Election, election and election. Every time I turned the corner this week, I was asked my views on the upcoming election. One of my friends even told me that I should put more thought into this election because the future of Singapore depended on our collective vote. So what did I do? I went onto Youtube to watch videos of the various opposition candidates on show. Never have I ever expected Singaporeans to be so passionate about the general elections. To make it even more exaggerating, I had a friend who smsed me at 8 am in the morning to ask if I was going to the Workers Party Rally at Serangoon Stadium. I would totally understand if he was living in the area of Aljunied and going to be voting for Low Thia Kiang but guess what? He lives all the way in Sembawang! And me? I live in the area but I cannot even be bothered to walk 1 km to listen to it.
Have you all looked at the candidates? Nicole Seah? Chen Show Mao? Impressive? I have to agree for a 24 year old, Nicole seems like a a sensible girl with a good head. But my question to anyone who is reading this...How much did you know when you were 24? Enough to contemplate policies? In life, there is something which brains cannot replace...that is experience. So all I can say is, vote wisely. As for Chen Show Mao, I cannot deny he seems to be a very intelligent man, but I get the feeling that there is more that meets the eye. Make sure you go onto Youtube to look at his speeches in mandarin. He is a totally different person when he starts speaking in his mother tongue. His true facial expressions are revealed and that did not give me a good feeling about him.
When it comes to listening to candidates rally speeches, I never pay attention to what they say that much. The reason is, I feel every candidate will make promises and give you their passionate views, but the best way to view them is to pay attention to their facial expressions to see if they really mean what they say and whether there are any other hidden intentions. I am sure all of us have been in a courtship before. When someone is courting you, they will promise you the world. But talk is cheap. When you get into the relationship, you realised that those were just words and empty promises and you have just accepted a jerk or a bi%*h into your life. By then, its too late.
Anyway this is meant to be an investment blog so I am not going to get into too much political talk in here.
So what should I write about this week? The USD is still weak? $1.227 to the SGD. Gold has moved to another all time high. Silver is broken its all time high. The last time silver was this high, the Hunt brothers had cornered it and it was artificially pushed to this price in 1980. Some "experts" are calling for $100 dollar silver and $2100 gold. I am not saying that I disagree but that would mean the USD has dropped to a point where the markets are inflated to a point which makes the tech bubble look like a bargain to Warren Buffett.
My little titbit on the Malaysian market this week is on an IPO called Focus Lumber. It IPOed at $0.60 and closed at $1.20 on the first day of trade. I rest my case. I just want to emphasis how great the Malaysian market is for investors and traders that is why I keep throwing in the little movements.
I remember my call on Fragrance some time ago and since then the stock has just gone from strength to strength. Another bonus issue again! Look back at the company's track record, it has given back so much to the shareholders and if you were a shareholder since the beginning, you will be laughing your way to the bank. In my post on Fragrance, I have already given you all the reasons to buy the stock. Fragrance should be used as a template for all of us on deciding which stocks to buy and put into our portfolios. It is also important to note that Fragrance did not start performing immediately. Value takes time to show its true form. Like what Warren Buffett said, "in the short term, the market is a voting machine, but in the long term it is a weighing machine." Value always shines through.
The Singapore market was a little weaker this week because people did not like the fact that 94% of the seats will be contested at this coming general elections. In the short term, it will not be too good for the STI, but in the medium term, people will not remember how many popular votes our PAP lost or won. So just take the pull back as a buying opportunity.
Earnings have been quite good so far in Singapore. The large caps all did well and the small caps have reported impressive earnings too. No negative surprises so far and I am looking through the books of some of the companies which I like to see if things have changed. So far I have not found any reasons to sell any of my calls. So lets see how it goes. Will keep you guys informed when if I should find any of my calls turning for the worse.
In the US, earnings have been not too bad with the usual suspects like Microsoft and Research In Motion underperforming. Overall it has been a decent earnings season over there but that does not really justify the gravity defying US markets. The Dow and S&P 500 has risen more than 10% this year. Interesting thing is, if you were a Singaporean investor and bought into the US market, your returns will only be 5% after taking into currency losses. It may seem like a good market environment this year, but even the STI is down by 0.5% for the year. All in all, it has not been an easy market to make money in. Take it from an investment professional (me), it has been tough to manage portfolios in such an environment. Where you have to juggle large fluctuations in currencies while trying to find good companies to buy.
Nothing much more to talk about unless you want me to start writing about what I think about the Royal Farce oops Wedding I mean.
Till the next week. Have a good trading week ahead.
Best,
SVI
Friday, April 29, 2011
Friday, April 22, 2011
ISDN Holdings farming for a stronger future. $0.175
Another week flies by and April is coming to an end. The good news is, pay day is here, the bad news is, bills are all coming in fast and furious. Another bright spot for the week is...its a long weekend! So what should we do during this long weekend? One thing may be to think about who to vote for in the coming elections. You have no idea how concerned investors are about elections. I was attending an investment seminar on wednesday and during the question and answer time slot, most questions were with regards to the upcoming elections and how the market would react to it. In my view, the best thing to come out of this coming election is the extra day off in lieu to be credited to our leave balances. We all know that its going to be a non event and just sit back and enjoy the festivities and all the political drama over young and "wet behind the ears" candidates.
Summary for this week's market....up again. Many say its due to the elections, I say its due to the weakness in the USD. It has reached $1.23 to SGD and all of you out there who are looking to go to the US for holidays, get ready to pack your bags cos your holiday is getting cheaper by the day. Earnings have come in strong, with Apple defying gravity once again. Earnings grew by what? 95%! That is just nuts, it seems like people just cannot get enough of Iphones and Ipads. Personally, I have been getting lots of grief from my colleagues and boss on my reluctance to buy an Iphone and sticking to my poor Nokia. Well there are a couple of reasons as to why I do not buy an Iphone....No Money. Oops thats only one reason. So I do hope they get off my back soon. As for Apple, it is a company which I have admired for a long time but I would like to give investors who love Apple stock a word of advice. The law of big numbers is going to be tough for Apple to continue its current growth rate, secondly, technology is a fickle industry. Remember how people raved about Sandisk, Research in Motion, Palm and many more? Just don't get too carried away with loving Apple. I even saw a research titled "An Apple a day keeps Asia happy". That is just worrying.
Earnings season has had a good 2nd week and the 3rd week is going to be similar but May is coming so do try to be more conservative. I would also like to inform my readers that I have finally taken profit on my United Overseas Australia. Although I continue to love this company, but I really think that returns in excess of 90% is something I have to take off the table. There are still may stock ideas which I have up my sleeve and it kills me for not having enough money to buy into them. Most of you shold know that I have been bullish on Malaysian stocks for sometime and I have moved most of my holdings into Malaysia. All I can say is, Malaysia better be "boleh" or else I am going to underperform the market this year.
I know many of you do not have the confidence to move into Malaysia because of the clob shares debacle more than decade and a half ago. It is understandable but not acceptable because investing is about being willing to take risks and the risk levels here are more than acceptable. Malaysia is not longer the same as what it was back then.
This week instead of going for a Malaysian stock I have decided to write about a Singapore company which I feel has some potential but it is no UOA. So lets just get straight into it. The company which I would like to focus on this week is ISDN Holdings.
Founded on its precision and motion control engineering capabilities in 1987 and listed on the Singapore Exchange Main Board since 2005, ISDN Holdings Limited has today transformed into a multi-industry corporation with diverse strengths.
With more than 89 offices spanning key Asian growth markets, ISDN’s business interests now include, in addition to engineering, the energy and agriculture sectors. These three key sectors are expected to propel the Group to its next level of growth which would introduce fresh revenue streams and open up a new vista of business opportunities.
Powered by its alliances with strategic partners in Europe, Asia and Australia, ISDN is poised to combine and thereupon benefit from the best-in-class technology and business systems these collaborations have to offer. Additionally, ISDN seeks to accelerate its growth momentum by complementing organic growth with acquisitions and joint ventures.
The Group continues to build on its trademark strengths underpinned by its sound business fundamentals, prudent and measured business approach as well as its widening global footprint that encompass markets in Greater China, Hong Kong, Taiwan, Malaysia, Indonesia, Vietnam, Thailand, India and the Philippines, from its headquarters in Singapore.
A leading engineering solutions provider, ISDN offers a wide range of engineering services including Motion Control, Industrial Computing Solutions and Other Engineering Solutions, mainly to customers who are manufacturers and original design manufacturers of products and equipment that have specialized requirements in precision controls.
Their manufacturing network that spans across China and South-east Asia including Singapore and Malaysia ensures a quick response time and excellent service support. By tapping into its core engineering competencies, ISDN is able to serve a multitude of industries including defence, medical, aerospace and oil & gas.
ISDN’s exposure to the energy market began with its supply of solar panel parts to industrial customers in China. This endeavor grew steadily and received a boost with ISDN’s appointment in the mainland as the official distributor for a US solar equipment manufacturer. Elevating the Group from representative status opened the door for ISDN to capture the vast Chinese solar energy market.
More recently, ISDN cemented its presence in the renewable energy sphere in 2009 through W2Energy that has since entered the initial testing phase. W2Energy will leverage on its catalytic depolymerization method, CPD for short, to recycle and harness organic and biological wastes such as plastic, wood, waste oil, rubber tyre, animal and refinery residue and municipal solid waste into synthetic diesel fuel.
ISDN offers office and industrial space solutions to new businesses gaining a foothold in China through its $22 million ISDN-Wujiang Industrial Park. Built originally to consolidate ISDN's diverse operations in the mainland, the hub's strategic location within the Wujiang Economic Development Zone, makes it an ideal entry point into China's thriving hi-tech and R&D ecosystem.
Sitting on 36,000 square metres of built-up area, the high-tech park is equipped with cutting-edge production capabilities and modern amenities, including staff dormitories, office space, warehouse, training and research & development facilities. The centralization of ISDN's joint ventures and associates in one single location creates a vibrant business environment that allows for an exchange of know-how and synergies beyond the Group.
ISDN’s foray into the fast-growing agriculture market is marked by the establishment of Ell-Gro Hydroponics Pte Ltd in 2010. It is a fully-owned subsidiary of ISDN Investments Pte Ltd., a newly-formed investment holdings vehicle of ISDN Holdings Ltd.
Ell-Gro Hydroponics is principally engaged in the business of high-tech hydroponics with farms in Malaysia and China. Ell-Gro offers a viable alternative vegetable farming method based on environmentally-friendly and toxic-free practices based on international standards. It has secured exclusive distributorship of the proprietary technology of its Australian partner, Boxsell Hydroponics.
What I like about them is their venture into agriculture in the form of hydrophonics vegetable farms. In the short run, worries about food shortages and inflaion is going to play right into this company's plans. I have spoken to their top management on the cost of these hydrophonics farms and it seems like the venture is not going to take a lot of capital and their first farm in Malaysia has already been a success. The Malaysian government have been very supportive to the company and expansion of the farm is already on its way. The company has also indicated that they will be setting up farms in China. They also have the franchise rights to their hydrophonics technology in Asia therefore there is little chance of replicating their technology. Management indicated to me that they have no intention to franchise out this technology to any other company in Asia.
I have personally had a couple of meetings with the top management of the firm and I really liked what I saw in them. Down to earth and humble. Very realistic with their projections and quietly optimistic. Very unlike the cocky managements which I have met in my time, FerroChina, Delong etc.... This is something I look for in management and ISDN fits the bill.
The company has been generating approximately SGD 7 million operating cash flow over the last 2 years and capex can easily be financed from within. Trading at 4.4 times p/e 2010 earnings. I believe a 20% growth this year could be very possible for the company which means that it is trading at a very attractive valuation. It is also trading at a discount to its NAV of $0.23 per share. At the current price $0.175, this company looks like an absolute bargain. Good valuations, expansion into a good industry and an honest management. That is all I need to say.
Have a great trading week ahead!
Best,
SVI
Summary for this week's market....up again. Many say its due to the elections, I say its due to the weakness in the USD. It has reached $1.23 to SGD and all of you out there who are looking to go to the US for holidays, get ready to pack your bags cos your holiday is getting cheaper by the day. Earnings have come in strong, with Apple defying gravity once again. Earnings grew by what? 95%! That is just nuts, it seems like people just cannot get enough of Iphones and Ipads. Personally, I have been getting lots of grief from my colleagues and boss on my reluctance to buy an Iphone and sticking to my poor Nokia. Well there are a couple of reasons as to why I do not buy an Iphone....No Money. Oops thats only one reason. So I do hope they get off my back soon. As for Apple, it is a company which I have admired for a long time but I would like to give investors who love Apple stock a word of advice. The law of big numbers is going to be tough for Apple to continue its current growth rate, secondly, technology is a fickle industry. Remember how people raved about Sandisk, Research in Motion, Palm and many more? Just don't get too carried away with loving Apple. I even saw a research titled "An Apple a day keeps Asia happy". That is just worrying.
Earnings season has had a good 2nd week and the 3rd week is going to be similar but May is coming so do try to be more conservative. I would also like to inform my readers that I have finally taken profit on my United Overseas Australia. Although I continue to love this company, but I really think that returns in excess of 90% is something I have to take off the table. There are still may stock ideas which I have up my sleeve and it kills me for not having enough money to buy into them. Most of you shold know that I have been bullish on Malaysian stocks for sometime and I have moved most of my holdings into Malaysia. All I can say is, Malaysia better be "boleh" or else I am going to underperform the market this year.
I know many of you do not have the confidence to move into Malaysia because of the clob shares debacle more than decade and a half ago. It is understandable but not acceptable because investing is about being willing to take risks and the risk levels here are more than acceptable. Malaysia is not longer the same as what it was back then.
This week instead of going for a Malaysian stock I have decided to write about a Singapore company which I feel has some potential but it is no UOA. So lets just get straight into it. The company which I would like to focus on this week is ISDN Holdings.
Founded on its precision and motion control engineering capabilities in 1987 and listed on the Singapore Exchange Main Board since 2005, ISDN Holdings Limited has today transformed into a multi-industry corporation with diverse strengths.
With more than 89 offices spanning key Asian growth markets, ISDN’s business interests now include, in addition to engineering, the energy and agriculture sectors. These three key sectors are expected to propel the Group to its next level of growth which would introduce fresh revenue streams and open up a new vista of business opportunities.
Powered by its alliances with strategic partners in Europe, Asia and Australia, ISDN is poised to combine and thereupon benefit from the best-in-class technology and business systems these collaborations have to offer. Additionally, ISDN seeks to accelerate its growth momentum by complementing organic growth with acquisitions and joint ventures.
The Group continues to build on its trademark strengths underpinned by its sound business fundamentals, prudent and measured business approach as well as its widening global footprint that encompass markets in Greater China, Hong Kong, Taiwan, Malaysia, Indonesia, Vietnam, Thailand, India and the Philippines, from its headquarters in Singapore.
A leading engineering solutions provider, ISDN offers a wide range of engineering services including Motion Control, Industrial Computing Solutions and Other Engineering Solutions, mainly to customers who are manufacturers and original design manufacturers of products and equipment that have specialized requirements in precision controls.
Their manufacturing network that spans across China and South-east Asia including Singapore and Malaysia ensures a quick response time and excellent service support. By tapping into its core engineering competencies, ISDN is able to serve a multitude of industries including defence, medical, aerospace and oil & gas.
ISDN’s exposure to the energy market began with its supply of solar panel parts to industrial customers in China. This endeavor grew steadily and received a boost with ISDN’s appointment in the mainland as the official distributor for a US solar equipment manufacturer. Elevating the Group from representative status opened the door for ISDN to capture the vast Chinese solar energy market.
More recently, ISDN cemented its presence in the renewable energy sphere in 2009 through W2Energy that has since entered the initial testing phase. W2Energy will leverage on its catalytic depolymerization method, CPD for short, to recycle and harness organic and biological wastes such as plastic, wood, waste oil, rubber tyre, animal and refinery residue and municipal solid waste into synthetic diesel fuel.
ISDN offers office and industrial space solutions to new businesses gaining a foothold in China through its $22 million ISDN-Wujiang Industrial Park. Built originally to consolidate ISDN's diverse operations in the mainland, the hub's strategic location within the Wujiang Economic Development Zone, makes it an ideal entry point into China's thriving hi-tech and R&D ecosystem.
Sitting on 36,000 square metres of built-up area, the high-tech park is equipped with cutting-edge production capabilities and modern amenities, including staff dormitories, office space, warehouse, training and research & development facilities. The centralization of ISDN's joint ventures and associates in one single location creates a vibrant business environment that allows for an exchange of know-how and synergies beyond the Group.
ISDN’s foray into the fast-growing agriculture market is marked by the establishment of Ell-Gro Hydroponics Pte Ltd in 2010. It is a fully-owned subsidiary of ISDN Investments Pte Ltd., a newly-formed investment holdings vehicle of ISDN Holdings Ltd.
Ell-Gro Hydroponics is principally engaged in the business of high-tech hydroponics with farms in Malaysia and China. Ell-Gro offers a viable alternative vegetable farming method based on environmentally-friendly and toxic-free practices based on international standards. It has secured exclusive distributorship of the proprietary technology of its Australian partner, Boxsell Hydroponics.
What I like about them is their venture into agriculture in the form of hydrophonics vegetable farms. In the short run, worries about food shortages and inflaion is going to play right into this company's plans. I have spoken to their top management on the cost of these hydrophonics farms and it seems like the venture is not going to take a lot of capital and their first farm in Malaysia has already been a success. The Malaysian government have been very supportive to the company and expansion of the farm is already on its way. The company has also indicated that they will be setting up farms in China. They also have the franchise rights to their hydrophonics technology in Asia therefore there is little chance of replicating their technology. Management indicated to me that they have no intention to franchise out this technology to any other company in Asia.
I have personally had a couple of meetings with the top management of the firm and I really liked what I saw in them. Down to earth and humble. Very realistic with their projections and quietly optimistic. Very unlike the cocky managements which I have met in my time, FerroChina, Delong etc.... This is something I look for in management and ISDN fits the bill.
The company has been generating approximately SGD 7 million operating cash flow over the last 2 years and capex can easily be financed from within. Trading at 4.4 times p/e 2010 earnings. I believe a 20% growth this year could be very possible for the company which means that it is trading at a very attractive valuation. It is also trading at a discount to its NAV of $0.23 per share. At the current price $0.175, this company looks like an absolute bargain. Good valuations, expansion into a good industry and an honest management. That is all I need to say.
Have a great trading week ahead!
Best,
SVI
Friday, April 15, 2011
Some random thoughts on the market after a few drinks.
I was having drinks with my friends on friday and one of them kept raving on a stock pick of mine. I guess most of you will remember this one. Its called United Overseas Australia. Remember I said it was a gem, it turned out to be a real gem. For those who bought it, good for you, for those who did not, lets hope for the best for the rest of the picks.
As I am writing this, I have 1 beer and 4 whiskies so bear in mind there is a lot of truth in it. Lets talk about the market first. The Dow Jones is currently up 50 points as this post is being composed and the USD is continuing its fall downwards. Can you imagine it? The USDSGD rate is currently $1.2414. When was the last time that happened? The downward pressure on the USD seems as unstoppable as a runaway train. As the USD continues to move downwards, the carry trade is keeping markets churning away happily. How long can that go on? I personally believe that we are at the last burst of strength in the market before the market starts to kick into correction mode. So enjoy yourself while it lasts. "Sell in May and go away" is going to be a very real scenario this year.
This week we saw a few interesting developments. One which caught my eye was Hyflux's 6% preference share offer. What was the subscription rate again? 7 times? This is a good show of how hungry investors are for yield. The maturity will be 2018 and that is still a good 7 years from now. Only god knows what investors see in this issue. First of all, who knows whether Hyflux will still be around in 7 years time? Do you know how many water companies have disappeared from the face of the earth over the years? Thus investors are taking a lot of credit risk from a company that does not produce positive operating cashflows consistently. Secondly, 6% yield is considered high for now but what do you think interest rates will be over the next few years? Inflation rate is now 5% so what do you think? Basically, investors are getting 1% real return in today's terms while taking 7 years of duration and credit risk. If that is not stupid, I really do not know what is. I have said before, the world is filled with silly people.
Another development was the impressive move up in the hottest IPO of the year, Dynamac Holdings. This stock is definitely not a favourite amongst the local brokerages. All of them are releasing reports on how the stock is so overvalued and how much promise has been priced into the stock. The stock has risen to a high of $0.69 from its IPO price of $0.35 and if you read their prospectus during listing, you would have never guessed that the stock would move to such levels. Personally, I cannot decide whether the market is wrong in pricing this stock. From my observation, whenever Keppel Corp wins a new contract, Dynamac moves as if it was the one winning the contract. Being an associated company of Keppel Corp has rubbed some shine onto the company. If being associated to Keppel really translates to faster contract flows, Dynamac will fly much higher than where it is now. Being a value investor, I really cannot bring myself to buy this stock. So till more clarity comes along, I would say, be careful while trading this stock.
One issue that caught my attention last week was the long drawn out affair of the SGX-ASX merger. Finally, those xenophobic Australians have decided to end the bid once and for all. I am glad this has ended because I really feel that it has depressed the stock for too long. Although I would have liked for the deal to go through but this is not a perfect world. Would you believe if I say that if it were an "ang moh" bourse that was acquiring them, they would have gone through? Well its water under the bridge, so lets move on. I believe SGX is a strong buy because it has become an acquisition target and the dividend yield looks attractive. People who know me will know that it is not in my style to recommend large cap stocks, so this will be one of the rare times.
Earnings season has started in the US. So far, the major results have been disappointing with Google and Alcoa both getting hammered after their result announcements. If you look carefully, its not the problem of profits not rising, but more to do with overly high consensus expectations. In my view, the expectations have been too high that is why so many "intelligent analysis and strategists" are commenting on how cheap valuations are and how undervalued stocks are in the US. I am not saying it is considered expensive, but I am feel that the market is a little complacent so it is about time to pull back. I will be more worried if there was no pull back.
This week there will be no focused stock but one question that was posed to me while having drinks with my protege. He asked whether I liked Lian Beng. Apparently, construction stocks have started to do well. First I need to say why I do not like the construction sector. Margins are never good, highly competitive environment, no competitive advantage amongst the companies, construction companies in Singapore tend to be small players whose bargaining power isn't that great etc. So from a business perspective, it is not a great business to go into. Before I invest in any company, I will ask whether I would start a business like that myself. Trust me, construction is not one of them. Of course, we cannot stereo type everything. There are some companies that have realised that the construction business is not lucrative that is why they branched out to property development. This is a very natural step as they are leveraging on their expertise in construction and it provides a different revenue stream and higher profit margin. Companies like KSH and Koh Brothers are good examples and they have done well in terms of earnings but their stock prices have gone absolutely no where.
I do like Lian Beng, KSH and Koh Brothers but there is absolutely no catalysts to these stocks and unless they get re-rated by the market, they are going to remain as dogs on anyone's portfolio. There will always be worries about the leverage levels of these companies and how they will find cheap land for land banking purposes. In my view, there is only one way for these companies to move forward, that is they should consolidate themselves and become bigger entities. The fact that they are family run companies, that makes it even harder to get all together. Merger and acquisition will lead to the markets looking upon them more fondly. Trust me, that will work, but in an imperfect world filled with game theory payoffs, this will be difficult to achieve. The only one I can think of is a possible merger between KSH, Tee International and Heeton. This will be a merger amongst equals so it should be easier to move forward, and the fact that all three have collaborated before, makes me feel that they also agree with my view that unity is strength.
So if you are a long term investor, I would have stakes in these firms, esp KSH (because they tend to be the majority holders in collaborations)as they could be the big brother amongst the three. But I would not bank my whole life savings on these counters because you may have to wait till kingdom comes. With earthquakes coming at 9.0 magnitudes, kingdom may actually come in the not too distant future. Hahaha.
Anyway, you all have a good week ahead! Its the long weekend!
Best,
SVI
As I am writing this, I have 1 beer and 4 whiskies so bear in mind there is a lot of truth in it. Lets talk about the market first. The Dow Jones is currently up 50 points as this post is being composed and the USD is continuing its fall downwards. Can you imagine it? The USDSGD rate is currently $1.2414. When was the last time that happened? The downward pressure on the USD seems as unstoppable as a runaway train. As the USD continues to move downwards, the carry trade is keeping markets churning away happily. How long can that go on? I personally believe that we are at the last burst of strength in the market before the market starts to kick into correction mode. So enjoy yourself while it lasts. "Sell in May and go away" is going to be a very real scenario this year.
This week we saw a few interesting developments. One which caught my eye was Hyflux's 6% preference share offer. What was the subscription rate again? 7 times? This is a good show of how hungry investors are for yield. The maturity will be 2018 and that is still a good 7 years from now. Only god knows what investors see in this issue. First of all, who knows whether Hyflux will still be around in 7 years time? Do you know how many water companies have disappeared from the face of the earth over the years? Thus investors are taking a lot of credit risk from a company that does not produce positive operating cashflows consistently. Secondly, 6% yield is considered high for now but what do you think interest rates will be over the next few years? Inflation rate is now 5% so what do you think? Basically, investors are getting 1% real return in today's terms while taking 7 years of duration and credit risk. If that is not stupid, I really do not know what is. I have said before, the world is filled with silly people.
Another development was the impressive move up in the hottest IPO of the year, Dynamac Holdings. This stock is definitely not a favourite amongst the local brokerages. All of them are releasing reports on how the stock is so overvalued and how much promise has been priced into the stock. The stock has risen to a high of $0.69 from its IPO price of $0.35 and if you read their prospectus during listing, you would have never guessed that the stock would move to such levels. Personally, I cannot decide whether the market is wrong in pricing this stock. From my observation, whenever Keppel Corp wins a new contract, Dynamac moves as if it was the one winning the contract. Being an associated company of Keppel Corp has rubbed some shine onto the company. If being associated to Keppel really translates to faster contract flows, Dynamac will fly much higher than where it is now. Being a value investor, I really cannot bring myself to buy this stock. So till more clarity comes along, I would say, be careful while trading this stock.
One issue that caught my attention last week was the long drawn out affair of the SGX-ASX merger. Finally, those xenophobic Australians have decided to end the bid once and for all. I am glad this has ended because I really feel that it has depressed the stock for too long. Although I would have liked for the deal to go through but this is not a perfect world. Would you believe if I say that if it were an "ang moh" bourse that was acquiring them, they would have gone through? Well its water under the bridge, so lets move on. I believe SGX is a strong buy because it has become an acquisition target and the dividend yield looks attractive. People who know me will know that it is not in my style to recommend large cap stocks, so this will be one of the rare times.
Earnings season has started in the US. So far, the major results have been disappointing with Google and Alcoa both getting hammered after their result announcements. If you look carefully, its not the problem of profits not rising, but more to do with overly high consensus expectations. In my view, the expectations have been too high that is why so many "intelligent analysis and strategists" are commenting on how cheap valuations are and how undervalued stocks are in the US. I am not saying it is considered expensive, but I am feel that the market is a little complacent so it is about time to pull back. I will be more worried if there was no pull back.
This week there will be no focused stock but one question that was posed to me while having drinks with my protege. He asked whether I liked Lian Beng. Apparently, construction stocks have started to do well. First I need to say why I do not like the construction sector. Margins are never good, highly competitive environment, no competitive advantage amongst the companies, construction companies in Singapore tend to be small players whose bargaining power isn't that great etc. So from a business perspective, it is not a great business to go into. Before I invest in any company, I will ask whether I would start a business like that myself. Trust me, construction is not one of them. Of course, we cannot stereo type everything. There are some companies that have realised that the construction business is not lucrative that is why they branched out to property development. This is a very natural step as they are leveraging on their expertise in construction and it provides a different revenue stream and higher profit margin. Companies like KSH and Koh Brothers are good examples and they have done well in terms of earnings but their stock prices have gone absolutely no where.
I do like Lian Beng, KSH and Koh Brothers but there is absolutely no catalysts to these stocks and unless they get re-rated by the market, they are going to remain as dogs on anyone's portfolio. There will always be worries about the leverage levels of these companies and how they will find cheap land for land banking purposes. In my view, there is only one way for these companies to move forward, that is they should consolidate themselves and become bigger entities. The fact that they are family run companies, that makes it even harder to get all together. Merger and acquisition will lead to the markets looking upon them more fondly. Trust me, that will work, but in an imperfect world filled with game theory payoffs, this will be difficult to achieve. The only one I can think of is a possible merger between KSH, Tee International and Heeton. This will be a merger amongst equals so it should be easier to move forward, and the fact that all three have collaborated before, makes me feel that they also agree with my view that unity is strength.
So if you are a long term investor, I would have stakes in these firms, esp KSH (because they tend to be the majority holders in collaborations)as they could be the big brother amongst the three. But I would not bank my whole life savings on these counters because you may have to wait till kingdom comes. With earthquakes coming at 9.0 magnitudes, kingdom may actually come in the not too distant future. Hahaha.
Anyway, you all have a good week ahead! Its the long weekend!
Best,
SVI
Saturday, April 2, 2011
I love KFC thats why I will invest in QSR Brands. Buy $.5.33
What a week! 1Q2011 has come to a close with the developed markets registering healthy gain and overall a good quarter for equity market investors who have good exposure to the US and Europe.
So what should we play for 2Q2011? Lets see. Why don't we start off with a nice stock pick to whet our appetites? For Singapore, I would like to say we have seen quite a good rally on the smaller caps. I really wonder why Singaporeans love to stick to our own stocks when our less illustrious neighbor have many more stocks that are trading at super low valuations.
I have to be honest, I have stopped buying Singapore stocks because as a value investor, it is really getting a lot harder to buy stocks in here. The valuations are sucky and if we are arguing on a corporate governance standpoint, it is just ironic that we have 3 companies that have suspended trading in their shares over the past 3 weeks in Singapore. So lets not give poor excuses and be honest with ourselves. We are cowards....Why? Everyone recalls the Clob share days but that was during a time when the markets were under substantial duress. Now the chances of such happenings are just not fathomable.
Ok I have to say, Malaysian stocks are just more exciting than Singapore. Why? What was the most exciting stock over the past 3 weeks? Ramba energy? Dyna-mac? Yeah both were up more than 20% over the past 2 weeks. How about in Malaysia? Seal Inc? Up 41% in 1 day. I rest my case. Fundamentals? Dyna-mac is trading close to 20 times p/e with no contract wins. Ramba? Loss making company with lots of promises about oil production. Seal? Timber company trading at 16 times p/e and trading 10 cents below its book value.
Expect more Malaysian stock picks to come because I really want to share with you all the cheap stocks I can find and am personally buying.
Lets start off with one of my favourites. QSR Brands.
QSR Brands operates over 980 outlets in Malaysia, Singapore, Brunei, Cambodia and India. In addition, via its associated company, KFC Holdings (Malaysia) Bhd, it operates over 620 KFC restaurants in Malaysia, Singapore, Brunei, Cambodia and India. KFC Holdings also manages over 35 RasaMas restaurants in Malaysia and Brunei as well as 52 Kedai Ayamas in Malaysia.
Ayamas Food Corporation Sdn Bhd, an associate of QSR Brands, is the first company in Malaysia to sell chicken and chicken-based products in an air-conditioned environment, and the first to offer an array of chicken roasters and light, chicken-based snacks.
Its first convenience store was opened at Seapark in 1988. Today it has some 52 stores under the name Kedai Ayamas. The store markets top quality halal branded chicken that has been hygienically processed and packed in the company's own processing plants.
Through its stake in KFC Holdings (Malaysia) Bhd, QSR Brands has invested in a variety of related activities that support the Group's core restaurant business.
Poultry integration is crucial to the Group's operations, providing consistent support services; a stable source of quality chicken at very competitive prices; better cost control; and the ability to supply the fast-expanding open poultry market, locally and abroad.
The Group's modern, computer-controlled feedmill began operations in 1990 with an installed capacity of 120,000 metric tons per annum. Since then, the demand for its high quality poultry feed has prompted the Group to increase the feedmill's capacity to 160,000 metric tons per annum. One of the largest single feedmills in Malaysia, it supplies to The Group's breeder farms, broiler farms as well as contract broiler farms take up more than 90% of the production while the balance is sold in the open market.
Located in Port Klang, Malaysia's premier port, the feedmill imports the best quality feed grains and raw materials from Asia, Australia, Europe, the USA and South America. It conducts regular quality control checks at every stage of production. The feedmill also applies stringent quality controls to ensure that the best quality feeds are produced for are met for the optimal growth and liveability of the chickens.
In 1988, KFC Holdings (Malaysia) Bhd, an associate of QSR Brands, started a broiler breeder farm using the Ross Breeds of Scotland. A premier breed, the fast-growing Ross broilers are noted for their good body conformation, liveability, efficient feed conversion and high meat yield.
Each year, some 320,000 parent stocks are imported and housed in the Group's five breeder farms. The farms and hatcheries produce 36 million day-old chicks per annum, catering to the Group's own requirements.
The Group keeps abreast of new breeding technology to ensure the highest quality day-old-chicks are produced. The breeders are reared in temperature-controlled chicken houses and fed with nutritionally formulated-feeds to optimize production.
Strict sanitation and bio-security controls are practiced in the farms at all times. Each chicken house is well spaced out from the others so as to minimize disease outbreak and contamination. A diagnostic laboratory monitors the health of the breeders and the quality of the chicks produced.
In order to meet its broiler requirements, Ayamas Food Corporation, an associate of QSR Brands, operates a highly efficient contract broiler farming system. Day-old-chicks and feed are supplied to over 100 contract farmers throughout Malaysia. The Company's qualified field extension specialists pay regular visits to these farms to check that the husbandry practices and feeding programmes established by the Group are strictly followed.
To further motivate the contract farmers, fees are based on their performance and the quality of the chickens reared. Upon reaching the desired weight, the chickens are sent to the Ayamas processing plants in Port Klang, Penang and Johor.
Ayamas has recently taken further steps to expand its poultry production to meet increasing consumer demand. Its target is to raise monthly fresh bird production from three million to four million.
In 2009, Ayamas embarked on an Intrapreneur Broiler Farming Scheme whereby company staff are encouraged to become Intrapreneur broiler farmers, with qualifyinf staff each being given a farm to manage with a capacity of 100,000 broilers per cycle. The Intrapreneur will hold a 25% stake while Ayamas will hold a 75% stake. This scheme will help to increase the broiler production to meet the Group’s growing demand for chicken.
Through its associate KFC Holdings (Malaysia) Bhd, the QSR Group engages in poultry processing and secondary processing.
Primary processing involves the halal slaughtering and production of chicken and chicken parts to the required specifications. Secondary processing involves the processing of poultry products into convenience foods like burgers, nuggets, kiev, bologna, smoked chicken, satay, sausages, chicken balls etc. to be marketed under the Ayamas brand name.
Each day, the Group's two plants process 110,000 birds. The Ayamas plant in Port Klang, Malaysia, is the largest poultry processing plant in the country and one of the largest in the Asia Pacific region. It has modern equipment and processes more then 80,000 birds per day and 1,500 metric tones of secondary processed poultry products per month.
Distribution is handled internally by a large fleet of refrigerated trucks. This direct delivery from plant to customer ensures the freshness of products as well as consistency of supply.
The Group's emphasis on processing quality has won international recognition, including awards from Yum! Brands International. Yum! Brands International is the world's largest restaurant system with over 37,000 KFC, Pizza Hut, Taco Bell, Long John Silver A&W and WingStreet.
Currently, secondary processed products are exported to Singapore and Brunei. The company is exploring opportunities to export to Indonesia, the Middle East and elsewhere.
In 1994, QSR Brands acquired a controlling interest in Region Food Industries Sdn Bhd (RFI). Under the group's strong leadership, RFI is now one of the country's leading sauce manufacturers, producing 12 million bottles per annum.
Using state of the art machinery, RFI processes premium quality natural ingredients into superior quality sauces. It has its own comprehensive R&D Department which develops new products for an increasingly sophisticated market.
The RFI plant conforms to international manufacturing standards. This was further augmented with the ISO 9002 certification awarded to RFI since 1999. The certification of its standards enabled stronger penetration into the export market. Currently, RFI products are exported to UK, USA, France, Australia, New Zealand, Japan, Hong Kong, Mauritius, Maldives, the Middle East, Brunei and Singapore.
Locally, RFI supplies Life tomato ketchup and Life chili sauce to KFC, Pizza Hut, RasaMas and other fast-food operators. Its products are also found in most major supermarkets, hypermarkets and provision stores.
The Group's commissary is Malaysia's largest vegetable commissary. The ultra-modern facility was set up in order to meet the increasing demand from the restaurant chains and to tap the potentials of the open market.
Currently, it supplies the Group's KFC and Pizza Hut restaurants chains with coleslaw, salad, vegetables and other types of fresh products.
Bakery – The bakery initially started out as a supporting business to the KFC restaurant chain manufacturing buns for KFC meals. Its operations have since expanded beyond a mere supporting role to the KFC chain.
The bakery now produces a wide range of cakes and pastries and supplies Pizza Hut with bakery goods. With its upgraded state-of-the-art equipment, it is able to provide versatility and higher production output to further take advantage of the growing local market.
The bakery division continues to record higher sales with the commissioning of an automatic bun-line and nationwide supply of buns to KFC restaurants. Business expanded even further with the supply of garlic bread to Pizza Hut Singapore from the middle of 2003 and the increase in open market sales of bakery products. A new automatic seasoning flour blending and packing plant for Original Recipe and Hot & Spicy blends for KFC restaurants has also begun operations and is set to contribute substantially to the overall performance of the Group.
After my extensive cut and paste of the company's operations from its website, you can see the point I am trying to put across to you. I like the extensively integrated business units of the company, all of which complements one another and plays an integral part in the smooth operation of all its core businesses. Personally, I am willing to give this company a premium over its valuation. In terms of p/e, the company is trading at a trailing 12 month p/e of 13.25 times. To me its considered cheap because of the strength of the business franchise. Also, Carlyle group put a buy out offer for the company in Nov 2010 for $6.70 while its price right now is $5.33. I believe Carlyle offering a price in excess of 20 times p/e is reflective of sharing the same sentiment as me. Did I say that the company also owns quite a lot of the shop spaces they occupy in Malaysia? I like that because the thing I really dislike most about retail businesses is the burden of rent. QSR will face some of this but they are smart enough to buy the spaces which are available.
The company has a book value of $2.90 but I do not think that this is truly reflective of the actual value of its brands. I have to admit that I have a strong affinity to KFC because it is my favourite fast food chain and that is one of the key reasons to why I have so much faith in this company. One other thing, did I mention that the company generates RM300 million per year in operating cashflow? The company has only 270 million shares. What does that mean? More than $1 per share in operating cashflow. I really think this is one for the future and I challenge you to find me a company in Singapore that has such a strong business and consistent cashflow?
So here I am, calling for a strong buy for QSR brands.
Have a great trading week ahead!
Best,
SVI
So what should we play for 2Q2011? Lets see. Why don't we start off with a nice stock pick to whet our appetites? For Singapore, I would like to say we have seen quite a good rally on the smaller caps. I really wonder why Singaporeans love to stick to our own stocks when our less illustrious neighbor have many more stocks that are trading at super low valuations.
I have to be honest, I have stopped buying Singapore stocks because as a value investor, it is really getting a lot harder to buy stocks in here. The valuations are sucky and if we are arguing on a corporate governance standpoint, it is just ironic that we have 3 companies that have suspended trading in their shares over the past 3 weeks in Singapore. So lets not give poor excuses and be honest with ourselves. We are cowards....Why? Everyone recalls the Clob share days but that was during a time when the markets were under substantial duress. Now the chances of such happenings are just not fathomable.
Ok I have to say, Malaysian stocks are just more exciting than Singapore. Why? What was the most exciting stock over the past 3 weeks? Ramba energy? Dyna-mac? Yeah both were up more than 20% over the past 2 weeks. How about in Malaysia? Seal Inc? Up 41% in 1 day. I rest my case. Fundamentals? Dyna-mac is trading close to 20 times p/e with no contract wins. Ramba? Loss making company with lots of promises about oil production. Seal? Timber company trading at 16 times p/e and trading 10 cents below its book value.
Expect more Malaysian stock picks to come because I really want to share with you all the cheap stocks I can find and am personally buying.
Lets start off with one of my favourites. QSR Brands.
QSR Brands operates over 980 outlets in Malaysia, Singapore, Brunei, Cambodia and India. In addition, via its associated company, KFC Holdings (Malaysia) Bhd, it operates over 620 KFC restaurants in Malaysia, Singapore, Brunei, Cambodia and India. KFC Holdings also manages over 35 RasaMas restaurants in Malaysia and Brunei as well as 52 Kedai Ayamas in Malaysia.
Ayamas Food Corporation Sdn Bhd, an associate of QSR Brands, is the first company in Malaysia to sell chicken and chicken-based products in an air-conditioned environment, and the first to offer an array of chicken roasters and light, chicken-based snacks.
Its first convenience store was opened at Seapark in 1988. Today it has some 52 stores under the name Kedai Ayamas. The store markets top quality halal branded chicken that has been hygienically processed and packed in the company's own processing plants.
Through its stake in KFC Holdings (Malaysia) Bhd, QSR Brands has invested in a variety of related activities that support the Group's core restaurant business.
Poultry integration is crucial to the Group's operations, providing consistent support services; a stable source of quality chicken at very competitive prices; better cost control; and the ability to supply the fast-expanding open poultry market, locally and abroad.
The Group's modern, computer-controlled feedmill began operations in 1990 with an installed capacity of 120,000 metric tons per annum. Since then, the demand for its high quality poultry feed has prompted the Group to increase the feedmill's capacity to 160,000 metric tons per annum. One of the largest single feedmills in Malaysia, it supplies to The Group's breeder farms, broiler farms as well as contract broiler farms take up more than 90% of the production while the balance is sold in the open market.
Located in Port Klang, Malaysia's premier port, the feedmill imports the best quality feed grains and raw materials from Asia, Australia, Europe, the USA and South America. It conducts regular quality control checks at every stage of production. The feedmill also applies stringent quality controls to ensure that the best quality feeds are produced for are met for the optimal growth and liveability of the chickens.
In 1988, KFC Holdings (Malaysia) Bhd, an associate of QSR Brands, started a broiler breeder farm using the Ross Breeds of Scotland. A premier breed, the fast-growing Ross broilers are noted for their good body conformation, liveability, efficient feed conversion and high meat yield.
Each year, some 320,000 parent stocks are imported and housed in the Group's five breeder farms. The farms and hatcheries produce 36 million day-old chicks per annum, catering to the Group's own requirements.
The Group keeps abreast of new breeding technology to ensure the highest quality day-old-chicks are produced. The breeders are reared in temperature-controlled chicken houses and fed with nutritionally formulated-feeds to optimize production.
Strict sanitation and bio-security controls are practiced in the farms at all times. Each chicken house is well spaced out from the others so as to minimize disease outbreak and contamination. A diagnostic laboratory monitors the health of the breeders and the quality of the chicks produced.
In order to meet its broiler requirements, Ayamas Food Corporation, an associate of QSR Brands, operates a highly efficient contract broiler farming system. Day-old-chicks and feed are supplied to over 100 contract farmers throughout Malaysia. The Company's qualified field extension specialists pay regular visits to these farms to check that the husbandry practices and feeding programmes established by the Group are strictly followed.
To further motivate the contract farmers, fees are based on their performance and the quality of the chickens reared. Upon reaching the desired weight, the chickens are sent to the Ayamas processing plants in Port Klang, Penang and Johor.
Ayamas has recently taken further steps to expand its poultry production to meet increasing consumer demand. Its target is to raise monthly fresh bird production from three million to four million.
In 2009, Ayamas embarked on an Intrapreneur Broiler Farming Scheme whereby company staff are encouraged to become Intrapreneur broiler farmers, with qualifyinf staff each being given a farm to manage with a capacity of 100,000 broilers per cycle. The Intrapreneur will hold a 25% stake while Ayamas will hold a 75% stake. This scheme will help to increase the broiler production to meet the Group’s growing demand for chicken.
Through its associate KFC Holdings (Malaysia) Bhd, the QSR Group engages in poultry processing and secondary processing.
Primary processing involves the halal slaughtering and production of chicken and chicken parts to the required specifications. Secondary processing involves the processing of poultry products into convenience foods like burgers, nuggets, kiev, bologna, smoked chicken, satay, sausages, chicken balls etc. to be marketed under the Ayamas brand name.
Each day, the Group's two plants process 110,000 birds. The Ayamas plant in Port Klang, Malaysia, is the largest poultry processing plant in the country and one of the largest in the Asia Pacific region. It has modern equipment and processes more then 80,000 birds per day and 1,500 metric tones of secondary processed poultry products per month.
Distribution is handled internally by a large fleet of refrigerated trucks. This direct delivery from plant to customer ensures the freshness of products as well as consistency of supply.
The Group's emphasis on processing quality has won international recognition, including awards from Yum! Brands International. Yum! Brands International is the world's largest restaurant system with over 37,000 KFC, Pizza Hut, Taco Bell, Long John Silver A&W and WingStreet.
Currently, secondary processed products are exported to Singapore and Brunei. The company is exploring opportunities to export to Indonesia, the Middle East and elsewhere.
In 1994, QSR Brands acquired a controlling interest in Region Food Industries Sdn Bhd (RFI). Under the group's strong leadership, RFI is now one of the country's leading sauce manufacturers, producing 12 million bottles per annum.
Using state of the art machinery, RFI processes premium quality natural ingredients into superior quality sauces. It has its own comprehensive R&D Department which develops new products for an increasingly sophisticated market.
The RFI plant conforms to international manufacturing standards. This was further augmented with the ISO 9002 certification awarded to RFI since 1999. The certification of its standards enabled stronger penetration into the export market. Currently, RFI products are exported to UK, USA, France, Australia, New Zealand, Japan, Hong Kong, Mauritius, Maldives, the Middle East, Brunei and Singapore.
Locally, RFI supplies Life tomato ketchup and Life chili sauce to KFC, Pizza Hut, RasaMas and other fast-food operators. Its products are also found in most major supermarkets, hypermarkets and provision stores.
The Group's commissary is Malaysia's largest vegetable commissary. The ultra-modern facility was set up in order to meet the increasing demand from the restaurant chains and to tap the potentials of the open market.
Currently, it supplies the Group's KFC and Pizza Hut restaurants chains with coleslaw, salad, vegetables and other types of fresh products.
Bakery – The bakery initially started out as a supporting business to the KFC restaurant chain manufacturing buns for KFC meals. Its operations have since expanded beyond a mere supporting role to the KFC chain.
The bakery now produces a wide range of cakes and pastries and supplies Pizza Hut with bakery goods. With its upgraded state-of-the-art equipment, it is able to provide versatility and higher production output to further take advantage of the growing local market.
The bakery division continues to record higher sales with the commissioning of an automatic bun-line and nationwide supply of buns to KFC restaurants. Business expanded even further with the supply of garlic bread to Pizza Hut Singapore from the middle of 2003 and the increase in open market sales of bakery products. A new automatic seasoning flour blending and packing plant for Original Recipe and Hot & Spicy blends for KFC restaurants has also begun operations and is set to contribute substantially to the overall performance of the Group.
After my extensive cut and paste of the company's operations from its website, you can see the point I am trying to put across to you. I like the extensively integrated business units of the company, all of which complements one another and plays an integral part in the smooth operation of all its core businesses. Personally, I am willing to give this company a premium over its valuation. In terms of p/e, the company is trading at a trailing 12 month p/e of 13.25 times. To me its considered cheap because of the strength of the business franchise. Also, Carlyle group put a buy out offer for the company in Nov 2010 for $6.70 while its price right now is $5.33. I believe Carlyle offering a price in excess of 20 times p/e is reflective of sharing the same sentiment as me. Did I say that the company also owns quite a lot of the shop spaces they occupy in Malaysia? I like that because the thing I really dislike most about retail businesses is the burden of rent. QSR will face some of this but they are smart enough to buy the spaces which are available.
The company has a book value of $2.90 but I do not think that this is truly reflective of the actual value of its brands. I have to admit that I have a strong affinity to KFC because it is my favourite fast food chain and that is one of the key reasons to why I have so much faith in this company. One other thing, did I mention that the company generates RM300 million per year in operating cashflow? The company has only 270 million shares. What does that mean? More than $1 per share in operating cashflow. I really think this is one for the future and I challenge you to find me a company in Singapore that has such a strong business and consistent cashflow?
So here I am, calling for a strong buy for QSR brands.
Have a great trading week ahead!
Best,
SVI
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