What a week! After kicking off with a slew of new measures by our favourite government in their desperate attempts to cool the property market and ended off with a nice series of economic reports that brought risk taking back into the equity market. Capping off an interesting week, we saw a stock that was left for the dead for the longest time showing me the most bullish Japanese candle stick (technical analysis terms) I have ever seen.
One honorary mention before I start. My fave protege sent me an sms while he was training in a jungle somewhere in Thailand. Imagine this. Sending me an sms while in a jungle to ask about a stock. Talk about the conviction to stocks. I love that. I can totally imagine myself using a smart phone to monitor stocks while carrying my rifle, looking out for snakes and whatever the jungle may offer as a threat to our lives. Yes yes it is a little melodramatic but humor me.
Lets see, how I should summarise the Singapore market for this week. If I had to say it, I would say it was a week dominated by two Gentings. On Monday and Tuesday, we saw Genting Singapore scale to greater heights. All time high of $1.83, still unbelievable for me but boy am I glad I changed my call on it. On Friday, we saw a crazy charge from Genting Hong Kong, racing up by 40% on 1 day! This was what I was referring to earlier, the Japanese candlestick formed was the most bullish I have ever seen. Opening at its day low of US$0.30 and closing at a day high of US$0.42. Don't even get me started on the volume traded. The total volume for the day on the SGX was S$1.5 billion and Genting Hong Kong accounted for S$215 million. That was amazing. Judging by how it closed, I will not be surprised if it continues going up on Monday, in fact it will probably gap up to US$0.435.
Whether it is sustainable or not is not really something I would speculate on. No doubt there has been improvement in their earnings through cost cuts but honestly, it is still trading at 98 times p/e including one off gains. The whole rally started when Genting Hong Kong revealed they were in talks with the Philippines gaming authorities of operating a resort there. Them and 2 other parties may get the project but I am not ready to say that this is a company that has turned the corner.
Since it has all been about Genting this week, it inspired me to look deeper into the Genting Group to see if there is still more value to be derived from its group of companies. Where else would I start besides the its main holding company, Genting Berhad. So here is what I found.
Genting Berhad, the South-East Asia's most prominent casino operator, founded by the great Tan Sri Lim Goh Tong back in 1965.
It all started when he began the initial development works of building a 20-kilometre private access road, across tough mountainous terrains from the foothills to the summit of Mount Ulu Kali, located at 2,000 metres above sea level.
The company was incorporated under the Companies Act 1965 on 30 July 1968 under the original name of Genting Highlands Hotel Sdn Bhd to operate a hotel and casino, and to develop an integrated tourist complex in Genting Highlands, Malaysia. The company changed its name to Genting Highlands Hotel Berhad upon its its conversion into a public company on 24 July 1970. It assumed its present name of Genting Berhad on 9 June 1978.
Genting Group via Genting Berhad became involved in palm oil production in 1980 with the acquisition of The Rubber Trust Group, comprising three Hong Kong plantation companies which owns approximately 13,660 hectares of plantation land in Peninsular Malaysia. This division under listed entity Genting Plantations Berhad now has about 133,000 hectares of land in Malaysia and Indonesia. It is one of the leading and lowest cost palm oil producers in Malaysia.
The shares of Genting Berhad were listed on the Main Market of Bursa Malaysia Securities Berhad in 1971. A restructuring exercise was undertaken in 1989, which involved the initial public offering and listing of Genting Malaysia Berhad on Bursa Securities and resulted in Genting Berhad's becoming an investment and management company.
Genting Group via Genting Berhad became involved in the electricity power generation and supply and the paper manufacturing businesses in 1994 and in the exploration and production of oil and gas in 1996 under Genting Oil & Gas Limited.
I remember, when I first went to Genting Highlands when I was 22, I couldn't help but marvel at the amazing feat of building such a big resort up in the mountains and it must have taken an extraordinary company to achieve it. Add in the fact that they managed to convince a Muslim government to give it a licence to operate a casino in the country with the 2nd largest Muslim population. So far, they are the only ones to be able to attain such a licence and technically granting them a monopoly status in Malaysia.
I remember back in 2006, there were a couple of private equity firms that were looking to buy into gambling assets like Harrah and Trump entertainment, putting gaming stocks in the limelight. At that time, credit was cheap and gaming companies were geared up to their necks due to their expansion plans. They were all trading in excess of 20 times p/e and everyone and anyone wanted to own a piece of the gaming business.
Fast forward to 2010, now gaming stocks have become unloved especially with the slowdown in gaming revenues in Las Vegas and saturation of growth in Macau. The 2 best performing gaming stocks in the world over the past couple of years have been Las Vegas Sands (LVS) and Genting Singapore, thanks to their new growth engines in our lovely island country of Singapore. To think that LVS almost went into chapter 11 back in 2008, they sure have turned things round very nicely. Till today, LVS is still geared heavily and I believe its stock price has exceeded its fundamentals by far. Genting Singapore has also had a lovely run up but I am skeptical about its upside potential until it reports its next two quarters of earnings. It will probably see $2 eventually but I am looking for a safer proxy to Genting Singapore and that comes in the form of Genting Berhad.
First lets have some trivia.
Guess how much would an investment in Genting Berhad shares be worth today if an investor bought 1000 shares at RM$1 each in 1971?
A WHOPPING RM$2.19 million!!!!! That translates to a CAGR of 22% per annum over the past 38 years. Talk about a good investment. I believe that as good as a stock can go.
Currently, Genting Berhad is ranked 9th largest gaming company in the world by market cap. The market cap of the company stands at approx S$14 billion. So why
don't I dissect its sum of parts first. Genting Berhad owns 51% of Genting Singapore whose own market cap in Singapore comes up to S$24 billion! So in terms of market cap, Genting Singapore is larger than Genting Berhad!
Genting Berhad's stake in Genting Singapore is worth S$12b, its 48% stake in Genting Malaysia is worth S$3.7b and 19.3% stake in Genting Hong Kong is worth S$722m. Those are its stakes in its gaming subsidiaries. Total worth of those stakes come up to S$16.422 billion. So that is more than the market cap of Genting berhad and we have not taken account its stakes in Landmarks (their property development arm), Genting Plantations (its palm oil plantation business), Genting Sanyen Power and Genting China Power (its power generation business in China, India and Malaysia) and Genting Oil and Gas (its oil and gas production arm with interests in China, Morocco and Indonesia). So is that enough value for you?
No? I thought so.
How about the fact that its the largest casino by EBITDA in the world? Its EBITDA margins are more than 40%. Throw in the 19.5 million visitors per year visiting Genting Highlands. There is also plans for Genting Berhad to operate New York City's first gambling parlor, at the Aqueduct racetrack in Queens. Initial approval is for them to put in 4500 slot machines and electronic table games. The plans are to create a destination resort that would attract both local and international visitors.
Need more?
Management as remained pretty much the same which is the Lim family which owns 39.6% of the company. Tan Sri Lim Kok Thay who is their CEO has a good track record in allocating capital in a way that benefits shareholders.
Balance sheet strength?
Genting Berhad now has RM$16.25 billion in cash and it has total liabilities of RM$19.6 billion.
Cash generating machine?
The fact that the company has generated RM$2.5 billion in operating cashflow yearly since 2007 is an impressive feat. This year it has generated more than that in the first 6 months of 2010. I love consistent and predictable cashflows from operations more than anything else.
Still not enough?
Then don't bother to invest in anything because nothing will ever be good enough.
Oh yes, earnings...they have grown by 120% yoy for the first 6 months of 2010. Even though it's stock price has appreciated 40% since March, we are still looking at a grossly undervalued stock. Just on asset value alone, the stock should be valued in its early teens. So do your maths and you will see the sensible thing is to have some Genting Berhad in your portfolio.
I found it so much easier to write this post than Genting Singapore's earlier last month and it felt good too.
Note: Technically, the stock will move a little lower in the next couple of days but it will be a good chance to accumulate more of this gem of a stock.
Have a good week ahead!
Best,
SVI
Saturday, September 4, 2010
Saturday, August 28, 2010
My mum always said I was a stubborn mule, maybe thats why I am still a bull on equities.
The other day, a remisier friend of mine pointed out to me that the Singapore stock market volumes have fallen since the casinos opened their doors for business. He was trying to get the point across to me that Singaporean punters have turned to Baccarat tables to try their luck instead of playing contra in the market. After much thinking, I came to the conclusion that contra players were actually smarter to try their luck in gambling than trying to trade stocks in and out of the market within 5 days. The reason to why I think that way is that if you were gambling you would be playing on your luck and if you played Baccarat (in my opinion is the fairest game in the casino even though its still not a 50/50 game) it would give you a better chance of winning money than contra trading. Why? Because contra trading is much more than just luck, its also the psyche of the market participants and many other external factors that may cause your trade to turn sour. No matter how good you are, the odds are stacked against you. You are much better off investing consistently using the buy and hold strategy to build your wealth.
Of course, I personally have the weakness of looking for thrills in the market and end up losing money trading. Overall, my record is still a positive one but honestly too much time has been spent trading for me to do other more concrete things like...work. I do have a resolution to trade less going forward and perhaps channeling more energy towards studying, reading, working and gambling.
Before I start on the topic of the day, I would like to correct myself in the previous post where I mentioned that the yield curve has a good record of predicting recessions. It is true that it has good predictive ability but the fact that the shorter end of the curve is near to zero, that could mean that it has lost its predictive ability as the yield curve has absolutely no chance of inverting. Short term rates will never go negative in nominal terms and thus there is no chance of yield curve inversion no matter how flat the yield curve goes. So I do apologise for that. I was not thinking too clearly on that.
Today I just want to write a post that is more general and relaxing, letting my mind flow to whatever comes into it and "go with the flow" in every sense. My fellow peers in the investment industry have been raving about how well bonds have done and telling me how they were bearish and that equities are going to have a tough time going forward. They are all advising whoever is willing to listen to go into "safer" assets like bonds and senior loans. While good ol' chump like me continues to argue for equities as the place to be in. So in order to convince myself that I am right to be bullish, I have decided to list down the reasons to why I am.
Here are some reasons to why I am bullish.
1) Merger and acquisitions are picking up
The bidding war on 3 PAR is really a joke because the company that specialises in data storage that is still in the red is being bid up all the way from the initial offer of 1.16 billion to 2 billion. Two computer giants rushing to get into the data storage business, totally getting into a tug and pull war.
What about BHP's bid for Potash, now that was one mega deal. 36 billion and still being turned down. Who says there is not enough liquidity in the market? Merger and acquisitions happen only when corporations are optimistic about the economic situation and their future going forward.
Just because they are not willing to employ, does not mean that the companies are doing badly. They are just making sure they squeeze as much productivity out of their existing resources and are looking to expand through acquisitions than through organically growing their companies. That is why the employment situation is still looking dire.
We need to start to acknowledge that the new economy will be a less labour intensive one as technology continues to deliver new breakthroughs in productivity and companies take on the leaner and meaner model.
2) Dividend yields are now higher than the 10 year treasury bill and should be higher
Dividends have not caught up with the earnings growth. They were cut during the market downturn but they have not recovered as earnings have. With the ten year treasury moving down back to crisis like levels of 2.5% and so much liquidity looking for yields, the dividends are going to look mighty attractive backed by robust earnings.
3) Earnings are still robust
Earnings on the S&P500 have improved 43% YOY and are expected to show resilience as productivity continues to be strong. Earnings expectations are currently being revised downwards as fears over the economic recovery continue to hog the headlines. This gives me even more impetus to try to pick companies to buy. I love it when there is no expectations. Like I always tell my friends, when there is no expectations there is no disappointment. What that means is, there is only upside no downside.
4) Penultimate years before elections tend to be good years for equities
How time flies and as Obama's time as president enters its 3rd year in 2011, he will need to do lots of things to aid the economy before going into election year 2012. In history, pre-election years tend to be good years for the market. Remember 2007? Markets hit a new high before sub prime came along. 2003 was the turn of the market after the tech bubble. So I believe 2011 will be no different, a another good year for equities.
5) Deflation is not likely
3 years ago during an investment conference which I was speaking in, there was a fund manager who came up to me and asked me whether I thought the bond traders or equity traders were better readers of the economy. At that time, bonds were rallying and yields were falling off the cliff while at the same time equities were also rallying to new highs. Both were telling contrasting stories on the economy. At the time, the bond traders were risk adverse while the equity bulls were strong at work. I told him, it was probably the bond traders because the valuations were ridiculous for equities. Now I would say the bond traders are wrong, so are the equity traders. So end of the day, equity traders seem to be wrong all the time. Haha.
The notion of deflation has become something of a widely discussed possibility. For me, I believe it is really quite impossible for that to happen because CPI numbers are still very much in the positive territory, be it in developed markets or emerging markets. There is no chance in this living world when there is so much money being printed and prices go negative. If Bernanke fails to keep deflation our of the US, he would have wasted his decades of academic study and I feel sorry for him and his parents.
6) Chinese hard landing is close to impossible
There was a very prominent economist that told me that I should never worry about Chinese data disappointing the market. I would like to say that he is really a super nice person for such a prominent and well known person. Why he made that statement was because he felt that the numbers from China cannot be trusted and they are just manipulated to give the market what it wants. So if the numbers are doctored, how is it possible to have a hard landing?
There are tons of talk about how Chinese properties are tumbling down in prices but I just has a meeting with a CEO of a property management company and he told me that 2nd tier cities are still seeing higher prices. In fact, the government is trying to boost the property markets in the 2nd and 3rd tier markets. They are only targeting to cool the coastal and 1st tier cities property markets rather than the whole of China.
Many an experts are talking about how the banks will suffer as the property mania is China cools down, but so much has been discounted on the prices of Chinese banks that they look like the ones that got hit by sub prime. Financials in China really do look cheap now.
7) There is no where else to park your money
With property prices in emerging markets looking frothy, deposit rates close to nothing, bond prices at sky high and commodity markets seeing only pockets of strength, where else can anyone with excess cash park their money? Maybe they should go to Marina Bay Sands for a nice night of entertainment or maybe Resort World Singapore to try their luck. For those not really into gambling, there is no harm parking your money in a good dividend paying stock right?
8) Stocks are trading at 12.7 times p/e for 2010 and 11 times for 2011, still below long term averages.
Valuations are still cheap. I really do not need to talk about it too much. It is a fact. There is even a company in Singapore that is trading at 5 times p/e with a 7% dividend yield and 30% earnings growth. Now that is ridiculously cheap. The father of value investment, Benjamin Graham once said, "a company that has no earnings growth should not trade more than 8 times p/e." Well when you are growing at 20-30%, you definitely should not be trading at 5 times.
After a long week, I am very proud to find myself finding the energy to write this post but as a disciplined person I told myself, I need to put my thoughts into writing and also to hold back any urge of going to a midnight baccarat session.
Well all the best for the week coming ahead. Non-farm payrolls once again this Friday, man I am getting old with every month flashing by.
Best,
SVI
Of course, I personally have the weakness of looking for thrills in the market and end up losing money trading. Overall, my record is still a positive one but honestly too much time has been spent trading for me to do other more concrete things like...work. I do have a resolution to trade less going forward and perhaps channeling more energy towards studying, reading, working and gambling.
Before I start on the topic of the day, I would like to correct myself in the previous post where I mentioned that the yield curve has a good record of predicting recessions. It is true that it has good predictive ability but the fact that the shorter end of the curve is near to zero, that could mean that it has lost its predictive ability as the yield curve has absolutely no chance of inverting. Short term rates will never go negative in nominal terms and thus there is no chance of yield curve inversion no matter how flat the yield curve goes. So I do apologise for that. I was not thinking too clearly on that.
Today I just want to write a post that is more general and relaxing, letting my mind flow to whatever comes into it and "go with the flow" in every sense. My fellow peers in the investment industry have been raving about how well bonds have done and telling me how they were bearish and that equities are going to have a tough time going forward. They are all advising whoever is willing to listen to go into "safer" assets like bonds and senior loans. While good ol' chump like me continues to argue for equities as the place to be in. So in order to convince myself that I am right to be bullish, I have decided to list down the reasons to why I am.
Here are some reasons to why I am bullish.
1) Merger and acquisitions are picking up
The bidding war on 3 PAR is really a joke because the company that specialises in data storage that is still in the red is being bid up all the way from the initial offer of 1.16 billion to 2 billion. Two computer giants rushing to get into the data storage business, totally getting into a tug and pull war.
What about BHP's bid for Potash, now that was one mega deal. 36 billion and still being turned down. Who says there is not enough liquidity in the market? Merger and acquisitions happen only when corporations are optimistic about the economic situation and their future going forward.
Just because they are not willing to employ, does not mean that the companies are doing badly. They are just making sure they squeeze as much productivity out of their existing resources and are looking to expand through acquisitions than through organically growing their companies. That is why the employment situation is still looking dire.
We need to start to acknowledge that the new economy will be a less labour intensive one as technology continues to deliver new breakthroughs in productivity and companies take on the leaner and meaner model.
2) Dividend yields are now higher than the 10 year treasury bill and should be higher
Dividends have not caught up with the earnings growth. They were cut during the market downturn but they have not recovered as earnings have. With the ten year treasury moving down back to crisis like levels of 2.5% and so much liquidity looking for yields, the dividends are going to look mighty attractive backed by robust earnings.
3) Earnings are still robust
Earnings on the S&P500 have improved 43% YOY and are expected to show resilience as productivity continues to be strong. Earnings expectations are currently being revised downwards as fears over the economic recovery continue to hog the headlines. This gives me even more impetus to try to pick companies to buy. I love it when there is no expectations. Like I always tell my friends, when there is no expectations there is no disappointment. What that means is, there is only upside no downside.
4) Penultimate years before elections tend to be good years for equities
How time flies and as Obama's time as president enters its 3rd year in 2011, he will need to do lots of things to aid the economy before going into election year 2012. In history, pre-election years tend to be good years for the market. Remember 2007? Markets hit a new high before sub prime came along. 2003 was the turn of the market after the tech bubble. So I believe 2011 will be no different, a another good year for equities.
5) Deflation is not likely
3 years ago during an investment conference which I was speaking in, there was a fund manager who came up to me and asked me whether I thought the bond traders or equity traders were better readers of the economy. At that time, bonds were rallying and yields were falling off the cliff while at the same time equities were also rallying to new highs. Both were telling contrasting stories on the economy. At the time, the bond traders were risk adverse while the equity bulls were strong at work. I told him, it was probably the bond traders because the valuations were ridiculous for equities. Now I would say the bond traders are wrong, so are the equity traders. So end of the day, equity traders seem to be wrong all the time. Haha.
The notion of deflation has become something of a widely discussed possibility. For me, I believe it is really quite impossible for that to happen because CPI numbers are still very much in the positive territory, be it in developed markets or emerging markets. There is no chance in this living world when there is so much money being printed and prices go negative. If Bernanke fails to keep deflation our of the US, he would have wasted his decades of academic study and I feel sorry for him and his parents.
6) Chinese hard landing is close to impossible
There was a very prominent economist that told me that I should never worry about Chinese data disappointing the market. I would like to say that he is really a super nice person for such a prominent and well known person. Why he made that statement was because he felt that the numbers from China cannot be trusted and they are just manipulated to give the market what it wants. So if the numbers are doctored, how is it possible to have a hard landing?
There are tons of talk about how Chinese properties are tumbling down in prices but I just has a meeting with a CEO of a property management company and he told me that 2nd tier cities are still seeing higher prices. In fact, the government is trying to boost the property markets in the 2nd and 3rd tier markets. They are only targeting to cool the coastal and 1st tier cities property markets rather than the whole of China.
Many an experts are talking about how the banks will suffer as the property mania is China cools down, but so much has been discounted on the prices of Chinese banks that they look like the ones that got hit by sub prime. Financials in China really do look cheap now.
7) There is no where else to park your money
With property prices in emerging markets looking frothy, deposit rates close to nothing, bond prices at sky high and commodity markets seeing only pockets of strength, where else can anyone with excess cash park their money? Maybe they should go to Marina Bay Sands for a nice night of entertainment or maybe Resort World Singapore to try their luck. For those not really into gambling, there is no harm parking your money in a good dividend paying stock right?
8) Stocks are trading at 12.7 times p/e for 2010 and 11 times for 2011, still below long term averages.
Valuations are still cheap. I really do not need to talk about it too much. It is a fact. There is even a company in Singapore that is trading at 5 times p/e with a 7% dividend yield and 30% earnings growth. Now that is ridiculously cheap. The father of value investment, Benjamin Graham once said, "a company that has no earnings growth should not trade more than 8 times p/e." Well when you are growing at 20-30%, you definitely should not be trading at 5 times.
After a long week, I am very proud to find myself finding the energy to write this post but as a disciplined person I told myself, I need to put my thoughts into writing and also to hold back any urge of going to a midnight baccarat session.
Well all the best for the week coming ahead. Non-farm payrolls once again this Friday, man I am getting old with every month flashing by.
Best,
SVI
Subscribe to:
Posts (Atom)
Posts
