When buying things, we usually compare the price across different shop, hoping to get a bargain. This is not usually the case with stock investing, investor watching the price going up has tendency of catching the train. However, generally the seasoned investor knows when to buy and hopefully buy on cheap.
I was reading extensively recently. In general, I would also like to buy on cheap, but sometime it is not easy to carry out. Good stock will be in hot demand, and it pays to pay for growth. Don't buy cheap, buy value.
Showing posts with label discussion. Show all posts
Showing posts with label discussion. Show all posts
Sunday, 29 August 2010
Sunday, 21 March 2010
Hongguo offer closing soon
The major shareholder of Hongguo has received more than 90% of the company share. It looks like the delisting will become a reality soon. The offer is a generous one, considering the premium they are willing to pay.
However, looking at it in the long term perspective, it is cheap for them to take the company private. Who knows? Once the business turn around in 1-2 years time, they can float it in hong kong and fetch higher price.
Through these years of holding the stock, I have learned
1. Being third doesn't mean you are going to be first soon. There is a big gap between the first and second/third place shoe brand. It takes a lot more effort for the company to catch up. In another word, it is better to buy the market leader, which can outgrow the smaller player.
2. Being a good company is not enough. Hongguo steadily grows through the years. However, most of the time, market is not appreciating the company by giving it a better valuation. If the company can grow at 20% annually, having the single digit PE, is too cheap. Of course, this is before the sub prime crisis occurred.
Hopefully my next venture will be more profitable.
However, looking at it in the long term perspective, it is cheap for them to take the company private. Who knows? Once the business turn around in 1-2 years time, they can float it in hong kong and fetch higher price.
Through these years of holding the stock, I have learned
1. Being third doesn't mean you are going to be first soon. There is a big gap between the first and second/third place shoe brand. It takes a lot more effort for the company to catch up. In another word, it is better to buy the market leader, which can outgrow the smaller player.
2. Being a good company is not enough. Hongguo steadily grows through the years. However, most of the time, market is not appreciating the company by giving it a better valuation. If the company can grow at 20% annually, having the single digit PE, is too cheap. Of course, this is before the sub prime crisis occurred.
Hopefully my next venture will be more profitable.
Monday, 28 September 2009
Book: Yes, you can time the market
Over the weekend, I was reading the book "Yes, You can time the market" by Ben Stein and Phil DeMuth. It is quite an interesting book to read, especially the concept presented in the book. The authors are trying to prove that you can actually time the market, despite the conventional wisdom. Don't get it wrong. It is about time the market on long term basis, not short term.
The analysis presented is interesting. First, take the S&P 500 index as basis, chat the ratio like PE or dividend yield against its 15 years moving average. Using lump sum investment and dollar cost averaging approach, compare buying regardless of the market timing against buy the stock when particular point fall below the moving average. It shows market timing actually work(when buying the market, not individual stock).
I think the basic principal is quite obvious. Buying good stock is not enough, you have to buy it cheap enough, in order to enjoy good return on your capital. By combining the buy low and long term compounding strategy, it actually make more return than just buy and hold regardless of buying time.
The analysis presented is interesting. First, take the S&P 500 index as basis, chat the ratio like PE or dividend yield against its 15 years moving average. Using lump sum investment and dollar cost averaging approach, compare buying regardless of the market timing against buy the stock when particular point fall below the moving average. It shows market timing actually work(when buying the market, not individual stock).
I think the basic principal is quite obvious. Buying good stock is not enough, you have to buy it cheap enough, in order to enjoy good return on your capital. By combining the buy low and long term compounding strategy, it actually make more return than just buy and hold regardless of buying time.
Sunday, 13 July 2008
Is commodity fund a good investment now?
I chatted with a friend a couple of weeks ago. He was asking whether did I buy the commodity fund? I said no. Nowadays, I try not to go into exotic products, which I can't really predict the cycle. Maybe if you went in 1 year back, you are laughing non stop now.
But for the new investor, refrain from going into commodity fund should be the strategy. "What goes up must come down", everyone should remember this. Maybe we are really in the commodity super bull cycle. However, buying at the current time, the risk out weight the potential gain.
The high inflation, high commodity price should led to reduce demand. The growth is also slowing. There isn't a favourable factor to consider going into commodity now.
But for the new investor, refrain from going into commodity fund should be the strategy. "What goes up must come down", everyone should remember this. Maybe we are really in the commodity super bull cycle. However, buying at the current time, the risk out weight the potential gain.
The high inflation, high commodity price should led to reduce demand. The growth is also slowing. There isn't a favourable factor to consider going into commodity now.
Wednesday, 18 June 2008
The fallen rice price
It was in the news. After a few months of surge, the rice price has started to go down now. Actually, there was no shortage of supply. But because of the kiasu-ism of some countries which wants to stock up the rice, it cause the temporary demand surge. Once they have stocked up enough rice and new season harvest going into market, those restrictions have been removed slowly. We shall see the continuous fall of the rice price, which is a good news to the investor. Because we need Asia to remain socially stable.
Day would come for commodities. There would be an end to the commodity bull, the only million dollar question is when? If the following factors which driving up the price start to wane, then we shall see rationale return to the market.
1. Speculative buying by hedge fund and investor
2. Increase demand all over the world
3. The bio fuel madness
4. Shortage of farm land
All these could be summarized to only one factor - demand. If the inflation goes out of hand, there won't be long when demand would reduce drastically.
Day would come for commodities. There would be an end to the commodity bull, the only million dollar question is when? If the following factors which driving up the price start to wane, then we shall see rationale return to the market.
1. Speculative buying by hedge fund and investor
2. Increase demand all over the world
3. The bio fuel madness
4. Shortage of farm land
All these could be summarized to only one factor - demand. If the inflation goes out of hand, there won't be long when demand would reduce drastically.
Thursday, 15 May 2008
SIA, good company in a difficult industry
I just saw the analyst report on SIA result for FY08. The key points are
Operating profit up 62%
Net profit grew 40%
Turnover up 10%
Dividend of $1
I am not a fan of SIA or the aviation industry. That's because aviation industry has traditionally being a very difficult industry to earn money. Invest your money in the sector would prove to be a tough call, because you don't know when the tide could turn against you.
Purely from the result point of view, it reminds us something. A good company in a difficult industry would still perform and deliver shareholder value. So, the moral of the story? The management capability is up most important in stock picking. You pick a good company with great management, you would be taken care of in the long run.
Hold on, but how do we pick the company with great management? That's the million dollar question! Maybe try to flip the Philip Fisher book to see the clue. I would say it is through long term observation, we can gage what is the management capability.
How they make decision?
How they treat the minority shareholder?
How they present themselves in report, analyst meeting?
Of course, ultimately, they should deliver.
Operating profit up 62%
Net profit grew 40%
Turnover up 10%
Dividend of $1
I am not a fan of SIA or the aviation industry. That's because aviation industry has traditionally being a very difficult industry to earn money. Invest your money in the sector would prove to be a tough call, because you don't know when the tide could turn against you.
Purely from the result point of view, it reminds us something. A good company in a difficult industry would still perform and deliver shareholder value. So, the moral of the story? The management capability is up most important in stock picking. You pick a good company with great management, you would be taken care of in the long run.
Hold on, but how do we pick the company with great management? That's the million dollar question! Maybe try to flip the Philip Fisher book to see the clue. I would say it is through long term observation, we can gage what is the management capability.
How they make decision?
How they treat the minority shareholder?
How they present themselves in report, analyst meeting?
Of course, ultimately, they should deliver.
Wednesday, 30 April 2008
Avoid second tier consumer company
I like China consumer stock. Names like Hongguo, China Hongxing and Synear food are inside my portfolio. The emerging middle class and progressive increase in country wealth would increase the consumer spending power. These companies are good buy for long term, as they capitalize on their strong brand name to capture the market.
At the same time, I would avoid investing in second tier consumer stock. How do I classify them into second tier? I remember I read some analyst reports previously regarding company produces the intermediate goods for consumption. Analyst would claim there is a growing demand and bright industry outlook, hence a good buy. Sometime when you tell a story, you tend to emphasize more on the bright side. When time is gloomy, people tend to focus on the downside more.
As the demand soar, indeed they are getting good business, but don’t forget the supply side! For intermediate producer, you source the raw material and make into intermediate product. This good is sold to the end manufacturer which piece them together to produce the final good. The commodity bull cycle is squeezing the margin for these players. Very often, in the middle of value chain, there is a limit on how much you can pass on the cost. If you are really big player, you pass on all the cost increase, then your margin won’t be affected. What if you are not that strong?
For the first tier or end consumer company, I would think the situation is much more manageable. That is because you own the brand. If you are a big industry player, most of the time you can squeeze your supplier to lower the cost. If your brand is strong, you can pass on the cost to end consumer. There are also other ways of passing the cost on, like decrease the weight a little and repackaging. Of course, I sound too simplistic in these arguments. But I really think that they have better bargaining power. Go to the local supermarket to do a comparison. Price of same goods from different brand might vary a lot. However, the more expensive brand does not go out of business!
Companies like China Sun, Luzhou, Celestial didn’t have a good year because of the dramatic cost increase. Celestial does have its own strong brand, but it also has industry soy bean processing. The fiber player like China Sky and Fiberchem did amazing well to defray the oil price increase. Soft packaging companies also had a tough time because of the oil.
However, every company’s situation is different. It doesn’t mean by stereotyping the company, it is not worth the investment. We have to analyse the company on case by case basis to understand the growth driver and business prospect, in order to arrive at a conclusion.
At the same time, I would avoid investing in second tier consumer stock. How do I classify them into second tier? I remember I read some analyst reports previously regarding company produces the intermediate goods for consumption. Analyst would claim there is a growing demand and bright industry outlook, hence a good buy. Sometime when you tell a story, you tend to emphasize more on the bright side. When time is gloomy, people tend to focus on the downside more.
As the demand soar, indeed they are getting good business, but don’t forget the supply side! For intermediate producer, you source the raw material and make into intermediate product. This good is sold to the end manufacturer which piece them together to produce the final good. The commodity bull cycle is squeezing the margin for these players. Very often, in the middle of value chain, there is a limit on how much you can pass on the cost. If you are really big player, you pass on all the cost increase, then your margin won’t be affected. What if you are not that strong?
For the first tier or end consumer company, I would think the situation is much more manageable. That is because you own the brand. If you are a big industry player, most of the time you can squeeze your supplier to lower the cost. If your brand is strong, you can pass on the cost to end consumer. There are also other ways of passing the cost on, like decrease the weight a little and repackaging. Of course, I sound too simplistic in these arguments. But I really think that they have better bargaining power. Go to the local supermarket to do a comparison. Price of same goods from different brand might vary a lot. However, the more expensive brand does not go out of business!
Companies like China Sun, Luzhou, Celestial didn’t have a good year because of the dramatic cost increase. Celestial does have its own strong brand, but it also has industry soy bean processing. The fiber player like China Sky and Fiberchem did amazing well to defray the oil price increase. Soft packaging companies also had a tough time because of the oil.
However, every company’s situation is different. It doesn’t mean by stereotyping the company, it is not worth the investment. We have to analyse the company on case by case basis to understand the growth driver and business prospect, in order to arrive at a conclusion.
Sunday, 13 April 2008
China Top Sports Shoe Brand
I search the web for more information on the top china sports shoe brand. The information is fragmented and there is no single reliable source.
Here is the list of top 10 brands (source):
1. Nike
2. Adidas
3. Converse
4. Reebok
5. Li-ning 李宁
6.Peak 匹克
7. 361 degree 361度
8. Anta 安踏
9. Jordan 乔丹
10. Xtep 特步
Depends on the website and time, some mentioned erke, some do not. Although hongxing compete in the same segment as Li-ning and Anta, but for the brand value, it still lack behind. However, some mentioned that erke is catching up fast. We shall see whether China Hongxing would catch up in the next few years. Generally, it is cited that they are expert in tennis shoe.
Following the successful listing of Li-ning, China Hongxing and Anta. More china shoe maker is seek to list to expand and compete in the domestic market. That's the reason we are seeing China Sports and now the China Eratat. The traditional strategy of Chinese sport brand is to engage brand ambassador to promote the brand. This might bring fast result, but for a brand to be long lasting, the core brand value and quality must remain consistent.
Yeli (野力) seems to be a new brand created to capture the fashion+sports market. It is not an established brand yet. Eratat (鳄莱特) has a longer history, but remain as localised brand in certain cities only.
Here is the list of top 10 brands (source):
1. Nike
2. Adidas
3. Converse
4. Reebok
5. Li-ning 李宁
6.Peak 匹克
7. 361 degree 361度
8. Anta 安踏
9. Jordan 乔丹
10. Xtep 特步
Depends on the website and time, some mentioned erke, some do not. Although hongxing compete in the same segment as Li-ning and Anta, but for the brand value, it still lack behind. However, some mentioned that erke is catching up fast. We shall see whether China Hongxing would catch up in the next few years. Generally, it is cited that they are expert in tennis shoe.
Following the successful listing of Li-ning, China Hongxing and Anta. More china shoe maker is seek to list to expand and compete in the domestic market. That's the reason we are seeing China Sports and now the China Eratat. The traditional strategy of Chinese sport brand is to engage brand ambassador to promote the brand. This might bring fast result, but for a brand to be long lasting, the core brand value and quality must remain consistent.
Yeli (野力) seems to be a new brand created to capture the fashion+sports market. It is not an established brand yet. Eratat (鳄莱特) has a longer history, but remain as localised brand in certain cities only.
Sunday, 16 March 2008
Beat the CPF investment restriction deadline
1 April 2008 is coming very soon. After this date, the first 20k in CPF-OA and SA won't be available for investment purpose anymore. So, who ever interested to invest would have to act now before it is too late.
However, invest in this uncertain time needs some courage. Although we said it is better to buy when it is cheap than it is expensive. But the human psychology would make it a difficult task. On the investor mind, cheap could go cheaper. However, how often can you catch the bottom? Spread out the investment amount would be a good idea to prevent the difficult market timing job.
Online fund distributor fundsupermart is running a promotion now on some fixed income fund at zero sales charge. The message is if you are planning to invest CPF money in equity fund sometime later, you can park the money in fixed income fund now and switch later. Since they offer zero sales charge and free switching, so the only risk is fluctuation of the bond prices and interest rate. It is worth the risk if you think you are able to somehow catch “the bottom”.
One of the fund under promotion is AIGIF Singapore Bond Fund which has won some fund awards. The fund is down 4.36% on 3 months basis. This is quite unusual, consider other bond fund is holding up well. So, I did a further check. In the fund top 10 holdings, there are Capitalmall Trust and A-REIT. I think that might explain the loss, as REIT is being sold down in the recent market turmoil. Even fixed income fund is not without its own risk.
At the same time, DollarDex also highlighted 3 of their fixed income fund is on zero percent sales charge. I think they are trying to capture the business from people want to park the money in fixed income fund first.
However, invest in this uncertain time needs some courage. Although we said it is better to buy when it is cheap than it is expensive. But the human psychology would make it a difficult task. On the investor mind, cheap could go cheaper. However, how often can you catch the bottom? Spread out the investment amount would be a good idea to prevent the difficult market timing job.
Online fund distributor fundsupermart is running a promotion now on some fixed income fund at zero sales charge. The message is if you are planning to invest CPF money in equity fund sometime later, you can park the money in fixed income fund now and switch later. Since they offer zero sales charge and free switching, so the only risk is fluctuation of the bond prices and interest rate. It is worth the risk if you think you are able to somehow catch “the bottom”.
One of the fund under promotion is AIGIF Singapore Bond Fund which has won some fund awards. The fund is down 4.36% on 3 months basis. This is quite unusual, consider other bond fund is holding up well. So, I did a further check. In the fund top 10 holdings, there are Capitalmall Trust and A-REIT. I think that might explain the loss, as REIT is being sold down in the recent market turmoil. Even fixed income fund is not without its own risk.
At the same time, DollarDex also highlighted 3 of their fixed income fund is on zero percent sales charge. I think they are trying to capture the business from people want to park the money in fixed income fund first.
Tuesday, 5 February 2008
McDonald's and McCafe
Recently, McDonald's has opened many McCafe over the island. The new cafe mainly situated at the same location as the fast food restaurant. I was surprised at the setup and the quality of coffee it offers.
For the past few decades, McDonald's has grown quite steadily, expanding from its home to almost every part of the world by selling burger. With its efficient operating model and recognized franchise, it is able to earn good money and grow the business. By selling burger and soft drink, it is able to command a operating margin of 17% (from Google finance)
When consumer health consciousness picked up, it starts to sell green tea, corn and apple. When the growth stalled, it starts the coffee venture to capture wider market. It was once viewed by analyst as a value property play since its restaurants are all in very good location.
I think this shows that it is important to invest in business. Yes, business, not just stock. Pick a company which has unique competitive advantage, good product, good management and discounted price. In the long run, you would definitely win.
For the past few decades, McDonald's has grown quite steadily, expanding from its home to almost every part of the world by selling burger. With its efficient operating model and recognized franchise, it is able to earn good money and grow the business. By selling burger and soft drink, it is able to command a operating margin of 17% (from Google finance)
When consumer health consciousness picked up, it starts to sell green tea, corn and apple. When the growth stalled, it starts the coffee venture to capture wider market. It was once viewed by analyst as a value property play since its restaurants are all in very good location.
I think this shows that it is important to invest in business. Yes, business, not just stock. Pick a company which has unique competitive advantage, good product, good management and discounted price. In the long run, you would definitely win.
Monday, 28 January 2008
Is monopoly a good business?
Recently, follow the transport policy change, the spotlight are on ComfortDelgro and SMRT. Both of the companies have a duopoly on the local transport market. They are natural monopoly who operate certain concession and have stable business.
Generally, this type of business is defensive in nature. That means during good time or bad time, the earning is quite stable. Depends on the industry nature, some monopoly might have better prospect than others. Compare a toll road operator to a bus company, I would think that toll road is better, at least the fixed cost does not increase so fast. Well, but it all depends on individual situation. Look at the local market which is pretty small, obviously the monopoly has little room for growth.
That's why I was never impressed with the transport stock. The room for growth is limited. Key risk to monopoly is always the regulation change. Unfortunately, this is what is going to happen to them in the coming years.
More competition would always cause falling margin and reduced profit. Only the more efficient operator would survive.
Generally, this type of business is defensive in nature. That means during good time or bad time, the earning is quite stable. Depends on the industry nature, some monopoly might have better prospect than others. Compare a toll road operator to a bus company, I would think that toll road is better, at least the fixed cost does not increase so fast. Well, but it all depends on individual situation. Look at the local market which is pretty small, obviously the monopoly has little room for growth.
That's why I was never impressed with the transport stock. The room for growth is limited. Key risk to monopoly is always the regulation change. Unfortunately, this is what is going to happen to them in the coming years.
More competition would always cause falling margin and reduced profit. Only the more efficient operator would survive.
Thursday, 17 January 2008
Stock market de-rating
Economy go through cycle. So does the stock market. When the economy is bad, the company profit shrink together with the share price. At this time, there's no investor interest and that contribute to the cheap stock price. A single digit PE is not uncommon.
When the economy begin the turn around and go into boom time, company profit would increase. This would attract investor to come in and buy the stock. At the same time, profit also grow accordingly. As the profit increases, investor would bid up the share price. Then, we have the valuation re-rating, because investor is willing to take more risk to exchange for return.
If we understand the economy and market cycle, the logical thing to do while in the recession is to load up fundamental strong stock. Everyone has their own preference. Generally, a company with good brand name, stable business and strong cashflow can be purchased at a discounted price. Once the economy is back on fire again, the share price would zoom north. Although the principal seems simple, many investor failed to do so.
Therefore, a strong investment framework has to be established. One should access the individual risk taking appetite, financial situation and investment goal to decide which style is best for himself/herself.
During the financial market turmoil or weaker economy outlook, fear overtake investor's greed. The general market would experience de-rating. This can be judged from the PE contraction. Individual stock PE could fall from double digit to single digit. This coupled with the panic selling would make the process happen very fast.
At this time, investor is too fearful to buy stock, afraid that it would drop further. Ironically, if the valuation is not excessive, this could be a good opportunity to buy stock with reduced risk. All you need is the holding power till the good time comes back.
Sunday, 9 December 2007
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
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
Tuesday, 4 December 2007
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.
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.
Monday, 26 November 2007
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.
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.
Wednesday, 14 November 2007
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.
Monday, 5 November 2007
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.
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.
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