用心说 and the launch of critical-illness insurance coverage to the parents of its partners (employee) show how Starbucks is growing in its standing in China.

Beyond the growth factors listed above, I perceived Starbucks as an innovative company with a heart for the community. I am impressed by Starbucks chairman Howard Schultz's opening address during its 2016 AGM and hence feel proud to be a minute shareholder of Starbucks.

Sunday, 16 July 2017

Divested 75% stake of Best World

Best World has been my top winner for the past 2 years. It was not that long that I was still positive about its prospect but noted its higher valuation.

So why did I divest most of my stake last week? 

Boon at Valuebuddies highlighted a speech from BWL first Star Diamond Ambassador (SDA) in the recent convention at Kao Shiung (https://www.valuebuddies.com/thread-1033-page-49.html)

What is interesting is this DSA comes from China when direct sales revenue for China is still zero. A series of posts were on this at the forum and I also took a look at the BWL convention facebook page which showcases new awardees, primarily from Taiwan and China.

I am sufficiently disturbed by this that I decided to divest part of my holdings. I also decided to check with Bestworld IR on this matter. I am heartened that the management provided a response to my query that you can read at the bottom of my post. In a nutshell, BWL is recognizing the distributors' achievement with BWL leaders' ranking even though the qualification mechanism is different and this is also an attempt to transit them into direct sales model eventually.

I appreciated the response as it gives me an idea what the management is thinking but am still not comfortable with such arrangement and hence has no regret divesting my 75% stake. 

I am comfortable to hold on to my 25% stake for the moment to see how things will work out.  Most importantly, I will not lose sleep over it as it takes up less than 2% of my portfolio by cost. This might turn out to be a non-event and BWL may continue to do very well in China, judging by the sales generated by SDA within half a year.

Side note: With this divestment, I can recycle the cash to my other counters. I have also made my first foray into US market (more on this in the next post). I decided to set aside about 10% to 20% of my portfolio to build a small portfolio of International stocks. Feeling excited about the new adventure.

Managment response:
All DRs Secret products freely sold in China by DRs Secret outlets/workshops are operationally independent and does not have any contractual agreement with Best World and any of its subsidiaries. It is common market practice for foreign brand owners to recognize the sales achievement of their foreign agents, especially during their incentive trips.

Strategically, we confer these distributors with relevant rank based on their sales achievements. Although their qualification mechanisms are different, we chose to recognize their achievement together with BWL leaders from other markets from day one (which is not difficult). This would be just one of our several deliberate efforts to inculcate them with the attitude of a direct selling leader as early as possible, so we could integrate them as seamlessly as possible into our direct selling operations before converting our China business into Direct Selling. As a late mover in applying for our license, we have had the opportunity to refer to other companies as case studies for ourselves. As such, our strategy is not only to obtain our license within the shortest period possible, but also to address integration from the onset to ensure undisrupted transition moving from a retail model to a full fledge direct selling company when the time comes.

Hence, due to the difference in the qualification mechanisms, China sales are independent from Taiwan sales. Best World already has the necessary license to import our products into China. All DRs Secret outlets/workshops being independent entities, will be fully responsible for the necessary licenses and permits they need to hold in order to operate.

Our direct selling license will only be applicable when we convert our operations into a direct selling model.