Have a cold shower, property

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

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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.

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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.

China Oilfield Tech IPO

There is a new IPO coming up next week. Some of the points were taken from the web or prospectus.

SINGAPORE (Thomson Financial) - China Oilfield Technology Services Group Ltd, which provides engineering services to oil exploration companies in China, said it is launching its Singapore initial public offering (IPO) of 211.61 million new and vendor shares at 60 Singapore cents each on Monday.

Invitation in respect of 211,607,000 Shares of HK$0.50 each comprising 127,500,000 New
Shares and 84,107,000 Vendor Shares as follows:-
(i) 3,228,000 Offer Shares at $0.60 each by way of public offer; and
(ii) 208,379,000 Placement Shares at $0.60 each by way of placement,
payable in full on application.

>> There are 3228 lots up for grab. A small offering.

We have a wide range of tertiary oil recovery products, which can
be divided into three segments:
(i) Enhanced Oil Recovery;
(ii) Environmental Protection; and
(iii) Energy Saving and Others

>> In summary, the oil extraction consists of 3 phases. Their product operate in the tertiary phase which allow the additional 20 to 30% of oil to be extracted.

Favourable development trend for tertiary oil recovery technology

• Daqing Oilfield Co., Ltd. plans to extend the use of tertiary oil recovery technique in more than 80% of its oil extraction sites in Daqing oilfield in the next 15 to 20 years
• Other PRC oilfields, such as Shengli, Changqing and Xinjiang, have gradually expanded the scale of their tertiary oil recovery processes as their oilfields approach maturity

>> If this trend is right, not distorted by the news, this would be a powerful trend. Looking at every kind of cycle, people enter at the first phase would enjoy good growth going forward.

Future Plans

• Enhance our R&D capabilities
• Expand our production capacity
• Expand our sales and marketing network in the PRC and overseas markets

>> I guess the expansion plan is quite standard. Most of the new IPO plan to do similar things. The pity thing is there is no discussion on the company position in the industry. How do they rank compared to the competitor?

IPO price
60.00 cents (equivalent to 299.34 RMB cents)
NAV
after adjusting for the estimated net proceeds of the Invitation and based 91.36 RMB cents
on the post-Invitation enlarged share capital of 728,595,000 Shares
PE
Historical PER based on the historical EPS of our Group for FY2006 assuming 18.69 times
that the Service Agreements had been in place from the beginning of FY2006

>> It is a bit pricey. Consider they didn't take the share dilution into the PE calculation. However, if they can achieve the earning growth as past few years CAGR 135%. This should not be a problem.

Risk

• We are dependent on our major customers, which are the operating units of Daqing Oilfield Co., Ltd., a wholly-owned subsidiary of PetroChina
• Our growth and prospects are dependent on our research and development capability
• We are dependent on our patents
• We are dependent on the protection of our proprietary technical know-how
• We are dependent on our management team
• We are dependent on qualified professional staff
• We are dependent on the PRC oil industry
• ...
• We may be required to pay penalties or liquidated damages for failure to meet delivery deadlines

>> The major risk here is dependent on single customer. Having said that, once they can get more customer on board. The market should re-rate them with higher PE.

Summary

The company business do sounds interesting and poses for strong growth in the coming years. Forget about the initial valuation. Base on small offer size, current strong oil and gas sector play and good IPO sentiment. The new listing should do well on the first day. Subscribe! Although we all know that it would be very hard to get, but the chance should be higher than strike toto.

Oil and gas update Oct 07

Some news on the oil and gas sector play these two days.

CIMB

Hiap Seng Still cheap. HSE is trading at 10x CY08 P/E vs. peers 15x. We believe HSE
share-price weakness (-23% in the past 14 days) has discounted investors
concerns over delays and margin compression and presents another opportunity
to accumulate for the strong FPSO market outlook and heightened activities on
Jurong Island. Following our earnings reduction, our target price has been trimmed
to S$1.20 from S$1.25, still based on 15x CY08 earnings, in line with peers.

>> According to the SGX filing, one of the fund manager is pulling out. This contribute to the share price decline of Hiap Seng. At the current price, without any significant fundamental deteriotion, I would say it is a good buy.

Kim Eng

Swiber Holdings – Has stepped up its fleet expansion programme with the acquisition of four new vessels for US$108m. The marine group said that wholly owned subsidiary Kreuz Engineering has acquired two sub-sea support vessels and two deepwater anchor handling tug/supply (AHTS) vessels from Thaumas Marine. The purchase amount does not include the cost of equipment that Swiber will retrofit or purchase for the vessels. Swiber said that the acquisition of the vessels would extend its capabilities in sub-sea and deepwater activities. This would enable it to take on more offshore oil and gas projects and broaden its revenue streams. The company expects revenue synergies and growth potential from these acquisitions. The acquisition will be financed by proceeds raised from the successful completion of the group's recent bond offering and sale and leaseback arrangement.

>> Management continue to execute their expansion plan. It would be interesting to see what Swiber would become in the next two years. Looking at the current price, it is a bit pricey, waiting for share price weakness for accumulation.

Technics Oil & Gas – A wholly owned subsidiary has secured a contract worth $17m for two modules of gas compression systems and one unit of gas treatment and processing module.

>> An interesting oil and gas play beside Hiap Seng, there are many corporate development that support their push into the new growth market. Yet to access the management plan and future direction. But this could be a potential winner also.

Stock watch list Oct 07

I think it is time to review the stock watch list I have. Keep this list updated and handy, when correction comes, we know what to buy.

Offshore/marine/oil
BH Global - Outlook remains bright
Hiap Seng - Due to fund manager sell down, it is trading at attractive price
Swiber - Management is doing all the good jobs to keep growth momentum
*Tiong Woon - Recent result is fantastic. Management has put in many growth driver.

Properties and hotel
Guthrie GTS - Very often, undervalued play would remain undervalued for a very long time. Patient is required and wait for the catalyst

China
Ching Hongxing - Growth plan on track
MIDAS - Despite one of the promising JV is out, China railway industry outlook remains robust
Sino Env - Poses unique technology. Potential attracting QDII fund
*Hongguo - Slow and steady. I feel this might be the safer counter to own.
*Synear - One of the leader in China food industry. QDII fund might have strong interest
*Sihuan - China pharma play. Analyst projected a strong growth.

Big/Mid Cap
Guoco Land - Good to keep for long term

High risk
Guangzhao IFB - Tree starts keep chopping down start of next year, cash flow would improve

Others
FJ Benjamin - Singapore retail and trourist outlook remain bright

* - New addition

New STI 2008

It was announced that STI component stocks would be changed next year 2008. From the 48 stocks trim to 30 stocks. By then, it would become a big cap index. SIA Eng, Wilmar, Yangzijiang, Yanlord would be added to STI while some of the stocks relegated to mid cap index or being removed.

The implication for those new addition is the share price would likely go up. This is without consider the company specific news which could affect the share price. The fundamental argument is very simple. Once the stock is added to the index, those index fund would have to buy it, and push up the share price. Another possibility is once the stock is added to STI, it would be more prominent to the institutional investor.

Of the 4 new additions, Yanlord looks most interesting to me. It has appreciated a lot this year. At the current valuation, it would be quite pricey. However, in the long run, it is like betting China consumer would want to buy a house. The demand is definitely there. It is better to wait on the sideline and collect the share, if a meaningful correction happens.

Corporate drama

According to CIMB today,

Bio-Treat Technology's former chairman Wing Hak Man has denied claims that he sold
his entire stake to a third party, deepening the controversy surrounding the waste
management company. Singapore-listed Bio-Treat said last Monday that Precious Wise
Group had bought 262.5 million Bio-Treat shares at 87.4 cents apiece in an off-market
deal the Friday before, giving it a 29.6% direct stake.

This news come as a shock to me. Although I have long unloaded the share in company when the chairman controversy erupted. However, I am not prepared to see some news like this. Something somewhere must be seriously wrong for this kind of events to happen.

After I sold off the holdings at a loss, the share did rebound back, follow by market re-rating of the water treatment stock. It went pass the price I let go. Despite the cheap PE and price rebound, I have no regret. As a retail investor, the last thing you want to invest is in the company with boardroom instability. It might deflect the management focus on some other thing than the business. For trader, they would still follow the news and trade. For long term investor, stay away, you never know what would happen eventually.

The China money II

For the past few years, Asia stock market has been going up all the way. Driven by region booming economy, record earning and strong liquidity, many of the big companies command a rich valuation. In the low interest rate environment, people would seek better return for their cash, resulting in asset inflation. Too much money chasing too little asset. This is without consideration of all the China saving that is trapped inside the country.

The recent sub prime problem cause liquidity to suffer. Follow by America or Europe fund redemption, fund manager has to sell stocks for cash. Although I don't expect the market to come back so quickly. But time has told us that it is difficult to time the market. Now, the stock market seems to be back on where they were except the small caps. Recently, the news is anticipate the liquidity from different source, China.

Following is one of the news found in the forum. QDII fund might be interested in China company listed abroad. However, the China government fund might be interested to diversify their holdings. Gone with the days that they mainly buying US bond, they might start buying Asia growing companies. It might be interesting to watch the blue chips on SGX. Likely candidates to be banks, property company and conglomerate.

0045 GMT [Dow Jones] The recently launched Chinese state investment company could be interested in Singapore targets, says Credit Suisse. China Investment Corp., or CIC, started operations Sept. 29 with US$200 billion under management; "we believe it is worthwhile analyzing the potential investment targets of CIC - a new but extremely large investor." Says Temasek would welcome having its Chinese peer to take small, strategic stakes in Temasek-linked companies. Possible candidates include SIA (C6L.SG), SGX (S68.SG), DBS (D05.SG), SingTel (Z74.SG), SembCorp Marine (S51.SG), Neptune Orient (N03.SG), ST Engineering (S63.SG) and SPH (T39.SG). (KIG)

Loss aversion

One of my friend is risk adverse. He said he does not want to lose money because of my previous unpleasant experience. He would sell stock for some profits and waiting for another low point to entry. We can describe this behaviour as Loss aversion. People tends to feel more painful for $1 loss than feel joy in $1 gain.

However, for retail investor, it is unlikely to accumulate sizeable asset by this method. Frequent in and out of the market, would let the trading cost erode the return and let the recurring unexpected event cause you to lose more money.

My idea is to pick a good company with good people, wait for low entry point, hold for long term. If you have done the home work, in few years time, the pay back could be bigger than the frequent buy and sell. Forget about the economy and crises, stock would do well as long as the company is doing well.

Buy... China fund is coming, the QDII factor

If you don't know what does QDII means, it is actually short form of Qualified Domestic Institutional Investors. China is allowing the local fund house to invest money in overseas stock with QDII status. The purpose is to let part of the saving to go out of the country to ease RMB appreciation pressure.

Last Thu/Fri, Merrill Lynch has recommended investor to load up Singapore based China stock, citing undemanding valuation and the potential fund flow. Stocks suggested were Yangzijiang, Cosco, Synear, MIDAS, China Hongxing, Yanlord, Celestial, Hongguo, Capital Retail China Trust, China Energy, China Sky and Beauty China.

In the Saturday Business Times "Show Me The Money" column, the writer presented a table of China stock that could be the potential winner. From the list, my pick for the good stock which would benefit from the increase China consumption and also QDII fund flow are Fiberchem, Synear, China Sky, Chine Lifestyle, Celestial, Hongguo, China Hongxing, Sihuan Pharma, Sino-Env, China Energy and China Sports. Personally, I favour consumer stocks, consider them to be safer than the rest. In the list, other than consumer stocks, there are few companies with unique competitive advantage.

Today, CIMB also issues similar report citing their picks are Cosco, Synear, China Hongxing, China Energy, Fibrechem, Delong, China Sky, China Fishery, Hong Leong Asia, Sino Techfibre. From here it is not difficult to spot the trend. In order for the fund manager to load up the counter, the company must have substantial size or market cap. Many undervalued small cap remains under valued because the fund house has restriction on market cap of the stock that they can buy.

Ok, we got so many good stocks on the exchange, but which one to put your money in? Stock do well when your business is doing well. We need to pick those which offer unique value and growth potential. However, as a retail investor, the capital is limited. We can only affort to put that much.

My pick for this run,

Hongguo - Trading at significant discount relative to Hongkong listed woman shoe maker. With past 3 years annual growth of more than 20%, this is one of the "safer" stock you can get.
Synear - Consider the market leadership, bigger market cap (which would attract the institutional investor). This would also be a "safer" bet. Bigger size company recover better from any earning disappointment or business change.

Sentiment aside, after Fri and today's great run, the margin for error would be significant narrower. The room for upside is limited, but I do not see it peak as of now. Be careful... Invest at your own risk.