Watchlist Counter #2: Foreland Fabritech ($0.13) (A S-Chip Company)

One of Foreland's end customers (or so they claimed)

Definition of a S-Chip: Chinese companies listed on the Singapore Exchange, whose business are predominantly based in mainland China.


What general public associate S-Chips' with: Accounting irregularities and fraud


List of former S-Chip "market darlings" that currently suspended or busted: Sino-Environment, China HongXing, FibreChem, China Milk, China Sun, China GaoXian, SinoTech Fibre, Hongwei etc etc...


So why then even be bothered with S-Chips: Valuations are incredibly low, because investors (or rather skeptics) have grown so disillusioned that they believe "if it seems too good to be true, then it probably is."


So why do people at Kiasu Investors (KI) think otherwise? No we don't.


But you are recommending to keep an S-Chip on Watchlist!
This is purely for punting (ok, it's gambling, we admit! This is EPL off-season and we are suffering a bout of withdrawal symptoms, and being Singaporean, we simply cannot afford the $100 levy to enter our (in)famous casinos.


So why Foreland and not any other S-Chip? Because we like the fundamentals...


But you just mentioned that for S-Chips, fundamentals doesn't mean a thing! 
Yeah, but here is a brief summary anyway:
NAV: $0.1995
Rolling PE: $4.626
Dividend Yield: 2.72%
Gearing: Net Cash


Definitely not the cheapest among S-Chips.. 
Recent placements caught our attention. First placement was to a group of local (SG) investors at $0.1235. Notable among the placees: (Asdew Acquisitions - Founded by ex-Kim Eng head of research, SG star broker Han Seng Juan). For second round of placement at $0.16 (33% premium over previous closing price) to a major customer and a mysterious investor. Also, they produce umbrella fabric, not your typical sports wear fabric producer..


But other now dysfunctional S-Chips also had prominent investors, FibreChem had NewSmithCapital and Hongwei had Tembusu Partners just to name a few... 
Yeah, hence we say this is at best a punt, and if do decide to gamble, do make sure you get in at a decent price (preferably lower than first round of placees. So far $0.125 was the lowest since we first mentioned Foreland in our article on Wing Tai)

Watchlist Counter #1: Wing Tai Holdings ($1.43)

We return after our short "exile" from the market due to the decidedly negative forces ravaging world markets at the moment (in actual fact, we were busy crunching numbers to identify potential candidates to add to our watchlist). Indexes around the world have been suffering from bouts of selling. Of course, our "world-class" STI has not been spared and investors could observe many heavy weight index counters being sold down on relatively non-negligible volume over the last couple of weeks. We will not try to predict when the down trend will reverse but thought it will be good to start adding "value" counters to our watchlist so that we are prepared to "grab" when the right opportunity presents itself.


Why a property counter? And with government in markets like HK and SG (in which Wing Tai operates) clamping down on speculation and price increases, who in the right mind would want to look at property counters in the short term?


Considering the anti-speculative measures already implemented by the SG government, we are impressed that Wing Tai management continues to be able to off-load their holdings in various developments at more than decent prices.

Units Sold in May 2011

Ascentia Sky - 15 units (average $1318 psf)
Belle Vue - 2 units (average $2651 psf)
Floridian - 9 units (average $1793 psf)
Foresque Residence - 141 units (average $1108 psf)
L'Viv - 2 units (average $2179 psf)


Total units sold - 169 units.


Comparing to the total 1575 private residential units sold by all developers in month of May 2011 (excluding ECs), Wing Tai single-handedly accounted for more than 10% of the sales ( and we have to stress again, at quite decent prices too!)


On top of this, we like Wing Tai for its retail exposure in SG (Uniqlo, Adidas, G2000, Pumpkin Patch etc) and with forecasted record tourist arrivals (and buoyant local retail spending), we believe this sector will continue to support earnings in the short-term.

Counter closed at recent low of $1.43 last Friday. Overall, we feel Wing Tai do not have that many units left to sell in SG compared to other big developers and hence they could potentially stand to benefit from a severe downturn in land prices. Moreover, Wing Tai positions itself towards the mid-upper end of the market and hence should be less susceptible to fluctuations in demand of mass-market properties. We also like its Malaysia exposure and the selected collaboration with SG government in China. We are thus adding  Wing Tai to our "Watchlist".

Kiasu Investing Rule #1: Allow your idle cash to sit idle in the bank

Yes, you heard us right. Contrary to what most investment advisers out there advocate, we strongly believe in leaving plenty of spare cash lying idle in the bank. Yes, bank deposits interest rates are so paltry, they all say. After factoring in inflation, you are effectively suffering negative interest of x% per year.


Yes, we do acknowledge the above argument against keeping cash in the bank. However, we still firmly believe in holding on tight to your cash. This is especially true when markets (stocks and property) are close to or have already exceeded previous peaks. In such circumstances, we typically try to hold on to at least 50-60% of our "investible" capital (exclude emergency funds) as cash. This is of course much easier said than done for most investors. 


We are strongly of the view that it is also this "cash", which suffers from negative interest of x% per year, that has potential to land you the multi-baggers in the trough of a bear cycle, when cash is scarce and truly king. So what is a 10 - 20% loss against inflation compared to a potential 200-300% gain? For us this is a no-brainer!


P.S:
1) Some may ask, why not hold quality bonds instead of cash? Historically, equity and bond prices tends to go in inverse directions. Yes, to us this is also a plausible alternative but sometimes, you do need a large amount of cash to plough into bonds.


2) Above assume you are a better investor than a blindfolded monkey throwing darts, as you need to be able to identify potential multi-baggers to put your hard earned $$$ to work (and yes, we believe that even blindfolded monkeys can hit multi-baggers during times of doom and gloom).


3) If you happen to be those lucky ones who works for a bank (or your spouse do) that offers staff much higher interest rates on deposits... then this rule works like a charm.

Malaysia's Rich Man Robert Kuok Seeks To Take Allgreen Private For S$1.1B

This has to be the one bright spark in the ominous clouds of gloom today. Malaysia's Robert Kuok probably decided that enough is enough. Since the market does not appreciate the value that this baby has to offer, he took it upon himself to make a takeover offer of  $1.60 per share to take the company private. (that's a whopping 40% over the last traded price of $1.15)


For some keen observers of the local property counters, this does not really come as a huge surprise. Due to the strong run-up in property prices over the past couple of years, quite a number of local property counters are today trading at very attractive discount levels to their revised NAV. We at Kiasu investor could easily rattle off a full list of counters that are trading at very attractive valuations. The most commonly cited ones are of course counters like Wing Tai ($1.52), Wheelock Properties ($1.80), Heeton, Hiap Hoe, Ho Bee etc.


From this list, we like Wing Tai and Hiap Hoe the best due to various personal preferences (which we will elaborate in future posts). However, we think that the counter most likely to benefit from short term speculative activity generated by Robert Kuok's latest salvo should be Wheelock Properties. It's HK parent, Wheelock and Co Ltd,  had last year taken Wheelock Properties Ltd (HK), private for HK$6.9 billion ($889 million). This was at a 143.9 percent premium over the previous close and at 3.3 percent discount to NAV at end of 2009. Due to the booming property market prices in Singapore, if Wheelock SG can continue to sell off the remaining units of Scotts Square (currently > $4000psf) and Orchard View (currently > $3000 psf), the RNAV of the counter should be closer to $3 per share (versus last traded price of $1.80). 


Of course, we at Kiasu investors, do not truly believe that there is a high chance that privatization will take place in the near term (as the parent company is probably replenishing cash after taking the HK company private last year). But for those itching for a piece of the takeover action (choosing to ignore all the doom and gloom prophecies), Wheelock will probably be a good choice for a punt. (yes, we do equate this to gambling)

Post Election Updates: FJ Benjamin, United Engineers, Pac Andes, Oceanus

Fresh from our election break (despite the unbearably hot weather), we strive to bring you even "hotter" analysis and pictures from our Kiasu desk.


First, we kick off with a couple of results updates:

Hot contributions from new brand

1) FJ Benjamin announced higher earnings on record turnover for its third quarter ended 31 March 2011. This was due to a combination of strong consumer sentiment, higher tourist arrivals and contributions from new brand Givenchy. Improvements were seen across major markets of Singapore, Malaysia, Hong Kong, China and Taiwan. We expect the counter will continue to do well on the back of strong consumer sentiment and spending across the region.

2)United Engineers disappointed with a sub-par price-action performance post ex-date of dividend. (price dropped by 15 cts versus 10 cts dividend payout.) It went on to announce a decent but not too spectacular 20% increase in gross profit (10% increase in net profit).  Our kiasu instinct continue to get aroused by its huge discount to NTA (its NTA increased to $4.03 per share versus closing price of $2.35) and its relatively low PE ratio of about 3.5x. New hotels and retail space coming up at Vista Exchange (next to Buona Vista MRT) and UE BizHub East (next to Expo MRT) bodes well for the future recurring earnings of the group. In the meantime, we can only eagerly anticipate the awakening of this sleepy giant.

Former Specialists’ Centre/Hotel Phoenix and Orchard Emerald

3) Pac Andes announced plans for a listing of TDRs on Taiwan Stock Exchange at an indicative price of NT$18 (or 77 Singapore cts). Since each TDR unit represents 2 PARD shares, this works out to be around 38.5 cts each. This could potentially raise up to around S$219 million in a best case scenario (which we view as net positive for the stock due to its high gearing that we had pointed out in our earlier article). However, its share price continue to languish at $0.315 after a brief spike after the initial announcement. We might potentially see more favorable action subsequently if the market response to the TDR issuance is good (which we feel will be the case).

4) Oceanus directors had came out scrambling to issue an announcement (i.e. denial) that there weren't anything concrete behind rumors of an impending buyout by a private equity firm, KKR. We tend to believe otherwise and view the announcement as a "cover" to allow negotiations to continue in the background without too much disruptions in the share price.


Finally, if you had managed to bear with us through all our earlier ramblings, we reward you with our "hot" kiasu tip of the night.  DBS Group Holdings CEO, Piyush Gupta had made a maiden purchase of 100,000 DBS shares on 9-May at a price of $14.825 per share. This translates to a cool $1.5 million dollars! (Of course, this is "peanuts" compared to his >$8 million a year CEO salary, but still, we take it as a strong indication that the boss is confident in his own business). Also worthy to note is that tomorrow (11-May) will be the last day that the stock will be trading Cum-Div of 28 cts dividends. So what better time than now to try getting your hands on some? We at Kiasu Investors will definitely be giving it a shot...

Lunchtime Ideas: United Engineers

Like many other property and construction counters listed on SGX, United Engineers had recently announced an excellent set of results for FY2010. Today is the last day that the stock will trade Cum-dividend of 10 cents. This translates to dividend payout of 4% based on last traded price of $2.50.(certainly attractive enough to get picked up by our Kiasu antenna)

Of Cheap Air Tickets, Oceanus and Pac Andes

When we mentioned cheap air tickets, we are of course referring to the Singapore Airlines S$398 all-inclusive, promotional fares to Japan (Tokyo, Nagoya, Fukuoka and Osaka). After taking into consideration that typical taxes and fuel surcharges to those locations comes to around $350, the actual price of the round-trip ticket works out to be only $50! This is full-service SQ tickets at cheaper than budget airline prices! (ignoring the fact that budget airlines typically quotes one-way fares in their promotions)


So coming back to our original poser, what has cheap air tickets got to do with the two aquaculture stocks (i.e. Oceanus and Pac Andes Holdings) listed on the SGX?  For us at Kiasu Investors, it is a case of "alarm bells" ringing (BARGAINS) after the recent tsunami in Japan. Based on various reports, the giant tsunami wave that devastated the northeast coast of Japan had wiped out the region's coastal fishing industry, and cut the country's total seafood production by around a quarter. Similarly, abalone stocks were destroyed along the coast and it would take many years before new ones will grow to sizes large enough to be harvested.


Assuming the demand for fish and abalone were to remain fairly constant, the fishing industry in the rest of the world will either have to (1) make up the slack by catching and producing more or (2) the price of ocean catch will have to increase to compensate for the supply shortfall. In either case, companies such as Oceanus and Pac Andes (the two being major players in their own industry) would stand to reap the benefits.


We believe that savvy investors have already caught up to this fact and hence it was not too much of a surprise that there was a rumor last Friday that a private equity fund was arranging financing to buy out Oceanus (especially since private equity funds seem to be rather active of late. Refer to our previous post on another private equity fund active in Asia)

Fresh catch!

Of course, just like buying cheap air tickets, investing in bargains comes with it's risks. For Oceanus and Pac Andes, a large part of their operating costs are tied to energy costs and with oil prices hovering at elevated levels, investors would do well to take into consideration the impact to their bottom line. The other point to note would probably be the level of debt as both business are capital intensive in nature (this may not be a concern in low interest rate environment but may come back to haunt investors if interest rates were to rise too quickly). 


Lastly, we do hope our readers (like us) are enjoying a great Labour Day holiday! Below are more links for your reading pleasure.


http://www.bloomberg.com/news/2011-04-24/tsunami-speeds-terminal-decline-of-japan-s-fishing-industry.html
http://www.kansascity.com/2011/04/17/2806024/tsunami-devastates-abalone-fishing.html
http://www.singaporeair.com/saa/en_UK/content/local/SG/promotions/index.jsp