Another two weeks have flown by and I have once again not been consistent in my posting. Time really has to slow down a little for me to find enough of it to do more research. Markets are still resilient even though the pace of its rise has been slowing down. Earnings have been pretty bad for the large caps but the market continues to be strong. The picks I have given have done pretty well in terms of earnings so far. Silverlake, LMA, Sarin, Dukang etc have all produced results that have been stronger than expected in spite of the poor economic conditions. I continue to like these stocks and recommend you guys to accumulate them.
This week, I want to write about a company which has been pretty much on my mind. I believe that it will deliver good earnings over time. This is a company that just came out of a Reverse Takeover and it is still in its teething stage. Profits have not come in at this point as it is still in the midst of shedding their loss making business.
Centurion Corporation Limited, formerly known as SM Summit Holdings Limited, owns and operates dormitory assets, as well as a storage disc manufacturing business. The Group’s dormitory assets currently include Centurion Dormitory (Westlite) Pte. Ltd. the owner-operator of Westlite Dormitory located at 18 Toh Guan Road East and 45% of the issued share capital of Lian Beng-Centurion (Mandai) Pte. Ltd. which owns a piece of freehold industrial land in Mandai, of approximately 18,700 square metres which will be developed into dormitories on part of the land. In addition, it is also involved in the business of manufacturing compact discs, digital versatile discs and data storage.
With various expansion plans in place, Centurion looks to gain a strong foothold in the growing workers accommodation industry in the region. In line with its growth strategies, the company is actively seeking to enhance its current assets in the midst of its development and acquisition of new projects, aiming to be one of Asia’s leading providers of quality workers accommodation and professional dormitory management services.
Lian Beng-Centurion (Mandai) Pte Ltd, 45% held by Centurion and 55% by Lian Beng Group, intends to launch the sale of 141 units of its ramp-up industrial building to be developed on the freehold Mandai Land1 in the fourth quarter of 2011. The Mandai Land has been divided into three plots for separate developments as below:
- The first plot will be developed as a workers dormitory with a capacity of approximately 4,700 beds.
- The second plot will be developed into a ten-storey ramp-up multiple-user general industrial building with a total of 141 units and a canteen.
- The third plot may be developed as workers dormitory or industrial spaces.
Construction of the ramp-up industrial building on the second plot of Mandai Land is expected to commence in Q4 2011 and likely to be completed within 15 to 18 months. The average selling price per square foot for the units is expected to range between S$650 and S$700.
Centurion is embarking on the acquisition for a Tuas dormitory as part of the Group’s acquisition growth strategy to be a dominant player in providing dormitory accommodation and services to foreign workers. The acquisition will add 8,600 beds to the Group’s portfolio, which will immediately raise the profile of the Group as a dominant independent dormitory operator, enable the Group to enjoy economies of scale in its operations and provide the Group with the necessary infrastructure and platform with which to widen its customer base. As the Tuas Asset is an operating dormitory, the Proposed Acquisition will bolster the company’s revenue from this financial year.
This acquisition can be used to leverage on the customer base it will gain as a result of the acquisition. The Tuas Asset is presently utilized by an existing set of customers, which the Group will absorb upon completion. It will be able to tap its enlarged customer base to promote and fill up its other dormitories when development and upgrading works at such dormitories are completed and become operational in the Company’s financial year ended 31 December 2013 or 31 December 2014. Increasing the number of its existing customers will facilitate the Group’s future marketing efforts and possibly improve the rate at which the Group is able to fill up upcoming vacancies at its dormitories.
Centurion has also been active in Malaysia with two acquisitions over the past two months and it has also identified 6 dormitory projects in Malaysia as potential acquisition targets. All six projects are located within or in proximity to key industrial and manufacturing hubs in Johor, Southern Malaysia and comprise completed dormitories, projects under construction, vacant land and factories for conversion to dormitories. The two successful acquisitions will add approximately 9,000 beds to the Group’s Malaysia dormitory portfolio. These projects which consist of completed dormitories, projects under construction, vacant land and factories for conversion to dormitories, are expected to add approximately 33,400 beds to the dormitory assets portfolio of the Group. In addition, Centurion is also actively pursuing opportunities in China to acquire or build dormitory projects either independently or in partnership with third parties.
I understand that this is still a work in progress company but in my view, it has every chance of becoming a major player in a very niche business. There is a need for additional capital raising in order for them to fund their targeted acquisitions but over the longer term this is a company that has the potential to reward its shareholders handsomely. The way the company is out there looking for acquisition targets, I would not be surprised if they hived off the assets into a dormitory Reit. The yields on such a Reit will really be quite attractive from the research I have been doing on dormitories. Apparently, it is a very lucrative business with yields of above 7% from the services provided.
I like the company's exposure to Malaysia because there is going to be a lot of changes in the southern part of the country with the development of Iskandar Economic Region and many other infrastructure projects coming up. All these projects are going to need plenty of foreign workers to work on them. Housing for these workers will be in great demand and I believe that the company shares the same vision.
One possible headwind facing Centurion in Singapore could be the Government's drive to lower our dependence on foreign workers but I really doubt it will hurt the business at all. Show me Singaporeans who are willing to do the work which foreign workers have been doing for us at the same cost and I will be impressed.
Overall, I like the story behind this stock and it is not expensive at current price as the company is still very much under the radar and I guess investors are still pretty oblivious about how profitable the dormitory business can be. Technically, the company's stock price hit a new high two weeks ago after which it pulled back and I believe this is not a bad level for entry.
Ok thats all I have for this week and lets hope next week's LTRO does not disappoint the markets. Have a great week ahead!
Best,
SVI
Sunday, February 26, 2012
Sunday, February 12, 2012
Unprecedented liquidity injection leads to simultaneous asset bubbles forming. I call it FOAMING.
Been too busy these days to post regularly and it makes me feel bad that I have not been disciplined enough to do so. The markets have been wonderfully kind to investors in January and we have seen some ridiculous moves on certain obscure stocks like Yoma, IEV etc. Very impressive moves especially considering Yoma rose uninterrupted from 8 cents to 58 cents in a span of a month and a half. Wish I was in it, but it was not to be. These kinds of moves only happens once in a long time so it was another missed opportunity for me. Well thats life.
February has started off in bullish fashion and markets have been on a tear. Small caps, mid caps, large caps, you name it, they have had a great run up. The US markets have reclaimed their 2011 highs after just 5 months. European markets have been a little more subtle but they have also done well over the past two months. Asian markets being the high beta play among all regions have outperformed. How did we end up here? Considering the talks of a doomsday event occurring in 2012 have been rife at the start of the year and here we have the best market performance for the month of January since 1987. That is why I love financial markets, the excitement and its unpredictable nature makes one look forward to every trading day.
So what is the reason for this strong bullish like rally? Like my good colleague was saying earlier this week. "It feels and looks like a bull market." Any betting man would not have placed bets on such a bullish move happening in the market at the beginning of the year. In my humble view, it boils down to just one word...liquidity. Liquidity, that is the key word for the investment world today. My ex boss used to say, liquidity is the most fickle element in financial markets as it can be here today and gone tomorrow. But before we get too worried about liquidity disappearing into thin air, bear in mind that the guys turning the liquidity taps in the world are not too interested to turn them off any time soon. So I really do not think liquidity is going to dry up any time soon.
Why do I say that? This is going to sound like its a conspiracy but I do think it is logical so lets see what you think. Central bankers are given a mandate of controlling consumer inflation and ensuring the employment numbers look decent. With the key gauges on how well they are doing their jobs being the very questionable Consumer Price Index and Unemployment rate, their course of action is clear. Focus on the CPI and try to stimulate the economy into creating more jobs. So what do they do? They inject liquidity into the banking system with their creation of QE and LTROs.
If you tell me that the ECB did not instruct the banks out there who took money during LTRO part 1, to pump the money back into the sovereign bond markets, I will tell you that you are very naive. It is by no coincidence why the sovereign yields of Italy and Spain have fallen so significantly since LTRO was introduced. This will make it look like there are more buyers of Italian sovereign bonds and making the market place look more real with more than one buyer and that being the ECB. However the truth is, the financier for all the buyers of such bonds remain the ECB. This action has brought a false sense of security to investors and injected the much needed optimism into the markets.
With all these QE and LTROs going on in the developed markets, the amount of liquidity sloshing in the markets is unimaginable. I would put the figure to be more than 4 trillion dollars and if you factor in the multiplier effect plus the increased velocity of money in the system, we could be seeing much more than that. What is possibly going to happen here is asset bubbles forming. Yes you are reading it right. Not a bubble but bubbles. Usually when there is an excessive move in a certain asset class, we will witness a bubble forming and eventually bursting. We have seen a few in recent decades, Japanese property bubble, Tech bubble, Subprime bubble etc. What do we know about them? They all happened at different periods. My conjecture here is that we are going to enter into a period of concurrent forming of bubbles if liquidity continues to be pumped in so freely. I will term this as "FOAMING". Whereby the asset classes will all move in tandem and inflate into bubbles thus causing a foaming effect and we all now how foam dissipates in the end. The little bubbles will all burst together just like how they were formed.
Why are the central bankers doing all these actions when they know that this will cause asset bubbles? Because they are not judged by Asset Inflation but Consumer Inflation. There is no API (Asset Price Index) so they are pretty safe. Asset price inflation will create a money illusion which in turn will create a wealth effect for market participants. Why won't consumer inflation rise as asset inflation occurs, you may ask. The reason being that asset inflation will only help the rich and the extra liquidity in the banking system is only going to go into the coffers of the wealthy who are credit worthy and are willing to take the risk of leveraging up to invest. The "marginal propensity to consume" for the wealthy is significantly lower than that of their "marginal propensity to invest". I believe that the central bankers are trying to inflate assets to such an extent that people will get the impression that everything is hunky dory and forget that Spain has a unemployment rate of more than 40% amongst their younger labor force.
Consumer prices will remain tepid as the poor do not have the money to consume more so the central bankers are going to report low CPI numbers and probably give themselves more room for further liquidity pumping activity. I personally regard these liquidity moves as short term fixes and basically trying to sweep all the problems under a rug and hope that the rug sticks. What worries me is that they have opened the equivalent of the "Pandora's box" for the financial markets. If I am right, they are going to have a big problem down the road when they finally decide to withdraw the liquidity they have made available to the markets.
Excerpt from Wikipedia: Pandora's box is an artifact in Greek mythology, taken from the myth of Pandora's creation in Hesiod's Works and Days.[1] The "box" was actually a large jar (πίθος pithos)[2] given to Pandora (Πανδώρα) ("all-gifted", "all-giving"),[3] which contained all the evils of the world. When Pandora opened the jar, all its contents except for one item were released into the world. The one remaining item was Hope.[4] Today, to open Pandora's box means to create evil that cannot be undone.
So you may ask, which assets will inflate first? Of course, it is natural for the inflation to happen in the safest assets first, which is of course high grade bonds where investors can leverage on the low interest rates till 2014 (thank you, Ben Bernanke) and earn the yield spread. After that we will have to move to the assets that has no real science to valuing them. Things like commodities. Why? Because commodities are valued more on perceived value than actual value metrics like price earnings ratios or price to book ratios. There is no way to determine accurately what the price of a bushel of wheat is worth in terms of price. When there is no valuation metric for the asset, it is easy for people to use nice convincing stories to justify ever rising prices for that particular asset class.
Whatever I have written today is not something that will happen over the next few months, I believe this whole process of FOAMING will take years and it is important to bear this in mind while investing now. We have no choice but to try to ride this wave because I believe that asset prices will go through what I call above trend inflation and if we do not try to ride this wave we will be left behind as the value of money continues to depreciate implicitly. This is the situation that can be most aptly described as "damn if you do and damn if you don't".
Ok it is getting a little late. Will try to post more regularly, I promise.
Have a great week ahead!
Best,
SVI
February has started off in bullish fashion and markets have been on a tear. Small caps, mid caps, large caps, you name it, they have had a great run up. The US markets have reclaimed their 2011 highs after just 5 months. European markets have been a little more subtle but they have also done well over the past two months. Asian markets being the high beta play among all regions have outperformed. How did we end up here? Considering the talks of a doomsday event occurring in 2012 have been rife at the start of the year and here we have the best market performance for the month of January since 1987. That is why I love financial markets, the excitement and its unpredictable nature makes one look forward to every trading day.
So what is the reason for this strong bullish like rally? Like my good colleague was saying earlier this week. "It feels and looks like a bull market." Any betting man would not have placed bets on such a bullish move happening in the market at the beginning of the year. In my humble view, it boils down to just one word...liquidity. Liquidity, that is the key word for the investment world today. My ex boss used to say, liquidity is the most fickle element in financial markets as it can be here today and gone tomorrow. But before we get too worried about liquidity disappearing into thin air, bear in mind that the guys turning the liquidity taps in the world are not too interested to turn them off any time soon. So I really do not think liquidity is going to dry up any time soon.
Why do I say that? This is going to sound like its a conspiracy but I do think it is logical so lets see what you think. Central bankers are given a mandate of controlling consumer inflation and ensuring the employment numbers look decent. With the key gauges on how well they are doing their jobs being the very questionable Consumer Price Index and Unemployment rate, their course of action is clear. Focus on the CPI and try to stimulate the economy into creating more jobs. So what do they do? They inject liquidity into the banking system with their creation of QE and LTROs.
If you tell me that the ECB did not instruct the banks out there who took money during LTRO part 1, to pump the money back into the sovereign bond markets, I will tell you that you are very naive. It is by no coincidence why the sovereign yields of Italy and Spain have fallen so significantly since LTRO was introduced. This will make it look like there are more buyers of Italian sovereign bonds and making the market place look more real with more than one buyer and that being the ECB. However the truth is, the financier for all the buyers of such bonds remain the ECB. This action has brought a false sense of security to investors and injected the much needed optimism into the markets.
With all these QE and LTROs going on in the developed markets, the amount of liquidity sloshing in the markets is unimaginable. I would put the figure to be more than 4 trillion dollars and if you factor in the multiplier effect plus the increased velocity of money in the system, we could be seeing much more than that. What is possibly going to happen here is asset bubbles forming. Yes you are reading it right. Not a bubble but bubbles. Usually when there is an excessive move in a certain asset class, we will witness a bubble forming and eventually bursting. We have seen a few in recent decades, Japanese property bubble, Tech bubble, Subprime bubble etc. What do we know about them? They all happened at different periods. My conjecture here is that we are going to enter into a period of concurrent forming of bubbles if liquidity continues to be pumped in so freely. I will term this as "FOAMING". Whereby the asset classes will all move in tandem and inflate into bubbles thus causing a foaming effect and we all now how foam dissipates in the end. The little bubbles will all burst together just like how they were formed.
Why are the central bankers doing all these actions when they know that this will cause asset bubbles? Because they are not judged by Asset Inflation but Consumer Inflation. There is no API (Asset Price Index) so they are pretty safe. Asset price inflation will create a money illusion which in turn will create a wealth effect for market participants. Why won't consumer inflation rise as asset inflation occurs, you may ask. The reason being that asset inflation will only help the rich and the extra liquidity in the banking system is only going to go into the coffers of the wealthy who are credit worthy and are willing to take the risk of leveraging up to invest. The "marginal propensity to consume" for the wealthy is significantly lower than that of their "marginal propensity to invest". I believe that the central bankers are trying to inflate assets to such an extent that people will get the impression that everything is hunky dory and forget that Spain has a unemployment rate of more than 40% amongst their younger labor force.
Consumer prices will remain tepid as the poor do not have the money to consume more so the central bankers are going to report low CPI numbers and probably give themselves more room for further liquidity pumping activity. I personally regard these liquidity moves as short term fixes and basically trying to sweep all the problems under a rug and hope that the rug sticks. What worries me is that they have opened the equivalent of the "Pandora's box" for the financial markets. If I am right, they are going to have a big problem down the road when they finally decide to withdraw the liquidity they have made available to the markets.
Excerpt from Wikipedia: Pandora's box is an artifact in Greek mythology, taken from the myth of Pandora's creation in Hesiod's Works and Days.[1] The "box" was actually a large jar (πίθος pithos)[2] given to Pandora (Πανδώρα) ("all-gifted", "all-giving"),[3] which contained all the evils of the world. When Pandora opened the jar, all its contents except for one item were released into the world. The one remaining item was Hope.[4] Today, to open Pandora's box means to create evil that cannot be undone.
So you may ask, which assets will inflate first? Of course, it is natural for the inflation to happen in the safest assets first, which is of course high grade bonds where investors can leverage on the low interest rates till 2014 (thank you, Ben Bernanke) and earn the yield spread. After that we will have to move to the assets that has no real science to valuing them. Things like commodities. Why? Because commodities are valued more on perceived value than actual value metrics like price earnings ratios or price to book ratios. There is no way to determine accurately what the price of a bushel of wheat is worth in terms of price. When there is no valuation metric for the asset, it is easy for people to use nice convincing stories to justify ever rising prices for that particular asset class.
Whatever I have written today is not something that will happen over the next few months, I believe this whole process of FOAMING will take years and it is important to bear this in mind while investing now. We have no choice but to try to ride this wave because I believe that asset prices will go through what I call above trend inflation and if we do not try to ride this wave we will be left behind as the value of money continues to depreciate implicitly. This is the situation that can be most aptly described as "damn if you do and damn if you don't".
Ok it is getting a little late. Will try to post more regularly, I promise.
Have a great week ahead!
Best,
SVI
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