Saturday, December 25, 2010
Monday, December 13, 2010
While we tend to avoid speculative purchases, our investment in Gallant Venture appeared to have sufficient downside protection, with substantial upside potential should positive newsflow trigger a re-rating. The company does not have the quality which will render it a longer-term investment prospect in our opinion, and we are also mindful that the company does not have a solid business model. The strong gains have come over just under 2 months, and we find this 37% return sufficient to justify a sell.
Sunday, December 5, 2010
Noble Group was a strong contributor to the portfolio, gaining 10.2% in November, while Memtech rose 9.5%. Keppel Corp benefitted from renewed interest in the offshore drilling segment, while Tat Hong and Mermaid suffered with declines of 10.7% and 11% respectively. Wells Fargo remains our second-largest holding, and gained 6.6% in the month.
Tuesday, November 23, 2010
Friday, November 5, 2010
TAT HONG W130802
FRASER AND NEAVE
Best World W130705
Monday, October 25, 2010
Under the terms of the Scheme, ASX shareholders as at a record date to be determined will be paid, in relation to each ASX Share, a combination of:
• A$22.00 (approximately S$28.04) in cash (the “Cash Consideration”); and
• 3.473 new SGX Shares (the “Share Consideration”).
The aggregate value of the Share Consideration is S$5.8 billion (approximately A$4.6 billion), based on the last traded price of SGX Shares as at the Latest Practicable Date, and S$5.8 billion (approximately A$4.6 billion), based on the volume-weighted average price (“VWAP”) of SGX Shares transacted on the Latest Practicable Date.
Accordingly, the value of the aggregate consideration payable for the Proposed Combination (the “Scheme Consideration”), based on the aggregate Cash Consideration and the aggregate value of the Share Consideration (determined by reference to the last traded price of SGX Shares as at the Latest Practicable Date), is approximately A$8.4 billion (approximately S$10.7 billion), or approximately A$48.00 approximately S$61.17) for each ASX Share.
The value of the Scheme Consideration based on the aggregate Cash Consideration and the aggregate value of the Share Consideration (determined by reference to the VWAP of SGX Shares transacted on the Latest Practicable Date), is approximately A$8.4 billion (approximately S$10.8 billion).
The move will see SGX coughing up about S$4.9 billion in cash, which will inevitably see the combined entity take on between S$3-4 billion in debt. Depending on the cost of debt, we estimate that interest could cost SGX as much as $150 million a year, which will eat into earnings (and dividends!).
We have maintained that SGX looks terribly expensive at current levels, and it is fantastic that management can utilise the expensive stock to purchase a choice asset (ASX in this case) to benefit shareholders. However, the deal would have made much more sense if an all-stock offer was utilised. By offering cash and taking on debt, it appears that the EPS-accretion (as SGX touts the deal to be, EPS of $0.3008 to $0.3612) will be difficult to achieve after factoring in interest payments.
Friday, October 22, 2010
On a price basis, the US$180 million per rig price tag appears substantially lower (a 30.5% discount) compared to the US$259 million average paid by other customers from 2005 to 2010. Relative to the price of WTI Crude oil (taken as a simple ratio of rig price in USD millions to oil price in USD), the low ratio for the AOD deal suggests that Mermaid got a good deal on this one. We are slightly puzzled by the disparity in the contract value; the rig appears to be of the same make (under Keppel FELS’ Class B design) as others detailed in prior contracts. With oil prices above US$80, we would also assume that Keppel Corp would have more pricing power.
Thursday, October 21, 2010
Tuesday, October 19, 2010
The current situation: while developed economies (most notably the US) are required to keep interest rates low to stimulate their domestic economies, the emerging markets (and Asia in particular) are booming once again. Output is at record-high levels, while consumers on the ground hardly feel the recessionary chill of the Western world.
A quick look around us in Singapore emphasises this: Bustling car showrooms, packed shopping malls, an extremely tight labour market (a JobsDB email I receive daily highlighting jobs in the financial sector is noticeably longer, compared to a year ago). The IPO market is booming once again, with the latest IPO of GIobal Logistic Properties 12 times subscribed, and Mapletree Industrial Trust set to join in the fray. These are all indications that sentiment is turning positive again, with the STI recently climbing to new 2-year highs.
With Asia and Emerging Markets the obvious forerunners in the post-Lehman world, investors in the US are more than happy to borrow at near-zero rates to participate in the tremendous growth opportunities in the emerging market regions. The expected appreciation of Asian currencies is an added bonus, and also the result of strong inflows of capital into the region. Singapore recently tightened monetary policy further, which will add to upward pressure on the SGD against the USD.
As with all asset bubbles, the flight of capital will be swift, and many investors will be left nursing their wounds in the aftermath. Fortunately, stock market valuations still appear fair at the moment, despite the onslaught of new capital inflows from the West into Asia. Several segments of the Asian stock market appear slightly expensive (Indonesian and Indian equities, consumer discretionary stocks in China and India, as well as hospitality/leisure plays in Singapore), but the overall market is generally fairly valued at present. We will maintain our exposure to the stock market within the portfolio, but will be keenly watching out for bubble-like symptoms which we expect to develop at some stage over the next few years.
CNBC.com Article: Foreclosed Homeowners Break Into Former Home
The investors sold the home, but before the new owner could move in, the Earls had the locks changed and moved back in themselves. "Why should we lay down?" she says her husband asked her. "We need to fight back."
Foreclosure woes have hit US bank stocks (and notably our holding in WFC) as investors worry that banks will have problems evicting homeowners due to a lack of proper paperwork.
It appears ridiculous that some homeowners believe they should be allowed to stay in their homes after failing to service their mortgages, on the basis of legal technicalities. If the courts ultimately rule that banks cannot foreclose the majority of properties due to improper paperwork, we may be looking at mass mayhem. Why should anyone pay their mortgages then?
More likely, some punitive action will be taken on improper bank practices. People who have borrowed money to buy a home MUST service their mortgage; there is no free lunch here
Wednesday, October 13, 2010
The company's massive 18,200 ha landbank in Bintan is carried on the books at about $541 million, which works out to about $0.28 psf. While land sales in Bintan have been rather slow, the selling prices have been in the region of between $6 to $29 psf, representing 22-100 fold increases in realisable value. Obviously, there are costs involved in the development of the land into habitable living space, and Bintan is hardly the most popular or sought-after resort destination. We admit that there are huge risks in our investment - much of the land may never be sold. However, we think that with the stock trading at half of an understated book value, we are getting the landbank cheap and are prepared to wait for potential catalysts for a stock re-rating.
Thursday, September 30, 2010
"Microsoft intends to use the net proceeds from the offering for general corporate purposes, which may include funding for working capital, capital expenditures, repurchases of stock and acquisitions." - Microsoft.com
Wednesday, September 22, 2010
Monday, September 20, 2010
- Never sell higher conviction ideas; always start with the lowest conviction stocks
Monday, September 6, 2010
We are less positive on the shipping business, but the company's handysized container vessel has the potential to be sold for a profit, which will provide cash for further investment. On the other hand, the company's 51.3% stake in the Changshu Xinghua port (CXP) looks particularly interesting. According to the company website:
|Changshu Xinghua Port Co Ltd (CXP) is one of the main port terminal operator in Eastern and Central China along the Yangtze River. It is among the ten busiest river ports in China. CXP is one of the leading hubs for pulp & paper and steel products in China. In 2009, CXP registered a 6% increase in general cargo volume to 5.6 million tonnes. We are leading hub in pulp&paper, steel and logs. |
|CXP lies on the southern bank of the Yangtze River just 54 nautical miles from the river mouth. It is strategically located to serve Jiangsu, China's most industralised province, and capitalise on the enormous potential of its hinterland.|
|CXP boasts excellent natural attributes with a constant deep and silt-free water depth of 13-metres.Well sheltered, it has eight berths with a total berth length of 1.7km capable to handle vessels up to 100,000 dwt. CXP's total handling capacity is 10.0m tonnes per annum.|
Macquarie International Infrastructure Trust (MIIF) carries its 38% stake in CXP at $92.8 million (last revalued in June 2010), while Pan United Corp's estimated carrying value for its 51.3% stake is a paltry $36.5 million (at cost, according to a DBS report). Based on MIIF's valuation, Pan United's stake in the port should be worth $125 million, or almost $89 million higher.
With 555,366,160 shares outstanding, Pan United's market cap is about $270 million, and CXP's market value is already half of that. The stock is also trading slightly under book value (about $0.50), which means that we are getting a further discount on the underlying subsidiaries.
Friday, September 3, 2010
Even after adding shares of Wells Fargo, the portfolio has 20.6% in cash, and we may be looking to bring down our cash holding to 15% with the addition of one or two more attractively valued-companies to the portfolio.
August 2010 Stock Returns:
FRASER AND NEAVE 1.1%
ASCENDAS I-TRUST 1.1%
BERKSHIRE HATH-B 0.5%
TAT HONG W130802 0.0%
STI ETF -1.7%
NOBLE GRP -4.8%
COURAGE MARINE -5.1%
K-Green Trust -5.2%
WBL Corp -6.3%
TAT HONG -8.1%
BEST WORLD -10.9%
MERMAID MARITIME -11.6%
Best World W130705 -14.3%
WELLS FARGO -15.3%
Keppel Corp $0.16
Wells Fargo US$0.05
Tat Hong $0.015
STI ETF $0.03
Monday, August 23, 2010
Bought 150 more shares of Wells Fargo & Co. on 20th Aug at US$24.3899 per share, for a total consideration of US$3,658.48. The stock is trading near its 52-week low and also near book value on the back of recent market weakness. WFC has been exceptionally battered, with Goldman Sachs recently citing "higher-than-average" yields on its security portfolio, which are expected to normalise over the next few years (to half the current 6+% yield). While this may be alarming news, the actual numbers are less dramatic. Based on the 2Q10 financial statement, about US$16.2 billion of securities in WFC's portfolio were earning excessively high interest of 6.48%, an insignificant percentage (just 1.5%) of WFC's total "earning assets" (US$1.069 trillion).
Sunday, August 22, 2010
Friday, August 20, 2010
Friday, August 13, 2010
- Shock loss of $806,000 for 2Q10, down substantially from $3.427 million profit a year ago
- 1H 10 profit of $228,000, versus $5.44 million in 1H 09
- Revenue plunged 52.4% y-o-y, mainly due to 87.2% drop for Indonesia, and 54.5% drop for Malaysia
- Huge amount of cash and equivalents of $36.1 million
- Interim dividend of $0.012, unchanged y-o-y
We continue to like Best World International as a proxy to emerging Asian consumption, especially with its presence in Indonesia. Import regulations have hurt revenue in the near term, but we think that things will be substantially better in 2H10 with more product approvals granted. We like the business for its ability to generate strong cashflow, and the quality of management is decent. Management is keenly aware of the near-term negative impact of the news, and to buffer stock downside (and given the huge cash position), an unchanged interim dividend of 1.2 cents has been declared, despite poor 1H10 profits.
- Posted 2Q10 revenue of US$16,277,000, up 26.6% q-o-q (+168.3% y-o-y)
- Logged US$242,000 disposal gains in 2Q10
- Net profit of US$5,176,000 in 2Q10, up from US$3,025,000 in 1Q10
- Remains net cash, with cash and equivalents of US$21.8 million
- Utilisation rate about 90% for 2Q10, up from 70% in 2Q09
Management prudence is once again reflected in the latest quarter's income statement. While turnover rose a massive 168% y-o-y, cost of sales rose much less (+68% y-o-y), allowing the company to post a decent profit, even with moderate shipping rates in the quarter. The company's strategy to utilise older vessels is evidently effective, and the even after the recent disposal of a Handysize vessel, the company still has 580,000 dwt in its fleet to capitalise on a rebound in the global economy.
Friday, August 6, 2010
The ship is understandably old, and the transaction will actually result in a gain of about US$500,000 for the current year. Once again, the management has shown ability to profit from the disposal of old vessels as steel prices gain, an indication of how the company's focus on older vessels increases business flexibility.
Monday, August 2, 2010
Wednesday, July 28, 2010
Friday, July 23, 2010
- 2Q 10 EPS of US$0.55 (consensus: US$0.48), net income of US$3.06 billion
- Revenue of US$21.4 billion; PTPP of US$8.6 billion
- Net interest margin rose to 4.38%, up from 4.27% in 1Q 10
- Supplied US$150 billion in credit, up from US$128 billion in 1Q 10
- Net charge-offs declined
- "We believe credit quality has indeed turned the corner"
Cambridge Industrial Trust (CIT)
- 99.97% portfolio occupancy
- 37 Tampines Street 92, 27 Pandan Crescent and additional 17 strata units at 48 Toh Guan Road East (Enterprise Hub) disposed, generating a gain on disposal of S$1.1 million for 2Q 10
- Portfolio valued at $831,150,000 as of 30 Jun 2010
- NPI down from $16.3 million in 1Q 10 to $16.1 million in 2Q 10, due to divestments
- Distributable income down from $11.1 million to $10.8 million
- DPU of 1.238 cents, down from 1.274 cents in 1Q 10
- NTA at 59.9 cents, up from 59.3 cents in 1Q 10
- Gearing down from 42.6% to 42.3% in 2Q 10, target below 40% by end FY10
Tuesday, July 20, 2010
Monday, July 19, 2010
Friday, July 16, 2010
Tuesday, July 13, 2010
There is certainly serious "house cleaning" going on in Mermaid Maritime, and the proceeds of the sale (expected 15 September 2010) will add to the substantial cash balance. As an investor in the company, we can only hope (and pray) that the management will use the cash well.
Monday, July 12, 2010
Tuesday, July 6, 2010
The KM-1 was expected to be a key source of earnings going forward, which explains the sharp selloff following the news. While the move is highly disappointing, valuing the company based on its book value (and huge cash horde) shows that the stock now trades at a 35% discount to book (factoring in the loss on KM-1). At such a steep discount, we are reluctant to sell, but we are cognisant that how management deploys its current cash holdings (as well as the cash to be received for the disposal transaction) will be critical to the company's success.
The stock has certainly been a major disappointment, but the company is likely to have over $110 million in cash at the end of 2010 (current market value is $365 million), and we will watch to see what opportunities this cash horde will buy at the end of the year. We are not keen on adding to our small holding in the company given the lower conviction we have in the management (which recently saw the departure of its Managing Director), but will look to see how the company deploys the vast funds it has at its disposal.
Friday, June 18, 2010
Wednesday, June 16, 2010
In a second announcement today, the company also announced that it has received in-principle approval for the proposed listing of bonus warrants and shares. Further details on the issue will be given at a later date.
Tuesday, June 15, 2010
Monday, June 14, 2010
Sunday, June 13, 2010
Friday, June 11, 2010
Wednesday, June 9, 2010
Tuesday, June 8, 2010
Monday, June 7, 2010
Saturday, June 5, 2010
A bonus issue at this point of time is a curious step, given that the company has a large cash horde and we would have been happier if the company paid out some of that cash as a bonus dividend. However, a warrant issue is interesting and provides a new dimension to our investment in Best World Intl. We are no experts at valuing options or warrants, but if market conditions continue to be poor, we will not be surprised if the warrant is grossly underpriced by the market (due in part to the poor liquidity expected). We look forward to the listing and will be very happy to scoop up more warrants for leveraged exposure to the stock if the price "warrants" it.
Thursday, June 3, 2010
While the day rate was not up substantially, it is comforting to know that Chevron's contract has been extended. MTR-1 remains a disappointment, having not secured any work since September 2009, and the 6-month lull period anticipated by the management has been too optimistic a scenario. However, a third rig (KM-1, 75% owned by Mermaid) is slated for delivery this year (after originally scheduled for a 4Q 09 delivery), and will be contracted for 5 years drilling for Petronas.