2020 - Year of Awakening

Year 2020 will be a memorable year for all due to the covid pandemic, it has impacted almost every aspect of one's life and has changed perspective of many, whether in daily life, investment, career, family, etc. Whatever it is, continuous learning and adapting to changes are the most important lesson in life.

2008 financial crisis has taught me to only invest in fundamentally strong companies and ever since I have been avoiding highly geared companies and those weak in financial position and cash flow. I have also started to invest in REITS for recurring and stable dividend income as well as what is known as value stocks with strong free cashflow and reasonable (>4%) to high(>6%) dividend yields. I must say I had enjoyed a smooth sailing without much volatility and performed portfolio re-alignment once a while.  

Now year 2020 has changed what was thought to be rather resilient stocks. Few important lessons I learnt:-

• The pandemic has accelerated the change in business model and adoption of technology Eg retail & office REITS once thought to be stable are affected badly, even the weaker healthcare Reits such as First Reits is hit extremely bad. In addition, during the pandemic many Reits tried to built up their cash reserve by reducing dividend, some were even doing cash call/rights issue, not only I didnt get the dividend I used to receive, I need to utilise my reserve to avoid dilution :(
• My portfolio was heavy on value and income stock. Some value stocks that look cheap when I bought them, looks even cheaper. I am referring to Chinese banking stocks - looked cheap then with good dividend yield, now even cheaper. The hard truth is these stocks are perceived to be low growth stock. When times are bad, bank face high default risks, in addition, these state controlled stocks are vehicle used to support and save other businesses when times are bad. Hence, they do not have the total freedom and theirs' deep value become deeper. 
• The anti trust law and propaganda happening everywhere has resulted in disruption in growth of technology giants. More so in China where policy dictate whether a person or a company still has the future once perceived to be very bright. Alibaba/ANT serves as good reminder not to bet big in a single Chinese stock no matter how bright the future looks.     
• Reinforced my own preference all this while - avoiding airline stocks whether economy good or bad. I always think this industry is a very tough industry with fierce competition, highly impacted by fluctuation in oil price, highly geared.. yes, I may not understand well about this industry but I just do not have faith in them, May be I always thought of Malaysia Airline as an example.  

What have I changed in 2020:-

• accelerated my learning and adoption of ETFs - which I find suits me quite well, more diversification, less volatility and seems able to achieve reasonable growth in the long run
• reduce exposure to a specific country, hence reducing risk of a particular currency devaluation
• realignment between income, value and growth stocks to achieve a more balanced portfolio 

I am happy that there are some good picks in 2020 eg Eita, HLInd, Frencken and Tech, Income & Growth ETFs as a result of the realignment, of course partly due to luck as in the case of Eita for its bonus issue exercise.

No matter what crisis or events, it will still recover. Therefore, we just need to ensure we or the stocks we invested survive the shock, then everything will be fine.

Wishing all of us a safe and fulfilling 2021. 

Daibochi - a long term & sustainable growth stock?

 

Year 2020 is almost over, despite the deadly Covid 19 impact at the beginning of the year, stock market indexes have recovered and some even surpassed level before the pandemic eg. DJIA, Nasdaq and our FBM KLCI too. Surprisingly HSI, STI and ASX are still below the Jan 2020 level. 

A stock in my portfolio that has shown good return this year is Daibochi ( I know, nothing compared to glove stocks). Let's have a quick look at its FY20 annual report and see whether it has a long term & sustainable growth potential:-

1. FY2020 Revenue (FY 2019 consists of 19 months), Earnings and Dividend per share are all showing good growth

2. Company's growth strategies:-

- allocating Rm100 million in FY20 & FY21 to expand capacity by 60%

- developing sustainable FPP to meet customers need 

- expand beyond just MNC into regional brand customers in Southeast Asia & Oceania

3. Strong management if we believe the Scientex DNA is embedded

I am positive with these growth strategies and hence holding on to it as I believe it is still at the beginning of a long and sustainable growth trajectory. At current price of 2.70, it does not look over or undervalue but if the 60% capacity expansion is delivering the growth expected, I hope its value will be double by then.

As some of you may already know, there is a substantial shareholder, Samarang Asian Prosperity Fund started offloading Daibochi since July 2020. Based on its last announcement on 19 Oct 2020, it has reduced it stake to less than 5% (about 16 million shares) but I believe it is still selling. This, I believe has somewhat suppressed the share price of Daibochi lately. 

As long as it continues to deliver growth and when Samarang has stopped or finished selling, the price should continue its uptrend to demonstrate the characteristic of growth stock. Please do your own assessment if you decide to invest in Daibochi as I have vested interest in it.