Monday, August 23, 2010

U.S. Banks: Goldman Sachs Lowers Targets for Bank Earnings - CNBC

U.S. Banks: Goldman Sachs Lowers Targets for Bank Earnings - CNBC

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 13, 2010

2Q 2010 corporate earnings update - Best World, Courage Marine

Best World International
  • 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
The latest quarter has been exceptionally poor, largely due to the impact of lowered sales in Malaysia and Indonesia. Indonesia sales have suffered as a result of changes in cosmetic and import regulations, and Management has guided that two key products have received product licenses in 2Q10, and were launched in June. Malaysia sales have also taken a hit from increased competition.

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.

Courage Marine
  • 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
Courage Marine posted a strong quarter, as the BDI rose to about 4,200 in May. However, the BDI dropped to around 2,000 points in June, indicative of the volatile nature of bulk shipping rates. With the current BDI at around 2,400 points, Courage Marine is looking at a weaker 3Q10.

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

Coruage Marine scraps Handysize vessel

Courage Marine announced that it has sent Jeannie III (a 33 year old, 34,537 Dwt Handysize vessel) for demolition, resulting in proceeds of approximately US$2.6 million. Based on rough estimates, the Jeannie III possibly measured about 5,200 ldt, which translates to a selling price of about US$475 per tonne, up from the reported US$425 per ldt which Courage Marine secured for the disposal of MV Cape Ore in April this year.

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

Portfolio up 3% in July, STI up 5.4%

Our portfolio gained 3% in July (to $1.03), underperforming the 5.4% gain in the STI (on a total return basis). As of 31 July 2010, 23.8% of the portfolio's assets were held in cash, which weighed on the portfolio's overall return. Despite the substantial cash position, the portfolio managed to capture some of the market upside. YTD, the portfolio is also 3% higher (STI: +4.8%).

In July, we sold CapitaMall Trust on the basis that the estimated yield (approximately 4.5%) was not sufficient to satisfy the portfolio's 6% annual target, and we saw little potential for upside from capital appreciation near the $2 mark. We also received bonus Best World International warrants, and may look to accumulate more should the premium to the mother share narrow.

Guocoleisure was the best performer in the portfolio for July, gaining 14.4% on little news other than a series of open market purchases by Quek Leng Chan. After being one of the worst-performing STI components, Capitaland capped July with a strong 12.5% rebound, while KepCorp also gained 10.6%. The main detractors to the portfolio were Best World (-5.9%), Berkshire Hathaway (-5.1%) and WBL Corp (-2.1%).