Merry christmas & new year outlook

Wish everyone

Merry Christmas and Happy new year.

According to Hong Kong news, Andy Xie said Asia market would still do well in 2008. It is possible for HK market to fall up to 20% in coming few weeks and Asia market might start to rebound from Mar onwards. The consensus from analyst is Asia stock would rise in the coming year.

During the holiday season, market activity should be minimum and expect low volatility. On the first trading day of the new year, I would expect general market to go up baring unforeseen bad news.

Today, I read The Edge article on the Jim Roger's new book "A Bull In China: Investing Profitably in the World's Greatest Market". Just as he is a commodity bull, he is also bullish on the future of China in 21st century. >>Source

Me too, since I started investing. I own China unit trust and stock listed on SGX. It is a long term play, but please be mindful of the risk involved. A good way to diversify is just simply buying a China unit trust!

The haunted town

The most talked about and wondered share this week got to be China New Town. Somehow it is coming down, regardless of market sentiment. It finished the week with all time low, even though, other china shares rebounded.

Does market know something that we don't know? Yes or no. From my experience, sometime market does know. Sometime, it is just speculation or false alarm.

Does big boy(house trader/rich guy) really have big control over the share price? I am not sure. I am not exposed to how those people work. However, judging from the huge volume and many outstanding shares. It is not easy to "manipulate" it.

Is the hedge fund selling? Possible. Some source claims that hedge fund is selling. To close position for the year? Or to benefit from the short selling? Not sure either.

Could the following news trigger it? Possible, but I failed to see the direct relation. Because the core business is in developing town, compare to selling house.
- "The growth of apartment prices in China is set to fall in 2008 because of an expected increase in supply and a drop in speculative activities," said Chen Sheng, deputy director of the CIA, which tracks property prices." Source

Although I am impressed with the business prospect, but beware of the short term "perceived" risk.

• Avoid catching the falling knife. This is really an old wisdom already. Since down trend is coupled with high volume. It is best to avoid now.
• No formal valuation has been established. In the prospectus, they have already mentioned this. Since there is no suitable comparison, it might be hard to value the company. I suspect analyst report is on the way, just watch out for it. Of course, as you might have guessed, analyst would say buy. Target price? Who knows.
  
• Fund manager is on holiday. I think the fund manager who support this counter and think it is well worth the money might be on vacation right now. Support could come in when the holiday season ends.
• A positive 4th quarter is essential to show everyone that it is good.
  
• Consider taking the risk, when the volume die down. No volume means no interest. That also means it could be at the bottom already. This is on the assumption that no further bad news would be revealed.

I would wait for the low volume or new catalyst. It is impossible to catch the bottom. Nobody knows that is the bottom until you experienced it. Remember today's closing price - 0.455. Who knows 1 year later, you might be regretting "Aiyah, I missed the 3 bagger!"

Happy Hari Raya

Wish all, have a very Happy Hari Raya. Don't be stress out by stocks. Spend more valuable time with family and friends.

What goes down would come up. Accidentally, I bought the China Hongxing today. After watching from the sideline for so long, after it has multiply 10 times, I finally decided to take the plunge. It is expensive in PE terms, but not relative to growth forecast aspect.

I am willing to ride out the volatility, limit on my exposure and wish it could really grow up as a dominant China sport player. Sometime we just need to pay a little bit for the good business economic/model. Pray and embrace for the unknown.

All is not well

Yesterday, I just watched the movie Golden Compass. It talked about the ice bear. Coincidentally, today the bear is roaring. Thanks to Mr Market mood swing on last Friday, today we have the severe fall across Asia market. By the time, I am writing this, US is already down by 80 points. I think we are approaching the golden mark of 3200 or even 3100. I am looking forward to accumulate a little bit at that level. I suspect it might go lower than that. But we don't know, really.

Looking at selective counter now. Maybe
China Hongxing @ 0.88
Guanzhao IFB @ 0.285
Swiber @ 3.10
China New Town @ 0.52
Olam @ 2.40
Synear @ 1.5
MIDAS @ 1.42

We have to see how severe is the fall.

The only positive news is Enviro Hub is setting up a plastic to fuel plant by using licensed technology. Sounds impressive, but it is hard to just the financial impact. Recycling industry is always showing great promise but fall short on the number front. So, I am not interested in putting capital into it. Only my friend who is tempted everytime by the allure of technology, fall in love with this kind of stock. Let's hope thing turns out great for who ever invested.

China New Town 3Q loss

Luckily I didn't buy into the company while it was 68 cts. Only a few days after, they announced the 3Q loss which cause the price to go into violent downward swing. Before the announcement, I was expecting them to show some good result. Especially that is the 1^st result announcement after listing. I guess the price would drift down for quite a while. However, I suspect the fund manager would keep buying the company's share. This could provide some support to the price.

In year 2007, two of the most interesting China company listed on SGX should be China New Town and China Oilfield Technology. Valuation aside, both of them offer a good growth story to investor. However, listing timing is also important sometime. If they listed before subprime rout, the valuation should be much higher.

China Oilfield commands a high margin and have an unique niche in its own area. Valuation is at a compelling level now, but it could go cheaper if overall market remain weak. Company risk is higher than other China company, because the business is harder to understand and they rely on one big customer.

China New Town offers a good story on the urbanization which is a big and strong theme. The business is a little bit harder to understand, because it is different from your usual property developer and they have short operating history. Valuation has come down to a more manageable level, although I won't say it is cheap. Nevertheless, I think fund managers would think otherwise. Key risks are execution, getting more new projects and financing as the initial development requires huge capital. Having said that, I think key risk are mitigated by having strong connection and strong parent/shareholder. For short term, I don't expect it to fly. It is for long term holder.

Peril of penny

Before the subprime crisis erupted, all punters were busy chasing penny stocks. Stock that was previously few cents became 10cts of more over few weeks. The market was filled with all sort of speculation. Obviously, that was the sign of the end of bull market (although I don’t believe the bull has died now).

In a typical market cycle, blue chips would lead the first wave of appreciation. Once the blue chip became pricey, the second and third liner would follow. Eventually, the penny/junk stock is the last in the party. Once we see the penny shoots like a star, we can gauge the top is near. When the correction comes, penny falls the most and might never recover.

If you check back on the penny that was hot just few months ago, you would notice that the price has come down a lot. More than 50%? Possible. Sometime, when the stock just gotten too hot, broker would impose a trading curb to manage their outstanding position. Penny is the most hardest hit. Recall the Uni Asia case?

Lesson learnt here is don’t chase the penny blindly base on the volume and speculation. Fundamental is still important in stock picking/trading. I think everyone got the urge to earn quick money, there is nothing wrong with it. However, just make sure when the tide turns, run faster than others.

CPF changes for investor 2008

In year 2008, new changes would affect the Singapore CPF scheme. There are a few important points to remember for investor using the CPF money.

Existing rule:

Under CPF OA
100% investible in FD, Singapore Government Bond, Unit trust, ETF, Fund management account
35% investible in Stock, REIT, Corporate Bond
10% investible in Gold, Gold ETF

Under CPF SA
100% investible in FD, Singapore Government Bond, Selected Unit trust & ETF

*Note: It doesn't make sense to invest in FD, because the FD interest is lower than CPF.

From 1 Jan 2008:

• SA interest would be pegged to 12-month average yield of the 10-year Singapore Government Security (10YSGS) plus 1%
• Additional 1% interest paid on first 60k of combined balance, with up to 20k from OA. The interest would go into SA
• Unit trust which under CPFIS scheme, expense ratio cap
• Higher risk – 1.95
• Medium to High – 1.75
• Low to Medium – 1.15
• Lower risk - 0.65

From 1 Apr 2008:

• First 20k in OA and first 20k in SA cannot be used for investment
• CPFIS agent bank fee can still be drawn from account even though OA balance is below 20k
• Existing OA and SA investment holding is not affected

For detailed information, please refer to CPF FAQ.

>> There is nothing much we could do with the new rule, except to live with it. I believe if invest prudently, the unit trust portfolio should be able to deliver return more than 10% a year. The extra locked in amount actually do no good to the savvy investor.

A christmas gift that never come

Obviously, market is expecting a Christmas present from Fed by cutting 50 basis point of interest rate. The situation is like a child write down the wish on Christmas tree, when the thing does not turn out as wished, he start to throw things around.

Fed has other consideration on the interest cutting. Not everyone would get their wish. Initially, I thought 25 points is what being expected, and market should stagnant/correct slightly. However, it was a violent movement for US market. Nevertheless, the damage has been done already. We should move on from here.

I think there is high chance that they prepare to cut another 25 points in the next meeting. Given the current sentiment is so bearish, I reckon that it is a good time to selectively buying. Depends on one's risk appetite. It is really a good time to pick up some bargain. Go for stock with strong outlook. The strong would grow stronger. Avoid the cyclical stock - tech, shipping etc

I read in one of the forum - very often the market bottom is when all the people is pessimistic. I would say how true it is!

2008 stock market prediction

Everyone loves prediction. We like feng shui, horoscope and fortune teller. Yet in investment world, no guru really can forecast what would happen one year down the road, not even a week. Having said that, as we are going into 2008 pretty soon, I would like to “predict” what the next year would be.

2007 was a good year, if not for the sub prime problem to spoil the party. Everyone was earning big bucks, when the financial tsunami came. Going into 2008, I still think that stock would be up. Be it US or Singapore. Following are the drivers.

1. US president election year

   During the election year, they would try very hard to prevent the market sinking. Thus, for a very high chance, stock could be up. Although it is unlikely to be another super bull market.

2. Sub prime crisis ends

   After the recent big write off by banks and more confession coming up, I think the sky is clearer now. Market has also priced in more bad news. So, once most of the bad news were over, we can see stock recovering.

3. Oil price trend lower

   It is close to $100 now, I know. It might reach 110 or 120. But, after that, what next? The growth would slow next year. The demand is likely to come down. Saudi or OPEC won't want the super high price to dampen demand and would react if it is too high.

4. Global growth still healthy

   US is slowing down, but the whole world still growing nicely. China keep booming and they would help in absorb some demand.

I hope 2008 would be another positive return year for stock. May all the investor find wealth and happiness. HUAT ah...

GIC invest in UBS

This is another high profile capital injection exercise. GIC is invited to take a stake in UBS. Eventually, GIC could own up to 9% of the swiss lender. This news came after the citi group capital injection. Generally, the financial industry is well supported. There are deep pocket players willing to invest in the institution in trouble. Thus, there would be stronger confidence on the sector.

This is also a classic case of crisis means opportunity. When something is down and out, it is easier to make the buy decision. Once the tide turn and good time return, I think it would be quite rewarding.

May all the investor shake off the confidence crisis and pick some real bargain.

Stock investment key learning point in 2008 part II

Stock investment needs a cool head. One often get carried away by bull and being swayed by bear. Let me reflect on some of my stock transactions this year.

China Sky and China Lifestyle
I sold off the stocks after 2-3 months of holding early of the year. China lifestyle still struggle to perform. Time is needed for the expansion to bear fruits and then it is poised for re-rating. It is a mistake to let go China Sky which hit as high as 2.3 from my initial buy price of 1.38. Patient is needed for stock to shine.

LC Development
Earn quick money has been every investor/speculator’s dream. I started my position at 0.30 after increased volume and speculation news in the forum. Lucky enough, it went up within a short time. I cashed out at 0.48. Play smart, if you aim for quick profit, get out when you hit the target.

Guthrie GTS
I bought at the peak and still holding. I am more wary of undervalued stock nowdays. Because the undervalued could remain so for a long period of time and I should avoid entering into such situation. Nevertheless, the damage is already done. Pray and hope for the best.

Hotel Grand Central
It might be a good company. But I think I joined the party too late and also leave too late. Buy only if you have genuine interest and you believe the company would do very well.

Hiap Seng
It has good engineering capability and strong alliance. That’s the main reason I bought the stock. However, project always get delayed and over run. I should remind myself not to buy too many project base company.

>> Part 1

Sembcorp Marine forex loss part II

Follow the initial announcement of the forex loss, the story is unfolding now. More banks/financial institutions start to lay claim and they are preparing for some court action. As predicted initially, the level of damage is unknown. Would the reputation being hurt? Would the legal proceeding charges eat into the bottom line? I think all is too complicated to predict and calculate. Broker has flip flopped with their recommendation also. One moment is buy, another moment is neutral What ever it is, I dislike uncertainty and not intend to risk my capital.

Part 1

Hungry for energy

Energy seems to be the buzzword in this high oil price era. Every few months we hear some big news regarding the energy sector. Just last month, we hear the discover of biggest oil field in Brazil.

Last week, one of the big news is Finnish refiner Neste Oil would spend 550 million euros ($814 million) to build the world's largest biodiesel plant in Singapore to meet growing demand for biofuels. Neste said the plant would have a design capacity of about 20,000 barrels per day, and use mostly palm oil as its raw material, though it can use also soy oil or animal fats.

This is a major win for Singapore as it gear up to become the regional petro chemical centre. I guess the Singapore economy with multiple of growth engine should keep doing well in the coming years.

The bio fuel plants which new/existing players are building up is not without risk. The continuous increase of the oil price prompts player to look for alternative energy like bio fuel. However, keep in mind that, CPO also increase along with the oil price. Because people expect that bio fuel which need the palm oil as feed stock would increase its demand. So, at the end, I doubt the bio fuel can be significant cheaper than oil. Worst case is we have the oil price collapse and CPO keep remaining at high level. That would be a big trouble for these bio fuel players. The situation remain unclear on the bio fuel industry, and punters who bet on it would have to be careful.

Today in CIMB report, China Energy has announced the expansion of its methanol production capacity by three-fold to 750,000 tonnes p.a. Forecasts raised; higher target price of S$2.12 from S$1.73. Our FY07 EPS forecast has been lifted by 6% to factor in higher DME ASPs. Our FY08-09 EPS estimates have been raised by 62-63% on higher gross margin assumptions (+12-18% pts), which more than offset delays in DME expansion. Accordingly, our
target price climbs to S$2.12 from S$1.73, still based on a 30% discount to our new DCF valuation (WACC 13%, LTG 2%) of S$3.03 (previously S$2.48). At our new target, China Energy is valued at 7.5x CY09 earnings, which we believe is undemanding against a 3-year EPS CAGR of 79% for FY07-09.

I was almost sucked into buying China Energy while it was around 1.8 level. Lucky enough, sometime I made good decision, sometime I made bad decision, I didn't purchase it. Since the disappointing result, share price has corrected a lot. Looking at the forecast growth, it is indeed impressive. The risk with company is the aggressive expansion, as they aimed to be the largest DME player in China. If you buy, you are buying for the future. Don't expect it would suddenly go up in the near term. History has told us, some of the greatest story does not turn out well. Monitor the risk and set a cut loss point, if thing turns out otherwise. Beside that, of course, study the company really well and make sure you understand their growth driver and risk.

Market direction week Dec 03

Market is recovering some what. But I think the investors were still sidelined. They are waiting for clear signal, waiting for the bull to come back. Pending the expected Fed rate cut, market would rise a little bit. After that, depends on the news flow which could be good or bad, the market would react accordingly. As the outlook is still uncertain, I am reluctant to put in any capital.

According to zaobao news, Andy Xie said although China market is overvalued, but from past market cycle experience, bubble is unlikely to burst before the Olympics. There is enough liquidity in the system which would support the market.

Well, it is yet to see. Because history has proven itself over and over again. Most the prediction is inaccurate.

China train

DBS Vicker analyst went to visit Nanjing Puzhen Plant of MIDAS and issue another buy report.

Outlook over the next 3-5 years is very bright. We believe that Nanjing SR Puzhen is in the process of looking at bidding for 4 to 5 more projects with a total potential 700-800 cars, which could lead to a doubling of Nanjing SR Puzhen’s current order book of RMB3.5bn. Whilst we can expect more clarity on the delivery of trains in FY08 for Nanjing SR Puzhen only in 1Q08, we are very confident about its prospects in FY09 and beyond (when most of its current order books will begin delivery).

Reiterate BUY and S$1.84 target price, which is based on 24x FY08 earnings, translating to 0.4x PEG on EPS CAGR of 50% over FY06-FY09F. We continue to like Midas as a play on China’s booming railway sector.

>> It is no secret that China government is set to spend lots of money in building the railway infrastructure across the country. MIDAS would be a key benefiary of this plan. The advantage of this investment theme is, it is unlikely to be affected by internal economy slow down or US slow down. Valuation has came down and become more reasonable now.

if you want to buy a bank now

If you want to buy a bank now, what should you buy? First name come to my mind is citigroup. I know people would say about the problems it has - massive write down and leadership problem. But, that's the time you can pick up a financial group cheaply, isn't it? They have a strong franchise some more.

The capital base was weaken by the recent write down. Today, it announces the capital injection by Abu Dhabi fund. It proves that people have confidence in the brand.

Recall when Amex had the trouble and Warren Buffett went in to buy the company. Because they have strong franchise and it present a rare opportunity to buy cheaply. I think the situation is similar here. Of course, you need to have holding power for the counter for long term. When the financial market sorts itself out, it would come back.

Only pity thing is the stock is listed in US. Not convenient to buy from Singapore. It might drop some more depends on the degree of problem. One can accumulate over different period. Do your own home work first!

Sport player, priced for perfection?

A short note on today's Kim Eng report on China Sports Intl. China Sports is rolling out new product and plan to raise retail price. They also sponsoring the Slovakian Olympic team and raising advertisement spending. The outlook remains positive.

In last paragraph, "While China Hongxing’s recent placement has dampened sector sentiment somewhat, we believe the sportswear sector will still do well. It is a matter of balancing growth and costs, taking into account stock valuation as well. While both companies are participating in the sector’s growth, CHHS is priced for perfection and cannot afford to slip up. As such, we believe the risk-reward is tilted more in CSI’s favour."

"Priced to perfection" is what usually the market do, when people become overly enthusiastic with the company and the story it is selling. It does not protect one with the margin of safety advocated by value investment guru. How true it is! At the peak, one could not afford to slip up too much. While at the bottom, room for going down is limited, but there is high probability to charge upwards.

Inflation has caught us

These two weeks, the news topic which I come across most often is inflation. The situation is turning bad now.

US inflation hit 14 month high, driven by higher fuel cost. The falling US dollar cause the imported good and oil price to go higher. By right, to curb the inflation, Fed should increase the interest rate. But, given the current subprime problem, they are likely to cut the interest rate instead. This could give rise to faster inflation which threaten the economy. I really hope US won't end up in recession but only to slow down.

In China, situation is no better. Inflation has picking up, driven by the food price increases. A very good example is the pork price, which has increased a lot. Consumer price index rose 6.5% in Oct. The economy remains red hot and further cooling is needed.

Singapore's inflation is targeted to hit 5% next year, driven by the housing cost increase. The economy is doing very well. We see tight labour market, congested road and rising rent. The wage has increased, but the cost has gone up quite significantly also. In fact, the whole Asia's inflation has picked up some what.

These two years of fast economy growth in the region, has increased the demand for commodity like soy bean and oil. Low interest rate also contribute to the excess liquidity which flowing through Asia and prop up the asset price. We really need a global slow down to cool the fast rising price.

I think we are at the critical juncture now. If the thing is not managed properly - subprime, oil price, interest rate, inflation. We would have more surprises ahead. It is now inappropriate to risk more capital in the market. Because if the liquidity dried up, asset price could fall a lot. Better if the picture could become clearer. Consider to invest only on fundamental solid company with strong cashflow to weather the storm. Cheaper price could go cheaper, buy/trade with care. Having said that, of course, the best time to buy is when the stock is down.

Personal finance part 2 – Protect what is important

The next step to do is to have protection in the form of insurance.

Why everyone needs protection? One is bound to have dependent like parents, husband/wife or children. If one is the bread winner of the family, what would happen if disaster strike? Even you are single, what happen if unfortunate event like permanent disability happen? When that happens, would you have enough financial resource to cope with it?

If you don't have any policy, suggest you find an insurance agent to access your insurance need. Typically people would get insurance for

• Death
• Permanent disability
• Critical illness
• Hospitalisation

Get yourself enough cover. You can go through the calculation with insurance agent. Nowadays, Singapore insurance agents have morphed into financial planner/adviser. There are two types of adviser. One is tied to the insurance company, another type is from independent financial planning company. Depends on your preference, an ethical adviser won't just push product but to access your need. Typical insurance product like whole life insurance, endowment plan or investment linked insurance.

Seriously I don't like whole life plan, endowment plan or investment linked plan. I would advocate buy term and invest the rest in unit trust. What happen when you buy a whole life plan? The premium is split into two parts. First portion used to pay the term premium, another portion is used for investment. The investment portion is the part which they used to return you the premium after 20 years. But generally, the investment return for whole life policy is low, around 3-5%. A term insurance should be cheap and have a bigger coverage.

Rule 2 - Buy enough insurance coverage

In the next part, I would discuss about investment.

***Updated 26 Sep 2008

Sea of red

Today is another sea of red. In the morning bus, when I saw the early East Asia trade, I knew this is going to be another day of sell down. As I am busy at work, I don't bother to look at any market news.

The current problems(or excuses) are
- Weak economy outlook in US
- Afraid of more subprime loss
- Unwinding of yen carry trade amid rising risk

You name it, they have it. At the sametime, there is a wide spread of pessimism in the forum also. It is as good as tomorrow the world would be in total recession. Next year, US is either going to slow down or go through a recession to correct the excess. Few years down the road, the bull would be back again, although I won't say it has died already. In the coming century, Asia is still where the action is.

Stock market tends to overshoot. Just as you think it is doom and gloom, we might be at the bottom and ready to resume the upward trend. Or just you think all is well, surprise would come. I believe after another few round of sell down, maybe looking at STI 3200, it would be worthwhile to start buying in different tranches. We must overcome the human instinct to buy high sell low. After all, behind a stock is company, behind a company is a business. Business grows over time!!

Let's find some examples. Around 21 Nov 06,

Olam, 2.0+
China Hongxing, 0.4+
Ezra, 1.8+

Despite the current sell down, they are unlikely to go back to previous level. Because business has grow, stock price would follow. The thing that fluctuate is the valuation. When market is optimistic, you get high PE valuation. Otherwise, it is the other way.

Have faith, focus on valuation and pray. The risk of buying low is less than buying high.

Company update 19 Nov 07

There are really lots of company news these two weeks. The economy is booming and every company wants to expand.

Update for Olam

From CIMB. Wilmar and Olam to form 50:50 JV to invest in integrated palm oil, natural rubber and sugar assets in Africa. Maintain target price of S$3.83; reiterate Outperform. We have estimated that Olam will make about S$600m in investments in FY08. YTD investments, including Nauvu, amount to S$245m, within our forecast. We have kept our earnings estimates intact as we earlier incorporated such acquisitions in our model as mature existing businesses grow at a slower rate. Maintain target price of S$3.83, still based on DCF valuation (WACC of 9.4% and terminal growth rate of 2%).

From DBS, We maintain our BUY recommendation, leaving our target price of S$3.80 intact, which is based on 30x FY09 earnings. We continue to like Olam for its strong earnings growth prospects, driven by both organic expansion and via acquisitions.

>> Fantastic. Having missed the Olam ipo at 60c, scared of the high valuation of 80c, didn't buy during the pull back at 1.80. Olam is one of the stock I want to own but dare not have the courage to take up. One notable about the company is the business model, which is hard to find and consistently increase the earning. At the current PE, I still won't buy, only wait until it is more reasonable. Normally, when people cannot justify the buy call using PE, they would use other means like discounted cashflow, enterprise value etc etc. However, the final return won't be great either, and you are subjected to the PE de-rating if something does happen to the company.

Update on China Hongxing again.

From CIMB, Target price lowered to S$1.32 from S$1.48; downgrade to Neutral from Outperform. Our new target continues to price the stock at 27 CY09 fully-diluted earnings, which is at a slight premium to the average valuation for the sports-shoe sector. Given the limited upside to our target price, we downgrade the stock to a Neutral. However, we continue to like Hongxing as a key beneficiary of the Olympics and China’s rising consumption spending.

From DBS, Valuations now look stretched against larger, more established peers. Downgrade to HOLD. The stock is now trading at 32x FY08 and 24x FY09 earnings, which is similar to Anta’s 32x FY08 FY08 and 23x FY09 earnings. As such, with valuations now at par with Anta, which is a larger and more established peer, we believe that valuations for China Hongxing are now fair and downgrade the stock to a HOLD, TP S$1.25 (24x FY09 PER).

>> Like I mentioned early, the risk has increased. Both to company and investor. Company faces the aggressive expansion risk and investor face the share over hang & earning dilution. Having said that, I believe the company is doing the right thing. They might become the sport shoe giant.

DBS on Boustead. We have resumed coverage on Boustead with a fair value of S$2.74, based on sum-of-the-part valuation. This would translate to 15xFY08 PER and 13xFY09 PER and offers 21% potential upside. Recommend Buy.

>> When company is doing well, analyst would come back to cover it. At current price, and given the project risk(project always face unexpected situation), wait for a better entry point. I was caught by the recent property down turn by a small amount. This proves that the theme play could swing very fast. For example, shipping, technology, oil & gas, who knows? I think the consumer stocks are more resilient.

Old Chang Kee Pte Ltd – The curry-puff maker is headed for an IPO. The food and beverage group announced Friday that it has lodged its preliminary prospectus with the MAS, and intends to list its shares on Sesdaq, the secondary board.

>> Unless you aspire to support the local brand, I see no reason to subscribe to this issue. F&B business is tough. Just look at the peers listing on SGX, and you would know the answer.

SembCorp Industries – Intends to increase its piped Indonesian gas imports by 26% to meet growing demand for natural gas from petrochemical plants on Jurong Island, and expects to conclude a gas sales agreement for this by the first quarter of next year.

>> The petro chemical industry is growing in Singapore. If you are keen on the idea, can explore which are the companies doing business in Jurong island. The support industry should get the major deals and increase the earning. Base on recent report from Kim Eng, they still view Rotary as the primary beneficiary of this boom.

According to zaobao news today, Brothers Holdings' "Singapore City" at Shenyang China received an overwhelming response on the first five days. More than 250 units already sold with 70% of buyers are the city's people. The project is a mid to high end integrated property project, leveraged on Singapore good brand name.

>> I expect the project to do well. However, I have yet to have time to study fully on the company. It should be a worthwhile bet. After I have done my research, I shall post my finding here.

Market review 18 Nov 07

I was really tied up for the past one week, not able to monitor the market. Sometime, it is good also, because as fundamental investor, you shouldn't really keep watching stock price. As it would prompt you to execute unnecessary buy/sell order.

Last Friday, STI close 36.63 points lower. Fears have slowly taken control, there is more fear of the yen carry trade unwinding starts again. At Friday close, US manage to close higher, I think it would provide an opportunity for rebound and it would head lower again. How ironic the thing is! Just as the market recover quickly from sub prime fear, and now the fear has taken control again as predicted.

I think this would persist for a while. Waiting for clearer direction now, before committing fresh capital into the market. Meanwhile, if a good stock is selling at good price, might consider to pick up some.

Lucky enough, I didn't manage to get the China New Town ipo and it got clocked down to 0.69. I would monitor the progress, if it is selling at a good discounted price, it would be worth to pick up and hold for long term. But, short term volatility would likely persist.

Another surprise is the fresh call of capital by China Hongxing. The earning is growing very well for the past few years. Look at the current balance sheet strength, they are actually raise the fund to expand the number of store. However, the aggressive roll out would increase the risk and the dilution of new share (18% of current share base) would cause the share price to drift lower in the coming period.

Site layout updated

Spent quite sometime to update the blog layout. The standard blogger template layout is quite boring and waste lots of space. This new layout give more space to the blog post and utilise the rest of space better. I hope the visitor, you, would like it.

Company result update 15 Nov 07

Today, there are really lots of company result update. Took quite a while to digest all the news.

Sino Env

Note from UBS. We derived our price target using a DCF valuation, assuming 9.1% COE and 3% terminal growth rate. Our price target implies 16.9x 2008E earnings. We value the core business at S$2.25 and the option on desulphurisation at S$0.35.

>> Desulphurisation get delayed. Generally, project always get delayed. When you have factored in the future earning into price, and it doesn't come, that's the part it is going to be a little bit nasty. With hindsight, I didn't chase the high above 3.2. With the crash, it is still not safe enough to enter. Look at it below 2.

MIDAS

Note from Lim & Tan. At forward PE of 29x against growth rate of 40-50% and closest peer Hong Kong listed Zhuzhou CSR's 40x PE, we maintain BUY.

Note from OCBC. Resume with BUY. We resume coverage with a BUY rating using a PE based methodology as we believe that earnings will be the key share price driver in the future. Pegged at 30x FY08 PER, our fair value is S$1.85 cross checked with an undemanding 0.5x PEG ratio. Midas offers investors an opportunity to ride on the ongoing rail transport boom in China, and we project 52% net profit CAGR in our FY07-09 forecast period.

Note from DBS. We maintain our BUY call and target price of S$1.84, which is based on 24x FY08 earnings, translating to 0.4x PEG on EPS CAGR of 50% over FY06-FY09F. We continue to like Midas as a play on China’s booming railway sector.

>> I always think that its business is "safer" compared to others. The government already laid out the infrastructure spending plan. It is only a matter of time on when they would get the share. The rumour is unfound and the business profile still good. Buy if drift lower.

Ching Hongxing

Note from CIMB. Target price nudged up to S$1.48, maintain Outperform. We see continued demand for sporting goods in China, particularly from locals in 2nd and 3rd tier cities. Although the stock has done well recently, we believe there is room for more upside. Execution remains as a major risk. Maintain Outperform with our new target price of S$1.48 (previous $1.47) based on 24x CY09 earnings, which translates into 27x FD CY09 earnings.

Note from Kim Eng. Downgrade to HOLD, prefer China Sports
At S$1.25, CHHS is valued at 31x 2008F fully diluted EPS or 0.63x 3-year PEG, still below the valuations of Anta (36x 2008F EPS, 0.5x PEG) and Li Ning (44x 2008F EPS, 1.1x PEG). It has been a great run but we are not comfortable with the rising risk profile. We also believe CHHS’s growing funding need, in-line with its aggressive market expansion, could lead to EPS dilution. A 20% dilution, the maximum allowed under the share issue mandate, will push 2008F fully diluted PER to 36x (33x basic EPS) – fairly valued in our view. With less than 10% upside to our new target price of S$1.35 (33x 2008F EPS), we are downgrading to a HOLD until we are comfortable that future growth will be balanced, risks-wise. We prefer China Sports.

>> Different people have different view. Generally, given so high the PE, I would be reluctant to put the money in. Usually, the idea case is business performed as expected, then the valuation keep roll over. However, one quarter of surprise is enough to pull it back to ground.

Olam

Note from CIMB. Target price raised from S$3.83 to S$3.72; maintain Outperform. We maintain our earnings estimates but raise our target price to S$3.83 as we roll forward our DCF (WACC 9.4%, 2% terminal growth rate) target price from end-CY07 to end CY-08. The group’s fundamentals remain strong with management having the track record and clear strategy to deliver organic and inorganic growth. Maintain Outperform.

>> Although not cheap, Olam is one of the few which has a stable earning profile. They earn a cut from the whole supply chain and is one of the largest supply chain manager. If a sudden crash occurred, it is worth to pick up some.

Boustead

Note from Philip. BUY on Boustead. Our fair value of S$2.69 represents a 13.2% upside and we reiterate our positive recommendation on Boustead. We change our method of valuation1 so as to reflect better the earning streams coming from Boustead’s diverse businesses – the 4 core business segments

>> I started notice the company, when one of the fund manager start buying it. However, at that time, I am not so sure what it does(even now), didn't consider buying. The business is doing really well, Philip has a strong call on the company. Worth study during free time.

Swiber

Note from CIMB. Maintain Outperform; higher target price of S$5.05 from S$3.95, as we roll forward our 15x P/E to CY09. Swiber is trading at undemanding valuations for its 117% 3-year CAGR in earnings. Our valuation excludes earnings contributions from the drilling barge. Short-term catalysts could include a stronger 4Q07, contract wins and margin enhancement. Key risks are delays in fleet deliveries, loss of key management and a sudden collapse in offshore E&P spending.

>> Another set of excellent result. However, the target price is a bit unrealistic. The risk is still high as they are wondering into unchartered water. I hope they would be a bit more correction to bring the valuation down to attractive level. If you got deep pocket, can consider it for long term.

Wilmar

Note from DBS. We have adjusted our forecasts to take into account higher merchandising and processing segment profits, other operating income as well as higher minority interests, resulting in EPS upgrade of 26.7% for FY07, 25.3% for FY08 and 29.0% for FY09. Our valuation on the company has consequently been raised to S$5.55/share – based on 10-year DCF (using WACC of 7.4% and terminal growth of 3%), implying 22.9x FY08 EPS. At the current price, the stock still offers upside potential in excess of 15%, excluding dividends. Maintain Buy.

>> Sometime people say big is beautiful. In this case, most would argue it certainly is. Caveat! The earning outlook is linked to CPO price. CPO is also correlated to oil price. At the current dizzy level, the room to go higher has narrowed. I expect a pull back for oil and the CPO.

Stock investment key learning point in 2008

Being a stock investor is a constant learning journey. No matter how experienced you are, you have to keep learning or keep remind yourself not to forget what you have learned. From the super bull this year to the bearish outlook now. It is worth to note down a few points that I have learned.

• Be your own man. I guess it is a human nature to be influenced by people. We tend to believe other people's argument more than our own research. Back your idea with solid research, it is worth to hold on to your belief.

• Keep your buy list handy. Do the proper research during your free time. Once you are convinced the stock is worth a buy, set your target entry price and wait for opportunity. Don't buy base on other people's hot tip. The hottest stock now could cool down few months down the road.

• Don't buy too expensive. When a big news is released, the stock price often react to it and eased off gradually. You buy at the peak, it would take quite a while to reach another peak.

• Every dog has its day. An average company would have few quarters that is doing very well. A good company would have few quarters that is doing average only

• Project based company is dangerous. The earning could be impacted by project delay etc. On the contrary, consumer goods company's earning tend to be more stable.

• Set your portfolio allocation ratio right and stick to it

• Stay away from electronic and technology stock. If you think you can catch the cycle, think again.

The list does not end here, so as the quest to become a good investor. I would need sometime to do a good reflection and consolidate the idea again.

Welcome to share your thoughts in comment.

FJ Benjamin FY08 Q1 result

Today, FJ Benjamin announces 1st quarter result for FY08. CIMB and Kim Eng both maintain a buy on the company.

Key highlights:
Revenue and net profit growth 43% and 33%
Gross margin increased from 37% to 42%
Rental cost jumped 96% yoy with new store opening

My view is the management is still doing all they can to growth the company. Increase the brand they managed, move the in house brand RAOUL to higher level, and together with coming Singapore tourism boom(or even Asia). There are still plenty room for growth. At current price, it is trading at FY08 forward PE 18. Given volatile market condition, buy only if a good price emerged.

Synear - still a buy

Synear just announced the 3rd quarter result which comes below expectation. The key point is unexpected quick fall of the margin. Given that it just experienced the margin expansion during last period, this big fall comes as a surprise to me. However, this is understandable, since the raw material price has increased a lot during this period. With the pork price expected to stabilize, the pressure might ease for the next quarter.

They are spending a lot on the promotion and advertising, ahead of Olympics. This could yield a long term gain for the company. At the same time, an aggressive production capacity expansion plan has been put in place. They have also implemented some cost control and moving towards higher margin product. Analyst is forecasting a forward PE of 21.

Given the company is one of the top brand in China and well defined expansion plan. I would still think it is a buy. It might be a better time to buy during a minor set back, then chase it when it is going through the roof.

Personal finance part 1 – Building the foundation

After I graduated from the university, one of the first few finance/investment books that I read is Robert Kiyosaki “Rich dad, Poor dad”. Many people have read that and benefited from it. However, the degree of benefit depends on whether how well do you understand or believe the concept. If you always think, well, I got such little capital, that's not for me. Then, how can you become financial independent?

The concept is actually not new. There is this book called “Richest Man in Babylon” which is much earlier and talking about the same thing. In the old days in Asia, the term “financial planning” is unheard of. Nowadays, people get more wealthy and more aware of this concept. Government is also actively promote it. Despite the wide promotion of financial planning concept, I noticed that only some of my friends practice that. So, I intend to highlight some fundamental things that you should be doing for your financial well being.

Build a solid foundation, no matter at what stage of life you might be. If you are already following the rules, congratulations. If you still don't know anything about it, quick, get started now.

First, let's start with book keeping. Open a note book or excel sheet, start writing down your monthly income and expenses. Observe how much you earn and where do you spend money each month. Notice the expense amount required to support your lifestyle. Keep your expenses low.

Rule 1 – Keep 6 times monthly expenses aside and don't touch it.

This would become the rainy day's fund to protect you against unexpected job loss, misfortune or any unexpected. A good place to park the fund would be at fundsupermart Cash fund or Lion Capital Money Market fund. I don't advocate putting in fixed deposit which offer pathetic interest. As least the money market fund is very low risk and earn good interest. Another plus point is you can cash out within a few working days. Some people might choose to split between the FD and money market fund.

Look at your income and expenses, see whether can you increase the income or reduce the expenses? To increase the income, one has to find different way to achieve it. Other than the part time job which many companies don't allow, you can generate some passive income from other sources. For the expenses, try to cut down on the unnecessary things. Things like impulse buying, excessive personal indulgence can be reduced. Every dollar spent is an opportunity lost. But that does not mean that you need to stop eating, watch movie or travel. It just simply means spend within your means. Best way is to have a budget to control, how many shopping trip you go a year or how many restaurant meal you eat per month.

At this stage, you have the rainy fund set aside, income and expenses made clear. It is pretty solid now.

*** Updated 26 Sep 2008

China New Town Dev IPO

China New Town Development is making an IPO on SGX. The company would offer 12,000,000 shares to the public at 0.83 per share.

From the prospectus,

China New Town Development is a leading new town developer in the PRC. Working
closely with local governments, we are principally engaged in the planning and
development of large-scale new town projects of at least 5 million square metres. We
focus mainly on developing new towns that are located in the suburban areas of China’s
major cities.

- One of the fi rst privately-owned companies to plan and develop new towns in China
- Distinctive business model
- Close cooperation with local governments
- Diversifi ed sources of revenue
- Experienced management team

Growth strategies
- Enhance geographical diversity of our business
- Adhere to international best practice
- Dedicated to improving our profi tability
- Cooperate with leading international property development and management companies

Risk
- Neither we nor our joint venture partners control the timing or the price of the sale of land use rights in new towns we develop
- Our business operations are subject to extensive government regulation
- We do not anticipate generating positive cash flow during the construction period of our projects and will need further financing for future projects
- We face increasing competition that could adversely affect our business and financial position

>> Looking at the offer size to public, there should be high chance to get the IPO. Judging from the institution investor demand, this IPO could possibly do well during the opening. However, given the current uncertainty in the market, it is possible to go the other way also, given the high valuation attached to it. It would be worth subscribing if you have the holding power.

Emergency brake for QDII

According to news, China securities authority has requested the QDII fund to reduce the weighting in HK market. This triggered the Hang Seng 1526.02 plunge. At the same time, drag down the S-chip as well.

I think the main purpose is to prevent the bubble spreading to HK, which should be a good thing. Think of this, the money has already being accumulated, if they cannot invest too much in HK. Where does the money go? To the S-chip and South East Asia stock!

Forex vs stock trading

I attended a basic forex workshop over the weekend. The objective of the workshop is to give an overview of forex. The instructor walked through the history of forex and introduced some basic knowledge. There were a few points he actually keep emphasizing.

Key points:
- Forex trading is all about common sense
- History repeat itself

According to him, since the fluctuation of forex is swift and violent. They need to make decision in split second. Trader rely on common sense. When US data not looking good sell US dollar, when oil price hitting new high sell Yen. It is truly fascinating. It is something I never experienced before. No wonder so many people are into forex trading.

I see we can relate this to stock trading also. Trading stock (not investing) also needs a lot of common sense. When a piece of bad news erupted, sell the counter immediately. The first one get the profit. Likewise for good news. The price also move in anticipation. Like stock, price move in advance than the news.

History repeat itself in forex also. Just like stock, we studied a situation and gained some wisdom. When the same situation happens again, we are better equipped to deal with it. The recent sub prime problem is the result of creative financial product. In the future, as more creative product hits the market, we are bounded to see the same thing happen again. But morphed into another form. Whether you would be prepared for it, it depends on individual.

Likely to be an uncertain week ahead

After the stock market got over with the interest rate cut celebration, they are again focusing on the sub prime problem. Market really has short term memory. Sometime I asked myself, what has changed in the past few months which cause the great fluctuation? Nothing. At least, I cannot find a strong valid reason myself, except risk aversion. Those are excuse for trader to come out to buy/sell the stocks. To a long term investor, it means chance to buy stock cheap. To a trader, time to make profit by shorting stock.

Having said that, of course market is a future predicting machine. People vote with the buy and sell action. If the US data does not come good, and the bank announces more losses/write down, they would vote against the market again.

These were said this week,

"The market is obsessed with these credit problems. People feel like they're standing in a mine field and they don't know where all the mines are," said Brian Gendreau, investment strategist at ING Investment Management. "We're looking for an opportunity to go back into equities. I just don't think next week is going to be the time. There's still just too much uncertainty."

Gendreau said the unfolding impact of the credit market mess on the sector have sparked speculation about whether firms are withholding bad news or "if the firms themselves know the extent of the damages."

Another characteristic of market, it is afraid of unknown. When the impact is unknown, there is no gauge, hence there is no end to selling. If it has became a certainty, the price goes up, people rushing in to buy.

Beside the above, a good article to round up this week. Why the Fed Will Cut and Cut Again.

Renewable energy

At the start of the year, I noticed a company China Enersave was involved in the biomass energy sector in China. The review was quite good, and indeed it had a good run till 0.20. Frankly speaking, I don't have time to do a very in depth research on the company, so just rely on the review and reports.

Since the recent market correction and announcement of several fund raising activities, the counter is going downwards at 0.105 now. A good entry price, subject to valuation check and the prospect didn't actually change.

Found a website which dedicated to renewable energy and had some news regarding the company.
Biomass Plant and Enersave.

I think it is good to place it under the watch list. Just in case it trended lower, it might be worthwhile to pick up some for future growth. High risk high return. Once they can make it, the return could be quite spectacular. This together with Guangzhao IFB are the two under my speculative list, which I would consider enter at very low price.

Have a cold shower, property

Today, Singapore government announced measures to cool the property market.

*****
SINGAPORE, Oct 29 (Reuters) - Property counters such as City Developments fell after the government said real estate developers could no longer let home buyers delay payments on the bulk of their property purchases.

City Developments fell 3.1 percent, Wing Tai Holdings was down 4.4 percent and Allgreen Properties lost 3.9 percent.

"We may see annual double-digit residential price increases come to a halt, or grow at a more gradual pace," said Morgan Stanley analyst Melissa Bon in a note.
*****

It is a good thing. We have seen both the property price and property stock price going through the roof recently. This is a timely measure to cool the things down, to ensure we have a sustainable upturn. Recent HDB price is too unrealistic. It is all hype.

Service excellence : Johnny the bagger

Last week, I attended the company service excellence briefing. The purpose of the event is to make sure everybody in the company aware that he/she has a part to play on the service excellence. During the briefing, a video was shared with all of us - Johnny the bagger. It inspired me. I believe this is a famous true story which many companies used in the service training.

Service quality in Singapore is poor. You might not agree with me, but generally that's my encounter. If the service staff could be mindful of the service he/she is providing, I believe all of us would live in a more pleasant world.

You can watch the video here. Video link

It is a nice video to watch for everyone, regardless whether you are service staff or not. I hope it would inspire you also.

ARA IPO

SINGAPORE, Oct 24 (Reuters) - Real estate firm ARA Asset Management will price its $190 million Singapore initial public offering late on Wednesday and the order book is fully covered, sources close to the deal said.

"It is fully subscribed and there is no price sensitivity," a source told Reuters, adding that the deal would likely be priced at the top of an indicative range.

>> This seems to be a hot IPO. Should be going up strongly on first day.

23,300,000 Shares to the public in Singapore, including 8,300,000 Shares (the Reserved Shares) reserve for the directors, management, employees and business associates of our Company, our subsidiaries and associated companies who have contributed to our success

>> There are 23,300 lots up for grab and the underwriter would be able to do over allotment. Meaning that there should be a fair chance of getting it.

Our business comprises three primary segments:
- REIT management
- Private real estate fund management
- Specialist equity fund management and corporate finance advisory services

Investment highlight:

Proven expertise and track record in real estate fund management
- Pioneer in the establishment of REITs
- Growth in REIT real estate assets under management
- Strong performance of the REITs we manage
- Growth in funds under management
Attractive business model
- Diversified and complementary strategies
- Stable income
- Growth potential
- Strong financial performance
Strong team and relationships
- Experienced team
- Strong relationship with the Cheung Kong Group
- Established relationships with institutional investors

>> They have a unique strength, but competition is strong too. I think I read some weeks back, Calpers(California Public Employees' Retirement System) is also one of the investor. I think this say something about the management skill.

Q&A with Dr. Mark Mobius on China

I read the article "Q&A with Dr. Mark Mobius on China" last week. There is a paragraph which is insightful. Full story.

*****
Is it time to take profits in the Chinese stock market? What is your outlook about
growth? Is the current trend sustainable or is it due for a correction?

There is no way anyone can predict whether a market is at its peak. No one can predict the
market direction and a bear or bull market could start or end at any time. However, the good
news is that bear markets are shorter in duration than bull markets and bear markets go
down a smaller percentage than bull market increases. This is why one must invest with a
long-term view. It’s true that the excess liquidity in China is sending the A market valuations
higher and higher but since China's capital account is still under control, this situation of
expensive valuations could last longer than most could expect. The Chinese government
has realized that the risks associated with an overheated stock market could be tragic and
we believe that it will introduce more measures to contain the excessiveness. Having said
that, we also believe that they would not like to see the stock market experience dramatic
falls as the impact would not just be limited to the economy. There could be social and
political implications as well.
*****

No one can predict the top and bottom of a market, just like what we have witnessed these two years. Just as when everyone thinks that it is all the way up, a sudden crash happened. Just when everyone thought it is going down, it rebounded strongly. There are too many players in the market which affect the supply and demand situation. The advance of technology and financial market, emergence of hedge fund and momentum player would increasingly magnify the price swing. However, the good news to fundamental investor is you got more chance to pick up good stock at bargain price.

The situation at China A share market makes the whole world worry. However, worry is not enough. There should be concrete measures to cool the speculation. Since the bull run, I have been reading the news on how speculative the A share market is and how a novice has been making tons of money. Cleaner lady put her life saving into stock and double it within 6 months. People borrow money to buy stock to get leveraged return. The stock mania has spread to everyone.

My view is it is unlikely to fade anytime soon. Once the people has tasted the sweet return of stock, the confidence is unlikely to collapse anytime soon. The uniqueness of China situation are there are too much idle deposit which earning pathetic return and the retail population is sufficiently big enough to absorb big selling. The China government should be planning for additional measure to cool the speculation. Get the situation under control, not suddenly burst the bubble. A correction is highly possible but a total collapse is unlikely.

Company news 25 Oct

There are few company news today.

Kim Eng on Rotary

Share price pull-back suggests good entry opportunity. We rate Rotary as one of the better proxies to the region and Singapore’s increasingrefinery/oil terminal capex cycle. We maintain our target price of S$1.79 based on aminimum ex-cash multiple of 17.6x 2007 PE (0.7x PEG). Valuation looks attractive asthe stock is trading at PE multiples of 13.8x and 11.5x for FY07-08 respectively.Reiterate BUY.

>> Rotary is one of the safe play on Oil & Gas, or more precisely Jurong Island. Accumulate on dip.

Technics Oil & Gas

Technics Oil & Gas yesterday said it now expects weaker revenue for the fiscalyear ended Sept 30 and that its earlier bullish forecast of a 10-15 per cent revenue growth cannot be achieved, due to further delays in its project work schedulesplanned for its yard operations. Hence, while the group will definitely be profitable for the fiscal second half, its financial performance during the period will not bebetter than that achieved for the fiscal first half, it said. But given continuing robust sector demand, the company said it maintains a positive outlook for fiscal 2008.

>> I am interested in the company on the basis that it involves in FPSO related projects. However, problem with project based company is they are affected by project delay and problem in securing new projects. I need to research into the company numbers first before decide on whether to buy into the company.

Kim Eng on Cosco

Cosco still a BUY

The significance of this order is that it is ahead of our previous assumption of the pace of order growth. Furthermore, Cosco clearly has capacity to utilise at its Dalian and Guangzhou shipyards, which differs from our previous assumption that further new buildingorders will mainly be the domain of its Zhoushan shipyard, where it is adding a massive amount of capacity and has the ability to expand that yard even further. Although we arenot changing our forward 3-year forecasts, we are upping our growth assumptions for FY10and beyond. This is therefore captured in our DCF valuation, where we are now adjustingour fair value upward target to S$8.10, from S$7.50. 3 year earnings CAGR stands at 43%p.a.

>> Just as we think it has run too fast and hit the road block, they charge forward again. However, I really not sure about the impact of shipping cycle and their business. Investor might exercise own judgement on whether the chase it up or buy on dip. Market seems to like big player, citing scale is key to growth.

Low cost investing, the ETF way

In one of the business news today,

"According to the Singapore Exchange, total trading value of such ETFs amounted to S$99.6 million for the week ending October 19.
The SGX said the increased trading was largely due to strong interest in iShares MSCI India ETF and Lyxor ETF China (Hang Seng China Enterprises Index). " Full story

ETF (Exchange Traded Fund) is a cost effective way for gaining exposure to a particular market. For unit trust, you give your money to fund manager and let them manage for you. The catch is they would charge management fee which is typical 2% a year, after all expenses. Some people argue that given the cost structure, unit trust is unlikely to outperform the stock market index. The born of ETF is a way for investor to buy into underlying index stock, with a fund like structure. The good thing is investment amount is small and cost is low.

Given the high valuation of India and China market I won't be interested in investing in these ETF mentioned. However, if the market is substantial coming down, this would be a fast and low cost way for participating in their growth. If you have no time to do stock picking, these would be a good alternative. Of course, not to forget that, STI itself also has an ETF.

Sembcorp Marine forex loss

When all seems going well, unexpected would happen. The moral of the story is never invest too heavily in a particular company, no matter how great the company is, unless it is your own company.

The biggest news today is the dismissal of Sembcorp Marine finance director. The unauthorised forex loss could be as high as US$248 million, US$83 million realised, US$165 million base on market to market info.

This is a shocking news. A big company like this should have its own proper internal control which prevent this sort of incident to happen. If you can recall, history tends to repeat itself. We have Baring and CAO went down, because of the internal control lapse. It is paramount that this is being fixed and proper control to be put in place. Full story.

In coming months, company share could be based down. Whether to do bargain hunt, it is up to you to decide.

CIMB:
Target price lowered to S$4.70 from S$4.90 following our earnings reduction;
downgrade to Trading Sell.

DBS:
Downgrade to Hold, TP cut to S$5.50, FY07F-09F estimates adjusted.

Kim Eng:
Downgrade to HOLD, TP revised down to S$4.80

Another notable news is Sembcorp Marine sold 39 million shares of Cosco for a gain of S$230 million. In some way, this is a view on Cosco share is much overvalued at current level. It has become too hot to handle.

What to do with China share?

There is an article today in zaobao. It is about an interview with China Female Buffett. I tend to agree with her view point.

Brief summary:

China stock easy money era has ended

Yang Liu is a famous fund manager in China, nick named "China Buffett". Recently she mentioned, the easy money has been earned, we have to tread carefully going forward. There are 5 areas that are still attractive - Insurance, health care, goods, retail and properties.

Insurance - China Life, Ping An.
Health care - Equipment supplier.
Resource and goods - Petro China and water treatment.
Properties - Port and airport.
Retail - Branded consumer play.

Long the stocks in these area for long term. Original article link

Morgan Stanley issued a report on last Wednesday, citing HK stock could be due to correction up to 30%. This could happen, but the magnitude is unknown. My belief is the China bull has more legs to run. It won't end so soon. It has become a social activity to play stock in China. Even fund manager pulled out, there would be tons of retail investor supporting the price. Having said that, I won't be the one putting the money in though.

Shipping mania

While I was browsing through web, I noticed that one of the hottest topic for this weekend is Cosco and Yangzhijiang. There is nothing wrong with the companies, they are doing great. The problem is with the share price.

It is a strange behaviour we have observed again and again. When the stock is down and out, investor switch off, don't want to look at the stock and price again. But, when the stock price keep going up, you see people jump in hastily. The greater it climb, the more people get sucked in.

Now, listen to your heart. Take your calculator out and punch in the number. Look at the current earning forecast vs forward PE. Look at the current market condition. Is it wise to jump in at this juncture? It might be better to take profit instead.

Market has memory

Stock market is just like a reflection of human life, one moment you are at the high, the next moment you could go down significantly. Dow dropped 366.94 points on 19 Oct trading. The day happened to be anniversary of Black Monday crash occurred on 1987. I noticed that there are several special date which stock market remembers. When the date comes, stock would drop on that day. To a logical guy on the street, this is totally insane, what has the event happened so many years ago affects today?

However, it has came down. So what do you expect on Monday? It would be a knee jerk sell down. Then, maybe at end of day or Tue, some players would come back for some bargain hunting.

The recent strong rebound caught many of us surprise, we never thought that it would come back almost instantaneously. Although for the past few weeks, the stock market was hot again, I was reluctant to put more money into it. On one side, I pretty much hit my allocation ration, on the other side, I don't think the risks have all disappeared. I think most probably, the coming 1 month would be another see saw month. It is good time to pick up some bargain which suits your investment criteria. Risk remain, but if you hold for long term(depends on what you buy), it should be alright. Asia boom is a big trend which is going to last for another 10 or 20 years.

The key risks at this juncture are
1. Oil price. The current price already trigger rounds of inflation in the world. I suspect we can't hold the inflation low any longer.
2. Credit crisis. The event is not over yet at US. As new round of news erupt, we probably would see another round of selling. Although I disagree that it would be as violent as previous round. Because those hedge fund that need to pull out, would have gone, left those longer term investor.

Another notable point last week was the big drop of India. The proposed "capital control" cause the India market to crash. It is a long overdue crash. No matter how hot the economy is, no one deserve that kind of valuation. For those that have put in money into hot India fund, it might be too late to regret. However, don't put your new money into India market too fast. Once the liquidity dried up, the market is likely to underperform for a while. We have not seen the true magnitude of problem yet.

Stock price vs oil price

I always thought that high oil price is not good for stock price. However, during my conversation with a friend, it is noted that although the oil price keep increasing through these years, stock price actually keep going up. This prompt me to search on the web whether there is a relationship between both of them.

After reading many articles, generally this perception is true. When oil price increases, it would cause consumer more dollars for the petrol, at the same time logistic cost for all the daily goods also goes up. Therefore it would affect the stock price as it might slow the demand and increase business cost.

However, this relationship is not so straightforward. Another guy argues that when consumer demand pick up, factories increase production. They need fuel and labour. More jobs mean more people would have the spending power and they also consume more oil. So, oil demand increases with consumer demand. The only concern is whether the cost would be big enough to affect the consumer negatively.

I feel that there is no outright relationship between both of them. As we go through different part of economy cycle, as long as consumer can spend, the company earning should keep going up. To a stock picker, this should not be too much concern to you too. Focus on the company competitive advantage in accessing the situation. Oil price does not affect every company. The petrol price might keep increasing, but people still drink coke everyday!

Market close on 19 Oct

In the WestComb morning note, it is cited that concerns over US credit markets, overheating China Market and record high crude oil prices might affect STI. As STI is at record high level, I think regardless of trader or investor should be careful.

To Trader, volatility seems good. It enable them to profit/loss during the price swing.

To fundamental investor, it is a good opportunity to pick up good stock that you wants to buy. I suggest to watch the STI level to decide whether the enter the market. If a sudden crash materialised, it is a good opportunity to build up some position in good stocks. Again, always leave some bullet, you never know how low it could go. Focus on valuation, I would suggest.

China play seems to pause for a while. Until the real arrival of China fund, I think the price would trap in the range. The biggest unknown is if China market is to correct 20%, would the S-chip move in same magnitude?

Full apex, a second chance?

I once owned the share of Full Apex. That was the time when oil price is not so high and there are few attractive points about the company.

• They are having aggressive expansion plan to boost the production
• The key customers are Coke and Pepsi which speak a lot of their product
• As soft drink consumption set to grow, the business should expand
• Being a supplier of well known soft drink maker, the earning is sort of guaranteed

I bought the share twice, second time to even out the cost. Eventually, sell it off at a loss of 40%+. The key trend of past few years are

• Escalating oil price
• They have little bargaining power to increase the selling price dramatically
• Margin going down
• Despite the big boost in production capacity, profit only increase a bit

I recognise in this high oil price era. Holding the company and hope that the oil price would come down to enable them to have significant profit growth is difficult. Difficult as in you don't know whether the oil price would ever come down to a comfortable level. Predictability of earning is not there.

In forum, many people are quoting this undervalued stock as a good buy. Yes, it is undervalued, but the outlook to me is not fantastic. We never know when oil price is going to break $90 or even $100. We don't know whether the newly acquired PET chip company would really help with the profit growth.

Last week's Business Times article,

"Last year, it raked in a net profit of $27.3 million on a turnover of $187.5 million. For the first quarter of this year, it generated $9 million profit from revenue of $52 million. Its operating profit margin is about 20 per cent, while its returns on assets and equity worked out to 14 per cent and 17 per cent respectively."

"But despite its healthier numbers, Full Apex is trading at about nine times its 2006 earnings. Shanghai Zijiang is valued at a staggering 94 times its 12-month trailing earnings, while Zhuhai Zhongfu is trading at 79 times."

"Full Apex has somewhat fallen out of investors' favour in the last few years because high crude oil prices have squeezed its profit margin - the raw materials for PET bottles are PET chips, which originate from crude oil. To mitigate that, the company invested US$90 million to build its own 200,000-tonne PET chip plant. The plant, the biggest in Guangdong province, started operating a couple of weeks back."

" All things considered, it would appear the odds are favourable for the group to deliver decent returns for investors in the short to medium term."

Consider the questions I have asked. It is better not to enter the stock again, no second chance for me.

Good side - no debt, cashflow strong, stable business, lower valuation compare to peers(but I don't think PE of 70 is reasonable)
Bad side - oil would always be a big unknown, the result of pushing into PET chip market remain unknown

If you have holding power and willing to endure the see sawing of price, this china stock is worth the bet. However, it all subject to investor interest or whether the QDII fund would be really interested in buying it. Depends on external force is always more dangerous than a solid fundamental.

Welcome to comment on this, whether I have actually missed some points.

Guangzhao IFB good time ahead...

I have been following the company since its IPO on and off. If you looked at the price chart, it would know this is a volatile stock. Volatile because the fundamental is shaky. Since its listing, it remains as a concept play. The company profit is good, but the cash flow is negative. That means, they are unable to bringing cash while the tree grows on ground. That was a time when auditor/analyst raise the question whether the company can still survive. However, they keep having bond/warrant issue which raises new cash to keep the company running. I think nobody likes the share dilution. But to keep the company up, maybe that's the only way.

We know the 2008 would be a watershed year. Because they would start logging and bring in the cash. Once the cash flow is positive, then the company's future would be brighter. Monday Kim Eng issue the following report, maintaining a buy on the company. However, don't buy too expensive, there might not be much upside left.

Propagating the `Green Revolution’
- Sprouting new branches with rich pickings
Commonly viewed as a fledgling poplar forestry company in the PRC, GIFB has been
quietly building up its biotechnological knowhow and its R&D efforts is starting to yield
significant results. The key success factor hinges on its ability to rapidly propagate its
plant tissue culture beyond the laboratory into mass production. Having achieved this
critical breakthrough, the company is now ready to commercialise its ornamental plant
seedlings, tropical fruit plantlets/seedlings and jatropha plantlets on a mass scale.

- Tropical fruit/orchid seedlings – strong overseas demand
Under a 5-year supply contract worth RMB16m, GIFB is cultivating 13.5m orchid
seedlings at its Shanghai facility (annual capacity: 12m) for export to Japan, Taiwan and
Europe. Through its new Malaysian JV, Jalur Lipur, the group will be delivering an initial
10m tissue-cultured tropical fruit plantlets to Malaysia’s Department of Agriculture over the
next 5 years. The first batch of 600k banana plantlets has been shipped in late Sep. Jalur
has a tissue-culture facility in KL and plans to set up a 50-ha nursery to produce 40m
plantlets annually. This, coupled with its ongoing research in disease resistant oil palm,
would pave the way for the group’s entry into the lucrative SEAsian agriculture market.

- Jatropha – powering the biofuel of the future
High crude oil prices and environmental concerns have spurred several biodiesel projects
in the Asia-Pacific region. Amid soaring prices of traditional feedstocks such as palm oil,
some producers are turning to jatropha curcas, an inedible hardy shrub that does not
compete with food crops for scarce arable land. Utilising tissue culture techniques, GIFB
has selected and developed 2 superior jatropha cultivas, which has attracted interest from
at least 2 Singapore-based firms. In collaboration with NTU’s IESE, it has signed an MoU
with APVC Holdings (which is constructing a 300k mta biodiesel plant in Ningpo, PRC) to
supply jatropha plantlets over the next 3-5 years with a total contract value of $100-120m.

- Poplar/Orient fir – nearing harvest time
To-date, the group has harvested 3.2k m3 of pine trees and has contracted a buyer to log
another 41k m3 of its Jiangxi forest in 2H07. Continued demand and shortage of timber
and pulp in PRC has pushed up wood prices ahead of large scale logging of its poplars
this winter. GIFB is awaiting licencing approval to harvest 30-40k mu of poplar plantations
(15-20% of planted area). Meanwhile, the group is exploring opportunities to reforest
marginal land tracts in Xinjiang and the Mid-East with its salt-tolerant poplars. It has also
received orders from the Chinese government for 400k sapling of Orient fir which could
act as an excellent wind barrier in typhoon and flood-prone coastal cities.

- First growth target price: $0.60 with room for possible re-rating
With the impending sale of its poplar/pine timber and quicker revenue streams from
seedlings, plantlets and saplings soon to kick in, GIFB is expected to turn cash flow
positive by end 07. Consequently, we are switching our valuation model from P/B to DCF
(WACC: 12%) and raising our TP to $0.60(previous: $0.33). Thiss does not include a few
possibilities of G2 poplar/jatropha plantations, which could lead to future re-rating of GIFB.

Behavioral finance

I read about this interesting article in The Edge few issues ago. The key points are summarized here.

*****
Research shows that investors aren't always rational. Psychological studies have repeatedly demonstrated that the pain investors feel when they are losing money from investment is nearly 3 times greater than the joy of earning money. Small correction often become full scale crash, made by panicked investor who try to avoid losing money in short term rather than focus on long term potential. Behavioral finance try to study how emotion and mental error can cause stock to be overvalued or undervalued. It is trying to identify the common mental mistakes.

Mental shortcut
Brain helps investor quickly generate an estimate rather than fully digesting all info before producing an exact answer. This cause investor to over or under react to new company news. Study shown, longer the investor study the company, harder for them to quickly analyse the new data properly and adjust the view.

1. Representativeness
Assume things that have similar traits are likely to be identical. If a company repeatedly delivered poor result, investor assume it would keep doing so, ignore the fact that the company is showing sign of turn around.

2. Anchoring
Select an initial reference point and slowly adjust the correct answer as it receive additional information. A sudden surge of company earning would be viewed as temporary, investor remained anchored to the previous view of company profitability.
*****

I certainly agree with the argument that investor feel more painful in losing money than earning it. I felt this way countless of time, when market going through correction. Some investors just gave up and realise the lost.

Here is the personal experience I can think of which related to the above two points. I started buying Uni Food when I began investing. For the pre-ipo years, it have been showing consistent and good profit growth. We think that it is likely to going on. However, SARS came, bird flu came, high raw material and pig shortage, the industry condition has changed and the company is slow to react. Eventually, I cashed out this at more than 50% of losses.

I felt the two points discussed here are closely related. Usually, the investment mistake could be related to both of them at the same time. You take the old result as representation and you have anchored to that view. When news released, you are slow to react, because you firmly believe in the view you have subscribed to. However, that piece of news might already signal that all are not getting well already.

Oil & Gas cycle

We are in the high oil price era. Due to increasing world demand on oil and emerging economies like China and India, the oil price has risen from $30 to $80 now. The significant increase of oil price prompt the oil companies to speed up their oil exploration activities. Exploration is only the initial phase. Once the field is being confirmed and contract signed with the government, oil company would have to prepare to extract the oil.

In South East Asia, majority of the oil site is situated in the middle of sea. We need to build many drilling rig to drill and pump out the oil. Keppel Corp and Semcorp Marine have been building so many rigs for the driller. Progressively, these rigs would be delivered and the oil production starts.

Beside rig building, there are many offshore related activities involve. Swiber is a niche service provider tot he oil and gas sector. The services provided include setting up production platform, pipelines, mooring of FSO/FPSO on sea bed etc. As the SEA or middle east region exploration activities grow, it provide ample opportunity for them to expand the business.

Once the rig is installed and production starts, the oil has to be transported to the shore. This job is being carried out by FPSO. A Floating Production, Storage and Offloading vessel (FPSO; also called a "unit" and a "system") is a type of floating tank system used by the offshore oil and gas industry and designed to take all of the oil or gas produced from a nearby platform (s), process it, and store it until the oil or gas can be offloaded onto waiting tankers, or sent through a pipeline.

Links below show the demand for rig and FPSO remain robust in the next few years.
http://uk.reuters.com/article/oilRpt/idUKSIN17435320070109
http://www.energyme.com/energy/2006/200600759.htm

They are many FPSO builder. Keppel Corp is one of them which is capable of building a FPSO. Since the FPSO process and store the oil on the vessel before the tanker comes, it would need facilities to perform these activities. Technics Oil & Gas designs and develops process modules and equipment that are integrated to form the operating systems and storage facilities for oil and gas exploration and production. Their key expansion plan is to explore more opportunities in the FPSO space.

Technics is not the only one to be involved in this space. Hiap Seng start up as a engineering sub contractor, now they are moving into the compression and offshore fabrication business. It is involved in gas compressors and FPSO topside fabrication. At the same time, it still provide the mechanical construction work in Jurong Island. Both would serve as diverse revenue stream. Technics seems to be involved in the production system design and construction, while Hiap Seng only produce the gas compressor sub module.

With favourable industry environment, these 3 companies should do well in the coming years.

* Part of material were extracted from company website, broker report and internet.