Portfolio Corporate Updates

A few of the companies in my portfolio announced their financial results for August. A bullet view of each companies development and/or results follows.

Sinotel Technologies Makes A Call For Cash

One a market darling, a stock at the tip of everybody's tongues, Sinotel Technology has seen its fortunes plummeted. More recently, on 30 August 2010, the telecommunications services provider announced a 1-for-4 rights issue, aimed at raising $26.4m net.

In its filing with the Singapore Stock Exchange, the company said that the proceeds would be used to fund the expansion of business in the provision of telecommunication services as well as increase in business activities in the provision of services relating to base station monitoring and diagnostics services to Telcos.

In my opinion, from an investor's perspective, the frequency at which Sinotel has tapped the markets is disturbing. Prior to this rights issue, the company had placed 28m new shares. The Chinese market is one of the world's largest market for such mobile services. However, The business is very difficult and bargaining power does not lie in the hands of small providers like Sinotel, but the major telco operators such as Unicom.

Though not visible from the graph above, Sinotel has had a terrific run up. Despite the financial crisis, its stock price managed to rise and rise, with its peak around October 2009. It could be attributed to that fact that the 3G roll out by the Chinese government to stave of an economic slowdown in the country. Furthermore, the company had been on a protracted PR campaign, selling its growth story and ADRs.

However, its time has come to past. The recent most cash call probably signals the lack of sustainability of Sinotels expansion plan. The graph above shows that after the initial euphoria of China's stimulus measure had died down, Sinotel has made a swift but interrupted descent. My fundamental view is that the industry is too competitive for such a smallish company to survive through organic growth. This cash call - at least the reasons provided- is a demonstration of that the economics of the industry trump its press release. I will do a review 3 months down the road on this call. Maybe I am wrong. 

Noble Group: Really a Multibagger!

Noble Group closed last Friday at $1.60. I went through the SGX website and look through its corporate action history. It was very impressive - multiple bonus issues and a 1-for-4 stock split!

Just for fun, I calculated that an initial investment of $1045 in May 2001, held on till today, would be worth $269094.35 (inclusive of $24294.35 dividends) today. You'd be a millionaire had you invested $10,000.

Well, I seriously doubt there was any retail investor that had the prescience to pick as well as hold the counter for so long (10 years).

How do you spot a multi-bagger? It really is not as easy as it seems. I think one thing multi-baggers have in common, is serious M&A or capital injections. They also need to be in the "right" industry at the right time. Noble Group and Cosco are well quoted multi-baggers. Noble rode the commodities boom while Cosco enjoyed offshore & marine one.

But in my humble opinion, most people have no way of knowing which ones are they. Furthermore, once a stock has had a tremendous run up, the temptation to take profit and re-invest the money into something else.

My Take On It - Let The Winners Run

Unless there is something fundamentally wrong with a stock you are holding, you should let it run for at least a quarter. It is alright if the stock does not move when the others are moving, but warnings bells should ring when the reverse happens.

Being relatively new to the market, I have yet to experience the upset of letting a winning stock go too early. As I have talked about in "Afterthoughts on Gentings", while I regretted selling the casino operator, I was aware that to keep the stock, I had several raise cash or face dilution.

My suggestion is to "spread the bets". Place small but meaning stakes into 10-12 companies that you have thoroughly researched on. Subsequently, if a stock does run up too much, re-assess whether it is due to speculation, or something fundamental like M&A or capital injection. This is because a stock can easily appreciate due to potential rights issues, which is not something you want.

Portfolio Looking Good 8 Months In

The portfolio is looking stable close to 8 months into the year. Excluding dividends and the recent purchase of FJ Benjamin, my portfolio has risen 31.4% from their end-2009 closing prices.

For those of you who are new to me, I invest mainly in what I can afford and know. I have a penchant for consumer staples since they provide good dose of dividends. 

You can also see that most of my money is not in blue chips because I could not afford them. However, several small caps, such as GMG Global and Etika International have done me well. I am still looking out for any stock with growth potential, but in this "goldilocks" market, it will be a tough challenge.

TPV technology has been one of the weaker stocks. Despite posting a pretty commendable results for the first 6 months of its financial year ending 31 December 2010, the stock has fallen some 20% from its recent highs. Most of the counter's weakness I attribute it to the pulling back of funds in Hong Kong. TPV Technology has its primary listing in SEHK.

Going forward, I expect most of the gains to my portfolio to come in the tail end of the year. My personal target is for the portfolio to be up 40%. This is possible considering that I have so many small caps.

Elite KSB - Profit Up 41%, Declares 1.5 Cents Final Dividend

Elite KSB, a local meat processor, continued its growth track following the acquisition of Jordon International Food Processing. Revenue for its financial year ending 30 June 2010 increased 33.8% to $86.2m. Earnings however increased 41% to $7.3m. Elite KSB proposed a final dividend of 1.5 cents per share, a 50% increase from the previous year. This was mainly attributed to the consolidation of results from Jordon's existing distribution business.

The company said that the cost of live chickens and pork and its ability to fully offset cost increases to consumers remain a major performance factor in the year ahead. It added that while the Australian dollar appears to have stabilized against the Singapore dollar in recent months, it remains strong.

Analysis

The stock remains thinly traded due to its small public float as well as outstanding ordinary share of about 135 million. One positive signal is that the acquisition of Jordon has improved shareholders' return tremendously. This is the second financial year in a row that it has raised its dividend - FY08 was 0.5 cents, FY09 was 1 cents and now it is 1.5 cents.

In my opinion, the currency problem is less of an issue and we should see the Singapore dollar strengthening as the global economy recovers, and interest rates reverting to pre-crisis levels. Hopefully, the company will either announce a bonus issue to increase its floats slightly, to give me chance to unload if the time ever comes. 

On the operations front, I will hope to see the company attempt to stream line its enlarged operations. My target price remains $0.40 by 2011-12.

Disclosure:  I have 16,000 Elite KSB Shares

Why Did You Buy

My brother asked me why did I buy FJ Benjamin (I got it on Tuesday, 6 lots) when the results were out for all to see. I told him simply that it was for the dividends.

That answer was really to brush him off. The dividend did give me a good vibe about the retailer. But the considerations I had, was to make my stake in the company more meaningful. My initial stake was only a paltry $500.

There is of course some loss of "pride". By averaging up, I cannot really say in the future that I nabbed a multi-bagger. But FJ Benjamin in my opinion has that upside probability despite the world economy still being in the throes of an uncertain recovery.

There are two lessons to be learnt here. Firstly, the best stocks to buy are the stocks you already have. In this instance, by buying more of the same stock, in the future when I liquidate my position, it will enable me to incur only one more transaction costs. Moreover, I do not have to pay more attention to monitor my stocks.

Second, do not wait for clear blue skies to buy stocks. Some studies have shown that buying near the bottom of the stock market is much more profitable than selling near the peak of the market. In my case, I think that there is still upside in the market, at least for the next 2-3 years.

Buying Something

I should be buying 6 lots of FJ Benjamin later in the day.
The money should come from 2011 budget. If we are in a early bull market, then I better buy early.

As can be seen from the graph, the STI has been mostly down for the month of August. I really think the index will continue heading down for the rest of the month but I doubt there will be any crashes come September and October.

For sometime, I agonized whether to buy Asiatic Group (Holdings). I like the utilities story in an emerging economy. However, when I saw yesterday that FJ Benjamin was proposing a 2 cents final dividend, my mind was set on the retail stock. Let's see how it goes.

Macquarie Warrant Hotshot 2010

For those who are able to use their computers at work without fear, you can go join the Macquarie Warrant Hotshot 2010. I took part in it last year, and through sheer luck, won some cash prizes.

I have joined the contest again this year but so far, there is not much volatility compared to a year ago, that would help make me massive gains through sheer swings.

Anyway, I think the game/simulation is a very useful tool for education. Apart from Forex, this is the only other time you get a "feel" of the market. Furthermore, with a prize incentive, it sometimes feel like betting your won money. Ha.

The Slow Bumpy Ride South

Something new, the top 10 active stocks for Friday were with my comments:

Genting Singapore (Sell down after strong run up)
Informatics (Situational play, Peter Lim effect)
Sound Global (Convertible Bonds leading to "Shorts")
Baker Technology (People anticipating SembCorp YZJ tussle outcome)
Golden Agri (Penny Play)
Consciencefood (Recent IPO)
Genting HK (Moving together with Genting Singapore)
Style Merchants (Penny play)
Oceanus (Penny play with renewed TDR, JVs)
                                                                                    SinoGrandness (Corporate development)

Afterthoughts on Genting Singapore

Sold Genting Singapore some 11 months. The stock, as we all know, has risen almost 40% since, mostly due to the opening of RWS and the proposed divestment of its UK operations. The rationale given then for my sale, was that I was not in a position to partake in the rights issue as I had to cough up a bit more cash.

Without the benefit of what we know now, I still think that my divestment was "alright". The point is, the Genting Singapore we are seeing now is an altogether different animal. Through a sleight of hand, Genting Singapore has become a pure Singapore IR play, unlike its Malaysian parent company. All the technical faults notwithstanding. Genting Singapore is a more attractive stock then it was 11 months ago.

On a side note, I am thinking of getting some stocks. My dilemma follows: should I sell some of the smaller holdings and inject the funds as well as new funds into existing stocks. Oh Well.

Successful Investing is a Lonely Activity

How often have you heard that? Well, my thoughts on the matter, especially pertaining to the stock market is that it does not necessary have to be solitary sport. You have to talk to people to get the ideas and to get a feel of what is going on and the interest levels.

However, the point of being lonely, is for you to sort out your thoughts, independently analyze and not get to caught up with "groupthink" or herding mentality. This is especially the case with penny stocks with unusual trading activity. A stock goes to the top volume list, then the next thing the investor does is go to an online forum and ask around. By the time you press your order, you have become the "greater fool".

But as Keynes pointed out, "It is better to fail conventionally than to succeed unconventionally". So you have been told.

Fundamental Analysis VS Technical Analysis

Browsing though other blogs and I chanced upon a lively discussion on whether the hybrid of Fundamental Analysis (FA) and Technical Analysis (TA) works. Interestingly, over the past week, I have been re-reading some of the books that I have bought earlier, dealing with the subject matter of investments and markets.

The key point by the topic starter was that by combining the both methods, it may dilute the efficacy that each method was suppose to bring. His strengthens his argument against the case of hybridization by saying,


"First of all, in order for someone to claim that a certain method is workable, he needs to demonstrate, through meticulous and objective record-keeping, that the method works over the long-term...." 

" The second point which I have to make is that a practitioner of FA/TA should make his investment philosophy very clear right from the start, in order to avoid the cardinal sin of not being able to decide if a buy/sell decision stems from an FA or TA perspective..."

However, there are those who disagree with the point, say that their experience show that you can have the best of both worlds. They liken FA and TA to defense and offense in a game of soccer.

The Role Of Chance

My thoughts on this issue, stemming from the books I have read as well as personal (short) experience in the market, are that maybe both FA and TA, hence their hybrid, are useless.

As the topic starter pointed out, the case is convincingly argued by Burton Malkiel in his "A Random Walk Down Wall Street". But to add to the author's point, I think that while chance has a role in investment returns, it is not exactly 50-50. I believe that that due to many reasons, mob psychology being one of them, there are instances of trending in asset prices. While I do not know any, amateur and professional currency traders use and benefit from trends in forex pairs.

Let me try to distill my doubts about  each method. FA in my opinion, is flawed because it does not take into account expectations of investors. Of course, if you are investing for the long run, expectations should peter out and the "intrinsic value" of the stock should unlock itself. Yet this evades the question as to why some stocks garner consistently high/low PE or why after a while. Even in the long run, expectations are dynamic.

Then there are the issues of external events that impact earnings. Natural disasters (a few this year) have a very dramatic impact on listed companies' profits and they by their very nature are unpredictable (as the weather). 

In the case of TA, I believe that if it really were so effective, it could work both long and short and in any type of markets. We have seen a tremendous rally since March 2009, that has slowed downed quite a bit in 2010. Almost everyone who went long, made money.

And I might be naive, but profitable trading systems/indicators that are replicable, tend to cancel itself.  If you tell the whole world that your method works, it will not work once everybody uses it. And the more documented flaws of this method is that it racks up huge costs and forces the investor to leverage.

To illustrate in point, consider Etika International of OSIM International. TA practitioners are loathe to touch an illiquid stock like Etika, while FA people dislike the competitive environment OSIM is in. But as we all know (after the fact), they have provided those lucky enough to buy them, with tremendous returns.

Of course I am cherry picking. But the point of this examples is to illustrate that fortune favors the brave and the prepared, and the rewards are very disproportionate, c.f. from conventional theory.

The flaws, rather than the virtues of FA and TA, are compounded when you attempt to hybridize. FA causes you to believe that there is some form of "intrinsic value", when the only thing tangible provided by a listed company is its annual report and dividends. External events drive up/down prices have very real repercussions but are almost impossible to predict 1 year out. TA on the other hand, requires you to identify profitable indicators that may again be the result of luck. Just look at book sales, how many fund managers actually use TA? Maybe FA fund managers are very lucky?

Year-to-date Portfolio Review

Despite a strong start to the year, the Straits Times Index had great difficulty breaking the 3,000 barrier. It did so in April but that was not sustainable.

For my portfolio, it is up slightly more than 30% from the start of the year, even if we include the latest purchases of China Animal Healthcare and Elite KSB. Bulk of the gains came from condensed milk maker Etika International and rubber play GMG Global.

Corporate Updates

The month of July has been an interesting one. As I have mentioned in my earlier posting, Etika International has announced a 1-for-1 bonus issue that would most likely increase liquidity in trading. The stock has risen alot on thin volumes and this capital issue will lower the price, making it poised for further upside to incorporate its latest acquisitions. If there was one stock i would recommend from my current holdings, it would still be Etika International.

GMG Global recently announced a solid set of results. Its second quarter performance had been largely lifted by the strong rebound in natural rubber prices. One news that I am not quite sure how to make of it, is the recent appointment to the positions of CEO and Chairman of individuals linked to the 51%-shareholder, Sinochem International. On one level, I guess that this means that GMG Global has become a full-fledged S-Chip. On another level, this would also mean that revenues from China would be entrenched, driving its bottom line.

Stratech has been a slight disappointment mainly because it has not risen much despite posting a positive set results. It sank further this month when it announced that it had difficulty finalising its annual report due to some administrative glitch. Due to my small position in this technology firm, I am still holding on to it. I hope there will not be any form of stock consolidation like how they did with BBR Holdings.

Looking Ahead

For those who have been following me, I recently passed the CFA Level 1 Exams. I am still considering whether to sign up for Level II which will be held in slightly less than a year. Whether I make that $1k++ investment will depend on whether I make any career move. Furthermore, based on my experience, I have to give up a lot in terms of social life should I want to work and study at the same time.

The portfolio remains sturdy. With the 5 months left in 2010, I believe that another 10% upside will be possible. For those of you who are thinking of going into the market, try to pick out good companies.The reporting season is out and there is plenty of results and time for you to sniff out such companies.

In my opinion, there is and will still be upside considering that there is a lot of negative news globally. All eyes are trained on the 3,000 mark. If that level is breached, a mini rally lasting 2 weeks might be sparked off. That would be a bad time to buy for those intending to buy and hold for more than 1 year, because there will be more room for downside than upside in the short term.