HRnet on SGX

I have been keeping track on HRnet since its listing in Jun 2017 (mentioned on my blog here). I like its business model which is asset light, strong operating cash flow and easily expandable, especially with a strong war chest after its IPO (sitting on close to S$280 mil cash reserve). Hence, I have started to accumulate at 80 cents and lately there are some research reports by analysts on the stock (here).

It's expected to record ~S$40 mil net profit for FY17. If the management can utilize the cash reserve to generate the following returns, it will have the following impact on its profit (Based on RHB's research, lets assume it has budgeted S$200 mil for acquisition):-

5% will give additional PBT of $10mil
7.5% will give additional PBT of $15mil
10% will give additional PBT of $20 mil

My investment case is basing on growth potential from M&A and ride the recovery in labour market of Singapore. Target price from analysts ranging from $0.96 to $1.14, which indicates upside potential of 20% to 40%, which I tend to agree after my own estimate basing on discounted cash flow and PE valuation basis.

Please do your own valuation if this stock excites you.

2018 - Focus

2017....

My portfolio return for 2017 only achieved 11.2% , yes I missed my 2017 target of 15% return. Though at one stage it exceeded 20% return but the not so encouraging 3rd quarter results of some companies in my portfolio have almost halved it. :(  In the mean time, I have raised my cash level to more than 50% over the last 3 months.

All of us have different forecast and expectation on how equity market will be in 2018 while some believe in staying fully invested. For 2016 & 2017, my approach has been such that whenever I find a good company that looks undervalued based on my own valuation, I will take position and sell it when it get close to its fair value. Yes, sometimes sold too early or bought too early...well, I believe I am not alone here.

So, I am planning to take a different approach in 2018. Unless and until I see a really deep in value company, I will not take position so easily for the remaining 50% cash reserve. I know many will not agree with me on this and most super investors opined that one should not time the market because no one has done that right all the time, though some may have done it right once or twice. There will be opportunity cost involved if the market performs totally opposite of what I expected. I want to be "speculator" in 2018, speculating on the market dip for deep value buy. My stock selection criteria remains the same, only good company that appears undervalued..no speculation on company's fundamental. I am not sure if I can stand this real test of my patience by not doing anything with idle cash earning low returns from FD..  :)

Whatever your approach or strategy  is in 2018, I wish all of us achieve what we target.
Happy New Year !

2018--->




  

Take A Break!

It's the last month of the year already..my investment returns have been showing promising results before the major U-turn started in November, and December does not look that good as well. But that is part and parcel of the investment life cycle, just like our life, it has its ups and downs. More importantly we survive and strengthen our position during the downs. Learn to capitalise on opportunity offered during the downs and emerge stronger when ups are back.

I like December because most people is in holiday mood - family travelling plan, catching up with friends, time to sit back and think of the big plan for next year, etc. I recalled when I graduated, I enjoyed taking time to plan what to achieve in the coming year and putting them down in a little diary and tried to check the progress during the first two months...more often than not, I forgot about the plan from third month onwards because I lost focus as a result of many unforeseen challenges. That explained why I did not achieve most of them those years, especially my investment plan!! ...but still, I enjoyed having that plan year after year. Reason being it gave me hope that there would be better times ahead if we plan ahead and execute it well. 
Fortunately I still keep the old habit of year end planning. My investment plan for the last 5 years have shown me that if I stay focus, I am getting very close to what I planned for. It has given me more confident and I am excited to plan for the next 5 years. Yes, lets take a break - everyone deserves a good break at least once a year. We need to maintain a calm mind in a bearish market.

"A calm mind is the ultimate weapon against your challenges. So relax." - Bryant McGill


        

Seeking Wisdom from Philip Fisher

Below are the 8 popular quotes by Philip Fisher I like most.
1. The market is filled with individuals who knew the price of everything, but the value of nothing.
2.  I don't want a lot of good investments, I want a few outstanding ones.
3. If the job has been correctly done when a common stock is purchased, the time to sell it is - almost never. 
4. Doing what anyone else is doing at the moment, and therefore what you have an almost irresistible urge to do, is often the wrong thing to do at all.
5.Investors have been so oversold on diversification that fear of having too many eggs in one basket has caused them to put far too little into companies they thoroughly know and far too much into others which they know nothing about.
6. Be extra careful when buying into companies and industries that are the current darlings of financial community.
7. My mistake was to project my skill beyond the limits of experience. I began investing outside of the industries which I believe I thoroughly understood, in completely different spheres of activity, situations where I did not have comparable background knowledge.
8. One, which I mention several times elsewhere, is the need for patience if big profits are to be made from investment. Put another way, it is often easier to tell what will happen to the price of a stock than how much time will elapse before it happens.  

Seeking wisdom from Peter Lynch

Below are 18 quotes by Peter Lynch I like most, let's find some wisdom or guidance from the stock investment legend:-
1. The key to making money in stocks is not to get scared out of them.
2. If you're prepared to invest in a company, then you ought to be able to explain why in simple language that a fifth grader could understand, and quickly enough so the fifth grader won't get bored.
3. There's no shame in losing money on a stock. Everybody does it. What is shameful is to hold on to a stock, or worse, to buy more of it when the fundamentals are deteriorating.
4. Behind every stock is a company. Find out what it's doing.
5. Owning stocks is like having children -- don't get involved with more than you can handle.
6. If you can't find any companies that you think are attractive, put your money in the bank until you discover some.
7. If you don't study any companies, you have the same success buying stocks as you do in a poker game if you bet without looking at your cards.
8. Time is on your side when you own shares of superior companies.
9. Never invest in any idea you can't illustrate with a crayon.
10. Know what you own, and know why you own it.
11. In this business, if you're good, you're right six times out of ten. You're never going to be right nine times out of ten.
12. It would be wonderful if we could avoid the setbacks with timely exits, but nobody has figured out how to predict them.
13. The typical big winner in the Lynch portfolio generally takes three to ten years to play out.
14. During the Gold Rush, most would-be miners lost money, but people who sold them picks, shovels, tents and blue-jeans (Levi Strauss) made a nice profit.
15. All you need for a lifetime of successful investing is a few big winners, and the pluses from those will overwhelm the minuses from the stocks that don’t work out.
16. Long-term investing has gotten so popular, it’s easier to admit you’re a crack addict than to admit you’re a short-term investor.
17. Investing in stocks is an art, not a science, and people who’ve been trained to rigidly quantify everything have a big disadvantage.
18. The simpler it is, the better I like it.

 

Am I investing in Business?

The recent correction on Bursa (yes, all other indexes are rising except KLCI) has made many investors uneasy, me included even though over the last 2 months I have raised my cash level to more than 40% ( the % has risen marginally the last few days due to drop in equity value in the portfolio!!). The recent drop has erased a portion of my gain for the year.
Many reasons have been cited for the fall - foreign fund selling ( ride on the timing of ringgit appreciation?) , uncertainty on the forth coming general election, not so encouraging Q3 corporate earnings, etc etc. While this may provide the reasons on why stocks fall, I am more concerned on whether the business of the company I have invested has changed fundamentally or affected by these short term emotions or activity. I believe each of us would react differently in the current situation, some will just wait and see, some may sell first buy back later, some may start buying, going for short term trading, some may be searching for long term buy, etc.
I must admit I am not good at market timing or looking at technical chart to decide when to buy sell, hence, I have to rely on the company's performance to make the decision. I wish I had the crystal ball in front of me so that I could predict what is coming next, whether this is the end of the bull and arrival of a big bear or just a small teddy bear before the return of another little bull, etc.
Most importantly, do not keep highly geared or loss making company with no clear turnaround sign, as these companies may sink if the bear market prolong, especially with expectation of interest rate hike in coming years.
In a situation like now, I always remind myself, look at it as if that's my business, what would I do now when Mr Market keeps lowering the offer price for my business. Similarly, on the other side, there are some businesses where Mr Market keeps lowering the price to offer you opportunity to buy into their businesses too. 
What I did some years back, I totally switched off and did not want to look at the share price anymore as they kept falling. Then I realised that I missed out opportunity to buy some value stocks cheap. What I learnt was that it was the best time to keep looking for value stocks with clear catalyst - either do some switching or start to buy. When the correction is over and market turn bullish, the value stocks with clear catalyst will start to rise first. Yes, I switched some of my holdings to those businesses that is growing fast  (especially those I always wanted to buy but hard to find a good price to go in, this is the time). 
In time like this, dividend stocks will provide me with additional fund to pick up more shares. 
I will not utilise my 40% cash reserve as yet as I think it is just a minor correction. I am still keeping it until I see deep value with major correction.
Always bear in mind, we are investing in the business, its worth rest with business fundamental and prospects, not the price offers by the emotional Mr Market. Instead, offer to buy from Mr Market at extremely attractive price for businesses that we always wanted to get in.






  

PN 17 - A painful "code"

 
Nakamichi to be delisted on Nov 27 after Bursa rejects its regularisation plan (Nakamichi).
 
The news above has reminded me of a painful lesson during my early years in stock investment (or rather stock speculation) - a stock I bought was delisted, I guess only those already started stock investment in the 90s probably has heard about this company: Yaohan (M) Holdings Bhd. It is indeed a very good lesson for me and hopefully those of you who read this article can avoid this totally.
 
First of all, lets have a brief understanding on how a listed company can be classified as PN 17 company (below is the extract from Bursa's Practice Note 17 (PN 17 ):- 
 


2.0 Criteria

2.1 Pursuant to paragraphs 8.04(2) of the Listing Requirements, where a listed issuer triggers any one or more of the following Prescribed Criteria it must comply with the provisions of paragraph 8.04 and this Practice Note:

(a) the shareholders’ equity of the listed issuer on a consolidated basis is 25% or less of the issued and paid-up capital (excluding treasury shares) of the listed issuer and such shareholders’ equity is less than RM40 million;

(b) receivers or managers have been appointed over the asset of the listed issuer, its subsidiary or associated company which asset accounts for at least 50% of the total assets employed of the listed issuer on a consolidated basis;

(c) a winding up of a listed issuer’s subsidiary or associated company which accounts for at least 50% of the total assets employed of the listed issuer on a consolidated basis;

(d) the auditors have expressed an adverse or disclaimer opinion in the listed issuer’s latest audited financial statements;

(e) the auditors have highlighted a material uncertainty related to going concern or expressed a qualification on the listed issuer’s ability to continue as a going concern in the listed issuer’s latest audited financial statements and the shareholders’ equity of the listed issuer on a consolidated basis is 50% or less of the issued and paid-up capital (excluding treasury shares) of the listed issuer; or

(f) a default in payment by a listed issuer, its major subsidiary or major associated company, as the case may be, as announced by a listed issuer pursuant to paragraph 9.19A of the Listing Requirements and the listed issuer is unable to provide a solvency declaration to the Exchange.

Please take note only need to hit one criteria, not all ( it is "or" , not "and") .

What I have learnt from Yaohan's lesson was I did not check the financial statements or annual reports of the company when I bought the stock. It was hearsay or rumours that something exciting was happening and the share price would "fly" very soon. If I had taken a quick glance at  the financial statements, I would have probably avoided it as the company had ticked not only one, but a few of the above criteria!! Ever since, I have never invested in a stock without first looking at the annual reports or latest quarterly reports to check if the company has the risk of hitting one of the criteria above. All it takes is less than 1 hour of reading time, we could avoid the land mines that is damaging to us.


Below is the list of PN 17 companies per Bursa's website for reference (PN 17 Companies)

1. ASIA KNIGHT BERHAD
2. BERJAYA MEDIA BERHAD
3. CN ASIA CORPORATION BERHAD
4. EKA NOODLES BERHAD
5. HB GLOBAL LIMITED
6. KINSTEEL BHD
7. KUANTAN FLOUR MILLS BERHAD
8. LION DIVERSIFIED HOLDINGS BERHAD
9. MAA GROUP BERHAD
10. MALAYSIA PACIFIC CORPORATION BERHAD
11. MAXWELL INTERNATIONAL HOLDINGS BERHAD
12. MULTI SPORTS HOLDINGS LTD
13. NAKAMICHI CORPORATION BERHAD
14. PERISAI PETROLEUM TEKNOLOGI BERHAD
15. PETROL ONE RESOURCES BERHAD
16. STONE MASTER CORPORATION BERHAD
17. TH HEAVY ENGINEERING BERHAD
18. YFG BERHAD

Why then there are still trading in these companies?  Obviously there are still some who would like to bang on turnaround story or a successful regularisation plan to be approved by Bursa, with the hope that the share price will stage a strong rebound. I am not saying that none of these companies could get out of PN 17 or able to turn around, just that take note of the risk if they fail to do so.

Just sharing my only experience with a PN 17 company after it was delisted. I still received its Annual Reports for few years but the financials only got worst and subsequently no more news / annual reports from the company. Since there is no requirement to announce quarterly results etc as it is a private company, it is getting less transparent and corporate compliance is less stringent, the risks are much more for minority shareholders. Finally, it was a total write off!!  Therefore, PN 17 is a very painful code to me as I lost a big portion of my capital back then ( yes, 1,000 shares of Yaohan 20 years ago, that was big to me). But it is a lesson well learnt and fortunately (or unfortunately) I learnt that during my initial years of investment.