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.