Risk management - the zurich way

I have a few books on the subject of investment. One particular book which I find it very useful is The Zurich Axioms by Max Gunther. This book is talking about the swiss speculator's rule of managing risk. High recommended, especially went through the recent market volatility. One has to manage his own risk properly.

The rules can be found here.
http://www.sharelynx.com/papers/TheZurichAxioms.php

For the detail explanation, you would have to buy one copy from the book store.

Tiong Woon FY07 result

Tiong Woon just released the full year result.

Highlight:

• Net profit $22.5m, up 155% from previous year

• Revenue up 44% to S$99.8 million

• Earnings per share: 6.67 cents, up 146%

• Net Asset Value per share: 32 cents, up 26%

• Return on Equity: 23% (FY2006: 12%)
  

* Increase of ROE signal better deployment of shareholder's fund

Facts:

• The company is currently ranked 11th largest crane owning company worldwide by International Cranes, a reputed trade magazine, in its IC50 2007 survey.

• Going forward, the Group plans to actively pursue business opportunities in construction, infrastructure, offshore marine, power plants, petrochemicals and oil and gas projects in markets such as China, Thailand, Malaysia, Indonesia, Vietnam and the Middle East.
  

• Earlier this year, TWC became the first Singapore company to be awarded investment licence to operate 100% foreign-owned entity in Saudi Arabia by Saudi Arabian General Investment Authority (SAGIA) Singapore.

• In November 2006, it acquired a 65-hectare fabrication yard in Bintan, Indonesia, with a view to supporting its current fleet of heavy lift equipment, tugs and barges, and in due course, growing a new income stream from fabrication and engineering projects.
  

Five-pronged business strategy:

• To remain focused on its core competency of heavy lift and haulage;
• To develop its fabrication and engineering competency for marine, oil & gas industry;
• To actively seek business opportunities in the emerging and growth markets;
• To invest in higher capacity and specialised equipment; and
• To forge alliances and co-operation with strategic and industry players.

From financial statement:

• Turnover increase 44%, while cost of sales only increased by 37%
• Cash generated from operation is 30,585 compare to 16,906 last year

My comment:

This is really a good result for share holder. In future, the construction boom in Singapore and offshore & marine cycle would keep driving the demand for crane and other engineering service. Looking to enter this counter at attractive price. If ever, the market downward swing is coming back, would enter at lower price.

Kim Eng recommendation (updated 29 Aug):

Along with our EPS upgrade, we are raising our target price to S$1.15 based on a PEG of 0.7x, which translates into FY08 PE of 16.3x – in tandem with our other Downstream O&G plays. Reiterate BUY.

We are not safe yet

This week, Singapore market made a remarkable come back. Although stock has bounced from the low and recover some what. The general consensus is we are not out of the correction yet. Read from some where else, looking at the extent of correction this round. It would take a few months for market to recover and subsequently resume the uptrend.

However, from my perspective, this correction would not be the same as the previous two correction we have encountered. At that point of time, the global growth still going strong. So, after the "short" correction, stock would come back and making new high. But looking at this subprime problem, the implication is it might derail the US economy and cause it to slow down. The effect of US slow down would only be felt after 6 months or a year. Any new big news would cause new selling wave.

This is a good time to do your own independent research, get the buy list confirmed. Once another market down swing come, go in and grab some bargain. Stock that has strong growth but reasonable valuation is worth to take a risk at current moment. However, no rush to buy yet. The foreign funds that has pulled out from asia market 3 weeks ago are not going to come back immediately. Imagine many developed market investor redemp their fund and cause the fund manager to start selling the emerging market equity. It makes a while for people to regain confidence and put back their money into fund. When you see some foreign fund start buying, then it would be safer to go into stock. Because you know the big players would push up the price. Of course, you don't expect to buy at rock bottom price, but your chance of going through another emotional ride is being minimised.

I would monitor closely. I do hope STI would be able to go down to 2900. That would be a golden opportunity to add some good stock and hope to profit in the coming 3 years. The key is exhaustion of bad news. Let all the bad news come out at the same time and market adjust the risk premium accordingly. After that, as long as company still growing, I think we would be back on uptrend.

Tale of China consumer

When I started investing back in 2003, that was the time when more China companies came to Singapore to list. Fast forward to now, SGX already has many China companies. Although these companies are mainly mid and small cap, they do offer investor in Singapore way to diversify and participate in China growth story. We can observe that for the past few years, China has became part of our life. Goods were "made in China", companies all trying to expand into China, newspaper also dedicated a section for China news.

The China story is unlikely to subdue anytime soon. A big population couple with rising middle class, it offers a unique opportunity for investor everywhere to profit from there. There are many reports and news which shows us the potential of it. You can do a search for this. >> Search I seriously believe the story and thinks that it is a multi year growth story which looks like a straight line.

If we firmly believe in the China consumer power, what are the companies on SGX that we can depends on? Following is a list of China consumer stock which has strong brand equity, good track record to ride on this trend. Analyst forecast is taken into account for the growth projection. Valuation is not being discussed, as the market fluctuation would present good entry opportunity and you should already have in mind your entry price.

Hongguo

• China no 3 ladies shoe maker. As you might know, ladies change many pair of shoes a year, it is a big business. For the past 3 years, they have been growing at more than 20% a year. A sound management with good track record. Going forward, the opening of more stores and joint venture would continue to drive the earning.
• UBS forecast EPS for FY07 to be RMB0.28, that would be about SGD0.056. In my opinion, the growth rate would be stable at 20% above
  

China Hongxing

• China sport shoe maker which has been growing more than 50% a year for the past few years. The share price has been multiplied for a few times already. Recent result shows strong growth and margin expansion. Aggressive new store opening, upcoming Beijing Olympic games which drive sports goods demand and higher selling price should see higher earning forward.
• CIMB-GK forecast earnings CAGR of 50% for FY07-09. Forecast FY07 EPS SGD0.037.

Synear food

• China food company selling freeze products and dumpling. Gross profit margin about 30% with aggressive capacity expansion plan and strong brand. Despite rising raw material price, the company is able to raise price to compensate for that. The company is riding on the growing per-capita consumption of frozen processed food in China.
• CLSA forecast 2006 to 2011 five-year EPS CAGR to grow at 20%

Hsu Fu Chi

• Manufacturer and distributor of confectionery products – namely, candies, cake and cookies and sachima. The Group is a leading player in China’s candy industry; according to Euromonitor, it has a sugar confectionery market share of about 4.1% in 2005. A stable business with strong and popular brand - “Hsu Fu Chi”
• DBS project that the Group’s EPS will grow by about 13% and 16% in 08F and 09F, respectively.
  

China Lifestyle

• China jelly dessert maker which owns the Labixiaoxin brand (second in China jelly market). With capacity expansion, new joint venture with Super Coffeemix and Malaysia Cocoaland and expansion of distribution point, it should drive the growth in coming years.
  
• DBS project earnings CAGR of 25% over FY06 – FY09F on the back of the doubling of capacity by FY08F.

A follow up rebound

True enough. The STI rebounded strongly on the back of Dow strong performance last week. Asia market is just like a follower to US. Although rebounded from low, the market is not out of trouble yet. Sell into strength, if bought something last Friday at the low. At this point of time, Dow is only up 20 points. Sentiment is not recovered yet and if there are more bad news - more fund folded up, then we would witness about big drop.

Still waiting on the sideline. However, judging the current situation, hopefully all the hedge fund/foreign fund already done their pull out. So, we can expect lesser degree of swing in coming months.

Get the cash ready now, as I have mentioned earlier on, it is impossible to catch the bottom. So it might seem like a good idea to buy small now when STI touch 3100 and buy even more when it is 2900. My buy list for this "correction"(I am not sure whether it would developed into a bear market)

Swiber at 2.2x
Tiong Woon at 0.6x
China Hongxing at 0.65+-
Hiap Seng at 0.65+-

Market direction week Aug 20

I don't have a crystal ball. So I could not tell whether the stock would rebound from the bottom and subsequently recover to challenge the new high this coming week. But looking at the US relief rally last Friday, there is high probability that we would see rebound on Monday.

If you are adventurous enough, we can buy some well beaten down stock to ride this rebound. Take profit if a meaningful profit is achieved. Until the air is cleared and there are no more bad news, then we can consider to re-enter the market.

Celebrate the 100

Today marks the 100 hits of this blog. Thank you for visiting this blog. Although the stock market is in sea of red, fundamental investor has reasons to celebrate also. You can buy your favourite stock at much lower price and enjoy bigger margin of safety. Good luck to all!

Run for your life?

It is another worrying day. STI experienced another free fall. This proves an old saying "destruction is easier than construction". We need so many months to push the STI to 3600 level, yet just within few weeks, it is backed to square. Looking at the current market sentiment and condition, another plunge towards 2900 is not without possibility. Of course, I hope it does not happen, but we should have the mental preparation. Generally, my early thought still intact, that is buy some when we are at 3100, buy some more when we reach 2900.

I think human fear is a great driving factor for this severe correction. When the US subprime woes dominate people's mind, all would think of safety first. I pull out first and see later. That trigger the first selling and it snowballed. Whenever bad news errupted, more money pull out. More plunge weight down people's mind, they tend to join the herd. Hedge fund start pulling out of Asia market with the trouble at their own back yard. Unwind the yen carry trade to reduce the risk. I think the fund redemption and any leverage unwinding is the biggest factor in these few weeks of correction.

In the short term, 1 or 2 months time, sentiment is unlikely to recover strongly. So as to say the share price. Now, as a fundamental investor, it is better to selectively hunt for company with strong cash flow, visible earning in next two years, conversative management and cheap valuation. Still this is not the time to put all your money into work. Buy selectively for a small portion. After the tide seems turning, then re-enter the market again. For the time being, just sit tight and pray...

Market direction week Aug 15

Today STI dropped 113 point to 3273. Market sentiment is still very fragile, every big drop from US or Europe market would trigger a knee jerk action from Asia market. For the time being, I think it would be better to wait on the sideline. Although Singapore company is achiving record profit and good dividend.

One with lots of spare cash, might start buying in different period. When STI drop till 3100, buy some. If it ever drop to 2900, buy some more. After the current turmoil is over, one's profit would be quite substantial. No pain no gain, provided that's the amount of money you can affort to lose.

Look for well beaten down offshore and marine and china stock would ensure good growth for one's portfolio in the coming 3 years.

Investment mistake Part 1 - Hold on to loser

Since I started doing stock investment, I have gone through several market cycles. During this time, there were few money losing counter in my portfolio. Although I have cashed out from them already, I think it is good to reflect on the reason why it didn't perform as expected and what actually went wrong.

1. United Food
The story started as early as 2003. Back then, Uni food was listed not very long ago. As people are searching for undervalued gem, uni food was discovered as an undervalued china food producer. Key investment merit were good industry growth potential as growing affluence increase pork consumption, vertical integrated business model, new star health care product, cheap valuation with low PE and majority of stock price backed by cash and good dividend.

SARS and bird flu came. Business was hit badly as farmer hold back spending. Rising cost and dimmer industry outlook cause earning to come down. I thought it was a one off event and keep believe that it is still a undervalued play, I hold on and even average down a small amount. Only after sometime, I realised that the business is not going to recover strongly. Not in the foreseeable future. The problem with food producer is ever increasing cost and intense competition which prevent you to raise price. Finally, I decided to cash out with more than 50% of capital lost.

I believe many retail investor also have the same experience as me, holding on to a stock which they think is undervalued and below initial investment value. Hoping that some day it would turn around and earn a profit. However, one day the stock outlook is not good, it won't generate any investor interest. No interest means the stock price is not going to move, no matter how undervalued it is. Market give premium valuation to high growth company. Company with low growth or unfavourable outlook would remain undervalued for very long time.

Moral of story: When the tide turns, don't pray, don't hope, get out! There are better opportunities around. Undervalued is not enough, you need investor interest to keep the price up.

2. Bio-Treat
Bio-Treat was listed in 2004. Since its listing, it has attracted many interest from the market. At the beginning, one broker after another issued buy call for the company. The key investment merits were severe China pollution situation, unique proprietary treatment technology and taking on more BOT, TOT project to improve the earning stream.

In the meantime, the company also attract the market attention for the wrong reason. First was the stock option issue, option issued at cheap price. This causes the share price to go down. After the share recovered, other incidents occurred like ex-chairman claimed document forgery, project delay and the unexpected slow quarterly earning.

I bought the share near the peak and average down during one of the cycle. It did recover and I was sitting on a small profit. I thought of holding this as a long term investment. When the management problem surfaced and market confidence shakened, I reckon that it is time to cut loss, sold it at lower price. Now, the share price is some what recovered, but the investor interest is not so strong as compared to previous time. Also, market has learnt that project delay and unexpected event could hurt the water treatment company.

Moral of story: When there is a sign of management trouble, stay away from the company.

3. Full Apex
I bought into the company after analysing that being a key supplier to Coke and Pepsi, it is a good proxy to growing soft drink consumption in China. A strong consumer play. Looked at the valuation and aggressive production capacity expansion, I reckoned it to be a good buy.

Not long after, because of the oil price hike, the share price keep decreasing. I thought the fundamental didn't change much, so continue to hold on to the share. True enough, the oil price actually hurt the company bottom line. It just keep sliding. Early this year, based on the assumption that oil price is going downtrend, there should be a strong earning recovery. I bought some more. Only to realise in the coming quarterly result that the earning didn't increase or recover significant enough though the oil price has came down. I finally cut loss to move fund to other more profitable counter. Lose more than 50% of the capital.

Moral of story: Don't bet against the trend, when there is uncertainty in the earning. Move to something more predictable.

Stock Selection Criteria

A good company exhibits many desirable characteristics. When doing stock selection in stock market, it is good to have a set of rule by your side to aid the selection. Following pure analyst recommendation, usually doesn't get you anywhere.

This list would serve as a guideline when selecting stock

1. Good, committed and honest management.

• This should be a very important factor to consider. A good and foresighted management would be able to take the company to great height. They should communicate all the latest corporate development and strategy to share holder in a timely fashion. Possible evidences are periodic result briefing, immediate release of important development and take time to clear shareholder's doubt in AGM.
• They should also chart out a clear defined growth strategy which capitalise the current industry trend or show how they are going to adapt to industry change.
  

2. Company is profitable, efficient and have a great future.

• High ROE, possibly exceed 20%. This measures the company is able to deploy the fund efficiently to earn good return.
• High profit margin. It is good to have, although not necessary a must. Some company's business model is low margin but high volume. In this case, there are sufficient money to be made to compesate for the low margin.
• Good dividend yield. A high dividend yield is again nice to have, but not a must. If the company is able to deploy the fund efficiently, there is no need to pay high dividend. But periodic and predictable dividend does give share holder a level of confidence in the company.
• Low gearing. The company's debt should not be exccesive. Ideally, the current year cash flow should be able to cover all the debt.
• Positive free cash flow. Look at the operating cash flow, the company with negative cash flow is running the risk that they would have problem in meeting all the short term obligation.

3. Reasonable valuation.

• It might be a great company, but if the valuation is too high, investor would risk potential capital lost if the market valuation is coming down.
• Don't over pay for something.
• Look at the PE and PEG ratio to decide whether it is still worthwhile to invest in the company.
• Alternatively, we can use the discounted cash flow to value the company. However, the problem with this approach is a slight error in the assumption would result in vastly different result.

They are 101 ways to value stocks, either by this or that ratio, or other aspect of the business. But that is too complicated for retail investor. Nowadays, I won't insist on all aspect of the company to be good(in fact, that's almost impossible), I look at few simple aspect of the stock and with the help of analyst report to make the decision.

Result update - MIDAS, China Hongxing

Market is down again today, even though US market has surged 200 points. This is mainly due to persistent margin call and short player in action. Nevertheless, for those long term holder with cash, this present a golden opportunity to pick up some good stock with bargain price.

MIDAS announced a +50% increment of half year profit and winning a new contract from european company. A strong evidence that all the rumour is unfound. When the sentiment turns, it could resume back the uptrend.

China Hongxing had a +110% of first half net profit. A stunning result. They planned to open 600 stores per year for 2007 and 2008 which would drive the earning growth further. The profit margin also expanded. Expect more stellar result in future.

Hongguo profit increased by 21%. Gross Profit Margin expanded from 38% to 40%. Another good half year result similar to the past. It is a slow and steady growth company. Imagine women has to change how many pairs of shoe a year and their multi brand/more store strategy, we should continue to see good growth ahead.

Market close on 06 Aug

True enough. Follow by US market big plunge on last Friday, we saw more selling pressure on SGX today. Many sellers + margin call ensure that the price has no way to recover. Every stock got impacted, no matter big/mid/small cap. Some of the counter with good fundamental even drop more than 10%. One example is Hiap Seng, which drop more than 10%.

Those with lots of spare money can consider to buy selectively. Looks like the consesus now is it would drop further. But to catch it at the right bottom, seems like a difficult thing to do. If the valuation is not exessive, it is worthwhile to pick up a few. Of course, nobody knows what would happen tomorrow. However, I have been through these kind of correction before. I believe as long as you buy it cheap and the company/industry is growing, you would be doing alright years later.

I think I would start a model portfolio of stock and unit trust when the dust settled down. This is to test my stock picking skill and provide more food for thought.

Market direction week Aug 6

Over the past weekend, did some stock research. According to many forum members and bloggers, there could be many margin call on the coming week. So, expect lots of volatility coming. For those who has minimum exposure to stock, it might be worthwhile to pick up some good stock. But keep the percentage of investment small. If it correct further, then you can buy cheaper.

Most of the time, market exhibit this irrational exuberance. When it is a strong bull run, many trader/punter/momentum players came in to push the price to an astronomical level. We could see stocks with historical PE of 40~50. People always justify the price because of high growth expected and reasonable forward PE.

At the time of uncertainty/severe correction, wave after wave of selling emerged. Be it human fear/margin call, it depress the stock price to an unseen level which you could pick up some good stuff with cheap price. After a while, people would say the selling is over done. Then, market rebounded and pick up from there. Keep your emotion in check, control the greed and fear. We hope to time the purchase a little bit better. Sell during an euphoria, buy during the depression.

Layman investing

I have two female friends. I met friend A some months back, she was buying insurance and does not have any unit trust or stock investment. The insurance maybe investment linked or whole life which actually yield lower return. I asked her why don't you invest in unit trust, the return is better. She said "scared leh, money is hard earned one". That's the point, because it is hard earned, you should make it work harder for you.

Friend B told me to recommend her some good stock last year. I told her to open the trading account and read up some investment basic. After half a year, she did nothing. As the stock correction now is an oppoturnity to buy, I alerted her again. She said "need to discuss with you, I am afraid of losing money". She is influenced by people earning quick money in the bull run, yet when there is a stock sale, she is afraid to participate.

Investing is one component of good financial planning. Save some rainy fund, buy some insurance, take the money that you can afford to lose to start investing. Ultimately you would be rewarded with risk that you took. Rather than let the inflation erode your spending power in bank deposit, why not buy a good company. Although not without risk, you can participate in earning growth and dividend. Exchange some of your shopping time to read on investing, surely it yield more than the satisfaction of bringing shopping bag home.

If you don't know stock and don't want that to bother you, buy unit trust. The 21 century belongs to Asia. Buy some Asia fund, hold it for 5 years, I believe you would be doing ok. Some of my colleague, although have no use with their CPF, they just leave it inside the account earning the 2.5% interest. Take some to invest, you won't be wrong.

Stock watch list

Now, the Great Stock Sale has arrived. The key thing is to identify the stock which offer best potential in coming years. These are all under my consideration. Once the storm is over and depends on news development, it could just start moving.

Offshore and marine
BH Global - Lighting contractor for rig and vessel. The more vessel they build, more business they get.
Hiap Seng - Niche contractor for mechanical work and gas compressor.
KS Energy - Energy giant in the making
Swiber - Offer EPC services for offshore and marine sector

Properties and hotel
Guthrie GTS - Undervalued property play
Hotel GrandCentral - Bright outlook as room rate is very high now

China
Ching Hongxing - Sports shoe maker who is growing 40%-50% a year
MIDAS - Supplies the aluminium material to build China railway infrastructure
Sino Env - Cleaning up the China polluted environment
China Lifestyle - Undervalued consumer play, which earning could accelerate in coming FY

Big/Mid Cap
Ascott Group - One of the top service resident player in the world
Guoco Land - Property development in Singapore and China. Could package asset into REIT and unlock share holder's value

High risk
CEnersave - Emerging bio mass energy player.
Guangzhao IFB - Owns lots of fast growing tree which is due to harvest in FY08

Others
FJ Benjamin - Local retail player. The upcoming tourism boom and successful RAOUL brand could drive earning in the future
Hongwei - Undervalued fiber player with low valuation and high capacity expansion

Tag: singapore stock sgx stock offshore marine

Hongwei Technologies

Background
Hongwei Technologies Limited (“Hongwei” or “The Group”) is principally engaged in the manufacture and sale of polyester differential fibres primarily to yarn and textile manufacturers located in the southern parts of China, mainly in Fujian Province.

Investment Merit
Developed Anti-Flammable Synthetic Cotton
Double production capacity for synthetic cotton which is high in demand
Low PE with decent dividend yield
Institutional investor participation - Tembusu Growth Fund
Diverse customer base - 600+

Risk
Sudden slow down of demand for company product

Additional Information
Business week
Tembusu Partners

Tag: singapore stock sgx stock hongwei

Another big plunge

Today the Singapore market just gone through another big plunge. All stock, with fundamental or just speculative, all gone down. In the bull market, everybody wants to buy. In the downturn, everybody wants to cut loss.

I trimmed my position in May, preparing for the market correction. Who knows after I sell out, the counter I once held shoot up more than 50%. That's the power of long term investing. You can never time the market. Just when I re-enter the market few weeks ago, the long awaiting correction is finally here.

I am sitting on paper loss now. But I am not prepare to "cut loss" at this point. Since when I bought the counter, the share isn't that expensive, so I am willing to ride out the volatility. When the next upturn comes, everybody would smile again.

Today added a small position in BH Global. The current offshore and marine cycle has another few years to run. So, this should be considered as "safe" investment. Two more themes I strongly believe are hotel&property and china consumer play. As hotel shortage would stretch till 2010 and china consumer play should be a multi year bull cycle.

Monitoring the market closely, if other even better opportunity emerged, would start a position on it. Although risk abound, focus on the earning prospect and valuation should ensure a safer ride.

If you are unit trust investor, can start planning what to buy already. Once the market stabalise, it is a good time to add some fund position also.

Never 100% vested. Save some bullet for the market correction.

Tag: singapore stock sgx stock

Negative sentiment

Last week, bought into the company MIDAS which supplies aluminium products in China. Few months back, the company is in hot demand by the investor. But due to a false report, which later being took down in one of China website, the share plunge heavily.

I thought buying it at a steep discount to the all time high make the risk worthwhile. However, looking at the closing price today which is something like 1.2+. Market obviously think otherwise.
Since the management has issued a firm denial and there is no concrete proof that the claim is correct. I would continue to hold the stock and looking forward to the bright future.

Maybe the hedge fund and short term player is bashing the stock down. When the stock goes up, everybody wants to buy. When it get beaten down, everybody wants to sell. Market is irrational.