Perception versus reality

7 Sept  2019

Dear Fellow Investor,

Perception versus reality

Despite the riots, the tensions, the violence, and the airport disruptions, Hong Kong is still in business. Notice the ultra high volume price bars on the right hand side of the chart which is evidence of panic selling by the fearful and uninformed investors and  buying by professionals .

Most Hong Kong citizens only want to go on about their daily lives and business and not cause disruption. It only takes a few troublemakers using social media to stir up the crowd. The Western media focuses on the troublemakers but not the majority of peaceful citizens. Even Donald Trump refuses to get drawn in and said Hong Kong is China and let them sort out their own problems.

China took a wise hands off policy and tensions seem to be lessening.   The reality is the majority of Hong Kong citizens only want peace and stability and that is why the HKSE will recover.

The  KLSE is also suffering from negative perception.  and lack of turnover.  I spoke with the head of research with a prominent broker Friday and asked him why the lack of movement ? The main reason he said is that on Bank Negara latest money supply release    money supply growth dropped from 4.4 % to 3.4 % year on year. That shows slowing credit growth and less money coming into the market  On a positive note GDP is increasing and FDI into Malaysia has been increasing.  FDI is long term money from Japan, Europe and the US.

He advised to avoid construction and property shares and focus on those Malaysian companies  which benefit from the strong US Dollar and US China trade war. We hold these in your portfolios. He also advised to look at Hong Kong and Singapore shares beaten down by the negative perception. Singapore has stabilized and is recovering.

Invest well and grow your wealth,
Bill

Critters of the week :

Is there a slowdown in 2019

1 Sept  2019

Dear Fellow Investor,

What a difference a week makes in the life of a market.

 

Weekly chart of the Dow Jones .

The Dow was up 774 points from last Friday’s close. The 50 week moving average supported the price as professionals bought the dip.

Asian markets including the SGX, KLSE and Hang Seng also held long term chart support in the face of recession talk, yield curve fears, trade war uncertainty and Hong Kong riots. Last week the Hang Seng PE was at 10.4 and the SGX at 12 which are near 2008 lows. Value players are beginning to commit. There are great companies which will continue to be great now trading at attractive levels.  

Behind this scary background is the Western media such as BBC, CNBC, CNN who constantly beat the recession drum.  Even I Capital, a local market research service are hoping for a US recession so Donald Trump will lose in 2020.  Does the media and I Capital. really want millions of people to lose their jobs, their businesses and homes ? Do they want us to earn less money ? That does not sound compassionate to me.,

The majority of Western media  has downplayed the facts. The US economy has seen some of the best jobs and income data in half a century:

Facts from Stephen Moore of the Wall St Journal

·  US has the lowest unemployment rate since the 1960s.

·  US has have the lowest unemployment rate for women, blacks, Hispanics, and those without a high school diploma since 1969.

·  US has the lowest inflation rate in 50 years.

·  US has the lowest interest rates in most people's lifetimes. The 30-year mortgage rate in many markets is down to 3.5%. When Jimmy Carter was president, rates for mortgages hit 20%.

·  The wealth of American families and businesses recently reached $100 trillion for the first time ever. As more than half of all families own stock, this wealth burst affects nearly everyone.

·  Wage growth for workers is at or near a 20-year high, and recent revisions by the Labor Department show fatter paychecks in 2017 and 2018 than previously thought.

·  Today in America, there are 7.5 million unfilled jobs. This is the highest level of job openings in American history.

·  Trump has been ridiculed for calling this economy a "blockbuster," but he's mostly right.

Is there a slowdown in 2019? Undeniably, yes. Growth has slowed in the last year from 3%-plus to just barely 2% this year. The slowdown is reflected in weak manufacturing and industrial production in 2019 and a troubling drop-off in business capital spending. Consumers are spending – thanks to the tax cuts and wage gains – but that can only take the economy so far.

Sustainable growth depends on business formation and expansion, not consumer shopping. We know what's holding that back: the trade war with China, a Fed that's too tight, and the headwinds of an economic stall-out in Germany, the rest of the European Union and Japan.

Most countries in the world would love to have America's economic conditions. My forecast that if and when Trump gets a deal with Beijing that ends the tariff wars, the economy will soar and the recession boosters will look mighty foolish – again.

This will lead world markets higher.

Invest well and grow your wealth,
Bill

 

Critter of the week is Elsa a white tigress just recently acquired by the Melaka Zoo in Ayer Keroh. We plan to celebrate Merdeka  day in Melaka by  visiting  Elsa.

 

A series of Trump tweets.

24 August   2019

Dear Fellow Investor,

On Friday, the Dow Jones dropped 623 points on fear induced panic selling initiated by a series of Trump tweets. These tweets announced increased tariffs on China goods. The Chinese retaliated by setting increased agricultural tariffs in Trump swing states which are crucial for Trump to win in the 2020 elections.

To put things in a longer term perspective, I exhibit a weekly Dow Jones chart overlaid with a 50 week moving average.  The 50 week moving average on a weekly chart is used by institutions and the down move was halted right at the 50 MA as professionals came in to support the market. Last weeks drop was 257 points.

Expect some weakness early next week  but our quality companies should hold up.

The important thing to remember is not to get caught up in the media hype about impending recession, yield curve inversion  and market collapse.

Much of this hype and hysteria is to induce a recession so Trump will lose in 2020. The establishment,  and opposition party and some traitors in his own party are doing all in their power to unseat Trump.

Invest well and grow your wealth, Bill

This weeks critter is the American eagle weighed down by a tariff ball  I hope Trump can get the message of this cartoon. If he wants to keep power he will heed the message. This will benefit all markets.  

Genting Malaysia

10 August   2019

Dear Fellow Investor,

Today I will review Genting Malaysia a share we hold for our managed accounts. On 6 August they announced they were buying a 35 % stake in Empire Resorts, a US casino operator in New York.  It was a related party transaction by Genting as they are an  owner of Empire Resorts.  The market reacted by panic selling  dropping at one point from RM 3.60 to 3.02.  

A related party transaction  is usually viewed negatively as it means the owner of the shares is offloading a personally owned bad asset and dumping it on existing shareholders  REITS run by crooked managers are known for this as they dump personally owned unproductive property into the REIT and the existing  shareholders are cheated.  

The perception by the crowd was extremely negative so panic selling resulted but in my opinion I do not see any material impact on Genting Malaysia or Empire Resorts.

Genting Malaysia has 7.9 billion cash on their balance sheet and the investment cost of the Empire Resorts  shares is USD 128.6 million not much more than the USD 126 million paid for the Equanimity acquisition . When the Equanimity purchase was announced, Genting Malaysia shares did not react. (For our foreign clients, Equanimity was a super yacht owned by Joe Low seized by the Malaysian  government to help cover losses  sustained in the 1MBD fraud case)  Genting intends to charter the Equanimity to rich tourists but in my opinion I do not think it has the cash flow potential of Empire Resorts.

 I reviewed the financials of Nasdaq listed Empire Resorts  and they had losses in the last financial year reflecting  extensive renovation of their property. Moving forward this renovation should attract more customers.

This was noted by TA securities on a research note.  For this reason I am currently neutral on Genting Malaysia  as Empire Resorts/ Genting Malaysia  continue to generate strong cash flows.

One positive item was that in early March 2019 Genting CEO Lim Kok Thay bought 7.341 million and 6.090  million Genting Malaysia shares.  

If there was a problem with the company, he would have sold not bought. A few days after he bought the shares it was announced Genting  had made a resolution with Fox and Disney to drop their theme park law suit. Insiders tend to know more about their company then the public.

On Wednesday- Sunday next week  I will be in Sandakan and Kota Kinabulu for company visits but you can always email/ whats AP  me should you have any questions.

I will not publish this report next Saturday .

Invest well and grow your wealth
Bill

 

 

Critter of the week is in a wildlife tourism center in Sandakan: Hopefully we can visit.

 

A supermarket chain holdings in Singapore review - Sheng Siong Group

3 August   2019

Dear Fellow Investor,

Today I will review one of our Singapore holdings Sheng Siong Group, which is a supermarket chain.

When I visited Singapore a few years ago. I noticed prices at a Sheng Siong market were cheaper than supermarkets in the shopping malls  The fruit  vegetables and meat  were fresher, cleaner and better presented  than other markets and they had a wide selection of well displayed fish and meat. I decided to put the share on my watch list and after reviewing their financials decided to buy for our managed accounts.

They have performed reasonably well, are net cash and just raised their dividend now about 3.3 %.

Sheng Siong Group 2nd Quarter 2019   earnings update: 

Growth is picking up.

State of the business now

The following shows some of the key numbers to track for Sheng Siong from Motley Fool Research Singapore: 

·      Revenue grew 11.8% year on year to S$238.2 million.

·      Gross profit margin inched up by 0.1 percentage point to 27.4%  

·      Net profit climbed 7.6% year on year to S$18.4 million.

·      Earnings per share (EPS) were S$0.0123, up 7.9% compared to 2018’s second-quarter EPS of S$0.0114.

·      As of 30 June 2019, Sheng Siong had S$82.9 million in cash and equivalents and no borrowings. That is an improvement from a year ago where the supermarket retailer had S$75.7 million in cash balance with no debt.

·      For the reporting quarter, operating cash flow was S$33.8 million while capital expenditure was S$6.0 million. Sheng Siong generated S$27.8 million in free cash flow, up around 20% from S$23.2 million in free cash flow raked in a year ago (operating cash flow of S$29.2 million and capital expenditure of S$5.9 million).

·      Sheng Siong has increased its interim dividend by 6% from S$0.0165 per share to S$0.0175. 

Despite the world stock market turmoil, they have held steady now at SGD 1.15 per share.   For the current environment, Sheng Siong is a good space to be in.  It is super defensive and well managed with a management who are cost conscious and share holder friendly. They have not been effected by the trade war.

Our portfolios have weathered the on going storm of volatility and emotion driven price action and we need to remain defensive, value orientated and patient for the pessimism and gloom cycle to turn. While we wait we collect our dividends

On 14-19  August we will be visiting clients in Sandakan and Kota Kinabulu. as well as enjoying nature, the seafood and the laid back environment . I will keep my eyes out for a profitable investment

Invest well and grow your wealth,
Bill

Critter of the week is a lion in a famous painting by Leonardo De Vinci which is exhibited in the National Museum in Kuala Lumpur. The exhibition will run until 15 August and is FOC. The 12 Leonardo paintings are reproductions which appear real. For some reason am unable to rotate the image to get a better view of the lion.

SATS - The Airline Caterer

27 July 2019

Dear Fellow Investor,

Today, I will review SATS, the airline caterer who just announced their quarterly results

SATS encountered some short-term turbulence which could drag on. That said, the airline caterer remains financially sound and I continue to believe in the long-term growth trajectory of SATS — that is what investors should be focusing on.  

The earnings update: 

Revenue showed solid gains — but profits fell:  In the pessimistic Asian market environment the share price fell but was supported on the weekly chart  

SATS did generate Sgd 80 million in operating cash flow and spent Sgd 10.4 million in capex which resulted in free cash flow of Sgd 70 million a touch lower than last year but still at healthy levels.

Going forward is the contribution from GTR Sdn Bhd, ground team red, which is the joint venture between Air Asia and SATS. This will allow ground catering exposure to Philippines, Thailand and Indonesia.

Above is a summary of the GTR venture

Source: SATS Capital Markets Day

2. Lower cargo volumes  

Another headwind that SATS experienced was lower cargo volumes. SATS is seeing lower cargo volumes mainly in Singapore, but also across the region on the back of softer economic conditions. 

On a positive note SATS is the market leader in India for ground handling and catering and this is growing.

Also its Kunshan central kitchen in China has broken even in less than 2 years as their customer base continues to grow and the Marina Cruse Centre is seeing a higher load of customers as more liners make port calls and the capacity of the new cruise liners  holds over 2000 PAX which is   50% more than the older liners.

Based on the growth of air travel in Asia and based on SATS cash pile and their ability to allocate capital in profitable growing ventures, I am optimistic for their future.

The next share I will review is Wellcal. They manufacture a wide range of rubber hoses including food and beverage hose, chemical hose and steam hose. They are net cash; pay a reasonable dividend of 5.2% and with the new JV with Trelleborg, a Swedish hose maker should be able to increase their profit margins. Presently volume is very low as most players are not interested in this share.  As long as weekly support holds I would advise keeping this share. One large fund in the UK is quietly accumulating. The recurring revenue they generate from their hose replacement business will sustain their cash flow.

The last share I will report on is Inari. They are well supported on the rise of Apple and the bottoming out and rise of the semi-conductor shares.  This could be a signal of a near term trade war resolution.  China wants the Hong Kong demonstrations to end so they may be motivated to strike a trade deal with Trump.

I am presently looking for opportunities in the technology space.  

Invest well and grow your wealth
Bill

Critter of the week is Geronimo an Alpaca who is wanted dead by UK government officials. The government claims he has TB, but the owner, and private vets have proved he is free of TB.  If you Google this story you can sign a petition to save the life of this beautiful animal. More than 60,000 have already signed. 

Geronimo and his owner



 

Our holdings review

20 July  2019

Dear Fellow Investor,

This week I will review our holdings in Thai Beverage, Genting Malaysia, HL Bank  and Dialog.

On 13 May 2019 Thai Bev. dropped 12% to SGD 0.72 on their second quarter earning release. Earnings came in lower than expected so Thai Bev was sold down by panic stricken investors. Company insiders/funds knew more than the uninformed retailers and bought into the panic. Thai Bev has since recovered and last traded at 0.855. We continue to hold and collect our dividends.

On Friday we sold our Hong Leong Bank shares for a small profit  Although it is a quality bank valuations have become expensive. Other banks in their space offer better value. It also broke a major chart support.

Dialog has recovered from a deep sell off  due in part to a 5 year  maintenance contract awarded recently by Petronas. This gives them recurring revenue to  augment their recurring revenue from their tank farm operation.

Genting Malaysia is also slowly recovering after  3 black swans  hit the company in December 2018.   Lim Kok Thai, the CEO  personally bought 27 million shares last month in the face of all the bad news. Perhaps the FOX/ Disney law suit may be resolved ?  I noticed Genting posted full page ads in our local papers advertising for well paying theme park jobs. That is a vote of confidence in their growth potential. They certainly are not going to close their theme park.

All our shares are quality value+ growth investments. I do understand your concerns given all the uncertainties and volatility. Please contact me if you have questions on your investments  I am always happy to clarify.

Short term volatility is the price we pay for outperformance and long term wealth building.

Invest well and grow your wealth,
Bill

Critter of the week  is the Komodo Dragon, the world’s largest lizard. There are only about 5000 left in the wild so the Indonesian government is closing  the Komodo national park for 1 year to restore the environment and improve the living conditions for the dragons.