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.

Saturday, 1 July 2017

Looking Ahead

















Having achieved a good first half results, the question is how to improve or sustain it? Best World, Food Empire and Valuetronics were the key drivers of my first half performance. Will they continue to do well in the next few years? Will other counters take over the driver seat?

I decided to make a prediction on the above questions base on my current, limited knowledge of their business and gut feel. Of course, this is speculative in nature but it provides a rough idea how my portfolio might continue to grow in the next few years.

I must say I am quite satisfied after the exercise as there seem to be sufficient stories to keep my portfolio going. What about the other counters that did not even appear once in this post? I will write about them in the next post.

20172H
Food Empire - Turnaround should continue with positive results.

Valuetronics - Both CE and ICE segments will continue their growth momentum.

Best World - China story is in tact and should continue to power its growth.

SingTel - Launch of Netlink IPO should have a positive impact.

Micromechanics - Continue to benefit from its strategic decision to focus on semiconductor.

ISEC? Improvement in results, partly contributed by the acquisition of JLM clinics in 2016?

2018
Food Empire - Growth rate should be lower as compared to 2017. Expect growth from other markets, especially from the ingredient segment.

Valuetronics - At least for first half of the year with their automotive segment continues to gain traction.

Best World - This year should see more conversion of China export model to direct sales. Margin should improve.

Frasers Centrepoint Trust - DPU boosted by Northpoint AEI in 2017.

Starhill Global REIT - DPU boosted by completion of Plaza Arcade redevelopment by 20181Q. 

Straco? Will it increase its dividend?

Kingsmen Creatives? Will this be the turnaround year?

Raffles Medical Group? Unlikely, but will the new extension start to make a difference?

Duty Free International? Expansion or increase dividend from their cash hoard?

2019
Straco - Either acquisition or increase dividend if it did not do so in 2018.

Capital Mall Trust - DPU boosted from re-opening of Funan in 2018.

Raffles Medical Group? Contribution from Extension and Raffles Chongqing but may face start-up cost pressure from Raffles Shanghai.

Best World? Will it continue to grow?

Frasers Centrepoint Trust? Acquisition of Waterway Point? or in 2020 or 2021?

Starhill Global REIT? Orchard office turnaround?

Kingsmen Creatives? Continue its turnaround?

Frasers Logistic and Industries Trust? More acquisition?

2020/2021
Raffles Medical Group - Reaping the fruit of its expansion.

Straco - Further increase in dividend.

2017 1H Performance

Half a year has passed and it's time to report on portfolio performance again. Happy to report a good half yearly performance with a good second quarter riding on an exceptional first quarter.

Performance
NAV of portfolio grew from $3.78 (30 Dec 2016) to $5.17 (30 Jun 2017), providing a return of 36.6% for 6 months. This is above my stretched target of 12% and also beats my benchmark STI ETF which returned 14.6% inclusive of dividend over the same period. The charts below show the past 6 quarters and past 3 half-yearly performances. The drop in prices of a few counters in the past few weeks have weakened Q2 results but nonetheless a 9.0% return is a good one which I will take for any other year. The exception Q1 performance has also led to the best half yearly performance.













The strong performance is attributed to a combination of positive sentiment in the local market and good results reported from my top ten counters over the past two quarters. A summary of my top ten counters' last quarter performance can be found here.

The top performers continues to be Best World. After stock split and dividend, it has returned 127% this year. This is supported by core stock such as Valuetronics (47%), Food Empire (35%), Micro-Mechanics (32%), Straco (19%), Parkway Life Reit (15%), and Frasers Centrepoint Trust (14%).

ISEC which is not in the top ten also did well with an increase of 10%.

Allocation
While there were some changes in the counter, portfolio allocation has more or less stayed similar to what was planned. Current dividend yield of portfolio based on cost is about 4.7%.


Planned
Actual
Dividend
~ 60%
58.0%
REIT/ Business Trust
<= 30%
25.8%
Growth
~ 40%
40.1%
Punt
<=10%
9.4%
Cash
0%
1.9%

Earlier in the month, I have also wrote about asset allocation in which I have written that I am going for 30% cash and 70% stock allocation. A check on my spreadsheet shows that it is at this allocation. So no action will be taken to put in or take out cash from the portfolio.

Action
For the month of June, 
I have divested
  • A-REIT at $2.65 for a gain of 19%. Bought last December for a tantalising 7% yield for industry leader. With the recent gain, I have received more that 2 years of distribution and yield has dropped below 6%. 
  • Techwah at $0.515 for a gain of 10%. Reason for sale is to raise cash for other counters.
I have added
  • more Frasers Logistic and Industrial Trust at $1.03 after news of its latest acquisition. I take this as sign of how things will be like in the years to come.
  • Japan Food at $0.46 for its consistent dividend. If it can maintain its dividend, it will give me a return of 4.3%. Not fantastic, so hope it will be higher in future.
  • Duty Free International at $0.35 for its increase cash hoard and possible expansion in the next few years.
  • Valuetronics at $0.77 to round up my holdings. Also, I am satisfied with the 4.7% dividend yield it is giving me.
You can click on April and May for my actions taken in those two months.

Core holdings
Based on initial cost, the top 10 holdings take up 74.9% of the portfolio. With the purchase of Food Empire and Valuetronics, they have moved up in positions. The rest has remains pretty stable.
  1. Food Empire (9.7%) @ $0.43
  2. Raffles Medical (9.5%) @ $1.48
  3. Parkwaylife REIT (8.9%) @ $2.32
  4. Valuetronics (8.6%) @ $0.54
  5. Straco (8.1%) @ $0.84
  6. Best World (7.7%) @ $0.30
  7. Fraser Centrepoint Trust (6.4%) @ $2.01
  8. SingTel (6.1%) @ $3.82
  9. Micro-Mechanics (5.8%) @ $0.91
  10. Starhill Global (4.3%) @ $0.67
Looking Ahead
It has been a wonderful ride so far this year. Not sure how long the good time is going to last but enjoying it while it lasts. Looking forward to the release of next round of quarterly results from my holdings and am confident of good results from most of my holdings.

Similar to first half, I do not think there will be much action on my core holdings. However, I might tingle a bit more with my none-core. 

Up next, I will post on a short visibility report of my various holdings for the next few years.