Core holdings quarterly report (October to December) Part 2 - Non-Reit

This is part 2 of core holdings quarterly report which focus non-Reit counters.

iFAST and 800 Super replaces Micro-Mechanics and SingTel in the core holdings since the last quarterly report. Micro-Mechanics was divested before its last quarterly results as my return provided 5 to 6 years of dividend which was my initial investment reason. Since my divestment, its price has continued to hit new high to remind me of my pain. SingTel just dropped out of the core holdings as I purchased more of the other counters.

The tables below summarizes their performances for the latest quarter.

A+

Valuetronics

Another fantastic quarter by Valuetronics. Revenue and net profit increases for the seven consecutive quarters, contributed by both CE and ICE segments. The strong performance for the past few quarters have been attributed to smart lightings of CE segments. The ICE continues to grow but at a slower rate. 

It also declared its first interim dividend of HK 7 cents. The momentum should continue to carry on for a few more quarters and I hope to hear more growth from its ICE segments, since it has increased its capital expenditure for the last 2 quarters on new machineries.

At forward PE of about 12x (and only 9x excluding cash), and probable yield of about 4.6% (based on $1 price), it is not a compelling buy. Having said that if the price corrects to around $0.90 or more good news is announced in the coming quarter, I might add more.

A
Food Empire
Food Empire reported another good quarter with a minor increase in its revenue and a higher growth in its net profit. From the beginning of its turnaround last year, it has continued to generate good cash flow. Coupled with its regular scheduled repayments of its debt, the company  is finally in net cash position after being in net debt from 2013.


Going forward, the growth might not be as strong with management highlighting stiff competition for IndoChina market and maturity of its ingredient business. With the positive experience in the ingredient business and increase in cash, I am confident that the management will announce further expansion in the upstream project in due course.

Having average up a few times over the past year, Food Empire is currently my top holding, occupying 8.5% of my portfolio (by cost). While I believe that it will continue to do well and pay out more dividend, I will not add on more shares as its growth might slow and currency risk while reduced, is still a concern.


iFAST
iFast continues with a strong showing this quarter as compared to previous year. However, the increase is much lesser from previous quarter. I expect the momentum to continue and its Q4 will be about the same as this quarter, with the potential of upside surprise. The company has also increased its dividend by 10% from $0.0068 to $0.0075.

High valuation of PE 29x if Q4 results is within my expectation and PEG of about 1. So pretty much fairly priced but I continue to like how the company goes about executing its strategies. While China loss widens, it continues to establish itself. the recent step in an institutional business partner in China (Beijing Financial Alliance Technology Co Ltd) is evident of its effort. 

I am happy with the gradual growth for the next one to two years with the a possible explosion in growth (and price) once it establishes itself in the China market.  

B
Straco
As I was expecting quarter three to continue its growth momentum from the previous two quarters, I was disappointed to see the dip in performance when I first took a glance at the results. Feeling more neutral when I realized that the weaken performance is largely attributed to UWX due to a restriction of visitor to the island. The other attractions reported an increase in revenue. 

Straco continues to generate a large amount of cash and now has a net cash position of 137 mil. With a quarter to go, I would expect its net cash to be in the range of 140 to 150 mil by the end of this financial year. That is a whooping $0.17 per share.

Before Straco bought Singapore Flyer (SF) in 2014, it generated about 12 to 15 mil per year. When it acquired SF, its net cash was at 110 mil. After SF, it has been generating about 40 mil per year and with the record cash that it is holding, I am pretty confident that it will increase its dividend for this year.

Hence, I will continue to hold on to my current stake. I am unlikely to increase my stake further until there is more clarity on how the company is going to deal with the cash that they have.

800 Super
800 Super produces a stable quarter with minor increase in revenue and minor decrease in net profit compared to previous year. However, its performance is better than the previous quarter and net profit margin is back to 11%. 

It has obtained TOP for its WTE plant and will be carrying out testing of its biomass boiler. The plant is expected to commence operation from 2018 first quarter. The development of sludge treatment plant is in progress and is on track for completion in 2018 second quarter.

Looking forward to the completion of the above two projects in the coming quarters.

VICOM
Vicom produces another stable quarter with minor decline compared to the previous years. Next quarter's report will be interesting as we can see the effect of the minor price adjustment for vehicle inspection. 

I continue to stay confident of its ability to generate cash and am quite sure it will at least maintain its dividend by the end of the year.

C
Raffles Medical Group
Results continues to be flat with Hospital Services Division's revenue increased by 3.1% but Healthcare Services Division's revenue decreased by 4.2%. Looking forward to the opening of 
Raffles Hospital Extension by end of this year which should improve both top and bottom lines as it has been operating at full capacity in recent times.

It continues to generate strong cash flow and cash balance has maintained at  around 110 mil, even after distribution of 9 mil of dividend and payment of 31 mil for investment properties under development.

With Raffles Chongqing opening in 2018 second half and Raffles Shanghai in 2019 second half, it is exciting time for the company. 

A "C" grade for current performance but a "B" for its potential in the new few years. I will continue to hold on to my current stake and may add more at the appropriate juncture.

2017 9M performance

Performance
Another quarter has passed and it's time to take stock of portfolio's performance.

It is a muted performance for the quarter, resulting in a slight increase in NAV compared to 20171H performance. In fact, if not for the strong performance of Valuetronics and UMS over the past few days, this quarter will post a return lower than 20171H.

NAV of portfolio grew from $3.78 (30 Dec 2016) to $5.22 (30 Sep 2017), providing a return of 37.8% for 9 months. Definitely happy as this is well above my stretched target of 12% and also beats benchmark STI ETF which returned about 14% (inclusive of dividend) over the same period. 

The chart below shows the performance of  past 7 quarters.

The muted quarter's performance can be attributed to the following:

• weaker market sentiment for the past quarter, 
• continued sell-down of Raffles Medical Group, 
• correction of Food Empire,
• divestment of  Micro-Mechanics which shot up 20% after I sold, *ouch*
• increase in trading activities as I look for new ideas for the next few years.

Gainers and losers
The following tables show the top gainers and losers for this year thus far. The list should remain pretty much the same by end of the year.

I am glad that 7 out of my 10 core holdings have returned more than 10% thus far this year. Even with the divestment of Best World and Micro-Mechanics, the ratio of 5 out of 8 still looks good.

Looking at the table, it seems that I have a tendency to divest my non-core holding once it has done well. This is something which I wasn't aware of before this post. It will be something that I will take note of in future. Instead of divesting the counter after a strong performance, another option would be for me to spend more effort in understanding the counter and determine the possibility of turing it that into a core holding.

Punting on counters based on minimal information and uncertain business outlook continues to be a game of chance. Fu Yu went 10% up but Oceanus and Innotek went the other way. Not in a hurry to divest Oceanus and Innotek yet as amount put in was minimal, especially for Oceanus. Also, am still feeling positive of a possible turnaround next year or the year after next.

The table also highlighted the strong performance of my three counters in my CPF portfolio which returned 16% thus far. If this continues for the rest of the year, it will be the 9th consecutive year that my CPF portfolio beats STI ETF.

Allocation

Dividend vs Growth
With the divestment of two core holdings and exploration of the US market, the allocation looked quite different from the the first half of the year. Cash stands at a high of 15%. Dividend yield of portfolio based on cost is at a low of 3.4%. 

	Planned	Actual
Dividend	~ 60%	55%
REIT/ Business Trust	<= 30%	25%
Growth	~ 40%	30%
Punt	<=10%	3%
Cash	0%	15%

Singapore vs US

Being new to US market, I decided to allocated at most 15% of my fund to it till end of 2018. Currently, it stands at about 12% with 4% invested and 8% in cash.

Action

For the month of September, I have sold

• Dairy Farm at US$8.03 for a gain of 5.0%.
• Singapore O&G at $0.49 for a gain of 2.1%.
• mm2 Asia at $0.49 for a gain of 1.9%.
• Mapletree GCC Trust at $1.15 for a gain of 4.9%.

I have bought the first 3 in August due to their steep drop. Decided to divest them for a quick profit and re-invest them in other counters which I am more familiar with. As for Mapletree GCC, bought it last month with an incorrect understanding of the location of its HK property. Got lucky with it, so decided to take profit.

On the US Market, I have also sold 

• Cognex at US$114.45 for a gain of 3.4%.
• Mastercard at US$140.23 for a gain of 6.1%.
• Priceline at US$1840.60 resulting in a loss of 5.1%.
• Chipotle at US$307 resulting in a loss of 13.4%. 

Dug into the numbers and checked the PE and growth rate of my US counters. The current PE for the first 3 stocks are all much higher than its historical average and PEG are all above 2. Hence, decided to divest them. As for Chiptole, there is currently too much uncertainty and so decided to stay away from it for the moment.

I have added

• more Straco at $0.87. Continue to like its cash generating business. This article by the "Rock" in NextInsight provides a good reading.
• more Hong Kong Land at US$7.28. Same reason as initial purchase in August. Cheap P/B and good results.
• more 800 Super at $1.085 as it continued to trend lower after its announcement of its Q4 results. Two quarters of weaker performances but it has continued to increase its dividend. Looking for a better performance in 2018.
• more Japan Food at $0.435. Same reason as initial purchase - consistent dividend.
• iFAST at $0.87. Its price has slid from its high after announcing a strong 1H results. While its China business will take some time to break even, its other countries performance is growing very well.
• Hock Lian Seng at $0.445. High visibility due to strong record book. If the company is able to maintain its dividend of 2.5 cents, then the yield is about 5.6%.
• ComfortDelgro at $1.995. Bought a tiny stake as I felt that it is oversold. While Taxi business is under great pressure, rail and bus are still doing well. Due to a sudden turn in its share price, I sold it today at $2.08 for a small gain of 2.8%. 

You can click on July and Aug for my actions taken in those two months.

Core holdings

Core holdings are counters which I am more familiar with. These are counters which I am more confident of and have a more substantial holding (at least 5% of portfolio); hence I am more likely to hold them for a longer period of time.

The current average holding period is about 2.4 years, as compared to 0.5 years for the remaining holding.

Divestment of Best World and Micro-Mechanics and purchase of VICOM has resulted in partial change of core holdings. These 8 (out of 26) holdings make up 53% of my outlay cost.

1. Food Empire (9%) @ $0.46
2. Raffles Medical (8%) @ $1.41
3. Straco (8%) @ $0.85
4. Parkwaylife REIT (6%) @ $2.32
5. Valuetronics (6%) @ $0.54
6. Fraser Centrepoint Trust (6%) @ $2.03
7. VICOM (5%) @ $5.75
8. Starhill Global (5%) @ $0.70

Looking Ahead

For the remaining quarter, I am looking forward to dividend from various REITs, 800 Super, RMG, SingTel, UMS, iFast and Japan Food. 

I am also hopeful of good quarterly result from Food Empire, Straco and Valuetronics which might have a positive impact on their prices. Raffles Medical Group should report another quarter of muted performance.

Barring any unforeseen circumstances, return for the year should be above 35%. With some luck, it might breach the 40% mark.

Why I buy VICOM Ltd?

I first read about VICOM as I was re-building my portfolio in 2015. Looking at its past record, I lamented that it was another counter that I have missed over the past decade of investing. Nevertheless, I found it to be a simple and cash generating business and decided to take a stake in it, thinking that its price has factored into the increase de-registration of car for the next few years.

Apparently, the market did not think so and its share price continued to drop and I divested completely in 2016, making a loss of 3% after accounting for dividend received. It continued to stay in radar but I did not buy into it as there is a continued worry of its sustainability of its dividend.

Why buy?
I decided to buy the counter again due to its announcement of its new dividend policy of paying out 90% with immediate effect in its Q2 result. This provided me with a higher certainty that its dividend will more or less be sustainable in the next few years even as revenue and net profit will continue to slide with the decrease in its vehicle inspection due to the increase in car de-registration. 

Of course, it has been paying out 80+% in the past two years, hence it is not such a big increase. However, I think by putting in writing 90% payout, I am thinking it might pay out even more especially when it is a cash generating business.

From the data, the increase in de-registration should continue into 2019 with an increase in vehicle inspection from 2020. With COE continued to stay high for the past year, there is also an increase in COE renewal. Not sure how all these will pan out in the next few years, but I think it might stabilize the number of vehicles requiring for inspection.

VICOM also has a non-vehicle inspection business SETSCO. From a report from The Fifth Person done in 2015, SETSCO actually accounted for 60% of its revenue. Unfortunately, in the recent annual reports, VICOM no longer provides segmental report of its business. In the latest annual report, it is reported the SETSCO experienced a difficult year in 2016.

All the above factors and its strong balance sheet which has about $1.08 per share gives me confident that the company can maintain its dividend for the next few years before the upturn in its business again.

What I expect?

Near to zero movement in its price until pre- and post- dividend. A dividend in the range of 26 cents for 2018 and 2019, giving me a yield of 4.5%. From 2020 onwards, its dividend should increase together with its revenue and profit. Its share price might follow with that.

Possible catalysts include an increase in dividend payout, an increase in car inspection fees (the last increase was in 2012) and better performance by SETSCO amid the challenging environment.

When will I sell?

If there is a steep drop in dividend, reducing the yield to less than 4%, I will probably switch out of the counter.

Buy and sell actions in August

Lots of action this month. Divested a few counters but bought quite a bit with the $$$ from divestment of Best World.

Out of Favour
Divested Kingsmen Creatives at the same price I bought. This is the turnaround story that is not working out yet. It reported a poor Q2 and I decided to wait for a clearer picture before re-entering again.

Divested half my stake in ISEC at 0.315. Tiny profit. Still an interesting outfit but its growth isn't exciting enough for it to occupy the middle of my portfolio. Hence decided to hold less and watch how the story unfolds.

Sold Capital Mall Trust at 2.10. It has risen more than 10% from my purchased price. Covered 2 years of dividend. Will recycle cash to other counters that offer higher dividend yield. Might re-enter when it offers a better yield.

Sold Mircro-mechanics at 1.41. Bought purely for its track record for dividend but its price has gone up to 7 years of dividend due to its good performance. Decided to divest it as its dividend yield dropped below 5%. Surprised me with a second rise of dividend this year and with a 8 cents dividend, yield gone up to 5.6%. On hind side, should have continued to hold on to it but actually felt pretty neutral about it. Probably am satisfied with the above expectation return from the counter.

Up the Dividend
Bought a lot more counters especially REIT to increase my annual dividend. Also, I like their outlook from next year onward.

Added Fraser Centrepoint Trust at 2.07. With the AEI of North Point completing this year, next year DPU should increase. Assuming a 12 cents DPU next year, it will translate to 5.8% yield and potential upside if DPU is even higher. Possible catalyst could be acquisition of Punggol Waterway Point.

Added Starhill Global Reit at 0.76. While Orchard office occupancy could still pose a problem, AEI at Plaze Arcade in Australia is expected to be completed in 20181Q. China property would have a more stable distribution with the completion of renovation by 20174Q. Expecting a minimal 4.8 cents DPU next year. This translates to a 6.3% yield.

Bought CDL Hospitality Trust at 1.575. I have bought and sold CDLHT a couple of times for the past 4 years. Win some, lose some and overall still negative. Betting on the improvement of its hotels in the next two years. Assuming a 10 cents DPU, dividend yield is approximately 6.3%.

Bought Mapletree Commercial Trust at 1.55. A retail and office reit which I have missed for the longest time. Its DPU has been increasing since its listing. Estimating a 9 cents DPU which will give a 5.8% yield.

Bought VICOM at 5.81 (cd) and 5.65 (xd). A subdue Q2 results but with immediate effect it is paying out at least 90% of its earning as dividend. It gives more certainty that the company can maintain its dividend for the next two to three years even when revenue dropped due to increasing de-registration of cars. From 2020/21 onwards, it should see an increase in its revenue and income again with more vehicles requiring checking.

Buying into the Sell-down
Quite a number of counters were sold down for the past month, for good or questionable reasons. The sell-down provided me an opportunity to buy some shares of the counter which I think could do well in the future.

Bought Dairy Farm at USD7.45. The company has announced a decent Q2 recently and turnaround seems to gathering speed with good progress in China. The price was beaten down by 2% to 3% in one of the trading day and I deem it as an opportunity to add some.

Bought InnoTek at 0.34. The stock is beaten down because it reported a poor Q2. However, 1H is still an improvement. While the remaining year might remain a challenge, effort has been put in by management to turn the company around. Initiated the position with the belief that the turnaround will come in 2018 or 2019.

Bought mm2 Asia at 0.475. The price has dropped sharply after its GV deal did not get through. Nevertheless, it reported a good 1Q results and I decided to take a punt on it.

Bought HKLand at USD 7.46. Read about its cheap P/B and good results. Hence, decided to take a stake when its price has dropped by about 5% from its recent high.

Bought UMS at 0.995. The price has dropped sharply after guidance of moderate performance in 2H. Nimble a bit as I believe it will maintain its dividend which is a tasty 6%.

Bought 800 Super at 1.12. The price has dropped after a poor Q3. The price weakened further just before it announced its full year results. Took the opportunity to re-enter the counter which I have divested at 1.26 in April. 

Bought Singapore O&G at 0.44. The price has dropped sharply after its weak Q2 results. Took a punt on it as company is still profitable and should get better results moving forward.

US Market 
Most of my purchase decision for the US markets come from the recommendation of MF subscription services. Unlike my local counters, I did not do as much homework on them. While I think that the valuations of the counters are high, I like their future stories hence my stake in them. All my purchases are small and will slowly wait for opportunity to accumulate more shares in the future. 

Bought Vail Resort at USD210.51. Luxury ski resorts operator. It has been growing through acquisition and opportunities to grow is still available. Its plan to keep its resort busy all-year round is working out well with Epic Discovery activities coming on more than one location.

Bought Cognex at USD105. Machine-Vision systems are used all around the world. Growth expected to continue. 

Bought Priceline at USD1870. Good Q2 results but market is spooked by its lower Q3 guidance. Taking this opportunity to have one bite on it.

Bought Intuitive Surgical at USD935. Intuitive Surgical have been growing for many years and its recurring income has increased. Decided to buy 2 shares to participate in its growth even though it has a high PE of 44x. 

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.

A+

Valuetronics

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
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
Micro-Mechanics reported a good quarter with another increase in dividend. However, I decided to divest it just before it announces its results. Hence, I will not update its performance.

A
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.

B
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.

Singtel
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.

VICOM
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.

C
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.

Portfolio August and September 2016

For the past two months, I have made the following adjustments:

1. Added my holdings to Capital Retail China Trust, Fraser Centrepoint Trust and SIA Engineering. All these are to increase the dividend payout received from them. 

2. I divested Vicom due to uncertainty in its short term business outlook.

3. I divested SGX due to lack of affinity to it.

4. I have initiated a position Micro-Mechanics as I see a constant stream of dividend from them.

Also, base on better understanding of how I view the individual stock, I have re-classified Straco under Dividend category and Food Empire under Punt category.

With all these adjustments, the "For Income" category has ballooned to 67.3%, beyond my initial plan on 60%. It does make me think and I am still thinking on my initial figure.

My current dividend yield (based on purchase price) is 4.9%.

For Income (67.3%)

REIT (34.3%)

Parkway Life REIT

Starhill Global REIT

Capital Retail China Trust

Fraser Centrepoint Trust

Dividend Stocks (33.0%)

Straco

ST Engineering

Valuetronics

QAF

SIA Engineering
Micromechanics

For Growth and Punting (30.5%)

Growth Stocks (25.3%)

Best World

Raffles Medical

Punt (5.2%)

Food Empire

ISOTeam