What will the management do next to us ?

28 July 2018

Dear Fellow Investor,

Mr Tong in his latest Edge column sums up my value investing approach and how to profit from the current uncertainties and fears dominating market action.  The only way to overcome emotions and profit is to have conviction in your purchases and sales.  This requires careful and objective research into your decision process. It means to access the quality of the company you are considering.

SINGAPORE (July 30): It is important to have conviction in investing. Stock markets are very much driven by sentiment and emotion. This is underscored by the roller-coaster ride we have experienced for the better part of this year. 

Markets are faced with a growing list of uncertainties, not least because of the difficulty in assessing and quantifying the potential damage from a trade war or geopolitical flare-ups. And when investors are uncertain, they tend to err on the side of caution.

As a result, share prices overreact and valuations get compressed. Over time, the picture will become clearer and fundamentals will reassert their influence on stock prices. 

But since markets are very short-term-oriented, this translates into opportunities for longer-term investors — if you can ignore the noise and focus on the underlying dynamics of the business, the secular trend for the industry and future outlook, earnings and cash-flow prospects as well as balance sheet strength. 

Crucially, we must hold on to our convictions, even (especially) when they are against the tide of sentiment.

By: 

Tong Kooi Ong

Last week, I sold all our Power Root shares for a small profit.  We still retain the bonus issue and warrants and will exit when the warrants are credited to your accounts. The reason I sold is because  the recent corporate exercise dilutes our shareholdings. The exercise is mainly for the benefit of the management/ insiders and to the disadvantage of the minority shareholders.

My concern is: What will the management  do next to us ?

There is nothing wrong with their coffee  business as demand for their coffee is rising but I do not feel we are being treated fairly. There are many other quality value opportunities run by ethical managers.  

Our analysts are diligently searching for you.

I advise that you pick up a copy of the latest weekly Edge and read Mr Tong’s entire column. He explains the rational for his recent transactions and why he is a value investor.  

Out of the blue, Mr Trump met with the European trade officials, and they and they worked out a trade deal.  This was a pleasant surprise and caught many analysts by surprise. Many expected an escalation of trade issues. European and US markets rose after the deal.

Perhaps, Trump can work out something with China and that would remove a major uncertainty from investor’s minds.  

Invest well and grow your wealth.

Bill

Today's 'critter's' opossum ..or 'possum' as it is known in the southern and Midwest U.S.A. It is a house cat-sized creature not known in the part of North America. They are table fare for some -- and their pelts have long been part of the fur trade.

SATS 1st quarter results

21 July 2018

Dear Fellow Investor,

On Friday, SATS one of our core PGWA holdings released its 1^st Quarter results.

Yesterday evening, SATS (SGX: S58) released its first quarter earnings for its fiscal year ending 31 March 2019 (FY18/19).

State Of The Business Now

Here’s a look at some of the important financial numbers for the first quarter:

• Revenue came in at S$439.4 million, up 3.0% from a year ago.
• Share of results of associates and joint-ventures (net of tax) was S$15.3 million, down 1.3% year-on-year.
• Profit attributable to shareholders grew by 11.5% to S$63.9 million.
• Similarly, diluted earnings per share was up 11.8% year-on-year to 5.7 cents.
• Operating cash flow rose 96.1% from S$46.6 million in the first quarter of FY17/18 to S$91.4 million. There was only a slight increase in capital expenditure from S$18.9 million to S$19.1 million, and as a result SATS’s free cash flow jumped significantly from S$27.7 million a year ago to S$72.3 million.  
• As of 30 June 2018, SATS had S$439.7 million in cash and equivalents and S$106.5 million in total borrowings.

The only disappointment was the termination of the Turkish airline catering deal as it could not resolve the bureaucratic issues with the Turkish aviation authority. The financial impact was minimal but the potential growth opportunity is lost. As in every business mistakes are made but the ability to cut and minimize losses and move on is the recipe for ultimate success.

On a positive note, there are several promising growth opportunities in the pipeline including  a second joint venture with Wilmar, Marina Bay Sands cruse liner catering franchise  and expansion with Air Asia into India.

CEO Alex Hungate during the earnings presentation commentated on the trade war impact on the aviation industry. Bottom line he thinks passenger and freight volumes will continue to grow regardless of how the trade war progresses.

On Friday SATS closed up 7 cents to SGD 5.17, reflecting the positive results.  

There are signs of recovery in the KLSE.  Last week there was positive foreign fund inflow  into  banking shares and other oversold blue chips. Support is building at current levels.

Consumer spending is picking up. Last week we visited a KLSE listed  finance company specializing in making small loans.  The CEO was very positive moving forward with the change of government. When I asked him about the new government and how it would impact his business his face lit up showing his optimism. 

Optimism is spreading in Malaysia just like a virus.

Invest well and grow your wealth
Bill

Today’s critter is a wombat from the Perth Zoo.

The wombat is a furry animal with short legs that resembles a small bear. We plan a visit to Perth perhaps in October and hope to get some nice animal photos to share with you our newsletter readers.

Do not built to impress but rather to provide a necessary service at a reasonable cost

14 July 2018

Dear Fellow Investor,

Last week the MOF announced that the LRT 3 project would go ahead with  a cut from 31.65 billion ringgit  to 16.3 billion ringgit.

The previous government had bloated  costs to construct lavish LRT stations  which would rival stations on the Japan’s national railway line. 

Kyoto train station leading to the central business district.

Notice the simplicity of the Kyoto station. It was not built to impress but rather to provide a necessary service at a reasonable cost. A few months ago we visited Japan and we found that the train stations were simple, well maintained, super clean but not lavish expensive structures.  

I am surprised that our local contractors did not visit Japan to get an idea of how to  build cost effective LRT stations.

Dr M realizes the importance of LRT infrastructure so he gave the go ahead to continue LRT 3. He is cost cutting for all the major projects and will eliminate those that do not make economic sense. This will save billions for the taxpayers .  

Last week the KLSE staged a minor rebound with some construction stocks leading the way.  Order books will be cut so there will be short term pain for the construction sector but longer term the economy will be more sustainable as wastage and corruption will be substantially cut.  

A similar thing happened in Singapore. In the last year house prices were up over 9 % so the government decided to prick the emerging bubble by raising down payment requirements for 2nd home purchases. This would make it easier for the average citizen to buy a home and cool the speculation.

Many property developer stocks dropped but Reits however; held up well and Singapore shares in our portfolios were not much affected. Our holdings in Hong Kong land were not effected and advanced to SGD 7.28.

They have properties in Singapore/Hong Kong/ Thailand and Cambodia We have weathered some major storms this year and made progress. We have maintained your capital with our dividend + value strategy. We have avoided the high flying crowd favourite stocks which have resulted in billions of losses for some funds.

If you think about it if you can earn a 5 % dividend yield and if you are careful in your stock selection another 8 % in capital gain that results in a reasonable return of 13 % with very low risk and should markets advance we make more.  

That is my goal but obviously nothing is ever sure and you might pick a stock like Top Glove which is a solid well managed entity but suffered a surprise and shocking  accounting irregularity and took a big capital hit.  I like the rubber glove sector but I do not like buying a high and chasing the hype.  We hold Kossan which has performed well and not effected by the drop in Top Glove.

Invest well and grow your wealth
Bill

Today's ''critter' is the moray eel...of which there are 202 different species.  They're a common sight when scuba diving most warm saltwater coral reef structures of the world . They have some fine examples in the KLCC Aquaria and most Malaysian reefs. 

Phillip Capital 9th Investment Conference

8 July 2018

Dear Fellow Investor,

I thank all of you who attended our Phillip Capital Investment Conference 2018.  I hope you found clarification to the market uncertainties such as Trump’s trade war, rising interest rates, rising oil prices and the collapse of many GLCs.  

Mr Ang our CIO gave a bullish outlook for Malaysia post election. The ministers Dr M appointed will plug the money leaks and cut the corruption  to put the country on a firm economic footing. This will in time attract foreign funds to Malaysia and possible rating upgrades.  

Royce Tan, professional futures trading gave a rousing presentation on futures trading. The takeaway for us as value investors was his slide of a giant great white shark . His advice was to trade with the sharks. Sharks are the metaphor for smart money or insiders. When I buy a share for your portfolios I always confirm with smart money accumulation found on the Bloomberg work station.

All the speakers spoke about the Trump trade war. The consensus view was that Trump will back down as he does not want to risk losing power should US stocks take a dive caused by China trade retaliation. I totally agree.  He won’t go too far and his flip flopping is a negotiating tactic.

Dr Nazri Khan shared his thoughts on KLSE sectors to benefit  in the months ahead. He likes soft infrastructure as Dr M encourages these sectors such as education, health care and consumer stocks.  His advice was to buy hot stocks in the hottest sectors but have an exit strategy. He mentioned that technology firm Cisco went from 10 cents to 100 USD before it collapsed in the 1999 internet bubble.   An alert investor with a disciplined exit strategy would have captured the bulk of the profit.

Invest well and grow your wealth,
Bill

Today's 'critter' is the golden pheasant, or Chinese pheasant. It is native to forests in mountainous areas of western China, but feral populations have been established in at least a dozen other countries throughout the world.  The male is unmistakable.