Company Review: Koda

Koda is a leading ODM furniture exporter in South East Asia.  The company focuses on up market furniture and established customers over 50 countries.  The company is a micro-cap with only a market capitalization of just slightly over $100 mil. 

The company has posted 4 years of double digit growth in both revenue and profit.  CAGR net profit is 25% over the past 4 years.  With its production base shifted to Vietnam (lower cost), this growth is expected to continue for 2008. Net profit margin is approximately 10% with ROE of around 25%. The company has a net cash position with insiders holding approximately 68% of total shares.

I’ve purchased 12 lots at an average price of $0.751 (PE of 7.5 based on 2007 results).  Again, this is not such a cheap price considering the company has a small market capitalization.   However, I am intrigued by the company’s performance over the past few years and I like the way they report their results.  Company chairman has come forward to say that the company will not be affected by US sub-prime problem as company’s product is targeted at the higher end market.  With the volatility of market over the past few months, I have decided to pare down my holdings on Koda.  I will continue to hold the 5 lots of the company and wait for opportunity to purchase more if the price is right.

Company Review: Celestial Nutrifood

Established in 1997, Celestial NutriFoods Limited is a leading manufacturer of soy protein-based food & beverage products.  The company is invited to co-develop the first phase of the Hi-Tech Soybean Zone project initiated by the Daqing Government in 2004.  Phase 1 of the development has since been complete and operations commenced in June 2006.  It has boosted Celestial capacity and enables the Group to introduce three new products, namely soy functional protein, biochemical feedstuff and lecithin.  The group is also exploring the production of bio-diesel fuel using soybean oil, a by-product of the manufacturing process.

The company net profit margin is approximately 25% with ROE of around 25%.  For the past 5 years, company has achieved a blistering CAGR of 50% on both revenue and net profit.  This is largely attributed to the completion of Soybean Zone project last year.   The growth is expected to continue for 2007 but the earning will be dragged down by non-cash convertible bond interest expense.  The company has a gearing of 87.5%.  The chairman and CEO Ming Dequan holds approximately 28% of the total shares.

I made a mistake on this company in Dec 2004 by selling it off when the market did not react positively to its expansion plan.  Purchasing it at $1.41 in May is not exactly cheap but with its track record over the last 3 years, I am more confident of the management in delivering further growth of the company with careful handling of the company’s debt.

20071H Results

The company has reported a good set of results in Aug with sales growing at 72.1% and net core earning at 38.5%.  Net earning decreases by 3.3% due to non-cash component of interest expenses on convertible bonds.  The company expansion plan is on track and is expected to reach its target of 70% utilization rate of facility.

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.

Company Review: Midsouth

Midsouth is a manufacturer of fiberglass reinforced plastics (FRP).  Listed in May 2006, the company has produced good results for 2005 and 2006.  Its revenue and net profit has grown by at least 35% in 2006.  Shifting its production to Lingxian plant, the company is expanding its production and since the beginning of the year, its bottom line is boosted by the production of Polypropylene (PP) parts for automotive vehicles.  The company will continue to benefit from China boom in infrastructure and property sectors.  Also, the company is looking into exporting its parts to US and Europe markets which will provide another driver for its growth.

The company net profit margin is approximately 24% and ROE approximately at 25%.  With cash from its IPO listing in 2006, the company is in a net cash position.  Approximately 57% of the total shares are hold by the Executive Chairman (Gao Yanjun), CEO (Gao Yanhua) and GM (Gao Yanguo). 

While I do not really like a family based business, the company’s numbers is impressive enough for me to purchase 10 lots of Midsouth at a price of $0.815 (in June) which translates to a forward PE of 9.2x.  Not that compelling considering the company has just listed.  However, if the company is able to execute its growth plan, there will be good returns in the coming 2 to 3 years.

20071H Results

The company reported a good set of results in August.  Revenue grows by 37% while net profit increases by 33%.  With a historically stronger contribution in the second half, it is expected that the company will continue its double digit growth rate.

2007 3rd Quarter Report

It has been 16 months since I made my last entry.  I do need to make more effort to update this journal. 

I decide to take on a new approach in dealing with my investment portfolio.  Instead of just thinking that this is an ad-hoc interest, I will take that I am having a business that holds interest in Singapore equity.  Hence, I will do at least a quarterly report on my company and will also provide update on my business decision (buy and sell decision).

3^rd Quarter Performance

Last quarter sees my cash portfolio drops by 10.2% and CPF portfolio increases by 4.6%.  The drop in my cash portfolio is largely attributed to two wrong moves I made: purchasing MMP Reit, Guthrie and FSL in July and subsequent selling of these counters during the meltdown on 17^th August.  This again surfaces my lacking in the control of my emotions in decision making.  As for my CPF Portfolio, the gain is attributed to the gain in Jardine C&C, Aberdeen China, GEM and Lion Capital Korea Funds.

Buy and Sell decision for 3^rd Quarter

Cash Portfolio
Besides the three mentioned counters which I have bought and sold, I have sold Cougar after receiving the dividend, making a gain of $341.01.  Again if I have hold on to the counter a little longer and not sold at the meltdown, the gain would be heftier.  With the rise in valuation over September, I have decided to raise my cash position.  I have pared down my stake in KODA and sold Beauty China.  I will continue to keep Beauty China in my radar.

CPF Portfolio
I have taken profits from Aberdeen China, Schroder Euro Fund, Jardine C&C and SIA Engineering.  While the counters might still have some upsides in the next few months, the sharp rise in the price in such a short period made them a riskier investment for me.  Again, they are still in my radar and I will purchase them if the opportunity appears.

9^th Month Performance

The first 9 months of this year saw my cash portfolio increases by 52.7% and CPF portfolio by 13.7%.  Overall, I am satisfied with this performance especially considering the two crashes in February and August.

Buy and Sell decision for 20071H

As I have not reported on my investment in the first half of the year, I will highlight some of the buy and sell decisions in the first half of the year.

Cash Portfolio
I have sold off my positions in China Flexible Packaging and People’s Food in June.  For the former, it was still at a very low valuation.  It is frustrating to hold this counter as it hardly moves even when the whole market has moved.  Eventually, it might move to its value but with so many other possible positions I can take up, I decide to sell it off.  People’s Food is a company which I have wanted to hold long term.  The decision to sell it come after the company announced that they faced short term problem in the shortage in supply of pig which will drag down its profitability for the next 2 quarters.  I still believe the long term prospect of the company but will wait for the correct opportunity to purchase it again.

CPF Portfolio
OSIM was sold off in the beginning of the year after holding the counter for slightly more than 3 years.  I should have sold it off earlier last year when the company faced problem after consolidating the accounts of Brookstone.  However, I took confidence from Ron Sim purchase of the company shares and held on to the shares believing in a fast turnaround.  This did no realize and the company suffers a larger than expected loss for FY2006.  I still made a profit of $2500 over the 3 years but that profit could easily be $8000 if I have sold it out when the fundamental has changed.

I sold Sincere after holding it for a year.  Made a 60.8% gain (including dividend) over a year.  The primary reason to sell Sincere was to raise cash for purchase of Jardine C&C and SIA Engineering.