31st May Mid Year Review I

Yes, I miss my quarterly review.  *spank* myself once for the lack of discipline.  No matter how busy I am, I must find time for this! 

Cash Portfolio

In general, last half a year has been roller-coaster ride for my cash portfolio.  The sub-prime fear has driven my portfolio down by as much as 20% in the first quarter of the year with some of my stocks dropping by as much as 40%.  Even to date, with my portfolio 2.0% lower than December 2007, I have three stocks trading at 40% below my purchase prices.  I am glad that the large fluctuation has not affected me too much emotionally.  I was calm and looking for opportunity to purchase some counters at a lower price and holding on to some cash as I am uncertain of the outlook of other counters.

(a) Celestial Nutrifood

Celestial is a counter that fluctuates a lot due to high trading volume.  I have taken the opportunity (or you can say it’s risk) by dollar-averaging this counter by 2 separate purchases in Jan and Feb, bringing the average purchase price to $0.9 from the initial price of $1.28.  My confidence with the company lies with its success in its execution of phase 1 expansion plan; ability to pass the higher cost to the customer; visible expansion plan in the next 1 or 2 years.  Couple with the low PE (6.8 based on 2007 results at $0.9), it’s a bargain.

The company announced its FY 2007 results in Feb with revenue growth of 55.4% and net profit growth of 13.3% with net profit margin at 23.3% (lower than 2006 31.9%).  The lower net profit growth and margin is attributed to the higher finance cost on the issue of convertible bonds which will reduce in time.  The company declares a $0.02 dividend which translates to a 2.22% dividend yield for me.

In May, the company announced a positive 20081Q results with both revenue and net profit 50% higher than 20071Q.  The growth is attributed to higher utilization rate, expansion in sales and higher pricing.   The company’s 2008 plan for the four High Protein Nutrient products are on schedule; and the manufacturing of biodiesel is in progress too but Directors advice a change in input, using of other materials instead of soybean oil as the price of soybean oil has increased.  Overall, the long term market for soybean-based products is favorable.

As mentioned this stocks fluctuates very much.  From a high of $1.4 plus (last may/jun), the price drops to a low of $0.56 (in Jan / Feb).  It is “scary” as I see the price plummet down; yet on the other hand I wonder why is it hit so badly when the fundamental is intact.  And the price goes back all the way to $0.90 now with no change in the company’s fundamental as compared to 3 months ago.

My holding is break-even now and with this high amount of fluctuation, I might consider offloading some of my holdings when the price hits $1.35 (50% gain).

(b) Midsouth

A company which I felt has potential for a high growth in the next few years but the market did not think so.  Against the muted response by the market on the counter, the company has decided to delist from SGX with an offer of $0.8 per share which is still lower than my purchase of $0.815 *sigh*.   I do feel a bit gutted as I can see its growth potential in the next 3 to 5 years but I cannot fault the management’s offer which is a premium of 30 to 40% over its average trading price over the last few months.

I have since sold the counter at $0.775, so that I can utilize my cash for other potential candidates.  Also, if the deal does not go through and the company fails to take it private, I expect the share price to trend downwards and provide me another opportunity to purchase the counter cheaper.

(c) The Hour Glass

The Hour Glass reported a revenue growth of 20% and net profit growth of 63.8% over 2007.  Net profit margin improves to 6.2% with ROE hitting 17.4%.  The company expects a slowing in sales momentum for 2008 and decides to seize this opportunity to position itself for growth in the next 3 years which I take this as a positive move for long term growth. While company guides that there could be a slow down, I personally feel that the sentiment might not hurt the rich as much as the not-so rich.

Since my purchase in December last year, the company did a 2-for-1 split in Feb, hence now I hold 10 lots of the counter which I have no intention to divest in the near future.  A $0.02 dividend was declared for FY2007 which is slightly disappointing as I have expected more but given that the company needs the cash for expansion, it is acceptable.

(d) Pacific Andes

The company just reported its full year results on 30^th May.  Revenue and net profit grew 32.3% and 23.2% respectively.  At current price, the company is trading at about 9x is earning.  It has declared a dividend of $0.0207 which gives me a dividend yield of 3.1 %.
 
As mentioned previously on my uncertainty of its debt structure, I have not loaded more of its shares even though its price is now 30% lower than my purchase price.  At the same time, I am in no hurry to off-load this counter as I am still impressed by its growth rate.  To sum it up, I am pretty neutral towards this counter at this moment.

2007 in Review

Cash Portfolio

2007 has been a good year for my cash portfolio. NAV of my cash portfolio has increased by 49.4% from $1.44 to $2.15.  I have no confidence that I will repeat this performance in 2008 but I believe that in long term (10 to 15 years), getting a compounded return of 10% from stock can be quite easily done.  With this record-breaking performance, my compounded return over the 8 years is 10.1%.

The best move of the years must be the selling of People’s Food.  PFood was sold at an average price of $2 after it announced shortage of pigs.  Since then, the price has retracted to $1.11, which translates to a PE of 10 but I will continue to monitor the situation before getting back to the counter.

The mistake of the year must be the series of transaction near end July.  Instead of holding on to the build up in cash position, I hurried to purchase a couple of counters which does not offer really good values and results in a loss of $2.2 k in a month.

Currently, I am still positive of long term prospect of Celestial, Pacific Andes despite sitting on paper loss.  I am confident of performance of Hour Glass, Pokka, Kingsmen Creative and Inter Roller going into 2008.  As for Mid-south, Lantrovision and Koda, I am neutral on them.

Companies that are within my radar are FSL (for its high dividend yield), Apex Pal (bold expansion plan), Pan United (benefiting from construction boom), Beauty China (re-entry if valuation becomes attractive again)

CPF Portfolio

NAV increased by 10.3% from $2.19 to $2.41.  This is the lowest YTY increase for the past 5 years but it is still much better than CPF return of 2.5%.   Compounded return for the 5 years now stand at 19.3%.

The portfolio would have better showing if I had not sold off Sincere to raise cash for Jardine C&C and this mistake is compounded by the subsequent selling of Jardine in September.  Again, I need to be discipline in holding to a winning counter instead of realizing the gain!

For the currentlportfolio, I am confident of a steady return in terms of dividend at an average yield of 6.22%.  Any positive move in price will come from market revaluating the counters due to NAV (Metro, Singlan).  Food Junction remains a wild card which I might dispose of if there are better buying opportunities.

Company Review: Pacific Andes

Pacific Andes is primarily engaged in industrial fishing and the supply chain management of frozen seafood products to customers mostly located in the People’s Republic of China, Japan, South Korea, Europe, North America and Africa.  For the past 2 years, the company has grow its bottom line at a blistering pace of 50%. 
In June 2007, the company restructures with an increase stake of 63.9% in China Fishery Group.  The company is upbeat about global seafood industry especially for industrial fishing for FY2008.

The company net profit margin is approximately 7 – 8% with ROE of 14 – 18%.  To expand its capital base CFG issued US$225 million of 7 years senior notes in Dec 2006 and PAH issued US$93 millions 4% convertible bond due 2012 in Jun 2007.  This results in a net debt to equity ratio of 117%.  Approximately 63% of the shares are held by insiders.

I purchased 10 lots of the counter at a price of $0.765 due to its impressive growth rate.  At this price, it is only trading at a forward PE of 6.6x and it’s trading at a discount to its NAV of $0.91.  What I don’t quite like about the company is its debt structure.  I do not know its ability to handle this huge debt that they carry and also the dilution effect of the convertible bonds comes 2012.  Also, the fishing industry can be quite unpredictable especially due to weather factor.  Having said that, personally feel that it’s a cheap price to buy the counter.

20081Q Results

The company posts a strong first quarter results in August where both revenue and net profit increased by 43%.  It is expected that the company will continue to do well for the rest of the year.