Author Archive

Posted on November 15, 2009 - by Level13

San Teh revisited

1.5 years ago, I made a posting on San Teh:
http://level13-analysis.blogspot.com/2008/05/appraising-san-teh.html

Now I feel its time to sit up and take notice of this sleepy stock again. For the last 6 months, it has been trading at $0.25 to $0.35 with low daily volume. San Teh is currently in a sweet spot to ride on China’s construction and infrastructure boom. The catalysts for its share price appreciation are slowly appearing.

Catalyst 1:
Demand for cement remains strong due to the re-construction after the Sichuan earthquake and China’s infrastructure stimulus spending. So far the cement prices around different regions in China have held up well.
http://www.chinadaily.com.cn/bizchina/2009-03/02/content_7527574.htm

Catalyst 2:
The government is continuing to eliminate backward production capacity. China is looking to eliminate 600 million tons of production capacity from old, outdated plants by 2012. Initially announced in 2007, the move will involve over 3000 local enterprises, China Cement reported. Read more…

Posted on September 8, 2009 - by Level13

Heads you win. Tails I lose!!!

I have to interupt the dummies posting with this latest development from one of the S-chip companies. The majority owner of China Precision has decided to take the company private by offering S$0.28 to buy back all existing shares it does not not own. I am not a stakeholder in China Precision. Nevertheless, ALL MINORITY SHAREHOLDERS SHOULD REJECT THIS OFFER!

Why do I say that? Below are some reasons which i believe will support my view.
1) The company’s IPO took place in May 2006 at a price of S$0.30. The exit offer is at a discount of 6.7%. This means that shareholders who held on to the shares since IPO will make a loss (lets exclude the dividends for the time being).

2) As of the latest financial report ending 30th June 2009, the net asset value (NAV) of the company is S$0.32 per share. Based on this, the exit offer is at a discount of 12.5%. Read more…

Posted on August 28, 2009 - by Level13

Dummies guide to crisis 2007-09 (Part 1 of 4)

When the financial crisis erupted full force in the second half of last year, there was panic all round. This and the next posting will focus on the banks’ contributing role in the crisis. Before going into details, one has to understand the basic principles on which the banking system operates.

Students at the A-level are taught about “multiple deposit creation,” It is the most rudimentary money creation mechanism for banks, which if administered properly serves the economy and public at-large very well. In the deposit creation process a bank accepts deposits and lends them out. But almost every lending returns soon to the bank as a deposit and is lent again. In essence, when people borrow money they do not keep it at home as cash, but spend it, so this money finds its way back to a bank quite quickly. It is not necessarily the same bank, but as the number of banks is limited (indeed very small) and there is—or was—a very active interbank lending. In terms of deposit creation the system works like one large bank.

Therefore, the same money is re-lent over and over again. If all depositors of all banks turned up at the same time there would not be enough cash to pay them out. However, such a situation is highly unlikely. Every borrower repays his loan and pays interest on it. In principle, the difference between a loan and a deposit interest rate is a source of the banks’ profit. Naturally, banks have to account for some creditors that will default and reflect it in the lending interest rate, or all the creditors who repay cover the costs of defaults. On top of it, the banks possess their own capital to provide security. Read more…

Posted on July 28, 2009 - by Level13

Greed and ‘good’ GDP

Once again, greed has reared its ugly head after a hiatus of 18 months. Investors are tripping over themselves for a piece of the action in the world’s second best performing stock market. Recently, about half a million new trading accounts are opened in China and the index went up to 3296, a level not seen since June 2008.

Many are optimistic that the country can attain the government-set goal of 8% gross domestic product (GDP) growth for the whole year. Due to the emphasis of the government on the GDP growth, officials are ignoring other aspects of development and environment protection. Funds and efforts have been mainly devoted to sectors that could have an immediate impact in boosting GDP growth.

Since China began to suffer a serious economic slowdown last year, there are lingering fears that massive unemployment will result in widespread social unrest. As such, Beijing gave up its five-year-old macro-economic control policy and set out on its political task of ensuring a 8% GDP growth for this year. Read more…

Posted on July 3, 2009 - by Level13

The surge in China’s stock market & real estate prices

Investors are rightfully worried about the formation of asset bubble after the revelation that Chinese banks lent out US$670.9 billion, a full 91.6% of the country’s lending target for the year in the first quarter. Most are wondering if it was being directed into areas conducive to a long-term recovery. With such a huge sum of money flowing around, coupled with lax regulation and tracking by the banks, it is not difficult to guess which are the likely places the money will end up in. For answers, look no further than the China stock market and prices of real estate.

Not long ago, Beijing, worried that hot money flowing into unwanted sectors could cause bubbles rather than sustain economic growth, has warned mainland banks against using wealth management funds to directly invest in secondary markets of A shares, managed funds and pre-IPO companies. The warning come ahead of the revival of mainland initial public offerings and after an estimated 50 percent of bank lending has been poured into surging stock and real estate markets. Read more…

Posted on June 23, 2009 - by Level13

No better way to lose – Jackpot machines

Last November, a 49-year-old man won the largest UK jackpot ever – playing an online slot machine. His take was £2,086,585. This, despite what we know to be a universal truth: slot machines (jackpot machines) are the worst bet of them all. They take much more than they give. The maths, the science and the psychology are all against you.

It’s why the machines are the darlings of the casinos: they generate between 60 and 80% of all casino profit. According to figures collected by Las Vegas-based gaming expert Michael Bluejay, the return percentage makes the cost of playing fruit machines outrageously high in comparison to other forms of gaming. Games such as blackjack or baccarat give the casino a 1% edge over the player. A slot machine set at a relatively high 90% offers the casino a whopping 10% edge. According to Bluejay, a player on a one-dollar slot machine will on average lose $800 in a ten-hour session. This is money ground away by the machine as winnings are fed back into the machine. The same player over the same time period will lose only an average of a tenth of that ($79) playing a low-intensity game such as roulette. You still lose money at roulette, blackjack and baccarat, but you lose it more slowly; so you enjoy a longer night out.

People talk about strategies, like watching as punters pump in money then hovering like a vulture to move in if it doesn’t pay out for him. But random number generators have no memory for the past or plan for the future. They do not make decisions. The machine’s outcomes are determined by random numbers and every time you play a machine the odds are exactly the same. It’s a myth that the slot machine will tighten up after it has hit the jackpot, or that it will be loose if it hasn’t been paying. This is not true. It’s like spinning a roulette wheel. Every time you play the odds are the same. Read more…

Posted on June 8, 2009 - by Level13

Pay 83% premium for hope?

The Singapore stock market has gone spectacularly over the past few months. It would be foolhardy to say otherwise. Apparently, the sense of optimism is now so strong that some speculators are willing to pay a premium of 83% for hope.

Enporis Greenz Limited was formally known as Seksun Corporation Limited, which was principally involved in the manufacture of high-precision metal components and contract manufacturing for the electronics industry, with operations in Singapore, Malaysia, Indonesia, China and the USA. In October 2007, the Company announced the sale of substantially the whole of its assets and business undertakings to Supernova Holdings (Singapore) Pte. Ltd. Following the completion of the sale in February 2008, the Company remained listed on the SGX Mainboard and was renamed as Enporis Greenz Limited. Currently, it is a shell company with no operating business to speak of. The Company continues to explore and assess various investment options to seek viable opportunities in other areas of business.
(more…)

Posted on May 26, 2009 - by Level13

Current outlook of S-REITs

Real Estate Investment Trusts (REITs) in Singapore are struggling for the first time since CapitaMall Trust, the first S-REIT, was listed in July 2002. Before the US sub-prime crisis took its toll on the economy and property market in Singapore.

Like their Asian peers, S-REITs have taken a beating since mid 2008. S-REIT prices have fallen by an average of 61% between end 2007 and 2008. Their total market capitalisation has plunged by 42%. With a total debt of over S$4.9 billion maturing in 2009 and more than $3.2 billion in 2010, refinancing has become the most imminent challenge, exacerbated by increasing cost of financing under the tighter credit conditions. Deleveraging is also among the top priorities of S-REITs, leading to CapitaMall Trust (CMT)’s major rights issue in March 2009. On top of these problems, S-REITs are threatened by falling rental income in all sectors and asset devaluation in their portfolios.

The retail S-REITs are expected to be the least impacted by falling rents among other S-REITs in this downturn. During previous downturns, the retail sector was the most resilient with rents declining the least. S-REITs with more suburban malls in their portfolios would face the least drop in rental income as their resident catchment would still need to eat and drink and purchase basic goods and services. Average rents in suburban areas dropped only marginally by 1.6% in the first quarter of 2009 from the peak in the third quarter of 2008 while average rents fell more by 6.9% in Orchard/Scotts Road and 3.8% in Other City Areas during the same period. Suburban malls also have an advantage over malls in the central areas in terms of competition level as among the 2.9 million sq ft of new supply in 2009, only 9% will be in the suburban areas. With the opening of Tampines 1 Mall in early April 2009, there will be no other major new mall in the suburban areas for the rest of the year. Read more…

Posted on April 28, 2009 - by Level13

Thinking from the business perspective

Collin Yeo said…

uptrending share price tells you nothing on the business and industry outlook”So what does? Consistent CAGR, strong cashflow, earnings and dividends? What if these doesn’t translate into uptrending share price? Would you still buy into the company?

Collin, the 4 points you mentioned above form only part of the metrics that an investor should take note of. The list is not exhaustive but it includes ROE, ROIC, WACC, trade receivables level and so on. These ratios and figures can be obtained easily from the annual reports. But wait, getting your hands on them is only half the work done. The other half of the effort should be focused on the business prospects and the management staff. Most investors neglect this portion as such things are not easily quantifiable and it can be very time consuming to dig for info.

What should investors look out for in terms of business prospects and outlook?
Basically reading up on the work of Michael E. Porter will give you a much better idea.
For example, lets take a look at the group of companies under electronic contract manufacturers.

There are quite a few of such companies listed in SGX. The laptops, computers and other electronic equipment companies are usually the customers of the electronic contract manufacturers. They exist to provide a value added service (example: assembly of components, modules and circuit boards) to their customers. Through these processes, they earn a small margin (5-10%) in return. Compare this to their customers’ margin. After taking back the assembled parts, the customers will then put their own brand name (example: HP, Acer) on the product. For niche electronic products, the selling price can be a few times higher than the cost price. For low end products, the margin is around 20-30%. Read more…

Posted on April 22, 2009 - by Level13

Beware of interested party transaction

C&G used to be a stock market darling from 2006 to 2007. But this should no longer be the case going forward with their latest announcement.

Basically, C&G is signalling to its investors that there is not much light at the end of the tunnel for the textile industry. To me, textile is a commodity and there is no pricing power for companies in this industry. Of course, this does not mean that C&G will report a loss in the next few quarters but growing profits will become increasingly difficult as we move on. This is the main reason why i did not buy into C&G after looking through its report in 2006. Yes i missed out on the wonderful gains as the share price went up throughout 2007. But again, a uptrending share price tells you nothing on the business and industry outlook, which one ultimately has to take into consideration when buying shares.

The next thing investors should take note of is the interested party transaction involved for this latest acquisition. Mr. Lam Chik Tsan who is the Executive Chairman and Director of C&G, owns 60% of the issued and paid up share capital of Vendor. Accordingly, the Vendor would be deemed as an “associate” of Mr. Lam Chik Tsan and an “interested person” in the context of the Proposed Acquisition. It should also be noted that Mr. Cai Junyi who is the Company’s Executive Director and Chief Executive Officer, owns approximately 17.5% of the issued and paid-up share capital of the Vendor. The 2 of them in total owns 77.5% of the vendor. Read more…