Fortes Fortuna Adiuvat

Swimming with the bigger sharks

2012-01-27T22:41:00.002+08:00

If the American market is the place where investors considered the deepest pool with the most ferocious sharks, then I'm glad to say that I'm still safe thus far. As I have mentioned in my previous posts, I have decided to widen my opportunities by trading in other markets such as DJIA and HSI and I must say that it has not only broaden my perspective, but have also increased my awareness of the companies and news happening in the western side of the world.

It is not embarrassing to say that I have actually suffered from insomnia when I first took a dip in the US market even with my modest 2.5 years trading experiences. The utmost difference between trading in STI and DJIA is that while trading in STI, you can look at the prices every now and then to be confident and comfortable (or so one might think). However, when trading in the western market, it feels a lot more like gambling even though you're not as you have no idea what direction is the broader market heading towards.

However, it did not take long for me to accommodate myself to suit the broader pace. I did it by setting a stop loss the moment I enter a position. Of course, if the stop loss price is far from the current price, then I would have a stop to protect my profit. This not only allows me to sleep better and more comfortably, but also enforced more discipline in my trading philosophy.

The US market in my honest opinion, is a highly volatile market where I would not recommend for people who are just learning to trade. Referring to the weekly chart, while it has showed strength, the daily chart only showed further weakness as the prices climb. "To hell who said we shouldn't buy when stochastic are in the overbought region", but looked what happened, stochastic has showed that DJIA is overbought for the past 1 month and it is still climbing thus far. Nonetheless, what I really liked about the US market is that you can actually find a handful of counters that perform differently from the market return.

As one might realise, I have stopped posting my trades as like many others, I got tired of it and find it pointless. I was thinking if I should post it on a regular basis instead i.e. monthly, quarterly but we will see how it goes. So far, I have entered 5 trades this month and they have been good so far. I hope this continues while I will take another leap forward if my result this year is proved to be outstanding.

2011

2012-01-02T23:40:00.000+08:00

2011 signifies many things for me, ranging from tangibles like completion of first year degree to intangibles like maturing spiritually. Looking in retrospect, this year hasn't gone into waste. While I have failed some promise I have set for myself such as reading more books and doing more FA, I exchanged these with better academic results, more worthy friends, and enriching overseas education experience.

February this year marks the beginning of my journey towards a three year Bachelor of Commerce degree from University of Sydney and I must say I have been enjoying myself there. In fact, I would not mind fast forwarding time to this coming February so that I could head back Sydney again. Knowing that my parents had to work hard for my education fund, I put in a massive amount of extra effort while studying there. The results from first semester was not really satisfying and I must say that I was really disappointed then as the results I got does not reciprocate my effort at all. Nonetheless, the insatiable desire for better results pushed me further and I got a much better result in semester two. However, getting better results require more than hard work, as I had to give up on several things in exchange for them. Therefore, I have learnt that getting good results is not impossible. Even though the effort you put in would not 100% reflect in your results now, things might look better with perseverance, patience and a change in method.

Studying in Sydney and staying in the International House not only widen my narrow perspective about certain countries, but also gave me an awesome opportunity to make friends with people all over the world. I'm glad that I had made a bunch of good friends over there, they too are my partners in crime, found guilty of putting in lots of effort in studies. Thank you A and C for always helping me to proof read my essays, S for giving me the motivation to strive harder, not forgetting A as a wonderful roommate, M and H as wonderful bros, and of course everyone who has helped me in one way or another.

Looking back, this year is seriously a one of a kind experience for me. Unlike the 2 preceding years where I spend most of my time reading up and enriching my investment/trading knowledge, this year I felt that I have not done enough in that realm. Even though I'm studying in Sydney, a place where its image to Singaporeans are only parties, I spend most of my time studying in my room, as I'm focused on only getting good results and nothing else matters. Today, I did not regret on the disproportionate usage of time.

2012 would definitely be a more busier year for me, and I will be assiduous in every aspect associating with school work. However, this is not going to impede me from moving towards my goal of financial freedom. I have just ventured into the US and HK market, hopefully this would lighten up more trading ideas for me. This year, it would be a totally different game (trading aspect) and would be the first time I'm doing this. Previously, I was just free rolling, trading only when 1 kind of signal comes along. This time round, or at least for the next few months, it'll be different and I will probably be at the other end of the spectrum. I would try to hit a certain amount of trade and profit a certain amount of money every week. I realise this is something I have been missing in over the past 3 years. Having said this, it also means that I would have to tighten my stop as higher amount of trades also means higher exposure to risk. If everything goes well, I have plans towards the end of the year and I would only reveal if it happens.

I'm looking forward to going back to Sydney, and am excited about making new friends, meeting new people. I would be serving the residents of International House (University of Sydney) as my role as Secretary and would like to take this opportunity to thank everyone for all the votes and trust in me. I also hope that my role as a committee member in the Singapore Student Society would be significant this year, and would be glad to contribute as much as I can. Nonetheless, my first priority would be to do well in studies and to maintain my position in the honours stream.

All in all,
I had not disappoint myself over my school results.
I stepped out of my comfort zone and assumed responsibility.
I had a wonderful gf and albeit all things, thanks for the memories.
I managed to maintain my weight around a certain range.

however,
I'm still far from financial freedom.
I did not read as much books as I tell myself that I should.
I did not do as much FA as much as I should.

in 2012,
I will try to be in the range for second upper.
I will trade more.
I will maintain my weight.
I will read more books.
Contentiously the most important to me, to increase my personal net worth.

Last but not least, Happy new year guys!

Bought

2011-12-23T01:03:00.002+08:00

Sakari at $1.90

Olam at $2.17

Bought General Motors

2011-12-19T00:02:00.000+08:00

Bought at $20.11.

When it comes to investment...

2011-12-10T21:23:00.003+08:00

When a portfolio goes positive and he bought..
"I BOUGHT, I BOUGHT! I HAD XX LOTS."

When a portfolio goes negative and he bought..
"..." (Silence)

When a portfolio goes positive and he did not buy..
"Damn, I was right when I told you it will only go up in the future, remember?"

When a portfolio goes negative and he did not buy..
"I knew this would happen. I told you to stay by the sideline."

If you're doing this, it is very likely that you are still new to the market. If you're doing this, it is very likely your portfolio will still continue to bleed. Investors/Traders do report about their portfolio management/trading results, but will never allow emotions to take over control.

Secondary Income

2011-12-05T00:19:00.003+08:00

Yet another year passed, and it's going to be the year 2012, i.e. the year that has been long prophecies which Armageddon occurs. That's not my issue, of course. If I die, I die. If I don't, I continue to live my life and pursue my dreams. However, that's not what this post is about. It's only been a week since I touched down from Sydney. This is only the beginning of my summer holidays and I'm already in my first week of work.

Holidays, according to google's definition is a day of festivity or recreation when no work is done, which I suppose I belonged to the latter. Friends and acquaintances questioned about my rationale to work during my well deserved break. While my answer to all those questions can be copy-pasted verbatim, in summary and to put it bluntly, I work for the sake of income. I gave myself an adequate amount of time to weigh the opportunity cost of working during this summer vacation. I thought of going on a trip, I thought of not working and slacked throughout this holiday period, I thought of doing what I liked to do. Moreover, this might be the last few long holidays I could ever get before proceeding to the next stage of life. However, on second thoughts, I still need an inflow of cash flow to support my spending for the next 3 months.

Quote "You can be free. You can live and work anywhere in the world. You can be independent from routine and not answer to anybody." Instead of allowing me to relax and letting off some steam from my exam stress, this holiday has just given me an opportunity to stress even harder on my means of getting secondary income. Thank god, it was never my proclivity to slack. While some might say it's an unfortunate thing, the tendency to put my brain into good use has actually propelled me towards the goal of financial freedom at the age of 20.

I imagined myself 15 years down the road, living in my ideal world, where I can have my own family of 3 kids. I then questioned myself what if I'm out of job in that situation and have monthly instalments to pay, have kids to feed and have parents waiting for me to give them pocket money. Without secondary income, my spending would be 100% from my savings and in that situation, level of spending are usually high.

However with secondary income, be it dividends, rental income or short term trading gains, spending can be derive from several sources. It might be true that the amount these secondary income cannot totally replace the amount of money our jobs can bring, at least our bank account could bleed slower. Putting myself in those undesirable situations not only enforced my concrete belief in having a secondary income, but have also gave me a motivation to work towards that goal.

Sold CapitaMall

2011-11-21T23:45:00.000+08:00

Cut loss at $1.75. Will KIV.

Bought CapitaMall

2011-11-16T23:51:00.003+08:00

Bought at $1.78

Defying all odds

2011-11-15T16:32:00.001+08:00

Singtel has been climbing steadily within the channel since late march this year while the general market has been showing a downtrend. Moreover, technical indicators aren't in favor of the uptrend as prices showed a higher high while MACD/FI portrayed a lower high.

TA is never about infallibility, but about probability; now the probability of declining in price is higher.

Sold Noble Group Round 4

2011-10-15T14:23:00.000+08:00

Sold at $1.44

Sold Genting SP Round 1

2011-10-12T01:20:00.002+08:00

Sold at 1.60.

Bullish Divergence? Really?

2011-10-11T01:25:00.000+08:00

look again.

Bought Genting SP

2011-10-07T23:59:00.000+08:00

Bought at $1.51

Bought Noble Group

2011-10-06T21:25:00.000+08:00

Bought at $1.35.

1.5 years of effort, 4 months to destory.

2011-10-03T14:03:00.000+08:00

/

One can enjoy 1.5 years of bull run from SembCorp, but it only take 4 months to destroy the effort that it takes to climb thus far.

This relates me to the paradigm of life, where one can take a life time to build its accreted fame and the success of him/herself. However, all these would be jeopardize and gone in no time if one seek for a ephemeral moment of fun and make a misjudgment decision.

Mini Q&A session with Group CEO of Comfort Delgro

2011-09-29T15:32:00.002+08:00

I recently participated in a Distinguished Business Leaders Series hosted by the Overseas Singaporean Unit. As the name of the event suggested, this event invites guests from big corporations from Singapore to foreign countries to share about their insights on their respective career, as well as the company they are working in.

The invited guest this time round was Mr Kua Hong Pak, the group CEO of Comfort Delgro. The event kicked off with a mini history lesson on Comfort Delgro, followed by the challenges they faced and ended with a short Q&A session.

Even though this is the first time I met Mr Kua, I must say that this man has given an impression to the stakeholders that Comfort Delgro is safe in his hands. At an old age of 67, his speech to the audience was firm, portraying his confidence as he delivered his discerning story of how Comfort Delgro began when the merger initially started and how they overcame the fearful SARS period. He too, did not hesitate upon answering the doubts questioned by the audience (which I will share later). This clearly showed that even though he's the CEO of the group and had to travel a lot due to his duties, he still managed and take the effort to keep himself updated of the firm.

I would definitely keep a lookout for this counter when there is time for me to do my own due diligence.

The following shows a few examples of what was being asked and how they were answered during the Q&A session. If I have an vested interest in Comfort Delgro, I would personally find this particularly useful as it has shed some insights beyond the quantitative spectrum. Do note that the questions and answers are not particularly phrased like that but I had made some changes to how they are phrased without deviating from the original meaning so that they can be comprehensible easily. They are also posted in a narrative mode.

Question 1:
What has Comfort Delgro done to support the Singapore community in the countries they operate and how can Comfort Delgro helped the Singapore community in Sydney. (I think this question is more about CSR)

Answer 1:
Comfort Delgro doesn't have a specific policy in helping Singaporean overseas. They worked with the government overseas and offered assistance in a form of cash donation, as well as free advertising on their vehicles. What Comfort Delgro aims to do is to make Singaporeans who are overseas to recognize them, are aware that Comfort Delgro is continuously for talents, and there are opportunities for Singaporeans to join them and help them to grow further. That is what Singaporeans can take away when they know more about Comfort Delgro; job opportunities.

Question 2:
China is currently the fastest growing economy in the world today, and it is a commonly known fact that there are a lot of inefficiency and corruption in the system. This poses a significant challenge to companies operating in China. How does and will Comfort Delgro overcome this issue?

Answer 2:
Singapore's anti corruption law are very rigid and it extends to corruption acts overseas so it is a rule in the group that such offence shall not and will not be committed. Having said that, Comfort has to compete with competitors who are more prepared to do what they are prepared to do. Therefore, instead of outright corruption which they will not condone, they have helped their partners in many other ways.

For example, knowing that Chinese officials have difficulty leaving the country, Comfort would host their board meeting overseas and invite these officials to the respective venues such as Australia or UK which on their own, these Chinese officials would not have the opportunities to go. Here, Comfort has given them a reason to understand how they operate in the respective countries and this is done to make sure that they stay on the same footing with Chinese officials; which is quite different from outright corruption.

Question 3:
With Comfort having so many vested interest all over the world, how can the top management ensures proficiency and efficiency, for example, transmitting of information to the top management.

Answer 3:
The way Comfort structures its operation overseas has allowed it to do so. For example, as China is a very large country, it would be broken up into 4 regions, namely the north, south, east and west where each would have their respective regional CEO. Financial protocols and operating procedures are all very well laid out and this are to be complied with by all the subsidiaries from all over the world. On a yearly basis, a robust and rigid budgeting exercise would be conducted, which eventually has to be cleared by Mr Kua himself and approved by the board of directors. On a monthly basis, each subsidiaries or companies operating under the name of Comfort Delgro would send in their monthly report, showing how they have performed against budget and YoY.

Mr Kua would visit the company and participate in board meeting overseas so through all these, the whole company has kept a very close and tight contact. Top managements would also have the opportunities to get relocated to handle a diverse range of operations at different locations. Through these, they make sure that their system are working properly, maintaining checks and ensure people are doing the right thing all the time.

Question 4:
Comfort Delgro operates taxi in Vietnam. What made Comfort Delgro to make this decision on choosing Vietnam to invest out of all the south east asia countries? What are the future plans and goals on the Vietnamese market?

Answer 4:
Comfort operates under two taxi companies in Ho Chi Minh City, namely Vietnam Taxi and ComfortDelgro Savico, which both operate independently. The former one is slightly larger, operating 500 taxi while the latter operates 300 taxi. Comfort Delgro chooses Vietnam because they believed that Vietnam is opening up, and it's a great market hence providing opportunities for them. They did very well with their investment in Vietnam Taxi, but the government liberalised the market to a very large extend which has attracted a lot of competition into the market where even companies who previously held a huge chuck of market share has suffered. Therefore, Vietnam has turned into a more difficult market for Comfort, compared to the time when they first entered the fray.

Vietnam is also facing high inflation rates and this is compounded by the fact that the Vietnamese Currency, Dong is depreciating so it is making Comfort very hard to operate. Moreover, the infrastructures have not improved and the roads are still very congested. These factors has provided a very unfavourable environment to operate, in terms of providing a standard of good service.

Question 5:
As a Group CEO of Comfort Delgro, what keeps him awake at night, in terms of the most significant challenge he faced.

Answer 5:
Comfort Delgro has strive through very challenging times. Today, global economic continue to weaken, inflationary pressure are continuing pressuring the business environment so this makes it very difficult and has impact on their operations. There are a few questions the CEO constantly questioned himself, like How do they sustain the profit margin while costs are increasing, How do they do more with less resources.

Nonetheless, there are always two worries that never change. Firstly, within his capacity as a CEO, what can he do to improve Comfort Delgro. Initially when the merger is formed, he told the board that he would like to have 50% of the revenue and operating profit from operations outside of Singapore. About two years ago, Comfort Delgro has more or less gained this achievement. The reason for "more or less" is due to the impact of foreign currency translation.

Beyond financial aspect, he is worried about the growth of Comfort Delgro. As we know, growth comes in two forms, organic and inorganic. Organically, Comfort has tried to get more licences from the authorities in ChengDu, tried to put more bus services on the road in Australia and these are the examples that Comfort has done so far. Inorganically, they tried to look for a potential market for investment such as India. There are a few countries where Comfort did not have vested interest so they keep their eyes on the horizon to determine a good time for investment. Furthermore, Comfort can also expand the services they have in a country and move it to another country where they currently have no vested interest in. For example, one such service would be Moove Media which provide advertising services and has a substantial market share in Singapore, hence they have initiated Moove Media in Australia.

Secondly, Mr Kua is worried about having talents to join the company and helping them grow. In Singapore context, there is a very narrow base and it is not easy to get Singaporeans to work abroad as Singaporeans are very comfortable at home thus this continues to pose as a challenge.

Question 6:
Comfort operates in a variety of countries under a variety of names. Has the company (Comfort) ever reconsider rebranding them under a same brand, a same name to promote as everyone knows branding is also a good asset for a company.

Answer 6:
The company recognize the value of a strong brand which is vital for a business. However, there are constrains as it is subjected to regulatory issues and requires which are different in every country. In some countries, Comfort held 100% stake in some of their subsidiaries, while to some, they only held 70% or a mere 30%. To other partners, they also believed that branding is vital for their business and would want to have their name appearing on the logo. Thus, to solve this issue, Comfort would usually combine the two names together, such as Comfort Delgro Savico (Vietnam). For buses in Sydney, they left the original brand untouched as they reckoned that there is good value in the "Hills Bus" brand. People are comfortable with the brand and it has been there for a while, however, knowing that these buses are part of the assets of Comfort, they would leave an imprint of Comfort Delgro at the bottom of the Hills Bus logo. Comfort would always have their name as part of the logo of the companies they have interest in, be it "A subsidiary of Comfort Delgro" or "A member of Comfort Delgro".

Question 7:
As the carbon tax issue in Australia has caused some unrest in companies and unions in Australia, what approach would Comfort take to overcome this problem.

Answer 7:
Comfort is currently experimenting with Euro5 and Euro6 buses in London. If it works out well, they would introduce these buses to other cities where they operate. Mr Kua believes that no matter how the legislation of Carbon tax is structured, someone has to pay the cost and it would ultimately be the tax payers. Currently the structure of Carbon tax is still undetermined but they are confident that they can overcome the tax problem.

Armstrong 2Q 2011

2011-08-29T19:19:00.003+08:00

Armstrong Q2 2011
Just by glancing through the latest report, one could tell that the results have been disappointing and the recent price weakness must have reflected its drastically poor performance.

Decrease in returns
Most of the business segments decreased in revenue this quarter. This is mainly due to the Japan earthquake which had dealt an inevitable disrupt on the global supply chain. As Consumer Electronics and Automotive segment depended highly on their respective OEMs requirement for production, a delay in demand from them would impact the revenue substantially. Honda, who is one of the high profile customers had released notices that they had shut down a few of their plants then. BBC also reported that technology companies such as Sony and Toshiba were those that were affected most. However, these gloominess is buoyed by the strong demand of products from the Data Storage segment.

The decrease in revenue will naturally reduce the profit in most of the situations and this is of no exception. Out of the 52.7 million earned this quarter, profit registered merely 1.3 million. This is partly due to the ever-rising cost in wages. In addition, as the Automotive segment has been the most profitable business in 2010, a 10% decrease in revenue generated from this segment compared to 1Q2011 would naturally affect the profit as well.

Increase in debt
One of the most prominent changes in the balance sheet is the increase in 10 million of short term debt appearing on the balance sheet. Going down to the cash flow statement would show that this 10 million of debt was borrowed to service the dividend that was declared to the shareholders for FY2010. Prior to the disaster, I'm pretty sure the management had declared the dividend within the prospect that the dividend could be well distributed from their own coffers. However, as the disaster has disrupted the business, cash flow was not spared.

Share Buyback
Armstrong has been doing some share buyback lately since the beginning of June this year. Doing so can be seen as an act to bolster shareholders of Armstrong's confidence, raising EPS and the stakes of what each shareholder holds.

The first time they bought back this year was on June 6, before the release of result of Q2 2011. To put myself in the shoes of Armstrong management, I would have know that the results of Q2 2011 would be adversely affected due to the earthquake in Japan and would be predicted that share price would continue to suffer from weakness. However, they still continue to buyback during the whole of June 2011, amounting to 2.86 million shares at an average price of 0.31. This got me confused. Euro debt issues have surfaced and US debt warning had been issued by then; thinking from both the macro and internal perspective, I still don't see it apt to do a repurchase then.

Nevertheless, this buyback has told us about how much has management valued Armstrong. The last time Armstrong issued a share repurchase notice was 3.5 years ago in Jan 2008, with an average price of $0.34. To speak with skepticism, we can say that the management probably devalued their company from $0.34 to $0.31 and now $0.24 but to think with an optimistic yet conservative tone, I would say they definitely bought it at a discount.

Outlook
While Armstrong was buoyed by the Data Storage segment this quarter, I believe the Data Storage industry is currently suffering some weakness. It is true that demand is increasing, HDD is definitely not phrasing out and Armstrong is still be in business. It is also true that Western Digital and Seagate are both beating analysts' expectations, but look again, they are registering decrease in net profit and revenue.

For example, earlier this year, even though WD beats expectation, net income from Oct 2010 to Dec 2010 fell and in the latest Q4 report, profit dropped to $158 million from a profit of $265 million QoQ. Similarly to Seagate, they registered a drop of 69% in Q4 this year even though there is an increase in shipment aka demand.

Increase in demand and an ironic decrease in profit could only mean a single thing: companies are at price war. Unless Armstrong and its competitors maintain their stand on keeping their margins, companies like Armstrong is likely to be affected as well.
Automotive segment's outlook seemed pretty decent as Honda raised its annual outlook and on the longer term view, FAW VW has aimed to increase Audi's production by 2015. At the very least, I'm expecting their performance for 2H to be on par with 2010.

The ability to buy back shares right after a sluggish second quarter can clearly portray the confidence Armstrong has in its performance on 2H 2011 or at least, 3Q 2011. If business could pick up during the 2H, we could see a slight improvement in revenue for 2011 but I would not expect an increase or similar amount of dividend. Payout ratio from 2010 stands at 80.5% and any increase in dividend would affect the necessary money for growth in Armstrong. Since Armstrong has decided to increase shareholders value through share repurchase, I doubt the similar amount of dividend would be distributed this year.

In a nutshell, I would expect Armstrong's performance to be mediocre in the short run as their general performance is tied closely to the cyclicality of the macro economy. Nevertheless, we have seen how fast Armstrong would pick up during the economy boom on year 2007 and 2010 thus to speak from a longer term prospect, I would expect Armstrong to perform like how they do in their pinnacle form.

Valuation
1H11's EPS stands at 0.0122 cents and as I'm expecting performance to pick up on 2H11, I would suppose EPS for 2H11 to be on par with 2H10. Therefore, using a forwarded earnings of 3.36 cents and with a price of 0.245, forwarded PE for 2011 would be around 7.14. Given this PE, I would say Armstrong is already fairly valued and definitely not undervalued.

It has already begun.

2011-08-22T09:48:00.001+08:00

Just a post before I begin my hectic week with submitting my assignment soon that is due later today.

That is not your southern cross, king cross, and don't even try guessing red or salvation cross. It's the death cross!

Bye CMA

2011-08-15T19:38:00.000+08:00

Bye CMA, just like how Accounting and I aren't meant to be.

Judging from the lack of momentum that CMA has presented itself from the rally today and on friday, I have decided to bite the bullet and sell whatever stakes I have in CMA. Dividend aren't attractive, persistent downtrend, reducing of stakes by big boys, what other reasons could compel me from selling?

Just like all traders and investors who needs and will to go through a few painful rites of passage, today I find myself walking alone. I guess what matters is what lies ahead beyond the light at the end of the tunnel, when you have the remaining cash and how you intend to deploy them.

It wasn't an easy decision, calculating the absolute loss you have, thinking you should and could have sold earlier to reduce the losses. Many who are reading this would probably think that I'm stupid to sell at this point of time as losses have already accumulated much beyond salvation, but at this point of time, I'm telling myself if I didn't persist on pulling out, there would be more opportunity costs should the market dives deeper as I have limited capital.

Putting things into the correct perspective, I'm currently 80% cash and is ready to take on the challenges, be it bear bull sheep goat chicken whatever, beyond the tunnel!

Bought / Sold Olam Round 3

2011-08-11T01:47:00.000+08:00

Bought at $2.41 and Sold at $2.30

Viewing the situation from the big picture, I had a very tight stop upon entering this position and obviously, the selling price is not the stop loss price that I had set earlier. I stopped commenting on my trades as I don't find them very useful but I had to note this somewhere for the very reason that this is an expensive lesson (nothing to do with technical).

It's a long story, but in a nutshell, obviously I need to take note that Stanchart has a stop loss function. Oh well.

Connection between STI and SGX

2011-08-04T21:45:00.001+08:00

Edit: Changed from correlation to connection to prevent any confusion.

When I first begin my statistics lecture earlier this year, my lecturer told me one of the incentives to study statistics is that you can use it in the practical paradigm - the stock market. When I completed the course, it is rather disappointing to discover what I know was merely constructing something like an MA envelope that encloses a line of stock prices where I can simply click

Nevermind, he's a professor and ought to earn some credit for that.

Putting that aside, I have been yearning to find out which counter should I buy or speculate and ride along the uptrend if STI could hit a low of 1455.47 like March of 2009 again. After looking through the textbook, I realised that I could put what I have learnt, namely regression into context.

In this experiment, I have chosen SGX due to its monopoly and robust moat. Secondly, Temasek Holding is its largest shareholder under the company of "SEL Holdings Pte Ltd". Close to half of its revenue are generated through trading and clearing of listed securities thus if SGX falls, it would simply mean the devastation of Singapore Stock Exchange.

To have a visual understanding of how closely related two variables are, I would first construct a scatter plot that includes prices from 1st July 2006 to 1st July 2011.

With the chart above, it is not too hard to determine visually the correlation between STI and SGX and conclude that the connection is somewhat vague and ambiguous.

To provide a more concrete evidence, we can use regression analysis. Regression analysis is the constructing of a function that can be used to predict or determine one variable by another variable and in this case, we are trying to verify if the prices of SGX can be determined through the prediction of STI index.

In regards to the table below, what is deemed important is "R Square" which stands for coefficient of determination.

Coefficient of determination is the proportion of variability of the dependent variable (SGX) accounted for or explained by, the independent variable (STI) in a regression model. It ranges from 0 to 1, with 0 means that the predictor (STI) accounts none of the variability of the dependent variable (SGX) and a value of 1 means perfect prediction of y (SGX) by x (STI).

In a nutshell
From the scatter plot, the points plotted by SGX and STI are spread out in an disorganised manner and statistically, a "R Square" of 0.51 only shows a mild connection between SGX and STI. With the evidence above, I can plausibly say that it is not recommended to speculate SGX if I were to ride along the uptrend of STI index.

Sold Olam Round 2

2011-08-02T01:17:00.000+08:00

Sold at $2.71

Sold Golden Agriculture Round 1

2011-07-29T03:04:00.002+08:00

Sold at $0.73.

Olam Round 2

2011-07-21T00:33:00.001+08:00

Bought at $2.57

SMRT Fare Hike

2011-07-15T17:05:00.003+08:00

SMRT, Singapore’s sole train transport service provider is a listed company and just like every other listed company, they aim to maximize shareholders' value. To do so, a company would have to fulfill criteria such as maintaining good profit margin and positive net cash flow. As a defensive and government backed counter, SMRT has been able to generate dividends on a constant basis to allow investors to invest for its dividend albeit the low yield.

However, the image of SMRT to the general public seemed to be a company that belonged to the Singapore government which should operate in the best interest of the general public and will, can and shall do so by providing cheap and affordable fare. I think this should be made known clearly to the public once and for all. SMRT works independently as a company by itself. It is backed by the government, not government owned.

Having Temasek Holdings as its largest shareholder, I’m sure we would want the investment company by the government of Singapore to make profit as well, else we wouldn’t see all the nonsense posted by netizens flaming GIC and Temasek of losing millions of dollars in its past investments.

The impact of higher cost
Even though revenue from SMRT has been increasing at a CAGR of 11.41% from 2005 to 2011, net profit margin seemed to deteriorate since 2008.

The above chart portrayed clearly that with the increased in cost, net profit has been affected and can be seen heading south. This leads to declining net profit margin which can be seen as negative fundamental issue which is occurring in SMRT since 2008, thus portraying clearly that higher cost has hindered SMRT from its bottom line growth.

With a decreasing net profit, it could potentially limit SMRT’s capability to sustain its already low dividend yield. Looking at past annual reports, payout ratio has increased from 59.52% in 2005 to 80.19% in 2011. Payout ratio states the amount of dividend a company pays out of its earnings per share. The higher it is, the lesser the amount of earnings a company would retain for its growth or potential investment and acquisition.

One might question SMRT about its rationale behind the increment of fares despite their average net profit margin of 18%. To answer this question, I would have to refer those to what I had mentioned about SMRT being government backed but not government owned. With higher cost, it is impossible for SMRT to maintain its profit margin at 18% forever and 2011’s result has proven this point well. Therefore, just like every other company, SMRT is trying to pass its higher cost to its customers, who is unfortunately, Singaporeans by increment of fare (price of service).

Breaking down of cost

It doesn’t take one to squint to notice how much cost has increased over the years. Looking at the graph, we can see that Staff costs takes up about 40% of the entire cost every year. This also means that any factor that causes staff cost to increase is very likely to increase operating cost significantly.

With the setting up of new stations such as extension of Boon Lay station and the recent opening of CCL 4 and 5, higher staff cost is expected as more would be employed. Higher CPF rates and lower job credits from the government has also negatively impacted SMRT’s ability to manage its cost. As more trains are being put at work to increase more frequency during peak hours, higher cost tagged closely behind due to increased electricity usage, higher frequencies of maintenance and more staffs to operate them.

To explore deeper, we will compare the growth in revenue that SMRT derives through Train, LRT, Buses and Taxis and the growth in cost which is necessary to operate them; Electricity and Fuel Cost.

This graph shows one clear and concise fact: energy costs are growing faster than what SMRT is earning from providing those services. This can be clearly portrayed by the stagnation of revenue growth yet a prominent hike in energy cost from year 2008 to 2009.

What will happen if PTC failed to approve the application of fare increment?
I’m expecting SMRT to increase their top line revenue growth with a declining net profit impacted by higher costs to provide services. Besides that, payout ratio would have to increase to sustain the 8.5 cents of dividend distributed for the past 2 years. As I have mentioned earlier, increasing payout ratio would decrease in retained earnings thus in the long run, we would see capex > depreciation which no investors would want to see especially when SMRT is a capital intensive business. In the extreme case, SMRT might result in borrowing to fund its dividend like what Starhub has been doing all these while.

To conclude, I believe we should stop looking at SMRT as Charity Company and should start looking at them as a company just like every other company whose goal is to grow and profit. With increased cost, increment in price is inevitable. I have been procrastinating or rather, waiting for an opportunity to invest in SMRT for its dividend yield. This could be a move to improve its fundamental and hopefully, present some values to its investors in time to come.

Golden Agriculture Round 1

2011-07-08T23:59:00.000+08:00

Bought at $0.705.

Video by Kim Eng: Lunch meeting with Armstrong CEO

2011-07-04T00:57:00.008+08:00

I have been procrastinating on this update on Armstrong after watching the videos provided by Kim Eng. Even though the videos were uploaded slightly more than a year ago, reading what’s in between the line and the insights of Mr Steven Koh himself has certainly brought my understanding of Armstrong to the next level. For those who would like to view the video, the link is as follows. This is just the first part of the video and the whole series consist of 9 parts.

The points I'm covering in this post are what I felt is important and they are based on my understanding from Mr Steven's speech in the video. I might have misunderstood certain points so if I do, do point out my mistake(s) and I will correct them accordingly.

What is Armstrong Industrial?
Armstrong used to have the image of being a process engineering firm, which could be seen as a tailor and would do whatever that fits the customer’s requirements. This also means that they cover a wide range of products throughout any industry. However, this image of Armstrong has improved to product engineering and management with a specialization identity. What they do can be explained from their business segments namely Consumer Electronics, Office Automation, Automobiles and Data Storage.

In another words, Armstrong is a solution provider and a leading foam and rubber components manufacturer specializing in Noise, Vibration and Heat reduction for automobile and electronics industries. Their main business is mainly to process foams according to the requirement of their customers which includes Western Digital and Seagate from the Office Automation segment and Volkswagen from the Automobile segment.

Doubling Sales every 5 years
Since 1998, Armstrong has been able to double its sales for every 5 years. Mr Steven did most of his comparison throughout the whole presentation starting from the year 1998 as that is the year which he initially joined Armstrong.

In 1998, the actual sales figure is 46.2 million. Doubling the sales, the projected sales by the end of next 5 years would be 92.4 million and 184.8 million by the end of a decade from 1998. Armstrong has maintained its expectation so far with recording 94 million of sales in 2003 and 182.4 million of sales in 2003.

How does Armstrong maintain profit margin
Armstrong deals with products with substantial margins which exclude products such as furniture forms as they have little value. This is due to the nature of the products as they do not require any special expertise to manufacture. This shows that Armstrong have standards for its image and are selective about what they will sell.

Armstrong would also phase out products when their prices have decreased, which is when there is no more value or when it is below the required profit margin.

This can be seen from the history in the annual reports where gross margin has been constantly hovering around 25% while profit margin has been constantly hovering around the 9% region.

With the amount of cash sitting on the balance sheet growing every year, why is Armstrong still borrowing money?
To understand this, we have to first understand that every subsidiaries of Armstrong are treated as a separate entity to protect the main company itself. Thus when a subsidiary of Armstrong needs money for its operation, instead of borrowing from the main company Armstrong itself (which I believe the money lent would be categorized under “Receivables from subsidiaries” which is not present in Armstrong’s balance sheet), they would borrow money from their country’s bank and thus, recorded in the balance sheet as borrowings.

There are several reasons why Mr Steven has structured the company this way.
1. Country Risk
If a country defaults, Armstrong would have issues getting back the money it loaned to the subsidiaries.

2. Currency Risk
If any currency depreciates, Armstrong would be subjected to foreign currency risk. In the financial crisis in 1997, one of the Armstrong’s subsidiaries amounts its foreign currency loss up to 4 million SGD.

However, he mentioned that it is okay for him to fork out some money to lend and take it as an investment which comes with terms and conditions. With a dollar of investment, he would require that dollar of investment to generate a certain amount of sales. If the subsidiary failed to maintain a certain amount of sales, Mr Steven would withdraw his lending and will ask the respective subsidiaries to borrow themselves.

Three legged stool
While the annual reports of Armstrong have identified the 4 business segments of Armstrong, Mr Steven classifies the 4 segments as 3 internally: Automotives, Data Storage and categorize Office Automation and Consumer Electronics as a single category. They are segregated due to their risk and profit margin issues.
Data Storage requires high stringent requirements, Automotive products have long product life cycle which involves different risks while Office Automation and Consumer Electronics utilize the same machinery, same resources and most importantly have the same amount of risks.

Mr Steven considers these 3 segments as a three-legged support. He would try to toggle and balance between these three segments so as to prevent any overexposure to any of the segments. Comparing the current revenue breakdown from each individual segments with what Armstrong has 10 years ago, we can see a clear difference.

In 1998, Data Storage amounts to 55% of the group’s revenue with Seagate being the sole revenue driver while Automotive only accounts for 3% of the revenue. However, with balancing done, the revenue contributions from different segments are properly balanced out as portrayed by the chart above.

Data Storage’s vulnerability
There were questions raised asking about the prospect of hard disk drives, wondering if hard disk drives would one day be obsolete.

Mr Steven promptly replied that there are two key issues that the Data Storage segment would be potentially impacted in the future. The first is when Seagate or Western Digital collapse which is when hard disk is no longer be needed, and the other is when foams are no longer needed for hard disk manufacturing process to contain heat, noise and vibration.

For the former issue, he mentioned that the idea of phasing out hard disk drives has been in the industry for the past decade but nothing concrete has surfaced. Thus he believes that hard disk would still be a necessity in the IT industry for at least the next 5 to 10 years.

For the latter issue, he mentioned that MMI used to replace foam with some other products but it did not turn out well. As technology progresses, 3.5 inches of Hard Disk are getting obsolete and 2.5 inches are getting more common, which results in reduction of the the size of the foam needed. This could potentially be an issue instead due to the amount of profit could be derived from the smaller size foam. Foams might be phased out in the future but it might do good to Armstrong as rubber is an example that could be used as a replacement. Knowing this, Mr Steven has begun to align their focus on the core competencies in both foam and rubber manufacturing.

Sidelining from the prospect of the Data Storage segment, the revenue proceeded from Data Storage are recorded in USD, thus while the USD continues to depreciate due to the increased in the amount of USD in the market, revenue would be impacted accordingly.

Referring back to the financials, we can validate this by looking at how much the depreciation of USD has impacted the revenue of Armstrong. For FY 2010, without factoring in the conversion of USD to SGD, the Data Storage Segment grew about 13.9%, but with the effect of USD, Data Storage only grew 5.3%, an 8.6% reduction of growth. Looking at the latest 1Q11 results, weakening of US dollars also caused a reduction of 8.8% drop in revenue.

Personal Opinion
The whole presentation was presented by Mr Koh Gim Hoe Steven, the deputy chief executive officer of Armstrong and through his presentation; I am confident that he knows the company well and will continue to bring the Armstrong to the next level.

Conversely, I feel that Armstrong might have an over reliance on him. Being too dependent on just the leader might be good if the leader is a shrewd one. In Armstrong’s context, shareholders are fortunate to have Mr Steven Koh guiding Armstrong on the path to success which can be well proven by the financial statements themselves. By mentioning the term "over reliance", I meant that I get the vibe of Armstrong working in a way that Mr Steven Koh wants it to be which involve no or minimum discussions of plans and goals of the company with the sub unit managers. There are many examples that could be used to support this claim such as the ability for subsidiaries to loan money from Armstrong, which business contract should be abolished as their value has depreciated as well as how much each individual business segment are going to contribute to the revenue.

This means that if ever Mr Steven Koh leaves the company, it would be as though Armstrong lost a star that could guide its path and without a leader, a company can hardly grow. Without growth, a company would not take too much time to collapse. Thus, after watching this video, I realized that Mr Steven Koh is the key man in Armstrong and if he resigns, it could be a red flag to divest away this company.

Valuations
Taking into consideration some of the factors such as the depreciation of USD, plans for expansion of factories in China yet the cooling measures of the Chinese government, I had done a simple valuation with just an average of 5% growth rate for the next 10 years thus do not take this valuation seriously.

With an average growth of 5%, sum of present value of EPS for the next 10 years would be $0.52 per share and at the latest price of $0.345; it is selling at a 33.66% ((0.52-0.345)/0.52) discount at my personal valuated price.

2 weeks ago, Armstrong has been buying back its own shares and this could be good news for its shareholders as it portrays the confidence the management has in the company. With a reduction in the number of shares, profit would be shared by a smaller number of shares, thus increasing earnings per shares. If I had not increased my exposure of Armstrong at $0.435 cents, I would have increased now. It doesn’t make sense to increase my stake now as it would dilute my average buying price per share, eliminating my advantage of buying Armstrong at $0.14 cents per share.

Self Actualisation

2011-06-19T00:04:00.000+08:00

It has been 3 years odd since I first started my investment journey and looking back, there have been ups and downs along the way. I started off with an dream, an overwhelming desire to be rich. Just like everyone else, I wanted to be financially free as early as I could and thus, would eventually be out of the rat race. I used to think that it's not hard to be rich once you know the trick, after all, the rich get richer partly because they reinvest their money over and over again. I thought if I started early, I could reach the end point early. Unfortunately, or rather fortunately some would say, I came to realise that all the glamour from earning money in the stock market I had seen in movies are nothing but the directors doing a good job in sugar coating the rough track to the riches.

I came to realise this not because of my bad performance this year, but because after reviewing my trade histories, I discovered the amount of money that I had actually made is not as much as it seemed to be. This is not because I did not make enough trades, but because when I profit, I win little but when I lose, I can lose an amount that tantamount to an amount I earned in 3 to 4 trades. Even though I started with a low 5 digit figure, the amount of net profit I had earned for the past 2 years from short term trading actually dwarfs the amount of dividend I had received from the past 3 years.

I started off as an investor and later becoming a semi investor/trader as I realise the amount of meat left in the pile diminishes as the STI index rises. Till date, I remembered the advices my Dad has given me; one of which is as follows: "Receiving dividends is the only way you can beat the market. Apart from that, everything is just a facade. You profit only to plough them back into the market as losses." I initially dismissed his words without thinking if it's true. Looking in retrospect, his words are indeed true to a certain extent.

At times, I feel like there is a carrot being dangled in front of me while I continue to chase the impossible dream. No doubt I'm getting tired and discouraged, no doubt the desire to be rich gets tamed as the day goes by without profit, but I'm definitely not throwing the white towel in. Getting rich should not be a sprint but a marathon. Perhaps, it's time to recollect the initiatives for every single trade, reviewing them and reconsider the whole strategy.

Contingency Planning

2011-06-11T03:12:00.001+08:00

While the market has been crashing from day to day, fear was brought along, investors being perturbed by the current Greece and U.S. situation. As the next crash looms near, I think the most important thing is if we are ready.

I'm currently 60% vested in CMA which also means the bulk of cash for short term trade is into CMA. This is also the counter that I had been watching closely simply because if I were to cut losses on this, my entire portfolio would decrease by almost 20%. CMA is currently heading towards the lower 1.5 region which I had initially planned for and on the weekly chart, that's when the divergence should manifest. However, if the economy fundamental fails, I'm pretty sure the divergence would be negated and CMA might dive deeper.

Looking in retrospect, I was afraid of missing out profit and jumped the gun knowing that there is a high possibility that CMA might dive deeper. Moreover, greed took the best of me as I attempted to run double profit in my last trade.

At this point of time, I still have one last bullet to fire for short term trading and my opportunity funds made up of almost 40% of my investment portfolio. Should Greece or US default, CMA would have to go at any price and by saying that, I hope I'm mentally ready for armageddon.

CapMallAsia Round 3

2011-05-25T17:26:00.002+08:00

Bought CapMallsAsia at $1.62 (again).

Contrary to my previous belief that CMA will get you Confirm Momentarily Agonized, I have decided to increase my stakes in CMA. This is of course, through some thorough thoughts as around 60% of my capital are now in CMA. Heard of the common belief that having increased exposure means increased risk?

The reason why I'm buying CMA is due to the strong signals portrayed from the charts. As always, I'm trading this using the bullish divergence system. Time after time, I've learnt that by looking at the divergence on MACD is totally inadequate (check out the trade on NOL). Thus I've decided to trade with the divergence system ONLY if FI or Stochastic concurred with MACD. In this context, both FI and Stochastic have compelled with MACD, portraying divergence in their respective tools.

However, as shown on the daily chart, the channel that I've drawn shows that it is possible for CMA to drop further into the lower 1.5 region. The MACD histogram in this period might also be too deep to manifest the authentic divergence system.

Thus besides being mentally prepared, I have one last bullet to fire just in case things go the other way. On top of that, weekly chart showed a really juicy picture and that could be a reason for me to sleep tightly at night. There is also potential for two round profit in this chart but I'll keep my fingers crossed for that.

Cheap deal?

2011-05-25T00:23:00.001+08:00

For those who think IndoAgri is cheaper and a good bargain now cause its $1.70 instead of the $2 dollars it costs around 1 week ago, think about what happened to Cosco, Creative or even Capitaland. They have one thing in common, and I'm very sure its not just the initials.

Uncle Sam and his debt

2011-05-18T18:29:00.004+08:00

As more news appear in regards to the US's debt ceiling issue, I got bearish and wondered if there might be another crisis looming near. Can Uncle Sam really pays its debt?

How can the US pay its debt?
There are three ways that the government can fund its debt. Increasing tax, borrowing money or to print more money. Since the Federal Reserve has declared that they are going to stop printing money in June, which also signifies the end of Quantitative Easing 2011 (WSJ 2010), this leaves us with the former two choices, increasing in tax or to borrow money. Earlier this week, the US treasury secretary Tim Geithner once again urged the congress to extend the debt ceiling so that the government would be able to perform their daily operation and at the same time, have more time to plan a proper budget (CNN 2011). So what happens if Congress refuses to budge and maintain its stand on no borrowing?

This leaves us with the only option, to increase taxation. Currently, US tax revenue amounts to 224.8 million for year 2010 (State Government Tax Collection 2011) and the debt that US currently owes amounts up to 14.3 trillion (CNN 2011). It is not hard to see the vast difference between the two numbers and if you are someone who is unfamiliar with financial figure, I can spell it out for you. The amount of debt the US currently owes is 62.37 times MORE than the amount of tax it collected last year in 2010 and almost 100% of the GDP they produced in 2009 (Google Public Data). For comparison purposes, Australia's current debt is A$64.2 billion (debt clock) and China's estimated outstanding debt is US$1.84 trillion (Reuters).

So how much should the US increase its rate?
I am really not sure.

The US's current tax rate ranges from 10% to 35%. It really beats me how much they are going to increase to sustain their tax rate to tighten the margin between the tax revenue and daily spending.

Adverse Effect
Increasing taxation would also mean the average consumption of the household would decrease as the marginal propensity to consume would decrease. This would adversely affect the amount of income and output that US would produce, which might potentially result in a recession. As we all know, recessions brings unemployment and it might worsen the current unemployment rate of 8.7% (Google Public Data) which President Obama has been trying so hard to cease.

In a nutshell, I am pretty concerned about this issue that US is facing now, which might potentially turn out to be a catastrophe that might be worse than the subprime crisis we last witnessed.

N.B. The brackets within this post are the sources that I have gotten those details from. Anyone who need the actual source can email me.

Sold NOL Round 1

2011-05-08T18:48:00.001+08:00

Sold NOL Round 1, net loss -4.23%

Sold this counter few days ago but posted late due to obligations from school. Sold this counter due to the fact that it has gone below my cut loss limit of $1.88.

I wouldn't say I've rushed into this counter as this counter was under my radar for sometime. However, I've mistaken the direction of the general market in regards to STI. I initially mentioned that STI was potentially on an uptrend as uptrend charts usually portray prices bouncing off the value zone and the top envelope. Unfortunately, I missed out the fact that there was a bullish run up for the past 2 weeks, allowing the histogram to push itself to the pinnacle where it was only last seen one year ago.

Secondly, I was successful in the previous 2 trades on IndoAgri and Noble Group as I traded with a firm belief that I should not only depend on MACD Histogram. However, I let go this belief this time round which cost me this loss.

Armstrong FY10

2011-05-01T11:27:00.002+08:00

This write-up would focus more on the important points of Armstrong instead of a full write up.

Armstrong’s latest results exceeded my expectation and had an EPS of 4.97 cents in FY10. Growth in net profit has been organic, with other operating income accounts for only 0.45% of the entire revenue and a low amount of growth compared to the growth in revenue and net profit. Not only did Armstrong surpass my expectation, they also surpassed their own by having a record revenue of 225.4 million.

Automotive
The reason why Armstrong was able to perform so well this year is due to the good performance from the automotive segment. The automotive segment improved from a contribution of 27% to the revenue in year 2009 to a contribution of 31% to the revenue in year 2010. In terms of numbers, automotive segment increased its profit by 46.95%, from 47.5 million to 69.8 million. This is due to the amount of cars that is produced in the year 2010. In 2010, the total amount of automobile production in China was 18.06 million.

What is important now is to look if the revenue from the automotive segment would continue to grow. Sources from here and here states that auto market in China is expected to slow to 10 to 15% growth. This does not mean that there would be a decrease in revenue, but simply means that automotive segment’s contribution to the revenue and the growth in revenue would not be that much.

However, if customers of Armstrong continue to prosper, Armstrong would too, gain from their prosperity. This source states that Volkswagen triples profit as China car sales roar and this states that Honda targets sales of 730 thousand in China for FY 2011, which is roughly a 10% increase. From my previous post, we know that Volkswagen has 37% of the market share in China. Should Volkswagen continue to produce this kind of sales, I’m pretty sure Armstrong would produce a result that is not too far from FY10’s result.

Data Storage
The closest competitor of Armstrong I could find, Broadway Industrials, is heavily focused on the HDD segment of their business. However, this does not limit Armstrong from making more revenue in the hard disk segment. In FY 2010, even though data storage segment decreased in contribution to revenue, they increased their revenue contribution by 5.13% to 53.3 million.

In the annual report of 2010, it is stated that Armstrong serves the two largest hard disk driver manufacturers in the world. After doing some research online, I realised that within the hard disk industry, there’s a struggle in market share between Western Digital and Seagate. Assuming these two companies are Armstrong’s customers, then the power of being the supplier would be high according to porter’s five model forces. Outlook wise, I would say its nowhere near the word “gloom”.

Market Competitor
Competition wise, Armstrong had outperform its closest competitor that I could find, Broadway. Both net profit and ROE shared the same trend except debt to equity in this comparison. While they shared the same trend, they don’t share the same results.

Net profit of Armstrong hovers around 9.8% region while Broadway hovers around 5.1% region.

Both companies had fluctuating return on equity but for the FY10, Armstrong reports a ROE of 24.13% compared to Broadway’s 19.85%. I’ve used Du Pont analysis to calculate the ROE for these two companies as asset turnover is an important ratio for both of them. Taking a deeper look, Broadway’s quality of ROE is not as good as Armstrong’s, simply because the the ROE of Broadway’s are buoyed by the financial leverage factor. This also means Armstrong’s asset utilisation is more efficient compared to Broadway.

Albeit a decrease in trend for debt, Broadway’s debt is still high compared to Armstrong’s.

The only thing I’m surprised about Armstrong is that their frequency to distribute dividend is out of normalcy. Distributing two times of dividend in FY10 has gave them a net cash outflow and a cash adequacy ratio of lesser than 1. Management might either have overlooked some factors or they just want to reduce the amount of cash sitting on their balance sheet. Some might argue that they could have use it for ventures and investment. Looking at the annual report, it states that Armstrong is attempting to enter the India market via a joint venture with a local indian partner. Thus I believe the management is doing what is best for its stakeholders of the company.

The following graphs can summarizes the comparison between Armstrong and Broadway.

I’ll probably do a valuation again on Armstrong upon their 2H11 and if the price is attractive, I might increase my stakes again.

Sell now or regret not selling (eventually)

2011-04-29T12:58:00.006+08:00

Quote:
"Taking profits is stressful because of a normal human tendency to hold out for a little more and then beat yourself for having left too early" Dr. Alexander Elder.

I guess eventually everything goes down to greed, hoping the price would go higher. Each time it goes up by 1 tick, you feel happier, but when it goes down by 1 tick, you felt as though someone owned you some money.

I don't deny I don't succumb to such emotional rides initially, but as time goes by, I'm learning to be focused, governing my composure with the what charts have shown me. This is important as I trade with rules, not on what some call it as "play stocks".

My old rules to myself still applies: 赚够就卖. As much as I don't like making less profit, I feel that I wouldn't want to lose out on my profit more. My ROC might be little when it comes to short term trading, but like I say, it's short term trading. How much can you expect from a short term trading?

If you're talking about one grand or five grand, then the question is how much are you willing to risk to get that amount?

Kingsmen Creative FY 10

2011-04-25T14:28:00.006+08:00

It's been sometime since Kingsmen released their results but due to obligations from the school, I only have time now to take a deeper look from the numbers.

Returns and Growth Rates
Revenue from FY 2010 decreased by -2.82% to 235.2 million and this is due to the decrease in revenue contribution from the Exhibitions and Museums (EnM) segment. It was due to the Universal Studios of Singapore project awarded to Kingsmen last year that makes it hard to catch up for year 2010 without any projects as big as USS. Nevertheless, decline in revenue did not hinder both gross and net profit from marching forward. Gross profit improved to 27.82% while net profit improved to 6.87%. Across the industry, companies improved their profit margin as well.

Return on assets dipped by a slight margin, from 11.38% to 11.11% which shows the amount of money generated by per dollar of asset is reduced. The increment in assets was mainly due to an increase in net cash by 14.3%, as well as an increase in unearned revenue. Return on equity registered a small decline as well, dropping from 28.63% to 27.20%. Albeit an increase in both net profit and total equity, this dip can only be due to the fact that the increase in net profit was not large enough to justify for the increase in equity. Even though there was a slight decrease in both ROA and ROE, it shouldn't be too much of a concern as the underlying reason for both decrease was an increase in cash. The increase in cash leads to an increase in amount of asset which eventually leads to an increase in equity.

Comparing ROE for FY2010 with historical results, it can be seen that ROE has been declining for the past 2 years. Albeit the decrease, if we were to compare this figure with the industry, Kingsment still stands out from the rest. Cityneon and Pico Far East reports a ROE of 16.77% and 16.8% respectively.

Retained earnings combined from 2005 till 2009 amounts to 17.8 cents which brings an increase of 5.7 cents combined within the same period for earnings per share. This represents a return of 32.42% by the retained earnings in 2010. Unfortunately, comparing the result from 2010 and the year before, there was a dip of 9.78% where returns by the retained earnings in 2009 was previously 42.2%. This is due solemnly to the lackluster growth in earnings per share. Even though there was a growth in profit, there was also a growth in number of shares, impeding the improvement in earnings per share which eventually increase to 7.93 with a rate of 0.7%.

Financial Health
Financial ratios for FY10 looks rather bleak. Unlike my initial few analysis, debt refers to borrowings, not total liabilities. Debt to revenue is 4.22 times more than FY09 and debt to equity is 3.79 times more than FY09. While it seemed as though the ratios had inflated too much, debt to revenue is currently only at 2.24% and debt to equity is only at 8.91%. Comparing this with historical results and with industrial peers, both did not fare well. The last time debt to equity hit more than 8% was in 2006, which is around 4 years ago. For industry peers, both CityNeon and Pico Far East stands at 2.59% and 4.42% respectively, both with decrease in percentage from the preceding year.

Surprisingly, this is the first time Kingsmen had such amount of loan in their balance sheet. As mentioned in their result announcement, these loans were used to finance two acquisition of two factory units in Malaysia. Judging from their net cash and interest cover, I strongly believe they have no issues with financing both debt and interest.

Liquidity
Liquidity can be measured by current ratio which has been on a rise to hit 1.45 in FY10. This also means that the current assets are growing faster than its current liabilities. Currently trade receivables took the bulk of the current asset due to the USS contract they have in FY09 which I hope it could be reduced in time to come.

Free Cash flow/Revenue
Free cash flow has been generated rather constantly except for the year 2009. This is due to the huge increase in trade receivables that caused the changes in working capital to reduce cash flow from operating profit. Comparing against the industry, Kingsmen has been moving closely with Pico Far East even though after losing its lead in 2009. For FY10, Kingsmen has 6.02% of FCF/Revenue compared to 0% and 8.35% from CityNeon and Pico Far East respectively.

Before we move out of the numbers, here's a few graph representations of the Kingsmen's performance with its competitors.

Business Segment Review
Exhibitions and Museums
This business segment contributed 44.7% and is the second largest revenue contributor this year after taking over the interior segment two years ago due to the USS project. The USS project contributed 70 million out of the 133 million contributed from this segment, which is roughly more than 52%. However, without this one off mega project, this segment still managed to rake up 105 million. Kingsmen continues to take up several high profile events locally such as Youth Olympics Games, F1 Singapore Grand Prix and international projects like Cityscape Dubai and the Venice Biennale.

In the year ahead, Kingsmen would deal with projects both locally and internationally. In Singapore, Kingsmen would deal with the expansion of Universal Studios Singapore and project titled Gardens by the Bay. Globally, Kingsmen would focus on Hong Kong Disneyland extension, as well as Shanghai Disneyland.

Interiors
Interior segment continues to cruise forward in revenue, and is currently the biggest revenue driver. Of the 235 million revenue that's earned this year, interior segment contributed 116.6 million, which is almost 50% of the entire revenue. This year, Kingsmen has been entrusted to design and construct retail shops at Marina Bay Sands. Apart from designing interior boutiques for renowned customers, this division also sustain good revenue from the exports of fixtures to clients in Asia, USA and Europe.

Integrated Marketing Communication/Research & Design
Research & Design segment increased its profit to 6.4 million and Integrated Marketing Communication segment decreased its profit to around 7 million. Both segment contributes around 5% of the entire revenue.

Conclusion
Decrease in revenue this year should not be too much of a concern as revenue contributed from USS in 2009 is hard to weigh against. Thus, I doubt Exhibition and Museum segment would be able to match its revenue contribution back in 2009 unless there are enough projects to match the revenue input from the contract from USS. Therefore, I would strongly think that the Interior Segment would continue to be the main revenue driver.

This can be further supported by the fact that Kingsmen is committed to the China industry within its Interior Segment, allowing them to compete in a different arena with its traditional competitors who allocates more of their resources in the Exhibition and Museum segment. This would lessen any pressure and prevents them from getting involved with aggressive competition.

I do feel that Kingsmen needs to take note of the cost management in regards to Staff salaries as it deducted slightly more than 50% of their gross profit every year and is eroding away its net profit. As you can see from the graph above, net profit margin from Kingsmen is getting thinner as compared to its industry competitors.

I would probably not increase my stake in Kingsmen at the moment for the following reasons

1. Even though debt is considerably little, Kingsmen had the highest debt to equity ratio this year in my comparison with its industry peers. There shouldn't be a problem for Kingsmen to repay its debt in the current year but I'd still like to see the number decreasing from its balance sheet in this upcoming year.

2. Kingsmen's cost management on expenses after gross profit needs to improve, else they would be losing their lead which they gained 3 years ago. One main reason that causes this is the amount of staff costs that has been rising, eroding net profit away.

However, these 2 reasons is not sufficient enough for me divest thus I'd continue to hold onto my current holdings at the moment.

Something to Share: XIRR

2011-04-21T19:31:00.004+08:00

Tabulating and calculating returns is important as this allows one to know how bad or how good one has fare thus far. I've tried so many others but none is as practical as XIRR. However, the amount of data I've to type into the spreadsheet is seriously cumbersome.

I must say it's seriously tough to start doing XIRR initially. There have been lots of error and some errors are errors which I don't even know why they exist. There are some bad examples from google and following them could be quite misleading. Eventually I did some trial and error and got it all solved.

There are two things that I feel one should take note when dealing with XIRR.

1. Keying in the date
XIRR is very particular with the date format you keyed in. You can't just simply type "1/1/2011" or "1st Jan 2011". The correct way of doing it is to key in "=date(2011,1,1)". Yes I know it's a hassle, and it'll be worst if you procrastinate.

2. Unsold Counters.
It is important to note that you should not include those counters that you've bought but not sold. If you have include a buy order into your XIRR calculation without putting in a figure to balance (which is what you enter when you sell), it will understate your returns.

I have lots of problems with the two issues above. Hopefully by sharing through this blog, people who are reading this wouldn't feel as vexed as I do when I initially started out.

Edit: I'd be recalculating my XIRR, thus I removed the previous figure.

NOL Round 1

2011-04-20T17:20:00.003+08:00

Bought NOL at $1.92

Primary reason was due to the general MACD divergence. I initially queued at $1.90 when the price was $1.91, but as time passed, support turned resistance was breached at $1.92 and hit a day high of $1.93. Thus I decided not to wait anymore and queued at $1.92 instead.

Secondly I'm hedging myself with the flow of STI(again). Apparently STI seemed to be on an uptrend. During an uptrend, prices hit the top of the envelope, retraced back to the value zone, and continue its way up again, which is probably happening right now. However, this portion of the uptrend might not last long. I'm judging this from the height of the MACD of STI last week. Bulls were so strong that the height of the MACD Histogram was at almost 10 months high. To match this strength, I'm afraid it's going to be hard without any deep reversal.

However and generally speaking, NOL still seemed to be on a downtrend and suffering from price weakness. This explains the reason why when STI got fired up for the past 2 weeks, NOL is still moving within the stagnant range.

It can be seen that I'm using MACD divergence as my strategy to enter this trade. This means that if MACD histogram were to formed a lower low, it would also mean it's time for me to exit this trade with a small loss.

Big Picture

2011-04-12T17:55:00.006+08:00

Many times we've been trying to look at the big picture and subconsciously we've been forgetting about the small picture, making our analysis on FA totally vague and is only subjective enough to whom writes it.

What do I mean by the big picture? Well, if you tend to only look at how profit margin advances, how liquid your company is, how much debt your company is and you're making judgement based on those numbers, you're probably prone to be one who's just making analysis on the big picture.

I don't reckon I'm not one of those at times. Today, I had an accounting class and my lecturer's going through lessons on analysis of the financial statement which is something I thought shouldn't be too new to me. However, as the lecture proceeds, apart from what each jargon means and how do you compute each and every ratio, I realised I'm not focused enough in my FA.

What do I mean by not focused enough? I realised whatever analysis I've written, it's just "profit margin grow from xx% to xx%, and is a CAGR of xx% over the years", "current ratio improved from xx to xx and this shows a better liquidity." However, it never came across to me what does a 5% profit margin means, or so what if there's a better liquidity.

I learnt that getting the profit margin doesn't portrays anything and even though there's a vast improvement on the profit margin over the years, it only tells us that the company has performed well and that's it. What we should probe further, is how much is considered good or why is a 15% or even 6% profit margin(to be fair to Kingsmen) is good enough for the company.

I think it'd be good if I have some free time to sit down and reconsider all the ratios that I've been using and what do they mean instead of blindly divide numbers by numbers. We all know that to calculate asset turnover, we have to use Sales/Asset, but for companies like Kingsmen, is it really useful? Or would that ratio be more applicable for companies like Armstrong or Midas.

Of course, doing all these takes a whole lot of time. Nevertheless, you reap what you sow. The amount of profit you earned thus far is certainly an indicative milestone of how much time and effort you have committed.

Unstoppable Bulls

2011-04-08T20:13:00.004+08:00

When the US government declared during the midweek that there might be a shutdown this coming monday due to problems faced with regards to the budget, the market did not react much to it and the bulls continue to push the prices higher.

When there was a second earthquake occurred in Japan on thursday night, the market did not react to it like what they did to the first disaster. This news also failed to impede STI from climbing to the next level of trading.

It can only be one of the two reasons:

1. The bears are sleeping.
or
2. When the bulls are charging, its UNSTOPPABLE.

Sold Noble Group Round 3

2011-04-05T18:15:00.004+08:00

Sold Noble Group at $2.22, net ROC 6.1%

I sold this due to the fact that I reckon STI would be losing steam this week. I bought this counter to ride with the flow of STI. Now that STI has almost reached its peak, my reason to buy the counter is also my reason to sell for this counter.

I was marking the 3177 level as the immediate resistance and STI hit a tad bit lower of 3165 as its day high before closing at a disappointment at 3146. This could mean that as STI marched towards its resistance, there are more profit taking coming along. While there is still room for growth, upside is limited and I turned more risk adversed just in case STI decided to retrace instead.

I put my sell order at $2.25 for most of the day but it did not managed to sell. Nevertheless, I'm more than happy to sell at $2.22 as I'm quite contented with the overall trade this time round.

Sold IndoAgri Round 1

2011-04-01T12:09:00.005+08:00

Sold IndoAgri at $2.26, net ROC 3.5%.

I had a rather good entry, but exit was quite a disappointment. As soon as my sell order was filled, it didn't take more than 5 mins for IndoAgri to breach its strong resistance to hit $2.32.

First of all, I'm semi convinced that IndoAgri is still on its downtrend on its daily chart thus my decision to sell. Prices are still hovering around the value zone with problems breaching $2.29. Stochastic even though on a gradual path towards the 80%, it seemed like it's lagging in strength unlike what happened in Cosco and STI when the bullish divergence is fully realised.

So what makes me think IndoAgri is no longer on a downtrend and is currently consolidating? If you look at the chart, I've drawn a resistance line and that was breached on the 24th of March. Prices then retreated to test that support turned resistance and it was bounced off the day even though with a shooting star. Secondly, volume are retreating as candles closed bearishly which means there aren't many willing sellers. Ultimately and the most important point, weekly chart would show bullish signals as long as prices don't close below $2.13.

Nevertheless, the bearish side of me took over and prompted me to exit my position.

I tried putting sell order for the past 2 days at $2.29 and $2.28 but it wasn't filled at the end of the day. Eventually I have decided to sell at $2.26, which is 1 bid below the day high at that point of time.

I would say this embarrassingly that some fear was involved in this sell order which resulted in slight disappointment and frustration. I mentioned that I would love to lock some profit in the $2.28 to $2.30 region which would give me around 4.2% to 5.14% in ROC which failed materialised.

"Don't cry over spilled milk." What a perfect phrase to apply in this context. "Selling techniques are more important than buying techniques." I couldn't agree more.

Sell order: Rejected.

2011-03-30T21:16:00.004+08:00

Probably due to the reason that I'm still a student, my account limit to sell was like so low, that even Citi Brokerage rejected my sell order of 1 lot of IndoAgri. I'm seriously not very happy about this issue. This is what happened.

I put a sell order at the price of 2.29 which is the strong resistance of IndoAgri at the moment. The price even though was 2.28 at that time, was flickering between 2.28 and 2.29 for a while. When I take a look at time and sales, there was a few 1 lot sell down at 2.29 so I thought my order was hit. To reassure myself, I went back to my Citi account to double confirm but unfortunately, just like what anyone wouldn't want to see, my order was actually rejected!

I called up Citi immediately and apparently the main reason was that my sell order was below my account limit, thus it was rejected. I find it really absurd that if my account limit is that low, then what's the point of having a trading account? I believe the amount of money I have deposited previously could more than accredit my ability to just sell 1 lot of IndoAgri.

Now that I have missed my chance to sell, I could only use HA to pray that 2.29 would be broken so as to make myself feel better. Oh well.

I'm glad I knew FA (and what GDP is)

2011-03-23T19:56:00.007+08:00

If you're studying in a business related degree or about to embark on a journey to study business and you know FA, I'm pretty sure you would nod your head profusely and agree with me on this post.

I'm currently staying in Sydney, Australia, studying Bachelor of Commerce in University of Sydney. After 4 weeks of education since I stopped studying for national service 3 years ago, I must say its tough to start attending tutorials and lectures, and waking up early feeling dreadful to know that you have a long day at school. It's even tougher for someone like me with no business background or basic economic knowledge as I have to start everything from scratch. That also means the basic equation of Macroeconomics and instruction for me to do a new balance sheet are all very foreign to me.

Fortunately and thank god I knew FA despite not on a professional standard. Investing in the stock market with what I know on FA and and churning reports, despite(again) not actively have actually helped me a lot for the past 4 weeks.

In macroeconomics class, I'm able to pick up easily even though I have no microeconomics knowledge as I know where I can apply GDP to. GDP, like everyone knows is Y = C + I + G + NX but if I'm not invested in the stock market, would I know how can I apply GDP in the real world? I'm pretty sure I wouldn't know how important it is to the rest of the world as it might be a night of blood for DJIA if US release some negative data about GDP.

Knowing how to read an annual report is one of the greatest thing that I've picked up ever since I left school 3 years ago and putting it to good use today. Even though I'm not sure how to create a new balance sheet, I know what current and non-current assets are, making it a lot easier for me to construct a worksheet which one is encouraged to do before making a balance sheet. Apart from that, it makes me feel smarter when people are getting confused with trade receivables and payables. (I'm actually the only one who knows companies only pay fix amount of dividend to preference shareholders!)

Hopefully I don't come off with an arrogant tone in this post as I'm just sharing the advantage of knowing FA. So if you've yet to start your business degree, why not start now with FA?

Noble Group Round 3

2011-03-18T17:11:00.000+08:00

Bought Noble Group at $2.05.

There are two reasons why I'm in this trade. First and foremost, this trade is just like any other trade, it's due to the occurrence MACD-H divergence. I might be a tad bit late entering this trade as it has been realised since 2 days ago. Secondly, I'm buying an insurance for myself.

Insurance? Well, if you're looking at the STI daily chart, it's not too hard to understand what that insurance is for.

Just in case the STI bounced off, I would have something to ride along.

My target price for this trade would not be the value zone thus this trade would be slightly more than a short term trade. I would first place my target price at the top of the downtrend channel, if prices rose through the roof, I would place a trailing stop on top of the resistance turn support line.

Indofood Agr Round 1

2011-03-17T10:17:00.003+08:00

Indofood Agr Round 1

This trade is rather straightforward, MACD-H divergence with support from FI and Stochastic. I bought this as green impulse appeared yesterday with a white hammer on the chart.

Unfortunately, weekly chart shows this counter is on a downtrend so I'd probably have to set my target price at value zone or the down-trending channel. If prices breach upper channel with volume and stochastic still have some space to move, then I'd deploy another plan to increase my profit, else, 2.28 to 2.3 is definitely good enough.

Sometimes I envied seniors in the market who have found their touchstone where they can trade it over and over again. Hopefully it's just a matter of time before I found mine. After all, I've only been trading for around 2 years.

On a side note, I've previously mentioned that CPL still have some downside to go. On the latest chart, it looks like it should ripe soon.

Tempted to buy?

2011-03-12T13:11:00.009+08:00

Ever had the feeling that you were so tempted to buy but your charts and technicals are telling you otherwise?

After the mini correction 2 weeks ago, many charts have the potential for a divergence setup. I've pointed out a few and was so tempted to buy yesterday (Friday) as some of the counters have already breached their credible support. However, the problem was that the setup of a bullish divergence is not complete. There were times where I did a bit of practicing on TA and realised that if I count the eggs before they're hatched, quite a bit of money would have been lost. This could be an example.

At some point of the trading session yesterday, I got succumbed to evil side of fear and greed and queued for CPL at $3.25 yesterday. Even though CPL hit that price during the session yesterday, my queue was not hit.

Looking back now, I'm glad that I was unable to get as technically, there is still some downside for the share price to fall. I seldom post technical analysis here so I would not try to justify why I said there are still some downside. I believe there's still a whole lot of results to prove that my TA are credible.

Call the miss of my queue a blessing of disguise? Unlike Ezra, CPL's really heavy so I would have to practice tight money and risk management.

On a side note, I'd probably be posting much lesser cause I've been really busy with school. It's been 3 years since I last attended lectures and did tutorials. Even though it's hectic, I really like the fact that I'm studying right now so if I post, it'll more like my thoughts or my trades, not so much of FA anymore(a break of promise to my new year resolution). oh well.

赚够就卖

2011-03-02T08:21:00.004+08:00

There is a common thing I see in aunties and uncles who punted the stock market: they are always not contented with the amount they paper profited. Instead of counting the profit in terms of percentage, they usually and tend to view those profits in numbers.

For example, if I buy 10 lots of Golden Agr yesterday at opening and sell them at closing, I would have profited 400 dollars. However in terms of percentage, I'm getting 6.1% out of my capital! 6.1% can easily be compared to the 7 months fixed deposit you have in Australia or any of the fixed deposit you can find in Singapore. On top of that, you got your 6.1% profit within 24 hours, not 7 months.

Of course, you can rebut me with saying the stock market involves a higher risk thus you want a higher return. True, but if you let greed take the best out of you, your 6.1% profit might easily be 6.1% loss.

Sold Ezra Round 2

2011-03-01T21:48:00.009+08:00

Sold Ezra at $1.62, net ROC 2.9%

As mentioned previously, I would probably set a sell order when this counter hits the value zone on the chart. I'm actually quite glad that I was able to unload at $1.62 and thought I would have miss it cause of my deleted sell orders by Citi claiming my sell order was beyond my limit.

Stochastic was not printed partly due to space constrain, and also due to the fact that its irrelevant since this is a post about my sell order.

$1.63 could be seen as quite a favorable resistance with prices coming to a halt at that level today and with the parabolic showing the same signal at that price level. Even though it is likely that prices could go further due to the fact that MACD Histogram is still below 0 and Stochastic has not reached overbought region, I personally would not want to gamble and will just stick to my trading plan. However if it does hit the top envelope, short term downtrend would be broken and $1.63 could be seen as a credible support again.

Ezra

2011-02-28T22:41:00.002+08:00

Ezra Round 2, bought at $1.55.

The reason for this trade is mainly due to the divergence formed on the MACD Histogram on the daily chart. On top of that, divergence is also seen on stochastic. FI dipped slightly and that shows the bear has almost the same strength that it has on the previous low.

As I mentioned earlier on my exit trade for Ezra last week that this counter is probably going on a downtrend, prices going down after hitting the value zone is very likely. Hence, putting a sell order on the value zone would be a good choice.

I would probably set a trailing stop when prices hit $1.61 and if prices fall below $1.5, stop loss order would be activated.

Sold Tat Hong Round 1

2011-02-24T01:01:00.000+08:00

Due to the recent sell down, I decided to offload whatever I can. Ezra yesterday and Tat Hong today. Tat Hong was not as easy a decision compared to Ezra, simply because the losses are much more than Ezra. However to much contemplation, I eventually still did cause I realised that the longer I hold, the higher price I would have to sell to justify my holding period vs profit.

I sold at $0.775, making a lost of 30.49%. This amount is like 80% of the total profit that I had gained last year, which totally makes me reconsider initially if I really want to offload this counter.

If you were to ask me what went wrong then? It's not too hard for me to answer today. 1. Inadequate amount of liquidity. 2. Insufficient volatility. I believe this two basic reasons can already justify my acknowledgement for my blunders.

I'm not afraid nor embarrassed to post my losses as I have not been proud about my profits as well. All I can say is this is a huge mistake then and I would certainly not commit this again.

Sold Ezra Round 1

2011-02-23T00:22:00.000+08:00

Unfortunately, due to the sell down today, Ezra breached the support of 1.63 and drop to a low of 1.54 before coming to a close at $1.57 with 2 to 3 times the average volume for the past 5 days.

I exit this trade at $1.57, making a loss of approximately 7.8% inclusive of commission. The reason for me to exit is very simple, sideway trading channel failed, ascending triangle failed, thus I have no more proper reasons for me to continue trading.

Secondly, I'm convinced that Ezra is currently going on downtrend. The MA envelope can provide us a very good evidence on this point. At point 1, support line together with lower boundary was tested. At point 2, prices entered value zone but failed to make its way up to the upper boundary. Prices fell for the past 2 days and today, lower boundary together with the strong support of $1.63 was breached. If you're going long, I suppose you wouldn't want to trade a downtrend counter right?

So, what can I say? Bye Ezra!

SMRT now or not?

2011-02-20T21:03:00.004+08:00

I mentioned earlier I would do another FA on SMRT to see if it’s still a good buy, so here it goes. I’ll compare 2010 results with 2009 results, and after which, compare 2010 results with the latest 3Q 11’s results to see if there’s any change for the worst/good in it. This post is really wordy, so it would be really suffice to scroll down and read the conclusion. However if you would like to know the details, reading every single portion might help.

Revenue
Revenue increased by 1.83% however this was offset by higher operating cost which includes higher staff, maintenance and repair cost, resulting in Net profit margin decreasing by 0.31%. Trains, Engineering and Rental segments brought in higher revenue in FY 10 compared to FY 09, with the rest of the other segments registering lesser income in FY 2010 compared to 2009.

Operating Cost
Higher staff cost was attributed to the increased in headcount from 6.2k to 6.6k that is necessary for the daily runs for the circle line. While the circle line has yet to reach its full target of 200 thousand passengers a day, I believe higher staff cost would continue to make an impact on SMRT’s financial as I would consider it to be a fixed cost, one that would continue to drain money from the company be it being operational or not.

Reason for higher repair and maintenance cost was mainly the same throughout all these years, which the money is spent mainly on more scheduled servicing for Trains and Buses.

*We will compare this FY10’s result with 3Q FY11 for this portion.

Balance Sheet
Total assets rise slightly with both increasing current and non-current assets.
Total liabilities increased at a slower rate of 4.33% compared to the rate of total assets. The current debt found in the year 2009 was probably repaid by new funding that was done this year as there was a new 150 thousand found in the non-current asset column. This can be further confirmed from the financing activities in the cash flow statement.

SMRT has established a new capital funding program that allows them to loan up to 1 billion SGD instead of the previous 500 million. This 1 billion dollar program might be much more than what is necessary for SMRT as throughout the entire duration that SMRT was engaged in the 500 million dollar program, the maximum amount of funds they borrowed only stands at 300 million. This shows that SMRT might have a plan in the near future apart from further grooming circle line, if not, shows SMRT has built a strong credibility to enable them to be awarded the ability to draw this huge amount of loan. This new loan also has a lower interest rate of 2.42% compared to the 3.27% that was present in the previous loan thus allowing SMRT to lower their finance cost.

Shareholders value
Numbers of shares increased slightly every year but this has not stopped equity per share from increasing as total equity has been moving along side with the increase of number of shares. Earnings per share was similar in the year 2010 and 2009 and this is due to the reason that net profit this year was similar to the net profit for the 2 years. In the year 2010, SMRT raised its payout ratio to 79.44%, increasing its dividend to 8.5 cents per share. This might be due to the amount of free cash they have, which amounts to 108.7 million.

Financial Health
Free cash flow for FY 10 is 4.53 times more than the FCF in FY 09. This is possible through a 28% increase in operating revenue and a 27% decrease in capex. Higher capex spent in FY09 was probably due to the money spent on new trains that is necessary for operation in the circle line.

Financial health did not deteriorate too much from 2009. Fundamentals remained almost the same as the previous write up.

Business Segment Review

Trains
The train segment improved its revenue to 480.7 million, bringing in 53.7% of the entire revenue. Total ridership has been increasing, hitting another all-time high of 536.6 million in FY 2010. The train segment for FY 10 seemed to be one of the two segments that registered net loss and this shows that the cost for operating trains could be quite pricey. This is affected by the higher staff, repair/maintenance cost and the reduction of 4.6% in fare prices by SMRT in support of Singaporeans who lost their jobs and those who suffered pay cuts or financial difficulties.

LRT
Revenue decreased 4.9% and profit decreased in parallel. Albeit an increase in ridership of 1.9% to 16.3 million, it is not adequate to mitigate the 4.6% average fare reduction scheme and had thus allowed LRT segment to register loss.

It is necessary for SMRT to monitor their fares closely as the MRT and LRT segment combined bring in bulk of the revenue. If these two segments were to register a bigger net loss the next time round, I guess net profit would join net profit margin along with the dip into negative.

Bus
The bus segment brings in lower revenue but records a higher operating profit. Lower revenue was registered albeit higher ridership and this brings down to only one reason: lower fare per passenger. Higher operating profit was mainly due to lower diesel cost. Higher CAPEX on top of the expenses for circle line is expected from FY 2011 as there were plans lined up for the bus segment such as seat replacement exercise and additional wheelchair-accessible buses to be added.

SMRT’s bus segment has performed better compared to their closest competitor, SBS Transit. Albeit higher revenue generated, SBS Transit’s bus segment registered a lower operating profit compared to FY 09.

Taxis
The revenue decreased by minute amount but of no significance. However, with better cost efficiency, operating profit improves 128.3%, increasing from a net loss of 6.3 million to a net profit of 1.8 million. Albeit a smaller number of average holding fleet, which also mean we would see lesser SMRT taxis on the street, there is a higher average hired out rate. Net operating profit was achieved surprisingly through the former as it results in lower depreciation and lower operating expenses.

However, comparing this with their closest competitor, Comfort Delgro, performance by the taxi segment isn’t really fancy. Comfort Delgro’s taxi business segment had a 9.6% increase in revenue and a 30.8% increase in operating profit in the year 2010. This shows that SMRT’s taxi segment performance was probably buoyed by the reason that there are more people taking taxis compared to a year before, making SMRT’s ability to boost hired-out rate less credible.

Rental
Rental segment improves its revenue by 13.04% and operating profit by 9.4%. This segment has been improving its revenue since 2005 and never did it once slipped into the negative territory since then. This segment has been doing well as it has been maintaining its 99% occupancy, generating revenue most of the time.

Advertising
The revenue and profit for this year remained similar as last year. It’s rather disappointing as I believed with more space for ads, there should be more growth. However, that’s not what we’re looking at right now. Hopefully more aggressive policies could be implemented so we could see a profit next year.

Engineering
Engineering segment improves its revenue by 29.8% and operating profit by 55.9%. Just like the rental segment, revenue from this segment has been improving since 2005 and never slipped back into negative territory since then. With its vast experience in operating the Singapore train system, SMRT engineering has been engaged with several overseas projects such as the Palm Jumeirah Monorail System (although the deal’s been broken) and the latest that is reported in AR 2010, project management consultancy contact with South Korea.

I’ll also compare the results of business segments in 2010 with the latest 9M 2011 results.

Conclusion
Results from FY 2010 don’t seem to be singing a happy tune with decreasing net profit and increasing fixed cost. Even though there’s an increase in dividend, this is simply because there’s extra cash flow from a slightly lesser capex. To sustain this dividend, I believe there’s a need for operating profit to do better in FY 2011, else it would be SMRT increasing its payout ratio, portraying their limitation towards future development.

9M 2011

For 9M 2011, I’ll do the comparison on the operating expenses and business segment review.

Operating expenses
Albeit a lower repair/maintenance cost, operating expenses continue to rise with higher fixed cost like staff and fuel costs. While revenue only increase by 8.2% to 725.2 million, operating expenses increased by 9.2% to 583.7 million and that results in a decline of 9.4% in net profit comparing 9M 2011 with 9M 2010.

Staff cost was higher was mainly due to increased headcount for the operation of circle line stage 1 and 2, increased train runs and lower jobs credits. Increased in electricity costs was due mainly to higher average tariff and higher electricity consumption as a result of increased train runs and commencement of Circle Line Stages 1 and 2. Diesel cost was due to higher diesel cost.

The FEA was supposed to help SMRT with rising electricity and diesel cost but it’s really confusing as rising diesel cost is still taking a toll on SMRT’s financials. It’ll be good if anyone could point me in the right direction for this part.

With forwarded revenue, operating expenses and net profit, we would possibly see another decline in net profit margin, making it around 17.5%.

Business Segment Review 9M 2011

Trains
Revenue increased 9.6% through higher ridership and the opening of Circle Line stage 1 and 2 however, operating profit continue to get affected by increasing staff and fuel costs. Operating profit decreased by 21.8% so far for 9M 2011.

SMRT will continue to increase headcount for circle line stages 4 and 5 which again, would reflect increasing staff cost. In addition to that, increasing diesel cost and the newly implemented distance fare policy would continue to dull SMRT’s near term profit. I believe profitability would continue to take hit as long as the target of 200,000 passengers for circle line is not met.

LRT
Similarly to the train segment, the LRT segment continued to register decrease in operating profit even though revenue was positive.

Like I mentioned above, the bulk of revenue came from Trains/LRT. These two segments have performed rather badly in 9M 2011 thus the declination in overall operating profit.

Bus
Bus segment’s revenue for 9M 2011 increased by 7.4% to 159.9 million but its operating profit went into negative territory with increasing staff cost and higher diesel cost.

Previously for FY 2010, even though there was lesser revenue reported, higher operating profit was possible with lower diesel cost. However, for 9M 2011, the situation was the exact opposite. Even though higher revenue was reported through higher ridership, negative net profit was inevitable due to high diesel cost. Apparently it seemed that diesel cost could be a deciding factor for net profit, turning positive revenue to negative profit and vice versa.

Taxi
Revenue from Taxi’s segment improved by 4.1% to 55.5 million but operating profit decreased 55.6% to 1.2 million. Improved revenue was mainly due to higher hired-out rates and larger average hired out fleet while decrease in operating profit was due to higher depreciation and higher repair/maintenance.

I have not compared the bus and taxi segment in this portion as SMRT and its competitors have different financial year ending period.

Rental
Rental revenue continues to cruise forward, reporting an increase in 13% revenue while operating profit increased by 10.6%. Higher revenue was resulted from increased in space following the redevelopment of commercial space at some MRT station.

Advertising
Advertising segment managed to improve in 9M 2011 compared to 9M 2010, increasing its revenue from 16.9 million to 19.3 million and increasing its operating profit from 11.2 million to 13.2 million. Growth in revenue was achievable through increased advertising on trains, MRT stations and bus.

Engineering
For the first time, the engineering segment reported a decrease in revenue. For 9M 2011, revenue decreased 5.2% comparing 9M 2010 to 9M 2011 and this has also cause operating profit to decline by 31.4%.

SMRT released a report saying they have been asked to stop operating and maintaining Palm Monorail in Dubai. This has caused 9M 2011’s revenue to decrease even though there’s an increase consultancy revenue and fleet maintenance revenue.

Conclusion

Looking at the latest results, I think SMRT would be badly hit this year with a couple of results. Fred not, the management has been rather truthful and frank about this point as it has been mentioned in the release results of 6M and 9M 2011.

First and foremost, staff cost has been an increasing pressure to SMRT’s overall performance. I realised that they depend a lot on government job credits, like if they’re absent, staff cost would just affect its profitability. Now that they’re going to employ more people to work in the new circle line, together with increased train runs and increased CPF contributions, I’m afraid this would be a major obstacle SMRT has to overcome to give outstanding results again as staff cost took up almost 40% of the entire operating expenses.

Secondly, Circle Line has not been getting enough passengers. While it targeted 200 thousand customers a day, the latest results only showed circle line served an average of 163 thousand passengers a day. With fixed cost like staff and fuel cost running, I think it is really necessary for SMRT to fill up the gap of difference in passengers ASAP or perhaps at least do something to promote ridership in circle line.

Thirdly, while bulk of SMRT’s revenue depended on fares from Trains and buses, the implementation of distance fare has certainly affected their revenue growth. Even though ridership might increase, but this distance fare has certainly slowed down the growth in performance.

Since profit and margins would be affected and together with an increase in CAPEX, I strongly believe the amount of free cash flow wouldn’t be like what we have for FY 10, and if dividend were to be maintained at 8.5 cents, there would have to be an increase in payout ratio.

Near term profit would certainly be affected, I would still put this counter under the radar, but for purchase, definitely a “no” at this point of time.

A drop in price? It's okay. It's for long term investment now.

2011-02-14T17:47:00.005+08:00

Heard that phrase pretty often? Perhaps like from your friends who lost some paper money in Capitaland or GLP?

If you've made that statement as you've that as part of your plan for the trade, perhaps like mid-term trade or planning to fire a few bullets in that trade, I think it's totally fine, else I think it's just another crap. I have friends who are vested in CPL and GLP for the past week and when I asked if they did averaged down or cut loss, most of them said the same thing. "aiya nevermind la, it's for long term."

I used to think like that too. If it goes up I'd sell. If it comes down, no worries, I can change it to long term. Well, that's how I got trapped in Tat Hong for so long. Apparently I've been commenting on that trade in a couple of post, simply because that trade made me stuck a tad bit of my capital in it and it's not been doing me good. Nevertheless, I've learnt a few lessons from this trade and I guess I'm learning through "the hard way".

I think it's really important to have a plan for your trade, like if it goes up I'm selling at this price no matter what or if its goes down I'm probably going to fire another bullet or to run. Thats it.

If you're wondering why am I still holding onto CMA and not sell at small profit at the lower region of $2 or cut loss much earlier, that's simply because I've mentioned that this trade on CMA is a mid term trade, unlike my hit-and-run trade on China Hongxing. To justify the former, my target price of selling would be around the 2.14 region.

On a side note, greetings for Sydney, Australia.

Textbook example?

2011-02-09T13:07:00.001+08:00

I'm pretty sure those who've been to school back in the days are pretty familiar with difficulties in applying textbook examples to application questions during exams. This is one of the ways that MOE has modified to the entire education system, allowing students to think and evaluate the questions in a different context instead of memorizing them, vomitting them out as answers and throwing them away thereafter.

In the trading world, its of no exception. During exams if you fail that question, at most you get penalized by not getting the appropriate marks. In the trading world, you could lose your entire bankroll if you're not careful with it. It took me slightly more than a year(the very first trade since I used this trading system) to realise this costly mistake I've made and it could be found in my CMA trade.

I posted this chart on the my very first trade on CMA.

I posted this on my second entry on CMA.

This is what happens after the whole decline. Is it a textbook example of MACD-H divergence from the chart on both my first and second trade? I'm pretty sure it was, but when it comes to applying it into the real world, I realised a trade requires more understanding and it takes more than what you know about the system. A trade demands not only your knowledge, but also your rightful command of a trading system.

The above chart is today's chart of Capitaland and has shown a perfect textbook example of a divergence which I frequently mentioned in my past trades. However, if you were to apply this textbook example to your CPL trade today, I'm afraid it could be a mistake.

1. MA envelope has shown that its on a downtrend with prices hitting through and fro from value zone to bottom boundary.

2. Something similar to point 1, prices are sticking too much to both 13d and 22d ema.

3. FI doesn't concur with MACD-H. FI doesn't necessary need to have a class A, as I've seen something less than that works as well.

4. Weekly chart appeared to be on a downtrend.

I might be wrong, but I'd personally not enter a trade like this.

Looking back, would cut loss redeemed you then?

2011-02-08T03:02:00.012+08:00

I'm actually surprised that I've decided to add a cut loss method as a back door solution to my latest trade instead of my usual practice. Nope, its not due to the amount of bullets I've left, but its more like perhaps cutting loss is ideal for this trade.

I think it actually brings down to each and its own's trading method and system. Of course, it might not work all the time. What if Hope Analysis effectuated? Just so that you cut loss today and tomorrow it closed at an amount that allowed you to take some kopi money?

I got redeemed on Noble Group on averaging down last year and it took me 5 months to do that.

I've been holding onto Tat Hong for almost 1.5 years and I've never been able to get out even. Let's say Tat Hong continues its dividend policy from the last 2 years, which pays $0.025 till the next few decades. My average price of Tat Hong is $1.11. So $1.11/$0.025 = 44.4 years?

Some took less than 2.5 years to redeem themselves.

Some took slightly more than 2.5 years to redeem themselves.

Some? Probably never.

Citigroup holders who bought anytime during the first half of the year 2008 are probably advocates of cut loss strategy now.

Ezra

2011-01-31T20:39:00.002+08:00

Ezra Round 1 @ $1.65

This trade is slightly complicated as I'm trading an ascending triangle as well as a sideway trading channel. This also means that in order for both patterns to realise, the price of this counter must close 1.63 this week in order for the sideway trading channel and close at 1.67 for the ascending triangle pattern to continue.

If the trend of the weekly chart for ascending triangle continues, I believe we're at the stage where I first circled red. Today's closing gave a bearish crossover of the MACD line, which might mean I'll have to wait for at least 1 or 2 weeks for the chart to generate bullish signals. However, this can only happen if Ezra can close above at least $1.63 this week.

Of course, my entry price is not based just on trading patterns. Fibonacci retracement showed $1.645 at the 50% level, which cuts across the rising support of the ascending triangle.

As today's closing price has already gone beyond the support line of the ascending triangle, we'll have to see how the week perform. If the price goes beyond $1.63 upon the end of this week, I'll exit as the reason for this trade which is ascending triangle and sideways trading channel has failed and thus posses no more reasons for me to continue further.

I have decided to trade on this as I've failed to average down today on CMA. I'll still try to fire one last bullet on CMA this week if the market allows. If that happens, I'll be left with 10% cash excluding personal savings, a rather risky position where I wouldn't want to position myself during a big bear attack.

TA, FA or HA

2011-01-24T16:03:00.005+08:00

Whether you’re an uncle trying to earn some money in the market or some NSF trying to earn some pocket money, everyone needs a system, a way and an approach to profit some money from the market. There are two main schools for the market, namely technical analysis and fundamental analysis. To use which rules of school, it is to your personal preference.

Two different approaches, two different techniques from two different schools but they have one common goal: to make money. It’s like cooking. Whether you’re making Italian style dinner or Chinese style dinner, your main goal is to make dinner for your family. Unfortunately when it comes to pinpointing which approach is better, you would have to experience it yourself before realizing which culinary style suits your family and makes them happy while eating. Who is to say Italian food tastes better than Chinese food?

Well, nobody is stopping you to learn techniques from both schools either, but that means the amount of time you spent on one approach is lesser and when that happens, don’t blame anyone when you can’t get full grip of whatever you are suppose to learn.

If you’re tired of analyzing, use Hope Analysis. Tabao some food from the nearby kopitiam and HOPE your family would be happy with whatever they have to eat. Don't blame yourself if nobody's eating;you're to blame for not putting in effort.

Armstrong riding on vibrant automotive industry in China?

2011-01-16T22:31:00.010+08:00

I had recently read an article about the automotive industry in China, saying China has overtook the United States in 2009 to become the world’s largest car market. General Motors, Ford and Volkswagen all posted record sales in the country in 2010 and this relates me back to the recent announcement Armstrong had mentioned about their increase in stakes in their business in China.

I decided to look further into the automotive industry to see if there is any prospect for Armstrong and if it worths such move.

Outlook

Armstrong’s sales in the automotive have been remarkable and have already overtaken the usual “Data Storage” segment as the second largest contributor to the total revenue. This has been all due to the fact that Armstrong has been constantly focusing on their automotive segment since 2003. They are currently supplying and working directly with at least 15 car makers with origins from Europe, Japan and USA, on top of the 1st tier and 2nd tier automotive system customers.

Car sales in China rose from 13.8 million units in 2009 to 18.06 million units in 2010 and this is beyond the expectation by Armstrong who projects car sales to be growing by 10% in 2010 to 15 million. Sales of the Volkswagen, who is one of a major customer of Armstrong and the biggest foreign carmaker in China, amounted to 1.51 million units, an increase of 35% from 1.12 million in 2009 and this allows them to gain 37% in market share compared to General Motors who grew 28.8% in market share in 2010.

Thus to move in parallel with the expansion plans of Volkswagen and Honda, the company had
1. Raised capital of their joint venture with a German Partner by 32%.
2. Continuous expansion of China automotive business with 45.2% increase in plant capacity to 306k sq ft. in 2010.
3. Aims to setup 2 new China automotive plants by 2013.

Volkswagen plans to boost sales in South China from 150,000 units to 500,000 units within three to five years, hiking total sales in China from 1.1 to 2 million units by 2018 while Honda aims to sell 730,000 cars which are about 12% more than its projected result for 2010 in China in 2011.

As portrayed by the above diagram, FAW-Volkswagen plans to have the highest future total production capacity. On top of that, they have the highest planned production capacity and planned investment.

Do note that the above chart is showing the expansion plans for the entire china, not confined within any other parts. This is to clear any doubt for any numbers not tallying like Volkswagen planning to boost sales in South China to 500k units but the chart showed 1 million.

Valuations

After some forward projections for this year’s revenue, I believe revenue for FY 2010 could increase by 29.9% to hit 225.6 million and net profit for FY 2010 could increase to 24.3 million. Assuming number of shares remained constant since 3Q10, EPS for FY 2010 will be 4.84 cents.

To keep conservatism in view while in the midst of the bullishness in the automotive industry in China, I've increased the discount factor as the year of projection goes further.

A growth of 10% for year 1 and 2 will represent slight growth after increment of plant capacity. As the two projected automotive plants will be completed in 2013, more growth is expected from this segment beyond then. Thus a 15% growth is used for year 3 to 5 since Volkswagen plans to boost sales in China within that period of time. A 10% for year 6, 7 and 8 as cooling down is expected and 8% for year 9 and 10 as I anticipated a slower growth after market cool down.

As the projected value is slightly more than twice the current price which I deemed rather illogical, I tried another DCF with smaller growth factor.

The reasons behind the numbers on growth factor remain the same and a value of 0.77 is projected.

This clearly shows either one of the two as below.

1. The market has overlooked the potential of Armstrong and thus no interest.
2. Armstrong would grow at really low rates despite the booming automotive industry in China.

Nevertheless, do take this valuation as a pinch of salt as the growth rates are of what I perceived them to be. I’m probably averaging up on Armstrong with its vast potential and its ability to ride along the growth in the automotive industry in China.

Confirm Momentarily Agonised

2011-01-07T20:10:00.010+08:00

As you look at your screen from day to day this week, it’s not hard not to be happy over how the market advances on the first week of 2011. It is even harder if you bought counters like CPL, NOL and Noble Group as they’re probably the few whose prices increased substantially and if you sell now, you would have made quite a bit of kopi money.

All those 3 counters have well performed much better compared to STI and we even have NOL’s price increasing 3 times more than what has STI progressed. Unfortunately, in this bull market where NOL punters could probably be partying on this Friday evening, there’s always a small bear somewhere and it’s disheartening to know that I happened to be one of those.

CapitaMallAsia, whose prices went all the way down to an all time low of 1.83 did not break its downtrend line and failed to find its price anywhere higher than its opening price of 1.95. As the table has shown above, it decreased a sizeable percentage of 3.08% against a 1.56% increase in STI.

It’s seriously true. It’s about finding the the right stock, not the good stock. Of course, I’m not saying CapitaMallAsia is good or buyable but at least, it’s obviously not the right one this time round. On the hindsight, I could have made the first entry at the lower price of 2.06 where it is the support of the consolidated region. Second entry even though was bought straight at opening price, I still thought it was a good entry except that it doesn’t appear to be one now.

My Dad’s got a friend and he was telling me on monday about him getting 10 lots each for CPL, Noble and Olam. Last night, my Dad went saying he’s pretty sure his friend made quite a hefty amount of profit. As far as I know, he’s just an average Joe like you and me and someone who doesn’t appeared to have any TA skills. I added in the word “appeared” as I’ve used his laptop before and no programs for TA was present. Relating this case study to my aunt who I mentioned in the link above, I was at times discouraged about what I know about TA and questioned myself if what I’ve been walking on the right path when at this point of time, even random uncles and aunties can make money while I'm stay

Nevertheless, as I’m classifying myself to the counter trend trader category due to the kind of trading system I’ve been using, I guess I need to get used to fail trades like this. You could have rebut or retort me with cutting loss strategy but till today I’m still regretful of the selling at loss order I’ve made on Singtel and am glad to have average down instead of cutting loss on Noble which eventually I sold for some profit.

I’ve mentioned that I’m making CMA as a mid term trade on my post on first entry so I would probably hold for a while even though I had hit my target price unlike a hit and run trade on China Hongxing.

Confirm will Momentarily be in Agony, you?

A year in review for 2010; Portfolio review

2011-01-05T01:17:00.014+08:00

“Tough times don’t last, tough men do.” and so this is what they say. It feels like time takes forever to past when times are tough but when we look back, it feels like a blink of an eye.

While I have finally completed my national service which is probably one of the major chapters in a Singaporean guy’s life in 2010, I would say it wasn’t as fruitful as what I had in 2009. Partly because I went into a relationship this year and I had to arrange my time according, thus resulting in lesser time for myself. I wouldn’t consider this as a baggage dragging me down but would rather take this as a lesson which I can take into the future. After all, learning to invest or trade doesn’t end in a month or year but takes forever and the road to financial freedom is just as long. This is also probably the reason why most people whom as grow older, would buy and sell according to analysts’ buy and sell call or would prefer to dump their money into dividend stocks; they do not have the adequate amount of time and attention to spend.

It might be due to the much lesser amount of time spent on nourishing my brain, my learning curve this year seemed to be much gentle compared to the steepness I achieved last year. If I were to compare using ratio, the amount of books I read this year compared to last year could be an astonishing 1:2.5. Honestly, this has made me feel much inferior upon reading some newly set up blogs and it has made me realized how slow my pace has become. I missed the time when I was aggressively reading, writing down notes and trying to finish those books asap. As such, reading up more books would be the first goal I would like to achieve in 2011 and in order to achieve that, I would try spending at least 1 hour a day out of my tight schedule to read.

Somewhat related to my previous paragraph, the amount of companies I have been reading up on is also lesser. I had only done a full FA this year, which was on Kingsmen Creatives and I seriously believed doing 1 FA in the entire year is rather pathetic compared to the amount of full FA I had done on the year before. Thus, doing a few more FA on selected companies would be the second goal I would like to achieve in 2011.

Doing comparatively lesser things in 2010 makes me wonder if I have wasted a year of my time. I prompted myself questions like “what have I been doing for the entire year? Have I neglected my time in achieving financial freedom in exchange for something else?” Fortunately I managed to give myself some honest answers and made me a tad bit relieved. Firstly, as mentioned in the second paragraph, I got into a relationship this year and this special lady made my life into a more fulfilling one. Looking on the brighter side, I have someone to share the joy of making profits and get consoled while suffering losses. Secondly, I have enriched my resume with a full time job immediately after I finished my NS. I believed many would have decided to take a well deserved break after the mental stress they got after 2 years but I had decided not to halt and walk on. This full time job indeed has taken a big chunk of my time and energy away, which also contributes to one of the reasons for the lack of reading.

Of course, being in a relationship or working full time should not be used as an excuse all the time. While it is tough in 2010, I know its definitely going to be tougher in 2011 as I have school, relationship; social life and path to financial freedom to juggle. So to keep things focused, here's the top 2 priority (not inclusive of priorities in my private and student life) for this year in this path to financial freedom.

1. Read more books by spending at least 1 hour a day to read.
2. Do more FA.

I'll definitely need all the luck here so do wish me well!

Change in timing of portfolio review

I had decided to shift my portfolio review yearly from every July to every December so as to facilitate accounting of profit and loss.

Investment Portfolio

Not much changes has been made to my investment portfolio since the last time I gave a review. I’m still looking for dividend counters and am contemplating on SMRT. I’m probably running through SMRT’s fundamentals again before settling for a dividend yield of 3 to 4% with potential capital growth. I know First REIT has been on the hype for yield but I prefer sticking to the old rules of not buying without doing research myself. Analyzing REIT has been my weakest link so I’ll probably read up a bit more before deciding to purchase any.

Armstrong Industrials
Even though net profit for the past 3 quarters has well surpassed net profit for year 2009, net profit has been decreasing each quarter. Apart from the effect of increased in COGS from q2 to q3, I noticed that the strengthening of SGD against USD and appreciation of Japanese Yen have dealt quite an impact on Armstrong’s financials. The situation could aggravate as china may allow their currency to appreciate in time to come.

Nevertheless, Armstrong remains committed to China’s automobile industry. This can be seen with Armstrong setting plans to set up 2 new China automotive plants by 2013 and increasing the automotive plant in china’s capacity to 306 thousand sq ft this year. Continuous investments in China were done to match the expansion plans of major customers such as Volkswagen and Honda. According to Bloomberg, Volkswagen AG intends to double its production output to 3 million vehicles in China by 2013.

Starhub
Not much update was given by Starhub for the past few months. However from their quarterly report, it can be seen that Starhub continues its current strategy to increase its market share by driving their prices down and this is portrayed from the deteriorating of ARPU in the pre-paid mobile, Pay Tv and broadband segments. Thus I would expect nothing more than a single digit growth in 2010.

Kingsmen Creative
Nothing important has been updated but after reading a post on a fellow friend’s blog, it’s good to know Kingsmen has plans to compete for market share in the China market. While they probably know it would not be wise to compete against Pico for the exhibition segment, Kingsmen has decided to focus on the mid to high end segments and brands which is in a total different arena from their usual competitors. For more details, do visit here.

For comparison of performance for next year, my investment portfolio would begin with a CAGR of 21.03% and an unrealized gain of 61.14%.

Trading Records for year 2010

It is not hard to see that I have traded lesser compared the time when I first started trading. Albeit trading lesser times, I still manage to lock in more profits and this further assures myself that trading more times do not necessary bring in more profit.

I have made a couple of mistakes this year like selling too early and succumbing to emotions. The latter is what I’m trying to improve as it has been the one that prevents me from locking in more profit than I’m supposed to.

There's nothing much to gauge for trading records apart from the return on investment. Nothing fancy compared to the seniors, thus this would be something I would like to work on. It should be maintained as it is, if not improving.

To end, I hope this isn't too late but yeah, happy 2011 to all!

Can you buy Starhub as a dividend stock today?

2010-12-29T01:47:00.015+08:00

Starhub has been a notorious counter among the value investors and dividend yield finders simply because of its high amount of debt yet attractively appealing dividend. There have been many discussions about Starhub itself, if it is still possible for the management to continue its dividend policy or if there is any problems for Starhub to refinance its debt. In this post, I would like to share my 2 cents view if Starhub could still be bought as a dividend stock at recent’s price range. For argument’s sake, we’ll use the price range of the last 6 months, between 2.14 (opening of 1st of June) and 2.82 (opening of 10th of Nov). Do note that this post solemnly talks about it as a divvy stock so nothing about its debt would be discussed, if not mentioned.

1. Attractive yield?

First of all, let’s discuss about the most important thing about a dividend stock; its dividend yield. With this year’s dividend policy, it is expected that Starhub would be declaring another 5 cents of dividend for 4Q10, making it 20 cents for FY 2010. With that, let’s take a look at the yield.

With the table above, we can easily see the yield between the price ranges of the last 6 months. After looking at the table above, we can roughly determine which price shows the most attractive yield and from there, we can conclude which price is the best to enter. It is hard to decide if 9.35% is good enough as everyone is contented with different yield and has the different ability to employ capital at different levels of returns.

9.35% might not be good enough for professional traders as they are able to utilize their capital and acquire better returns while 7.09% might look substantial enough if being compared to the microscopic returns that bank deposit gives.

With today’s closing, Starhub gives a yield of 7.63% and that is somewhere between the yield for the past 6 months. 7.63% is generally on the 70 to 80th percentile of the counters listed in SGX that provide yield of that equal amount if not higher. Albeit a fairly attractive yield and a bonus being a defensive counter, I would not like to risk my capital for a counter that is only 19% behind in stock price from the last 2 year high. In addition, Starhub’s previous 2 year low is $1.75 and that is a difference of 0.87 from today's closing. Assuming dividend remains constant for the next 10 years, if stock price drop to that level within the next 1 to 4 years, it might mean that my dividend received would be used to cover my loss in capital.

2. Any counters with better yield out there?

After looking at the price ranges and the different yields we could be getting, we now should ask ourselves if there are any counters out there that give us better yield. With current yield, I can safely say there are a handful of counters, which also from the 20 to 30th percentile that provides better yield compared to Starhub. To name a few, First REIT which provides a yield of 8.8% and Cambridge REIT which provides a yield of 12.6% with today’s closing. I'm in no position to decide if they could be good investments or not as I have not looked into them personally. However the following could be a few good pointers to ponder.

-Do both REITs have the ability to increase their dividend payout or at least to maintain the payout?
-Is there any necessary funding required by them in near term and in turn you have to pump in your dividend so as not to dilute your holdings?

Nevertheless, if you would like to include a counter with good dividend from the telecommunications sector to stabilize your portfolio, Starhub might be what you’re looking for as they gave better yield comparing M1 at 5.7% and Singtel at 4.6% with today’s closing. Besides, they are the only company that gives out dividend 4 times a year.

3. Will Starhub increases its dividend payout or at least have the ability to maintain its current payout?

Starhub has been increasing its payout since 2005 and alas, while it has to stick to its dividend policy, Starhub has given out more dividend than what the earnings in each share could earned in 2009. The above does not only portray that it is unlikely for Starhub to increase its dividends, it also shows that the dividend it is paying out now is not supported by the amount of earnings it gets.

Lets take a look at FCF. FCF, which stands for Free Cash Flow, measures how much free cash a company has after spending the money required to maintain or expand its asset base.

As we can see from the table above, apparently it is only in the year 2005 that Starhub has the financial capability to give out the dividend it has been giving. Beyond 2006, its not hard to guess where all the money for dividend came from. Read

With the above illustration, I believe Starhub has reached its maximum capacity for divvy payout and thus it should be capped at 20 cents for the next few years. While to maintain its divvy, I believe debt would still continue to play a big part in its balance sheet.

Conclusion

It might not be wise now to buy Starhub at price of 19% below 2 year high as I would not want to get into a counter with my capital at high risk even though I have a substantially above average yield.

Firstly, your capital is at stake. Of course, you might be able to ride together with the bull, but if you are seeking capital appreciation plus dividend income, I’ll suggest that you look somewhere else. Space for price growth is limited and we can only mitigate this through its dividend policy. Secondly, while it is still possible for Starhub to maintain their dividend payout with debt going on, it is very unlikely that they are going to improve their dividend policy.

To even consider putting in the extra cash I have into Starhub, I'll probably have to consider it at prices around $2.30 to $2.50 region. Since there're counters with better yields out there, why not keep Starhub in your watch list till they give you a better yield in the future?

If you had purchased Starhub at a cheaper price, I believe we share the common reason why are we still holding onto this counter albeit weak fundamentals. Even if they decrease or cease their quarterly dividend payout policy, I could still divest Starhub and lock that profit, else, 10.8% p.a. would do just fine.

CapMallsAsia Round 2 (Average Down)

2010-12-24T00:35:00.000+08:00

Bought CapMallsAsia at $1.89, this time round to average down.

I have queued for 2 days but both attempt failed to be filled, which prompt me to buy straight at opening price today before the triple divergence realised.

The difference in bottom and middle line depicts the difference in histogram level in the first divergence and the difference in the mid and top line of course, depicts the very slight difference in histogram level in the second divergence. You can consider this class B, but I personally think the risk for prices to drop much further is limited. I concluded this from the price volume action, as well as what I can see from stochastic.

CapMallsAsia consolidated at prices between 2.02 and 2.18 before decreasing to 1.83. Prices around there might be my target price to sell, depending on the situation.

Kingsmen Creative - Management and Valuation

2010-12-23T01:37:00.001+08:00

I would usually review a company's management in points and this would be of no exception.

1. Perhaps Kingsmen’s management is trying to motivate employees in the company, they extended their option scheme to almost everyone else. This might be an add-on incentive for employees to work harder, but from an investor’s perception, it means diluting each shareholder’s holdings. NEGATIVE

2. The board comprises of a fair number of executive and non-executive. POSITIVE

3. The 3 executive members on the board possess extensive network and experiences to steer Kingsmen forward.

Executive Chairman Benedict Goh not only has more than 33 years of experience under his belt, he also serves as executive members on Tourism and Exhibition Services and Singapore Association of convention and exhibition organizers and suppliers. Being the ex-co members on these communities enables him to get the latest updates on the industry and prepare the company for the next big thing.

Group Managing Director Simon Ong’s currently appointed as the chairman of the design cluster in the Manpower, skills & training council of WDA and presidential advisory commission of Designers Association Singapore. Past appointments has portrayed him as a man with astute capabilities such as vice chairman of the potong pasir CC management committee could symbolizes his ability in management and being the president of the Interior Designers Association shows his well command in design.

Executive Director (Exhibitions & Musuems) Anthony Chong rises through the ranks to reach his current appointment. This enables him to be acquainted with every difficulties faced at each working level and thus allows him to express constructive solutions.

POSITIVE

4. Retained earnings in Kingsmen for the past 5 years have increased the EPS for the half decade by 31.99%. It might not be fair if we were to say they have surpass the superb 26.2% attained by Coca Cola for 10 years as the time frame used to measure is different, but if Kingsmen’s management were to efficiently utilize these retained earnings well, I’m pretty sure this could turn out to be a good investment. POSITIVE

5. Note that Mr Simon Ong is related to Mr Ong Chin Kwan. Usually it would not be wise if a senior management is related to one of the board member, but in this case, as Mr Simon Ong is the Group Managing Director (executive), it is still fine. NEUTRAL

6. A private placement was done in 2007 and this increased a whole load of amount of shares. However, no reasons nor was it explained what was the fund being used for. NEGATIVE.

7. Management has not neglected the interior business segment even though EnE has been on exceptional growth for the past 2 years. As stated above, interior business segment still continue to grow. POSITIVE.

8. Independent director Mr Wong Ah Long currently chairs another non-listed company, Utraco Pte Ltd and is an honorary chairman of Lucrum Pte Ltd. It is necessary to take note that none of the company he chairs is getting listed. It wouldn’t be advisable to have the same person on the board of 2 listed companies. Currently it is still fine as the two companies he chairs do have conflict with Kingsmen itself. NEUTRAL

Conclusion
Management looks fine except the part where they are more lenient on the issues of issuing options.

Valuation

DCF
CAGR for EPS for the past 5 years is 29.39%. To be conservative, I’ll use 15% for 1 to 5 years, and 10% for 6 to 10 years for my first attempt.

When I got 1.39, I decided to be slightly less bullish as the price difference between now and projection is way too much. Thus I tried having 10% growth from year 1 to 10.

I still didn’t make much difference with 1.2. I decided to look at my whole analysis, and decided to take ex-growth of revenue in 10 years to come as well as pricing difficulties into consideration. I’ll use 10% growth from year 1 to 5, 8% growth from year 6 to 8, and 5% growth for year 9 and 10.

Eventually I still got a value higher than a dollar.

I got convinced that either the market is valuating too low on this company, or Kingsmen still doesn’t generate much interest because of the industry itself. As we all know, valuation comes down into 4 pointers.

1. Management and strategy
2. Financial position
3. Performance and returns
4. Outlook and prospects

Management seemed to be doing fine so far. Business has been running well. The two negative points that I’ve stated above are mainly concerning about the issues on options which would not have any effect in near term. Financial position and performance/returns looks good from the analysis that I have posted previously. Albeit single digit net profit margin, there were low debt, high ROE and high chunk of FCF generated every year except 2009. This brings me down to the last point, outlook and prospect. Even though there are events being lined up and malls to be built in the future, there is no guarantee that Kingsmen would be awarded to them, and this is what I believed that the other investors have no faith in.

However, what we as current investors of Kingsmen can be confident of is that Kingsmen would gear and poised for the next big event to come. Just like the F1 event, who would have guessed they would be awarded that project and beyond that, it doesn’t take too long for their share price to rocket.

Constant ROE Analysis

I used 25.91% as it is the average of the past 5 years ROE and dividend per share is the average of the payout ratio of the past 5 years. The actual EPS has in fact surpass most of the projected EPS and 7.8 cents is the projected EPS for this year. Using the average current PE of 7.24, we will get a value of 0.56.

Conclusion
Both methods of valuation have showed us 2 different numbers with a wide range of margin in between. Like what I have mentioned in the Greater Fool post, nobody within a crowd of 50 people can get the 2 similar numbers. If you believe in your valuation, act on it, if not, wait. Along the way, I have learnt not to be a nit. Margin of safety can be set by you the valuator, be it 5% or 20%. Today, I’m glad I’m flexible towards my buying price of TMC.

Something to share: Simple, Never Easy

2010-12-20T16:52:00.007+08:00

I guess getting rich is what first drives each and every individual into the market. Be it trading forex, equity, warrants, properties, they're all in the same context and we're all going for the same thing: financial freedom.

To gain financial freedom, we all know it is better to start early. Financial planners told you, insurance agents told you, even your parents mentioned the same thing.

The truth is path to financial freedom is simple, but never easy.

Simple?
All of us know how the path is constructed. Passive income > expenses, control your emotions when buying or selling orders, do not make irrational trades, so much more.

Never easy?
There is only so much that books can teach. The rest is up to you.

Do you have the discipline to cut loss? If not, what are your plans to salvage your losing trades? Do you spend adequate amount of research or do you just buy and sell according to calls? Are you affected by the big bear and have the confidence to buy when everyone dumps their holding?

I guess you're the only one who can answer them.

Sold China Hongxing Round 1

2010-12-20T02:08:00.004+08:00

Sold at $0.165, net ROC 3.34%.

Was away for holidays so queued at $0.165 instead of $0.155 at value zone as it is where the 200ema and the top envelope of the MA envelope is. In addition, MACD is still below 0 and only turning bullish. Short term wise, 4 and 9 EMA are pointing upwards with 13 EMA remaining flat so I took the risk of making a small gain instead of recovering my profit. Stochastic concur with bullish signals.

In retrospect, I didn't regret not selling at $0.17 (which was hit on 14/12) as the objective of this trade is to hit and run, which I eventually did.

Kingsmen Creative - Business Segment Analysis

2010-12-11T17:11:00.000+08:00

Kingsmen Creative has 4 revenue segments, broken down into

1. Exhibitions and Events.
2. Interiors
3. Research & Design
4. Integrated Marketing Communications

Exhibitions and Events (EnE)

It was only in 2008, Kingsmen was brought into the limelight after being awarded the F1 Singapore Grand prix project and since then, revenue from EnE made a vast improvement. Prior to 2008, Kingsmen has also done big projects such as Nissan Bangkok Motor show in 2007 and ST Engineering Asian Aerospace in 2006 to name a few. It is something to take note about that over the years, Kingsmen has been called upon by same organizers to host events year after year, for example the Dubai Air show and Tax Free Asia Pacific. I believed that it is this trust and rapport that Kingsmen has built that earned them major contracts such as the most recent Resort World Sentosa. Kingsmen’s involvement in RWS, even though has a minute disadvantage that impacted them slightly on their profit margin, it is said that there would be a positive spillover effect.

Major events completed this year as of today, includes Youth Olympics Games in Singapore in August 2010, Shanghai Expo 2010 and F1 Singapore Grand Prix (for the 3rd year).

Prior to 2008, EnE segment is already growing at 18.4% CAGR. With the exposure of Kingsmen to greater events, revenue immediately increased by 48.48% from 2008 to 2009 and with an inclusion of this, CAGR from 2005 to 2009 is at a rate of 34.54%. Revenue driven by this segment also overtook “Interior” as the top contributor and is contributing more than 50% of the entire revenue. With the great demand outlook in the MICE sector in Singapore, I’m sure there would be more revenue driven from this counter.

Interiors

As the name suggested, the interior segment provides ideas and designs to innovate layouts for new retail outlets and offices. Not only that, it also provides full fledge services of creating retail front from scratch, which includes project management, custom fixture manufacturing and warehousing/logistics management. Kingsmen has served many big brand customers and this includes labels such as Burberry and Chanel, and apparel giants like Esprit and Topman from Wingtai.

Apart from using custom made fixtures for the respective projects, Kingsmen also export these fixtures, providing a growing source of revenue with orders from Aldo and Polo Ralph Lauren for their shops in boutiques outside Singapore.

Kingsmen has completed several projects so far, and that consist of stores in ION Orchard, 313 @ Somerset and Orchard Central from Singapore, The Dubai Mall from UAE and Barbie Shanghai Flagship Store in China. In retrospect, it can be easily seen that Kingsmen are usually involved when there’s a big new mall out in Singapore like Vivo City in 2006 and as what has been mentioned above, the few newly refurbished orchard malls in 2010.

Earnings have been consistent and growing at 17.62% CAGR and they usually take a big portion as the source of revenue until recent 2 years when EnE has overtook them with greater and brighter outlook. As mentioned above in demand outlook, with greater malls coming up, I believe Kingsmen can and will continue to shine like before.

The other 2 segments, Integrated Marketing Communications (IMC) and Research and Design didn’t really take up much as drivers to revenue, which made me ponder why do they still exist if it doesn't significantly contribute to the returns. I came to realize they are utilising their skills at its best and take it as a source of secondary income.

For example, IMC takes in ideas from customers and setup the booth according to the client’s needs and wants. What is necessary here are the accustomed fixtures that Kingsmen had produced from the Interior Segment, and setup according to what the client needs.

Conclusion
Although Kingsmen is not a one product company, we would have to take note of how are they doing in the “Exhibitions and Events” segment as it currently contributes more than 50% of the revenue, which also means, if this segment is hit hard, we might see a drop in profit. While there is a decrease in % relating to revenue contribution from the Interior segment, it does not mean that Kingsmen has neglected that segment as the numbers from the Interior segment is still growing from year to year.

Something to share: A tradable trading system

2010-12-09T01:10:00.003+08:00

My journey for trading has been short, but along this short journey, I have picked up a few points about trading. I have yet to be a successful one, so just take this post as a pinch of salt.

I used to have a few trading tools imprinted onto a chart, as though it was a paint. You name it, I have it. GMMA, MACD, EMA, Stochastic, RSI, everything. I felt as though there should be something I should be able to see what other successful traders have seen.

At that point of time, lines below 20% line of Stochastic means oversold. Prices hit the upper bollinger band means overbought. Shooting star means bearish reversal. Just like what beginners out there believed, if I spot these signs, I'm ready to put in some money. Unfortunately I was wrong. A good example can be found here. If you realised, I'm still holding onto this counter.

Then a friend of mine came by and started to enlighten me on things I'd never know no matter how many books I've read. I realised that to trade, one needs a system, a tradable trading system.

No point having EMA with MACD with GMMA onto a chart, having Stochastic, Williams%R and RSI together doesn't mean anything. It doesn't mean spotting a oversold signal means its time to go in. Prices might still drop even if we have MACD on the positive side.

I'm sure that I'm not the best trader around, but at least I'm still trying to improve on my trades. Albeit there might be times that I've made a smaller profit than I'm suppose to, like this example, at least there's still profit. I came across this phrase somewhere which I can't remember, and I would like to share. "It's never wrong to take profit, and it's never right not to take profit."

On a side note, I'd like to thank LP again for sharing with me what he knew all these while. Cheers T. (:

Something to share: How much do I need to begin?

2010-12-07T22:41:00.007+08:00

One of the many questions I've heard people ask is, "How much do I need to begin investing in shares?" or "How much you used to start off this investment journey?"

Its simple: Only invest the money you don't need in near term (around 1 to 3 years).

I personally start off with 1k in an investment in unit trust. Eventually my patience went off and started my very first equity investment in Armstrong with slightly less than 1k.

The good thing about starting young is that when you're young, you don't need a lot of money. You don't have financial liabilities, you don't need to pay your monthly premium for insurance and you have no dependent, be it kids or parents. This gives you more leeway and margin on how much you intend to utilize the amount of money in your bank.

When you lose your bankroll at the age of 20 to 25, you only lose faith and confidence. Pick up the broken pieces and move on. Wait for next bull.

When you lose your bankroll at the age of 35, you not only lose faith and confidence, you lose your social status and might even lose your family.

If you're within my age group and am thinking of investing, I'm glad you have this thought and willing to start off this journey with me early. If you have a family and financial liabilities and am only thinking of investing, do about an amount you can lose, an amount that would not jeopardise your daily expenses.

If you do not fall into the above 2 categories, why not a mini flashback? Think about your first investment and how much you started off. Compare your bankroll then and now. Successful ones, I'm sure you deserve a pat on your back, if not, I'm sure that's what the next bull is for. (:

What actually trigger market sentiment?

2010-12-05T23:34:00.000+08:00

On the 1st of Dec,
"Wall Street slips late on Portugal fears"

When it gets closer towards the end of the day, we have
"Euro recovers, stocks rally amid Portugal bailout fears"

Apparently, how Portugal fare doesn't really affect which direction the market goes.

Here's another example.

"US stocks shine after employment data"

A few days later
"Wall Street claws out gains despite dismal jobs data"

So are they trying to say if the market rises, it means the employment data is positive and if the market declines, it means the employment data is negative?

Short term price, action and volume are all triggered by market sentiment. So what triggers market sentiment? Could it be the very price, action and volume that the market sentiment themselves triggered?

Kingsmen Creative - Profitability/Returns and Financial Health

2010-12-04T17:35:00.000+08:00

Profitability and Returns

Due to the increase in projects awarded to Kingsmen over the years, revenue has been on the rise for the past 5 years, increasing from 76.7 million in 2005 to 242 million in 2009 and this has lead to a CAGR of 25.82% over the half decade. However, there is something to note about the trend in revenue generated, and that is the growth in revenue from year to year. Revenue increased 41.96% from 2006 to 2007, and this has dropped to 27.02% from 2008 to 2009. If this trend continues, I’m quite confident to say that Kingsmen might be in one-digit growth in this decade to come.

Gross profit margin maintained well along the 25% region but drop slightly beyond that to 24% in 2009. This decline is due to the larger scale projects undertaken at Universal Studios Singapore which I would consider this as a onetime effect.
Net profit margin however, has been on a single digit as Staff salaries under Other Expenses took a big chuck of profit away. However, they have increased their net profit margin from 3.08% in 2005 to 8.1% in 2008 except 2009 and I do that think that is something worth applaudable. Unlike companies who grow margin through cutting cost, growth in net profit has been sustainable in Kingsmen throughout the years with solid volume growth. Net profit margin in 2009 was similarly affected by the USS, just like the gross profit margin.

Although I’ve been using DuPont Analysis to retrieve figures on ROE and ROA on my previous few analysis, I would not use them on Kingsmen as fixed assets has very little involvement in this context, so simple calculation like net profit/total assets would be used for ROA and net profit/total equity for ROE.

ROA increased from 5.37% in 2005 to 14.13% in 2008 and ROE increased from 15.21% in 2005 to 33.99% in 2008 before dropping to 11.38% and 28.64% in 2009 respectively. This is due to the increase in trade receivables and I have already stated the reason above. Nevertheless, ROE is 25.9% on the average and this has already surpassed many companies on the average.

Financial Health

Unlike other analysis, I’ll use bank borrowings as debt for calculation instead of total liabilities.

Kingsmen has not incurred many debts over the years, thus giving them very low debt ratios and strong cash positions. In fact, debt ratios have been decreasing since 2006. Debt to revenue decreased from 1.23% in 2005 to 0.53% in 2009, debt to equity decreased from 6.10% to 2.35% in 2009 and net cash position increased 4.5 times over the years, from 4.8 million in 2005 to 26.7 million in 2008 before dipping to 21.5 million in 2009. The dip was caused by a huge negative cash outflow from the cash flow from finance. This is due to the dividend paid and increased in pledge amount to banks for future overdraft facilities.

Kingsmen has been generating substantial amount of free cash every year except 2009 and this adds another plus point to their financial strength. Free cash flow increased from 4.2 million in 2005 to 14.6 million in 2008 and FCF/revenue increased from 5.5% in 2005 to 8.9% in 2007 before dipping to 7.63% in 2008 and even lower in 2009. As free cash flow is derived from capex deducting from operating cash outflow, FCF is also affected by the changes in operating cash outflow, thus producing an insignificant amount of only 19 thousand in the year 2009.

As there is little debt in Kingsmen’s balance sheet, payables are taking the bulk in liabilities. Even so, Kingsmen’s current ratio is good enough to tell us they are the ability to pay short term obligations. Current ratio has been very stable, hovering not below 1.3 and not more than 1.4 for the past 5 years.

Conclusion

I guess it has been pretty obvious that in 2009, the project taken at Universal Studios Singapore has affected Kingsmen in many ways. Lower profit margins, increased trade receivables not only results in decreasing of operating cash out flow, but also reduced the amount of free cash. It is worth taking note that Kingsmen should not do this every now and then just to gain a foothold in the market share. It is not advisable as we have seen this in Starhub that they are decreasing price just to gain volume, which resulted in single digit growth every year.

Kingsmen Creative - Company Profile

2010-12-03T12:12:00.003+08:00

Company Profile

Who is Kingsmen Creative?
Kingsmen Creative is a provider of integrated market solutions, with core businesses specializing from Exhibitions & Events, Museums, Retail & Commercial Interiors and Integrated Marketing Communications. Not only do they provide their service in Singapore, they also expand their business regionally to countries such as Japan and UAE. Apart from that, most of their customers are popular brands such as Lexus and BMW for automobile exhibition, Chanel and Heineken for showcase events and has Customers like Burberry, Chanel and Esprit for Store Fixtures.

Just a few major local projects that Kingsmen has helped collaborated.

1. F1 Singapore Grand Prix
2. Chevrolet @ Singapore Motor show
3. Chanel Fashion Show, Singapore
4. RWS Singapore

Economic Moat
Kingsmen’s industry involves a steep learning curve and this itself provides an economic moat that is wide enough to allow any companies who wish to survive in this industry without any shrewd professionals in their core management. In addition to that, Kingsmen’s customers are usually recurring big brand customers.

What affects the economic moat in this industry is the low startup cost and there is no product or service differentiation between companies. This is where the liberty for adjusting prices are affected.

Market Competitors

In the local market itself, only CityNeon’s company profile fits the best as Kingsmen’s competitors. The other companies such as Nobel Design and Design Studio would not be that relevant as much as CityNeon. Nobel Design does designing for retail development while Design Studio has business more related to properties such as manufacturing, supply and installation of paneling products to residential projects and interior fitting out services to hospitality and commercial projects. Regionally, Kingsmen competes with Pico Far East which has almost the same business operations as Kingsmen themselves.

Financially, both CityNeon and Pico Far East have not outdone, if not performed better than Kingsmen. In fact, both competitors have deteriorating financials. As shown above, CityNeon’s net profit margin has been decreasing from 11.07% to 5.07% and an unstable ROE. Pico Far East also has a decreasing net profit margin, but with a more stable ROE. However, their average ROE of 18.05% of the past 4 years is much lower than the average ROE of 28.58% of Kingsmen.

Conclusion
I would personally consider Pico Far East as a bigger threat regionally as they have done much more and higher profile events. However, as Kingsmen’s revenue derived mostly from Singapore, Pico’s threats are slightly reduced when it comes to local events.

Kingsmen Creative - Sector Brief

2010-11-30T00:40:00.003+08:00

What brings me to Kingsmen Creatives?
I have always wanted to do an analysis on Kingsmen from all the good reviews and only have the decent time to do it recently. Albeit in a non-recession proof industry, recent events has brought Kingsmen into the limelight, and has since been awarded major projects to work on. In addition to that, Kingsmen does not require huge amount of capital and because of that, earnings would go straight to owners instead of spending big chucks of it on capex.

Sector Brief
Kingsmen Creative works in the Meetings, Incentives, Conventions and Events industry where companies provide solutions for companies that would like to host events, and government bodies or individuals who like to organize exhibitions. They also provide interior design advices and aid to realise ideas for high end boutiques.

If it seemed too profound for you, look at the designs you see in the Burberry or LV boutiques, or maybe look at how the exhibitions in Suntec or some convention halls are being setup. This industry is the one that provides the backend solutions and designs to all the extravagant apparent for visitors.

Sector outlook for demand
With the 2 new IRs, not only would it attract more tourists, but will also attract more businesses to setup events here in Singapore. According to the Singapore Tourism Board, Singapore MICE Industry is a key growth area of the tourism industry and it aims to double to spending by business travel and MICE visitors to $10.5bn by 2015.

According to Jones Lang Lasalle Research, there would be a strong pipeline of retail developments scheduled for completion for the next 5 years such as the shops in both IRs, continual refurbishment occurring at the entire Orchard Shopping Belt and new heartland malls along the circle line. This would promote further growth in industries such as interior design and apparels.

However, where marketing and improving of store designs are concerned, it is important to note that they are high ticket items which also means, in times of economic breakdown, companies might cut costs and reduce the amount of events that would be hosted during the crisis. This also means that unlike the medical sector, they are not recession proof.

Sector outlook for price
Unfortunately, there is very little service or product differentiation between companies in this sector and the utmost importance in this industry is the expertise present in the respective company due to the steep learning curve. This slight negative outlook for prices could affect margins of some companies if they are not fortunate enough to maintain their margins by raising prices of their services.

Conclusion
Sector’s outlook seemed rather bright for demand but offset by the outlook for price. If Kingsmen’s can maintain their position in the industry, buoyed by the upcoming projects and their current market position, I believe Kingsmen would be able to continue to grow albeit little pricing capability and limited cost reduction ability. This also means for Kingsmen to grow, the only way is to increase volume.

Greater Fool?

2010-11-28T13:42:00.001+08:00

The thing about valuations or projections is, if you give a crowd of 50 people to valuate this company, you are very unlikely to have 2 similar answers.

That's the reason why there are people buying the holdings you are selling, and why you're willing to buy when someone out there wants to get himself out of the counter. Yes, this is part where "The Greater Fool" theory comes in, always thinking the price they are acting on is indeed the correct price.

Buffett, The Making of an American Capitalist

2010-11-23T22:56:00.000+08:00

I've recently finish this biography of Warren Buffett and thought of sharing it. I was comparing this and Alice Schroeder's Warren Buffett and The Snowball on Amazon and realised this has better rating so decided to get this. This book shed some light about him, I've read about him dealing with his family and friends, read about how he treats his portfolio, read about how he treats his money, and literally everything.

Some spoilers.

Myth 1:
Warren Buffett did not hold onto his shares forever.
Truth: He did sell some of his shares when the market is going frenzy. He bought back some shares when he feels that are undervalued.

Myth 2:
Warren Buffett is generous.
Truth: He was never generous and in fact he's very particular where his money would go. He refused to lend his sister money when she's in need and he only brought his daughter a colour TV when he was ashamed by Kay Graham.

Myth 3:
He started the pinball business, which is the first business he setup.
Truth: He started the business with another friend of his.

Cool Fact 1:
He bought most of his counters or increased his stakes when they are in trouble and their prices are tumbling. Just to name a few, like AMEX, GEICO. I guess this is where he stated "Be greedy when others are fearful and be fearful when others are greedy."

Cool Fact 2:
He stayed with another lady instead of his wife under one roof for a long time. Not divorced, he met his wife only a few times a year.

There're a lot more to read about him and those few points above are some that I thought was rather interesting.

On a side note, its really tough to be rich. Be it on the path to it, or maintaining your riches.

China Hongxing

2010-11-23T00:58:00.001+08:00

China Hongxing Round 1

Bought @ 0.155

Apart from the divergence that has taken price ever since the price goes below 0.17, I waited for a while as there was a consolidation around the 0.16 and 0.145 region. Could have acted in the 0.165 or 0.16 region but they do not seemed to provide good support as they are either head or tail of candlesticks.

Cup and handle don't seem to be forming as the handle segment has gone slightly out of shape, and the time duration is far too long.

Didn't open too big of a position, so this trade would be a hit and run.

Portfolio Review - Divestment of TMC II

2010-11-21T16:19:00.002+08:00

As Peter Lim has gained control over more than 50% of the shares available for TMC in the market, I guess its time for me to let go mine as well. I do not want the hassle of going through a lawyer to sell my stakes in TMC when it gets privatize in time to come.

With the picture above, I now conclude that I have fully divested TMC and will no longer be part of my investment portfolio from now on.

Portfolio update. (Brief Summary)

Armstrong

Armstrong continues to cruise towards profit with increased demand in automotive sector and improved growth in every other sector except Data Storage. They continue to take advantage of the growth in Automobile market in China and with their focus remains on growing in tandem with key OEMs and Tier 1 accounts across the European, American and Japanese brands. Consumer Electronics continue to grow with increased demand. However, it is important to take note of this segment as the profit margin of the products sold are very low. Even though they are selling to big brands such as Samsung and LG, being in the fragmented industry would result these big brands to resort to the lowest cost producer.

I have mentioned previously about flagging red flags in Armstrong, mainly because of their increase in Trade Receivables and Payables. However, in this quarter, I have seen improvement in their growth in these 2 numbers. Should they continue this trend, red flags could be relieved soon.

Something to be happy about, Armstrong's net profit thus far has already surpass all its historical full year profit.

Starhub

All I could say is that Starhub is a victim suffering some losses in price war against its competitors.

To increased volume, players in a competitive market can only decrease their prices to attract buyers and in turn, this has made an impact on the net profit, either making the business less profitable or not profitable. In this situation, players cannot transit the high cost they've paid to the selling price as increased price might almost tantamount to losing market share. One example of such industry is the aircraft industry.

Starhub has been losing their ARPU, and they are as follows.

Post-paid ARPU decreased from $76 in 2007 to $75 in 2008 to $69 today.
Pay TV ARPU decreased from $57 in 2008 to $56 in 2009 to $50 today.
Broadband ARPU decreased from $58 in 2008 to $51 in 2009 to $47 today.

While it is true that volume has increased through these period while decreasing prices to increase market share, it also means Starhub is getting less profitable.

So why am I still holding onto Starhub? The reason is very simple: Dividend continues to be at 5 cents. 4.5 cents is still acceptable and if anything goes below that, I might have to evaluate the whole deal again.

Something to share: Killed by inflation?

2010-11-17T14:42:00.003+08:00

I always ask myself this question, why do i invest and trade? Apart from personal reasons which leads me to the market today, one of the few reasons is that I do not want my money to get depreciated by inflation at the end of the day.

What do I mean by killed by inflation? Here's an example.

The following are the numbers for the inflation rate in Singapore for the past decade.

Imagine the following scenario.

In the year 2000, and you have $10,000 spare cash in your account. You decided to put it in a regular savings account from DBS. I do not have access to the interest rate of that account 10 years ago, so I will be using today's POSB Passbook rate - 0.1%

After 10 years, you have decided to draw that amount of money out but to realise you can no longer purchase the same amount of items you could have purchased 10 years earlier.

"So What's Inflation?"

Quote from Wikipedia
In economics, inflation is a rise in the general level of prices of goods and services in an economy over a period of time.[1] When the general price level rises, each unit of currency buys fewer goods and services; consequently, inflation is also an erosion in the purchasing power of money – a loss of real value in the internal medium of exchange and unit of account in the economy.

In layman term, the amount of money 10 years ago can no longer purchase the same amount of items 10 years later.

So after some calculations, the time and inflation, in the year 2009, the initial deposit of $10,000 dollars would only worth $8668.49. Well, you have just spent $1.3k for safeguarding your money in a POSB account.

How do i get that number? Simple.

In the year 2000, I will multiply $10,000 by 0.987 as the inflation is 1.3% to get the number $9,870. After which I will multiply that amount by 1.001 as the interest rate is 0.1% to get $9,879.87. This will be the principle sum for the year 2001. The process will then repeat itself for the subsequent years.

Here's the table I've made and use it for reference might be easier to understand.

Here's a link of the fixed deposit rates in Singapore. Fixed deposit rates might be better than what you have for those regular savings account, but if you realise, fixed interest rates are usually lower than the inflation rates.

Some people would rather keep the money safe and get killed in value by inflation, than taking some calculated risk and put some money to let the money grow. So are you one of them?

CapMallsAsia

2010-11-12T23:02:00.007+08:00

CapMallAsia Round 1

Bought @ 2.09

MACD Histo divergence spotted. This counter might not be good for trading, but I see a consolidation between prices 2.13 to 2.05 thus I decided to act. For mid term trading.

On a side note, the long awaited technical retrace is here, good luck and have fun.

Buffett's summarised guide

2010-11-12T02:01:00.001+08:00

I was reading one of Warren Buffett's biography and came across the following which I thought would be good to share.

Buffett's guides to finding such a stock could be summarized quickly:

1. Pay no attention to macroeconomics trends or forecasts, or to people's predictions about the future course of stock prices. Focus on long-term business value-on the size of the coupons down the road.

2. Stick to stocks within one's "circle of competence". For Buffett, that was often a company with a consumer franchise. But the general rule was true for all: if you didn't understand the business-be it a newspaper or a software firm-you couldn't value the stock.

3. Look for managers who treated the shareholders' capital with ownerlike care and thoughtfulness.

4. Study prospects-and their competitors-in great detail. Look at raw data, not analysts' summaries. Trust your own eyes, Buffett said. But one needn't value a business too precisely. A basketball coach doesn't check to see if a prospect is six foot one or six foot two; he looks for seven-footers.

5. The vast majority of stocks would not be compelling either way-so ignore them. Merrill Lynch had an opinion on every stock; Buffett did not. But when an investor had conviction about a stock, he or she should also show courage-and buy a ton of it.

Missing out on the rally?

2010-11-09T22:10:00.001+08:00

Are you like me waiting on the sideline with cash or running along with the bulls? If you're the latter, I congratulate you for your profits. If you're like me, missing out the profit and could only blame yourself, then allow me to share what I have learnt for the past 2 months.

1. Throw away whatever you have learnt about seasonal effects.

First and foremost, throw whatever you have learnt about seasonal effects out of your brain! I wasn't really affected by what I know about them, but part of me is holding myself back every now and then to trade when I happen to think of the lame seasonal effect. I have written a post earlier and it clearly shows the comparison between what we usually know from the effect and the path that STI has climbed. If you have no idea what I'm talking about, then look at the diagram above and compared it with the hikes that STI has climbed for the month of August and September.

2. Bearish D can do whatever Bullish D can!

It got me thinking for a while why this friend of mine bought CPL immediately after the day it dips with increased volume. I finally realised that I could take advantage of what I know about Bullish D and applied it on Bearish D!

3. Stop being a nit!

I know my words don't sound very credible at this part of the post, simply because I'm speaking in retrospect. Okay straight to the point. I missed out some kopi money simply because instead of queuing at last done prices, I kept queuing them at 1 cent lower, which never comes! Well I know it depends on the situation, sometimes it work, sometimes it doesn't. Unfortunately, this is the time that it doesn't work. Oh well.

Well, some say not gaining something might not be something bad. I guess this is one of the times.

Portfolio Review - Divestment of TMC

2010-11-04T22:54:00.005+08:00

I've divested part of my holdings in TMC after thinking about the advice some seniors in the market had gave. I'm currently not regretful of my divestment, as I have put in a substantial amount of thought in it, and am convinced that taking partial profit in the correct move.

If you are considering to divest your holdings in TMC, here are the 2 reasons you might want to consider.

1. Based on my valuations, the current price is way too high compared to my projections. If you've read about my full report in FY 09/10, modest valuation are only valued less than 1 dollar. You might not have to agree with me that it only worth less than 1 dollar, but I'm sure you would need a lot of reasons to convince yourself that its currently worth more than $1.75

2. Peter Lim is currently holding more than 50% of the shares in TMC, if he decided to acquire all shares, you would have to sell it sooner or later.

3. Remember that Dr Cheng, the owner of TMC has sold his stakes away, and he has nothing to lose while and if he continues to manage TMC, which is the most unlikely. Since there's a change in management, there would be a change in plans, a change in mentality. Good and strong management I believe is the reason why TMC has grown so much for the past few years, and a change in that critical factor might result in adverse change in company fundamentals.

On a side note, I might take partial profit on Armstrong sooner than expected as I personally have flagged some points red in the fundamentals. Starhub would also be out of the list if dividend dropped substantially.

Sell TMC now?

2010-11-01T22:25:00.004+08:00

School of FA
Philip Fisher "If the job has been correctly done when a common stock is purchased, the time to sell is almost never."

Warren Buffett "As he expressed it to Business Week, selling a familiar stock was "like dumping your wife when she gets old.""

School of TA
Anonymous "Taking profit is never a mistake. Not taking profit is hardly not a mistake."

I'm keeping it until I'm forced to sell!

Edit 011110 2248 (Add on):

Reason for keeping: I bought TMC for investment purposes, thus with FA. I have not seen any deteriorating fundamental change in TMC. Though with a higher price and have gone far beyond the intrinsic value, taking profit just because it's currently 2 or 3 times the price you bought should not be the solemn reason to sell now.

Thomson Medical Centre FY 09/10

2010-10-31T18:59:00.005+08:00

Thomson Medical Centre just released its quarterly report for Full Year 09/10 and I must I’m really impressed with their results. This year’s result is probably the best that I have witness so far.

What made me feel so impressed?

1. Revenue grew by 21.19%, which is the most so far since listing. Net profit and earnings per share grows in tandem with revenue growth.
2. Specialized and other services grew around 3 fold since 5 years ago.
3. Strong balance sheet with high liquidity and almost no debt.

Returns / Growth rates

Top line growth increased 21.19% to 81.68 million due to strong performance from both business segments.

From the Hospital Operations segment, TMC handled an all time high of 9,268 deliveries, and this is a 29.2% increase in number of cases from 2007. Deliveries increased 4.1% in FY 09/10 whereas the total number of cases handled in the operating theatre increased by 3.2% from 7,247 to 7,482 this year. From here, we could tell that revenue was grown organically, through increased volume instead of higher prices.

“Specialised and other services” segment made a tremendous improvement this year with 29.42% of the revenue coming from here. TMC’s new “Thomson Paediatric Centre” has made a strong debut, registering $4.94 million. It is clear that with their space constrain in TMC, not only did the management tried to venture their business overseas, they also tried to specialize their business deeper into the “Woman and Children Healthcare”. This attempt has led this business segment to a CAGR of 22.66% and we can deem it to be successful thus far.

Growth in COGS is at 19.99%. Comparing this growth and the growth in revenue, we can tell that TMC is still cost effective as it has not allowed the growth in staff cost exceeding the growth in revenue. This is particularly important as I have mentioned before in my analysis of TMC, staff cost takes up more than 60% in COGS. Net Profit and EPS grew in tandem, registering 27.81% and 25.57% in growth respectively.

Operating profit was not in the limelight this time round, as it dropped from 36.41% in growth in 2009 to only growing about 8.9% this year. The double digit growth in 2009 was due to the increasing trade payables. If we were to leave out the changes in working capital, operating period actually achieved a growth of 17.99%.

Return on Assets has improved from 9.62% to 9.95% with higher net profit margin. However, Return on Equity did not move along with ROA, dropping to 11.44% from 11.54% as there was a slight decrease in financial leverage. This should not dim the whole picture as having lesser liabilities is commendable, and ROE is still maintained in the 11% region.

ROE and ROA has been affected by asset turnover over the years, as it shows 1 dollar of assets only brings in $0.50 of revenue. I suppose this is due to the rate that TMC has been upgrading its hospital and the rapid increase in valuation for the freehold land and building of TMC.

Financial Strength

This year we could see a total improvement on the balance sheet. Decreasing in every kind of debt and increasing amount of cash. Since 2008, TMC has not done any borrowings and this had reduced every single debt ratio.

1. Debt to revenue at 26.34%, decreased from 50.34% in 2006.
2. Debt to equity at 15.14%, decreased from 29.86% in 2006.
3. Net cash stands at 29.17 million, improved from 4.25 million 5 years back.

Do take note I used the number from “Total Liabilities” to calculate the debt ratios so as to be more conservative with rising trade payables. I’ve flag trade payables as a red flag in TMC as it has been growing for the past few years. Borrowings are a lot lower, with borrowing to revenue ratio at only 1.66%.

TMC has able to achieve this strong financial strength due to the fact that it has been generating a lot of free cash flow since IPO. FCF/Revenue has been double digit and this year marks the highest record so far at 24.53%. TMC management has a fine way when it comes to handling cost. Being a capital intensive business, high capex is required and debts are usually involved. TMC however, shows the total opposite.

While it is good to have lots of free cash, it is important to note that TMC should not under invest in its assets to distribute higher dividend or to show better financial strength.

From the above diagram, TMC has been keeping up with capex till this year, as the group has delayed its plan to revamp some part of the building. This temporary halt is due to the group’s effort to review its space rationalization for better space planning.

With TMC’s limited business opportunity due to the space constrain, I strongly believe TMC is keeping the 29.17 million for future investment opportunities. I would not be surprised if they took the option to purchase 25% stakes in the newly built Han Phuc Hospital in Vietnam.

Today’s Valuation

If you’re a value investor who believes in margin of safety, I’d say it has gone slightly higher than what I’ve projected before. Previously on my analysis in TMC, I’ve used 10% growth for the next 10 years and I got an intrinsic value of $0.65. I bought at $0.7 as it was fairly valued then. If I were to still continue to use that matrix, $1.08 is certainly way too far from the projection of $0.65.
Thus, I came up with another valuation with today’s EPS.

For those firm believer of free cash flow, I’ve also done up a projection based on FCF.

With the above projection number divided by the current outstanding number of shares at 295.3 million, the value turns out to be only $0.56.

At current price of $1.08 and an EPS of $0.55, the PER is 19.63. Even though we’re still in the midst of a bullish market, I wouldn’t consider buying TMC at that PER, supported by the above projection.

So what kind of valuation is Peter Lim doing to prompt him to purchase TMC at $1.75/share?

The above projection is a rather loose approach, with 15% growth for the next 10 years and 4% as discount factor. This is based 18.84% CAGR growth in EPS and 3% interest rate from the 10 years Singapore government bond. I merely reduced the growth by a bit, and increased 1% from the risk free rate.

To be ultra-super-duper optimistic, I have done a 25% continuous growth for the next 10 years and 4% as discount factor.

Walla! If they are using the same projection as what I’m using, which is highly unlikely, but since we’ll never know, they are actually looking at TMC growing 25% with continuous growth for the next 10 years!

Well I’m really not sure. Though vested, 25% growth is, like what I’ve said, you gotta be ultra-super-duper optimistic.

On a side note, I secretly wished that Peter Lim’s attempt to purchase would fail. Simply because

1. Dr Cheng built this hospital from scratch. He would want this hospital to do well as this is like his flesh and blood. If this deal goes through, Peter Lim would own more than 50% of the stakes in this hospital, and probably treat it as a cash cow instead of a hospital. In this manner, I’m afraid the way he handles TMC would deviate from the way Dr Cheng does.

2. Peter Lim’s offer to TMC is a sign of confidence. It is a sign of assurance that retail investors are looking for. If it fails, not only will Dr Cheng continue his reign, retail investors who are blinded by Peter Lim’s premium offer, would certain skyrocket the share price.

If course, if the deal goes through and Dr Cheng is in still full charge of the hospital, then why not?

Trading Mentality

2010-10-30T15:46:00.001+08:00

I was invited to a friend's wedding dinner and happened to meet up with a few seniors in the market.

So we were talking, and suddenly got onto the topic of trading.

"Today you buy at $1, and you're telling yourself that my cut-loss margin is around $0.90. True enough, tomorrow it hits $0.90. You thought, "okay, I will hold for 1 day more, MAYBE it will go back up, so I can limit my loss." Again, the market reacted to your way and it hits $1. You thought, "whoa, since market's so volatile these few days, MAYBE it will go a bit higher, so I can gain a kopi money.""

This friend of mine calls it "Hope Analysis".

The mind boggling question now is "You wanted to buy this company at a target price of $0.90 and today's at $1. Tomorrow the moment the market open, its at $0.90 cents, a total 10% drop in share price, could be due to weak market sentiments or due to bad fundamental results released. Would you buy it now?"

Why "Not" REIT?

2010-10-24T18:00:00.002+08:00

Sometime ago, I've mentioned that I would be going to aussie for further education, and would be looking into REITS for stable dividend income. However, as I look into it further, REITS aren't as good as them seemed to be.

1. Even though distributions of income are spontaneous, there are little money left for organic growth.
2. With a limited amount of capital, debts/rights are necessary for more acquisitions.

More debts means higher risk. Issuing rights will lower your distribution if you choose not to subscribe them.

So let's say I choose to put this amount of money in this REIT today and will leave it there for a couple of years with the intention to hedge it against inflation with its above average yield of 8%.

From time to time, rights are being issued and I choose to ignore them. Sooner or later, my yield will drop below what I have always expected, and not only that, I have failed my very first objective of hedging it against inflation as the yield now might be as low as 2 to 3%.

A very good example would be K-Reit

With the above example, we can see that yield was dropped by around 50% after the rights issue in late 2009. If you still wish to maintain your yield, you are somehow obliged to subscribe to that rights issue. However what if prospect of it don't seemed to be as good as what it used to be?

If you're a value investor, this might sound familiar to you.

"In the first place, he observed, the acquiring CEOs weren't only buying, they were also selling. With the issuance of new shares, each ongoing stockholder wound up owning proportionately less of the company than before. The CEOs disguised this fact by using the language of a buyer: "Company A to Acquire Company B." However, "Clearer thinking about the matter would result if a more awkward but more accurate description were used: 'Part of A sold to acquire B.'" "

Well, everyone minds getting a smaller cut out of the pie. Do you?

Something to share: Why is trading in an overseas market more risker than trading in our own Singapore Exchange

2010-10-23T19:30:00.003+08:00

1. It is important to be up to date about the news of the market you are trading in.
2. Overseas market such as US operates in the night while we sleep, and if you are someone who loves stare at prices., its slightly tougher for you to monitor.
3. Currency Fluctuations.

I'm personally not trading in another market mainly with the 3rd reason. Currency fluctuation acts like a leverage, you either gain more with the strengthening of the currency of the market you are trading in, or you make more loss with the weakening of the currency.

We'll take Citigroup as an example, and the period of time for discussion will be from the first trading day of 2010 till today.

Let's take the opening price of 04/01/2010 as our buying price, and that will be 3.35. The rate for USD/SGD then is 1.40450.

We'll take the closing price as our selling price on 22/10/2010, which is 4.11. The rate for USD/SGD now is 1.297.

To calculate the gross profit, 4.11 - 3.35 = 0.76.

For argument sake, let's take the exchange rate for USD/SGD to be maintained at 1.40450 till today. In that case, the gross profit you earned in SGD would be

0.76 x 1.40450 = S$ 1067.42.

However, exchange rate fluctuates. So to see the effect of currency, we'll multiply the profit with today's rate at 1.297

0.76 x 1.297 = S$ 985.72.

The dip in currency has reduced the profit by S$ 81.7, and that is 7.65% of the profit you initially gained when the rate is maintained at 1.40450. Not to forget, the above amount you earned is not your net profit. You have yet to deduct the necessary platform fees as well as contract fees.

It's always better for the inexperienced, including myself to trade in your own market, with the exclusion of currency risk.

Genting

2010-10-17T22:30:00.003+08:00

Ever since the news of RWS was announced, people have been talking about how much money they are going to make, and how vast an impact it would be made to Genting SP. Based on this general perception, aunties and uncles are willing to speculate. Prices have soared from a cheap price of $0.4 (Low of 28/10/2008), till today, a shocking $2.08. (Last done price on 17/08).

However, doing a mini write up on Genting did not occur to me until friends of mine has been talking about it recently. Apart from sharing what I know about Genting, I hope this can also be a simple 5 -10 mins guide on how to analyse a company in the most basic way.

Since I have no intentions of investing in Genting, I did not do a fully detailed FA like what I have done for e.g. TMC, so I’m just sharing what I could tell from the numbers.

For those who have speculated that Singapore’s first integrated resort RWS might have made a big impact to the Genting group, congratulations, you’re right. Revenue from Singapore contributed S$860 million in the 2nd quarter, surpassing any other year and any other business from other geographical regions. For comparison purpose, average revenue brought in by UK/Europe for the past 3 years is S$444.5 million. Revenue from RWS has already overlapped it twice in just one quarter. With a combination of recorded revenue of Q1 and Q2, I could safely say that revenue for FY 2010 could easily hit S$25 million with forward projection, if business in Singapore are maintained the way they are for the rest of the year. If that is true, this could bring Genting to a new milestone as revenue generated from RWS brought 7 times more revenue compared to FY 2009.

However, a broader operation would also require higher cost of sales and other operating expenses. First quarter was affected by a one-time off impairment loss on intangible assets relating to the UK casino operation. Second quarter looks normal with higher revenue relating to higher selling/distribution expenses and administrative expenses.

Even though more than 1 billion of revenue was recorded for the first half of 2010, poor management control resulted in only 248k profit, which translates to less than 1% margin for the financial period ending 30 Jun.

Assets and liabilities increases gradually after the expansion of operation in Singapore. Even though not highly geared, the other ratios are on the high side. Since 2009, almost 100% of the equity was funded by debt, and the ability to repay the debt seemed almost impossible only until the opening of Sentosa’s RWS as you can see from the interest cover below.

It is necessary for RWS to maintain their business in order to sustain their financial health and capability. Comparing Genting to Starhub which is also highly geared, the following two points are the reasons why I felt why Starhub is more dependable than Genting.

1. Starhub’s PE ratio are never below 0 while Genting’s PE ratio has been negative for a long time and only until the 2nd quarter of 2010, that it’s PE soared to 63. PE of 63 also means its price currently is 63 times of its current earning. For those who are familiar, that sounds slightly like a 1999 Creative to me.

2. Genting does not produce free cash flow until this quarter but Starhub has maintained the FCF/Revenue ratio hovering around the 20% region.

The last thing you would want a chairman of a company to do is to dilute his own shareholdings. Genting group chairman and chief executive Tan Sri Lim Kok Thay reduced his shareholdings in Genting Bhd earlier this Sept, and this reduced his direct interest in Genting Bhd to 10.1 million shares or 0.273%. Even though this is not directly involved in Genting PLC, but Genting Bhd holds 51.7% interest in Genting PLC. This strongly reflects the confidence of the management in Genting itself.

It's not hard to infer why is he selling at this point of time. Money? Over hype of RWS? Think.

In a nutshell, it is true that Sentosa’s RWS can and has made an impact on the financial statement of Genting, however, we will need more than a quarter of results to justify the above statement. At the price-earning ratio of 63, it clearly shows that this counter is heavily speculated and the hope of RWS could be brought a little too high.

Currency Talk

2010-10-09T18:15:00.006+08:00

Watching the U.S. dollar fall while we do nothing is simply not acceptable to me. Fundamentally, with QE2, stagnant unemployment rates and increasing debt, U.S. dollar will still continue to fall as they will print until no more trees are left

Since the unpegging of CNY to USD, CNY has been rising against the USD and I thought it'll be good if I can jump onto the bandwagon to gain some profit. Unfortunately, there are very few fixed deposit or financial instruments from the banks that allows me to put a small sum of money to hedge myself against the inflation of USD. Thus, i thought of physically changing CNY with my SGD.

My thought was that since the CNY would strengthen against the USD, it would also strengthen with the rest of the world's economy. I was so wrong!

A small example with SGD/CNY, which also means i'm selling my SGD to exchange for Chinese Yuan. Currently, the rate for SGD/CNY is S$1 to 5.11 Yuan.

If CNY strengthens, the rate would decrease to be perhaps S$1 to 5 Yuan.
If CNY weakens, the rate would increase to be perhaps S$1 to 6 Yuan.

Getting hold of the basics, i went googling the historical price of SGD/CNY and this is what i saw.

Credits to fx-rate.net

CNY is actually weakening against SGD! There would be many reasons for this which i have not gotten hold of, but what i do know is CNY is also losing it's value against the Japanese Yen(JPY) and Euro Dollars(EUR).

Anyhow, I'm still thinking of how can i invest in a currency for long term as forex platform has margins as limitations. Some physical notes cannot maximise your gain if the capital is small.

Some examples on profiting from physical notes. (Forex goes by pips and leverage)

E.g.
1 SGD is at 4.8622 CNY dollars on 01022010.
S$100 = 486.22 CNY
Till date, 1 SGD is at 5.1133 CNY dollars.
S$100 = 511.33 CNY

With that increase, I would have earned 25.11 rmb, equivalent to S$4.91.

E.g.
1 SGD is at 0.780 US dollars on 01022010.
S$100 = 78 USD
Till date, 1 SGD is at 0.7653 US dollars.
S$100 = 76.53 USD

With that increase, I would have earned $1.47 USD, equivalent to S$1.88.

I think to judge if what you have gained is substantial also depends on your capital. Just like any other investments, the more money you put in, the more gains you have.

Sold Noble Group

2010-10-02T17:31:00.007+08:00

Sold Noble Group @ $1.91, net profit margin @ 8.75%

I do not want to miss this chance to sell as I've already missed the previous one during June. I did not sell then as i was committing a common mistake - not selling cause of my emotions. I wanted to wait till $2.

Technically, if that is a continuation gap, target price should be around 2.03. However, that's not confirmed and i do not want to make the same mistake again.

Reason for Exit:
Although on a next trading level and hovering on price between 1.86 to 1.93, it is still not confirmed if it's a continuation gap simply because there's no higher high, neither can i say it's a exhaustion gap as the gap is yet to close. Thus, i begin to look at the broader general market.

Although there might be a repeat of what happened earlier, which is an increase in 200 points while a MACD bearish divergence occur, I certainly would not want to take the chances. Stochastic showed STI within the high overbought region and MACD also showed a small bearish divergence, which also means there is a potential downside risk.

HSI hit their immediate resistance and has been testing it for the past few days. Stochastic shows overbought too, and also a class B bearish divergence on the MACD. There is an increase in volume while testing the resistance which also mean breaking it is possible, but with the bearish divergence, it might means there is limited upside.

Needless to say, DJIA also showed class B bearish divergence. Immediate resistance is not too far away, with Stochastic showing the market overbought.

It is not surprising to see all 3 major markets showing the same trend after having a bull run in the whole month of September. Bearish divergence are only words if prices continue to go up, but that also means your risk would be higher and you might be "buying at the top". In this situation with limited capital, I simply do not want to get caught up even during a mini slide with more than 70% of my capital in the market.

We shall see what happens during Oct. Bull run continues? or if bear traps activated.

Averaging down

2010-09-30T22:46:00.000+08:00

After mentioning about averaging down in one of the posts earlier, i got curious about whether it makes a big difference in averaging down with buying back more each time, or buying back with only one lot. i did a small calculation to see the difference.

In the above example, each time the price drop, only 1 lot will be bought to average down.

In this second example, each time the price drop, more lots will be accumulated. When prices drop to $0.70, 3 lots would be bought, and when it's $0.40, 5 lots would be bought, bringing a total of 9 lots being bought in total, the same applies when it's at $0.10.

Now the question is, is it worth to risk that increase in the extra 163% in capital, to further average down only by 34.5% when the price is currently at $0.10. To each it's own, of course.

It's really debatable to see which example is more effective, but again, it all depends on one's strategy and the vital capital management skill in a bear market.

Wedge

2010-09-28T17:12:00.000+08:00

A simple correction to my previous post where i mistook something else for a wedge, the above is the correct one. Credits to La Papillion.

Nevertheless,

Took it from here, they have charts as examples as well. To summarise, falling wedge = bullish, rising wedge = bearish. (Correct me if i'm wrong on this part)

Will U.S. economy survive?

2010-09-25T11:01:00.000+08:00

This is my small attempt to do a small write up on the world's econs.

To determine if U.S. will survive, I personally think it is depended on several criteria, with its currency being the most important factor. As we all know, the debt that U.S. currently owe is vast, and for those who like fun facts, here are a few.

1. As of Nov 2009, difference in tax receipts and government debts for the last 12 months was 1.5 trillion
2. U.S. buys $2 billion more foreign goods and services than they sell every day.

In near future, like 5 to 10 years, U.S. most likely will survive. Trades will still be done with the U.S., giving them their daily necessities unless China and the rest of the world decides to buy whatever U.S. buys everyday and give people who sell their goods to U.S. business.

WHY?

Simply because U.S. itself is responsible for more than 43.4% of the imports in the world annually, which also means if they don’t buy or nobody wants to sell to U.S. tomorrow because they think U.S. will default when the sun rises up in the morning, someone will have to replace U.S. to make that amount of purchase. If nobody does, how does countries that previously trade with U.S. is going to report their GDP that year? This will either decrease any trade surplus or make any trade deficit worst, which in turn, making the respective currency weak.

Beyond that 5 to 10 years, U.S. still probably won't die, but will be like what Japan is today if China and/or India and/or some emerging market can provide the amount of business U.S. provides today.

The idea is that currently, people who did business with U.S. prefers to have them owing them money, compared to having no business and no profit to report at all. At this point of time, the greenback is still currently being used is simply because other major currencies have their own problems as well, such as

1. The amount of debt Japan hold as a percentage of GDP, is at 200% as of 2009.
2. The Euro is shared by multiple countries, governed by their respective government; too many divergent government fiscal policies.

However, as time goes by and as U.S. vast debt gets bigger, confidence on the greenback gets thinner as the value of it decreases. U.S. government knows about it. I’m pretty sure that with the amount of money they are printing every time to pay off the debts, the value of their dollars depreciates. Unfortunately, this is exactly what they want: inflation.

Simply because inflation decreases the value of the outstanding debt!

Now that U.S. is urging China to appreciate it's Yuan, I’ll end this post with the reason, which is more than the obvious – China’s exporting system.

Regulating remaining bullets.

2010-09-22T11:31:00.000+08:00

It took me some time to realise that it is important to regulate the amount of money you have inside your account, which also means, it is always wise to leave some money in your fund just in case the market decided to go down on a slide for the next few months.

This is also probably the reason why my first year's trading portfolio produce sub-standard results. I did not used to have plans for averaging down until recently for what I have done for noble produced substantial results, I begin to think otherwise.

This brings us to another discussion with the topic "Why is it not encouraged to buy a counter that would cost more than 40 - 50% of your remaining funds."

For example, you have 10,000 in your account, and you have successfully traded SGX today at 8.5, which leaves you 1.5k in your account.

Let's say market becomes bad, you would probably
1. be stuck with that position for long enough and have almost no chance of averaging down.
2. have to wait till it goes back up to 8.5, which nobody will know when will it happen.
3. have limited amount of funds to play with, which limits your ability to increase your profit or cover your losses.

However, if you decided to trade another counter, which cost you around 25 or 35% of your remaining funds, you would still have some bullets to play with! Take note! It's not about buying a counter that cost 6.5k and leave you around 35% of your funds behind.

Back to the example, you have 10k in your account, and you decided to trade 2 lots of Olam despite its increased in price recently, that will leave you with around 4.04k. Let's say the market turns bad. You

1. have at least have the liberty to average down 1 lot, or maybe 2 lots if you are patient enough.
2. say you average down 1 lot at 2.5, you would be averaged out at 2.82. This also means that you don't have to wait till your buy price 2.98 to average out your losses.

If it drops further? Well, even if you have to inject more capital to average down, it would still require much lesser capital to average this counter, compared to SGX. At the same time, ask yourself why the blooper this time round and try not to commit the same mistake again.

Thus, trade with confidence; trade with reasons that you could use it to answer to your own doubts, and not averaging it down blindly simply because it has decreased substantially in price.

I learnt the lesson to average down at the correct time with a hard way. I failed to average down Tat Hong with it hits below 0.9 twice, which resulted in my fund being freezed up for almost a year.

Something to share: How much risk?

2010-09-20T15:31:00.003+08:00

I think the most important thing and first question that people will think of when they are talking about investment is “risky or not?”

It totally depends on how much is your risk appetite, which are mainly factorized by how old are you, how much you are investing and of course many other possible aspects. Your risk appetite will then more or less determine how much return you will get. Like if your capital is 100 bucks, you can’t expect your return to be 60 or 70 dollars right?

Let’s compare a 55 years old retiree with no additional liabilities in his life whose kids are all grown up, lives in a mansion and own a few cars, living the typical kind of life you would want to have after you retire, and a 29 years old who is just working this company for the 3rd year after he graduated, and who is getting married soon.

We’ll use 40k for capital in this example. It’s not too difficult to guess that the retiree would have a bigger risk appetite in this case, compared to the 29 year old.
If you’re asking why, it’s because the retiree can afford to lose that 40k without having that amount of money affecting any part of his life. 40k to him might probably mean not going to a 2 month Europe tour this coming summer. The 29 year old however, 40k to him might mean a fixed deposit for his new home, or even money for his wedding.

Low risk? Probably govt bonds, but don't expect your returns to be anything more than what a 5 years fixed deposit is giving.

So determine your risk appetite, before setting aside money for investment, else you should prepare to lose your money and make sure that in no way it would affect your short term expenses.

Thomson Medical Q&A

2010-09-20T07:34:00.000+08:00

I have recently discussed about with a few friends about Thomson Medical, and one shared with me this link about Thomson Medical's management having a small Q&A session with it's investors. It happened sometime ago, but i thought it is still good to share for those who wants to know more.

http://www.sharesinv.com/articles/2010/06/24/thomson-medical-lively-qa-investors/

Questions are generally based on their current space constrain and how they feel about their investment in Vietnam in the past 1 year.

For the past week, TMC's share price raised about 10 cents to a dollar with high volume, which also means some BBs are buying behind. I personally feel that this could be a hype like what we have witness for Genting SP sometime ago, where share prices are pumped up high prior to the opening of the IRs.

Something to share: How to I start?

2010-09-16T10:26:00.001+08:00

How to I start?

To start trading in technical terms, you will need a trading account and a bank account. To start a trading account however, you have to be more than 21 years old. There are many trading platforms, DBS Vickers, POEMS, Citi just to name a few. My post here is not to discuss their pros and cons, but personally I’m using POEMS and Citi. There is however, no limit to how many trading accounts you can open.

The minimum amount of money you need to trade depends on what do you want to invest or trade in. Foreign Exchange can start as little as 50 dollars. For shares, it depends on what brokerage you are using, but for the cheapest commission I know, DBS Vickers, you only pay 19 dollars for the cash up front account, which also means, that’s the minimum amount of money you need NOT including buying your shares.

Putting the technical aspect aside, to gain knowledge on whatever you are investing, the best and most effective way is to read. I began by reading the book on the richest man on earth through investing, titled “The Warren Buffett Way” and looking up jargons on "http://www.investopedia.com", reading up slightly on blogs and of course, make new friends, hopping you might get lucky to get someone to teach you. For me, I am really lucky to come across someone who is willing to share with me what he knows. Till date, I'm still appreciative of whatever he had taught. If you're reading this, thank you!

For beginners on Fundamental Analysis in equity, I’ll recommend “Analyzing Companies & Valuing Shares” by Michael Cahill or “The Five Rules for Successful Stock Investing” by Pat Dorsey. To know how they look like, there’s an Amazon Widget at the side of my blog.

For beginners on Technical Analysis in Equity, there is probably only one book you will need, which is “Trading for a Living”.

Good Investing and Trading Blogs? The ones I usually go are
1. bullythebear.blogspot.com
2. createwealth8888.blogspot.com
3. financiallyfreenow.wordpress.com/
4. www.investmentmoats.com/
5. sgmusicwhiz.blogspot.com

After which, you can start linking around from their blogs and start exploring.

So, start reading!

3,000 Train

2010-09-14T09:38:00.000+08:00

For those who believed in STI going beyond 3,000, you had hopped onto the train without looking back, now enjoying seeing your fruits bearing.

For those who thought STI going beyond 3,000 was a joke and missed the train, don't worry. Walk further, and board the next train. They are just waiting for you.

Something to share

2010-09-14T08:44:00.003+08:00

As time goes by and more people come along, I’ve met people who are interested in getting rich. Some people gamble, some people slog (noticed i replaced work with that word), some people get brainwashed by MLM, and some people like me, trade and invest.

Those who are interested to trade and invest, the purpose for creating this roll of posts is for you, simply because right now, you want to know another level of game, you have money, decided that bank is not the place for you to put your money and most importantly, you want to be rich.

Unfortunately, you did not know where to start. You heard about your friends talking about buy and sell and you realized those are the only two words you recognized that is coming out of their mouth. You heard about the market crash, but the only fact you know is you might be in the next in line for retrenchment. If this is somehow related to you, then I hope after reading, you will at least pick up something from here.

Before we start to learn how to trade and invest, I have to let known a few facts and after which, if you decide to continue, then I will share whatever I have learnt over the past 2 years and counting of trading and investment.

1. All the posts in this roll tagged “Something to share” are my own opinion and if there is a need for me to quote from somewhere, I will state the source.
2. After reading, please judge the market with your own opinion.
3. At this point of writing, I only trade and invest in equity. So most of my examples will be slightly lean towards the equity market.
4. Most importantly, I’m not a professional and I do not trade for a living.

If you are ready, then we are set to set on a journey of learning into the financial world. Do come back every now and then to look for post tagged with the same tag for this post. Take note they are not in any order so feel free to skip and jump as and when you like.

Beginning to read books on anything but FA?

2010-09-08T15:33:00.001+08:00

After reading this post, i somehow relate it to myself, like how and why I started reading books about the Federal Reserve, Economy etc.

A few posts back, I wrote about myself deviating as I do not seemed to be as focused as before when i started out as an value investor. One of the reasons why i have deviated slightly and started reading books beyond the area of fundamental analysis is because once you have read a few, you have read it all.

I'm serious!

My very first book about investing is "The Warren Buffett Way", followed by "The Five Rules for Successful Stock Investing", then a few FA books recommended by friends and online review, and eventually "Analyzing Companies & Valuing Shares".

I regreted not reading my last book on FA as the first, cause it simply covered almost everything about FA, that's how good it is. However, there're way too many jargons so if a newbie who would like to start with that book, i'll suggest you prepare yourself at www.investopedia.org

It's all roughly the same, teaching you about ratios, telling you signs that a company is turning bad, etc. The biggest difference in each and every book is probably the book cover.

So have you deviated and begin to read books outside the FA world? Or still thinking you can pick up more stuff from every single FA book you have read?