Friday, December 31, 2010

City Index/IG Markets CFD , Asset Allocation, Forex-Money Changers?


Went out with friends a few days ago and hence decided to go open a City Index CFD account, since it was only 2 MRT Stops away. Deposited a small sum, and the lady that assisted me was very warm. Good customer service. Sat down and discussed how to use CFD, what financing is, when margin calls will occur etc for over 40 minutes. The account just got opened today, and I will maybe try a little CFD's next week, since commissions for SGX counters are $10 flat.

Also went to IG Markets to create a CFD account (2 buildings away). The lady there was very brusque. Even though she was quite pretty. hahaha. However I just received an email stating that
Dear Mr XXX,


Thank you for applying for an account with IG Markets. After assessing your application, we regret to inform you that your application has been rejected.


We seek your kind understanding on this matter as CFDs are highly leveraged products and not suitable for everyone.


Thank you."

Ok then. 

I also went to change for Sterling Pounds at the Arcade, right next to Raffles place MRT, with the suggestion of createwealth8888 and anonymous (thanks!). So many money changers there! Their rates are very good, I wonder how they earn at all. I changed at £1=SGD 2.014, and the mid market rate on that day was £1=SGD2.006. Which means they earn about a 0.7% commission thru the spread. 

For those playing forex (not me), I wonder how's the spread like, since the forex firms earn thru spreads too. If the spread is wider than the money changers, why don't people just buy physical cash and change it? 
Just a thought. The spread's probably smaller than the money changers. 

As I on the bus home after tuition today, I thought of my asset allocation. Just a few tender months ago, my assets were 100% Cash with trusty POSB and OCBC. 
Now, the asset allocation is as such: 
Blue Chip Stocks:
 20.67%

Dividend Stocks: 
24.9%

Penny Stocks: 
7.5%

I think this is a pretty good allocation...Might be putting some more cash into penny stocks though... specifically Silverlake(which I have done some FA for, might or might not post it up), where you can read the FA for it at Wealth Buch's blog: http://wealthbuch.blogspot.com/2010/12/silverlake-axis-part-1.html

Cash:
34.9% Singapore Dollars, 12% British Pound (Dollar Cost Averaging in preparation for uni)

Of Singapore Dollars:
 17.1% is for speculation ( Roughly 5% of my total liquid net worth)
82.9% in Bank rotting at 0.125% at POSB, 0.3% at citibank and 0.7% at phillip MMF (Poems account holders should know).

Of British Pound:
100% in drawer rotting.
Digressing: In a previous post, Wealth Buch mentioned I could try Forex FD, but I'd like to mention here that the forex rates for "cash" is poor.
"cash" is in inverted commas because:
1.) They don't allow you to deposit cash.
2.) They change your Singapore dollars at the bank cash rate, which is super lousy. (Just look at the money section of ST- Under Forex rates; that's what UOB and the local banks charge.)
3.) When your "cash" FD expires, you have to change back to SGD at their cash rate.
4.) You can't withdraw your "cash" in physical money. You got to TT your "cash" to your foreign bank account.
5.) Other than NZ/Aus, the interest rates are so damn lousy, you can't even cover your spread loss!

*End of Digress*

Oops, I think that marks the end of the post too.

Please Comment :)


Happy new year!

Hope it'll be a prosperous and fulfilling year for all!

Tuesday, December 28, 2010

ST Engineering Fundamental Analysis

ST Engineering is an (what else) engineering company that has dealings in Aerospace technology, Electronics, Land Systems and Marine. It is an STI component stock and considered a blue chip, defensive stock. Let's look at it's fundamentals.



Please note that my FA is not as detailed as other bloggers. Also, my opinions do not constitute financial advice.


1.) History of Consistently increasing sales, earnings and cash flow

SALES: ST Engg's sales have consistently increased from 2003 to present, with 2 exceptions in 3Q09 (-2% YOY) and 2Q04 ( -5%). Mid 2000s saw it's revenue increase at an impressive rate, with certain quarters hitting 20+%, but we all know that that's unsustainable. Sales Growth has tapered off to roughly 5% YOY the past 3 years. It has to be noted that  ST Engg's revenue didn't decrease during the market crash in 2007-2008. I will touch more on that later. COGS (cost of general sales) increases roughly in line with the percentage increase with sales, so marginal cost is still less, or roughly at, marginal revenue. (A level econs: MC<=MR) This is good because as sales increase, marginal costs tend to be higher (i.e. more inefficient), however, ST Engg's management has found ways to improve productivity or lower unit cost.


Profit: Earnings took a hit during 2008 and 2009, with earnings less in 2009 than 2008 (hmm...) . However 2003-2007 saw earnings increase steadily at about a 5-7% clip.

Cash Flow: Cash flow has decreased this year. In 2009, ST Engineering's Cash flow was increasing, however, for the 9M 2010, it has decreased. Not a very good sign.

2.) Good competitive advantage
Competitive Advantage:
-HUGE economies of scale. I'm sure the unit cost of producing 100,000 SAR 21 or 100 FH 2000 is lower than if you produced 1 SAR 21 and 1 FH 2000.
-Monopoly. Since ST Engg is govt. linked, many of ah gong's contracts go to ST Engg.
-High Barriers to Entry. Defense is an extremely capital intensive field, as can be seen by HUGE outlays in purchase of PPE every year by ST Engg.Not only is ST engg capital intensive (it sure is capital intensive if you've to build FH 2000's and SAR 21's, inter alia), it also has some intellectual property. e.g. SAR 21 is patented.
-Brand name. ST Engg has a reputation as a efficient and reliable defense contractor. It has garnered many defense contracts from the Royal Air Force, British Army, US army etc
-Expertise in it's field. ST engg was set up as Chartered Industries of Singapore and it has grown from strength to strength since its inception in 1967.



3.) Future growth drivers
-The sun never sets for the defense industry.
-Looming tensions in North Asia, SEA as a growth driver...
-Ah Gong is always on the lookout to improve the 3G SAF's capabilities...
-Biggest customer is SAF, SAF's per annum budget is 11 billion, SAF likes to purchase new things...
-Outsourcing of alot of things to ST from SAF...offhand I can remember...Maintenance of live ranges to ST, Army logistics to ST Synthesis, auditing to ST Synthesis, maintenance of munitions...etc etc


In conclusion...future growth drivers able to sustain ST's modest growth rate.

5.) ROE above average
ROE is 23.0% according to 3Q financial Statement. Very high, means they're getting a good return on shareholder's money...
Return on Sales is at 9.4%...Not exactly very high but comparable to high capex industries...



Capex required is very high to sustain current earnings...After all this is a very capital intensive industry

6.) Senior management staff are holding, buying the stock
Ah Gong owns 52%. 'Nuff said.

7.) Debt Level
Debt Level for ST Engineering is very high. Amount repayable within 1 year is SGD 341,802,000 and long term debt is SGD 989,441,000. eye popping right? considering earnings for the 9 months in 2010 were only SGD 356,766,000. But high debt level may indicate that ST engineering is leveraging on low interest rates to expand it's operation...Just like how your housing loan payment per month is 5k but you manage to let out that house for 4.5k per month...and after 10 years you get a "free" house... paying only $500 a month...


Anyway high debt level is to be expected for a capital intensive company like ST engg.
When to Buy:
1.) Undervalued
Px less than intrinsic value
I will not be calculating the intrinsic value for this stock. It's Cash flow has varied too much the past few years for me to sketch an accurate picture.

P/NAV: 6.79 (!)
NAV: $0.4976
PE Ratio: 23 (!)
PEG: 23/5= 4.6 (!)

Needless to say, way too expensive at current prices.

2.) Stock price in consolidation phase/ uptrend
Uptrend

My conclusion:
Company with solid fundamentals, backed by ah gong, huge economic moat, thriving industry, moderate dividend yield(~4.0%).

Consider placing this defensive stock in portfolio; Profit/Earnings/Cash flow does not decrease much during bad economic times, but on the flipside do not increase much during good economic times either.
However at current price is somewhat expensive, so wait for a pullback before entering, if interested.

Disclaimer: I'm vested in this stock.

Saturday, December 25, 2010

Money Changers in Singapore?

As some of you who've read my previous posts, I'm going to England for medical school.
The British Pound has fallen off a cliff and has dropped yet again, the mid point rate being 1GBP=2.00 SGD.
I highly doubt it'll drop further, in fact, I believe the GBP will strengthen before I leave in September 2011, which is why I'd like to take the opportunity and change for pounds at opportune times like now, little by little before I leave.

I'd probably change £500 2-3 times before I leave, first time being next week?


That being said, changing GBP with POSB/Citi (the 2 banks I've an account with) doesn't give me very good rates. POSB is at 2.04 and Citi at 2.05 for demand draft/TT, even worse for cash. I saw the website for one of the money changers and they were advertising at £1= S$2.03.

Wondering if anyone knows a better exchange rate?

In a seperate note, I bought a pair of shoes and a shirt from www.asos.com, a British online retailer who has free international shipping. I paid SGD 2.12 for GBP 1, just last week!! sigh.....

Anyway, Merry Christmas and a Happy New Year to all!

Friday, December 24, 2010

Berkshire Hathaway's 15 Biggest Holdings

One of the most fabled Investors in our time, Warren Buffett, owns these companies' stock.

15.) Costco Wholesale
Holding Value: $283.27 million
Shares: 4,333,363
Stake in Company: 1%

14.) Nike
Holding Value: $297.34 million
Shares: 3,642,929
Stake in Company: 0.76%

13.) M&T Bank
Holding Value: $430.8 million
Shares: 5,363,821
Stake in Company: 4.5%

12.) Washington Post
Holding Value: $666.1 million
Shares: 1,727,765
Stake in Company: 18.85%

11.) Moody's
Holding Value: $786.53 million
Shares: 28,415,250*
Stake in Company: 13.14% 

10.) US Bancorp
Holding Value: $1.72 billion
Shares: 69,039,426
Stake in Company: 3.6%

9.) ConocoPhillips
Holding Value: $1.77 billion
Shares: 29,109,637*
Stake in Company: 1.93%

8.) Wesco Financial Corporation
Holding Value: $2.09 billion
Shares: 5,703,087
Stake in Company: 80.1%

7.) Walmart
Holding Value: $2.14 billion
Shares: 39,037,142
Stake in Company: 1.07%

6.) Johnson and Johnson
Holding Value: $2.71 billion
Shares: 41,319,563*
Stake in Company: 1.55%

5.) Kraft Foods
Holding Value: $3.22 billion
Shares: 105,214,584
Stake in Company: 6.03%

4.) Procter and Gamble
Holding Value: $5.64 billion
Shares: 76,76,036*
Stake in Company: 2.71%

3.) American Express Company
Holding Value: $6.42 billion
Shares: 151,610,700
Stake in Company: 12.59%

2.) Wells Fargo
Holding Value: $8.22 billion
Shares: 320,609,212*
Stake in Company: 6.41%

1.) Coca-Cola
Holding Value: $12.59 billion
Shares: 200,000,000
Stake in Company: 8.61%









Thursday, December 23, 2010

Bought First REIT and Dapai

As per my post on Dapai, I mentioned I was not too keen on Dapai's business but was impressed at it's financials. Hence I took a small position on Dapai, with 6 lots @ $0.185. We'll see what happens when it releases it's 4Q 2010 results in Jan 2011.

I also vested myself into First REIT @0.700, giving myself a 9.00% dividend yield for 2011, using the 6.4c per unit guideline from the manager.

I will be setting aside a small amount, probably $1k to try CFD's out. IG Markets has a promotion whereby people new to CFD's will be able to pay only $3 in commission their first 2 weeks playing CFD, then $7.50 the next 2 weeks, then $15  the next 2 weeks. After that will be normal $25. (City Index charges $10 only ....)

With my remaining money, I'm not whether to invest in commodities/oil firms here in Singapore, like GoldenAgri, Indofood Agri, Olam or Mewah, or pump it into the American market with Archer Daniels Midland (a dividend aristocrat), ExxonMobil (another dividend aristocrat) or PetroChina ADR. PetroChina's dividend yield is lower than XOM, However there is a 30% withholding tax levied on all American stock dividends. I'm not sure whether PetroChina is liable for ths 30% Tax. Some other blogger posted about him having a Telefonica ADR and paying only Spain's withholding tax. Hmm...wonder what's China's withholding tax rate for dividends? Shall go find out.


I recently found out that PetroChina is the world's largest company by market capacity and ICBC is the world's largest bank by market cap, without having a significant overseas presence...wow! Huge testament to China's might.

In other news, the Pound Sterling has depreciated again vs. SGD. Great!

Tuesday, December 21, 2010

Comparison of CFD and Warrants (Part 3 of 3)

In this section I shall compare CFD issuing firms, CityIndex, IG Markets, CMC Markets, Philip CFD and SaxoBank.


Since I'm going to be trading the Singapore Market only, I will only put up comparisons for the Singapore Market, share CFD's.

I will be setting up a CFD Account with IG and CityIndex next week.

(Note: Sorry, I'm not sure why CMC column overflow to the links side...)



Philip CFD Saxo IG Markets City Index Kim Eng CFD CMC Markets
1 Way Commission (Min/%) $25, 0.2%(STI Component), 0.3% Others $17, 0.2% $25, 0.15% $10 Flat $30, 0.3% $15, 0.15%
Finance Charge (±SIBOR) 5% (promo: 3.5%) Not shown 2.50% 2.50% 5.00% 3.00%
Margin Rates (Blue Chip-STI Component) 10-20% 10-20% 10-20% 10-20% 10-20% 10-20%
Margin Rates (Penny) Up to 100%, Most penny stocks are 50% or 75%
Minimum Deposit $3,000.00 $10,000.00 None $500.00 $3,000.00 $2,000.00
Interest Paid on deposit? None None None None None None
Remarks From now till 31/12/10, Free 5 calendar days financing (about $5-6 for a $10000 position)
Most Informative Website Website is the most crappy Min. Age 21 Min. Age 21

Comparison of CFD and Warrants (Part 2 of 3)

In this second part, I shall discussthe pros and cons of using either structured warrants or CFD's.
If you notice, I said Warrants are close to, but not a zero sum game. This is because DMM's also earn from the bid/offer spread.


ProsCons
Unlimited Gains, Limited LossesAt the mercy of Mr. Market and his wife, Mrs. Designated Market Maker (DMM)
No Finance ChargesMarket Makers can, and frequently do, manipulate warrant pricing
Traded just like any securityHas an expiry date, and time value decays as expiry looms
No Margin Calls Lose immediately due to bid/offer spread (which can be high in times of high Volatility)

Close, but not exactly a zero sum game- i.e. DMM wins, you lose, DMM lose, you win










CFD
ProsCons
Generally lower commissions than normal brokerage firmsUnlimited Losses#
Your incentives and Firm's incentives are the same i.e. Not a zero sum game- you win, they win tooMargin Calls if you are underfunded
At the mercy of Mr. Market onlyImmediate closing out of open positions if funds are insufficient

Finance Charges can add up

Unlikely to have manipulation(or less effective) of the underlying






#Unlimited Losses occur when your stock price drops to a point where you lose more than your capital (e.g. I buy $10000 worth of SIA, my margin deposit is 10%, or $1000, and SIA drops to, say, $6000. I lose $4000 on this position, and since I originally borrowed $9000, I lose my initial $1000 and another $3000 I borrowed from firm.) Easily overcome with a STOP LOSS




Next up will be a comparison between CFD providing firms.

Comparison of CFD and Warrants (Part 1 of 3)

CFD's as compared to warrants are both financial derivatives which are leveraged. For Warrants the leverage (or effective gearing) is usually in the 4-8x range, i.e. you get exposure to $4-$8 worth of the underlying stock for $1 of your money.
For CFD's, depending on the underlying's "credit-worthiness", your leverage is from 0(very illiquid dubious penny stocks-like Jade) to 10x (If you are a credit worthy customer and betting on Blue Chips like SIA)
Essentially, both give leveraged access to shares, without ownership, dilution, rights, dividends of shares (a price you have to pay for the leverage-or using OPM-other people's money)
I find them very similar, but after doing some research on both, I've found that CFD's in theory do have a leg up against warrants.

I shall do a comparison of CFD vs. Warrant Trading below:


Structured Warrants CFD
Issued by an investment bank (e.g. DB) Directly tracks underlying share price
Prices moves up and down in accordance with the share and whether it is call or put
Bid/Offer Price is set by Market Maker Price is in accordance with Market Pricing
Traded in SGX just like any other security Traded Over The Counter

Monday, December 20, 2010

My Financial Situation...and stock notes today

I've been reading through many Singaporean investment bloggers. Many people, in their late 20s to early 30s, already have SGD 100k to SGD 300k investable liquid assets. I just turned 20 not long ago and I have...below 20k. Understandable, since I'm an NSF...

Unfortunately...this will dog me through to my early 30s, or even further. Why?

I'm going to England for University...after being rejected by a certain faculty in NUS.
It's going to cost me(read: parents) a bomb...In excess of SGD 300,000.
Obviously there has to be a ROI on that investment...
How long will I take to earn back 300k (with interest!)?

Looks like I'll be a low net worth individual (indeed, a negative net worth) for quite some time...
 

Back to stocks today:

-I was sorely tempted to pick up KeppelCorp warrants again this morning after they fell back to $0.325 (as KepCorp fell to $10.60). Decided not to, as TA tells me it isn't a good time, and also because I went out with my friends in the afternoon (just came back actually), and ANYTHING can happen...

-First REIT rose to $0.705, which kind of prices me out. I was (still am) looking to enter at $0.680.

-Dapai fell again to $0.190. Will probably buy some (5-7lots) before 4Q 2010 results come in early Jan.

-STI ETF fell to $3.20. Still too expensive for me. STI has formed a head and shoulders formation. Might see some downside. Will be in the sidelines for now.

Friday, December 17, 2010

Sale of KeppelCorp Warrants, cessation of my short term trading for now

Today I sold off my KepCorp warrant for a tidy 4.37% after accounting for all brokerage fees. As I bought heavily into it, my absolute amount gained is pretty high. :)

Having said that, I bought the warrant on Wednesday and sold it off today. On Wednesday, I was showing a paper loss of about 8%, and today I realised a 4.37% gain. That's a 12.37% swing in just 20 hours of trading. What a difference a day makes.

I will be ceasing my speculation for now, at least until I am more familiar with Technical Analysis. Why do I say so?

1.) Playing with financial derivatives is very risky. As Warren Buffett puts it, "risk is not knowing what you're doing." I understand how warrants and options work, but maybe it's time for me to take a step back and understand more about TA and charting before I plunge into speculating again. Then, playing with warrants would be, by definition, less risky for me.

2.) The way I'm using TA is obviously wrong now.
Example in point:

My top earner: SembCorp Marine, which I held from 3/12 to 10/12, was in my understanding, bearing many traits of a bearish stock. In that period, RSI had negative divergence, MACD was showing negative divergence, PSAR was above the stock price, which were all bearish signs (or so I thought). Only Stochastics was showing an upward trend. With all the bearish signs showing, you'd expect the stock price to drop, but instead it rose slightly, and with my huge leverage, I earned a tidy sum.

My top loser, Neptune Orient Lines, which i held from 3/12 to 15/12, was in my understanding, bearing many traits of a bullish stock. In that period, PSAR was constantly bullish, MACD line was above the signal line AND both of the lines were above 0, Stochastics was showing blue line above the red, AND, both on an uptrend toward 80%, which I believed were bullish signs, and yet, the stock price dropped quite a bit, and I quickly stopped my loss. (which is a good thing, considering that I would have lost another 25% had I sold off today-NOL dropped again)

This leads me to the conclusion that:
1.) My TA is too simplistic and hence largely incorrect, AND/OR
2.) I'm interpreting the signs wrongly,
3.) I'm too caught up in the excitement and anxiety that I make rash decisions.

Hence, I will be ceasing my warrant trading at least until CNY. This is also to help me take a step back and not make rash decisions like buying warrants on a whim, and to analyse them closely before making a purchase. As I have been on leave the whole of last week, I've been waking up and reading the finance news before logging on to POEMS/sgx.com at 9am. Which is not a good sign.

I will also be using the few weeks to CNY to brush up on my TA, of which I am only somewhat familiar with MACD, Stochastics, RSI, Volume, Moving Averages, PSAR and Bollinger Bands.
I will of course look out for good stocks to buy. 
My current KIV Stock list:
1.) Dapai
2.) CapMallAsia
3.) SATS
4.) STI ETF (Thought I'm reluctant to buy into STI now, many of the stocks are pretty overvalued, like Genting, City Development, Jardine, DBS, Olam, SGX, ST Engineering and our favourite way to fly, SIA, with PE of 84x)
5.) First REIT (div yield of 9.5%)  


I have also just applied for an OptionsXpress Cash Trading account, which allows me to trade in the United States market with a MUCH lower commission rate (USD 14.95) than POEMS, and with no custodian charge.

I will be researching on the Standard and Poor's "dividend aristocrats", which are companies that have given rising dividends every year for >25 years running).
I am most interested in McDonald's, ExxonMobil, the Standard and Poor's S&P 500 ETF (Otherwise known as SPDRs-Standard and Poor's Depository Receipts) and of course, Berkshire Hathaway B shares.

Merry Christmas and a happy new year to all. :)

Wednesday, December 15, 2010

Realised Profits/Losses

These are my realised gains from October till date.


Stock Bought Buy Price % Gain/Loss net of brokerage Dividend Earned
GLP $1.960 10.04% NIL
SembMar MBL eCW110303 $0.400 17.52% NIL
CoscoCorp BNP eCW110530 $0.485 4.54% NIL
NOL MBL eCW110303 $0.240 -24.85% NIL

Dapai International Holdings Fundamental Analysis

 DAPAI int'l is a backpack/luggage manufacturer/distributor in PRC

 Is this company a value play?

It recently issued a profit warning for 3Q 2010, with supplier problems, they couldn't deliver on backpacks/luggage.
What the CEO and board decided to ". We had sub-contracted all our luggage
manufacturing to a number of suppliers, of whom two major suppliers were unable to meet
our orders due to their labour shortage problems. As a result, our luggage sales had been
adversely affected.
The significant drop in sales and profits after tax for 3Q 10 was mainly attributable to (i) the
consequential decrease in sales of luggage products ; and (ii) the special discounts on
backpack products given to distributors in order to compensate their loss on luggage
shortage.
The Group has explored other avenues, including sourcing from other new luggage suppliers
and manufacturing a number of our luggage products in house, to reduce the impact of the
current luggage supply issue.
In order to ensure steady luggage supply in the long run, the Board has resolved that the
Group needs to build a new manufacturing facility specifically for luggage products."

Is this a problem that can be quickly solved? Major suppliers with labour problems blamed as the cause of the loss in revenue and profits. The board's solution to the problem is to build a new factory for luggage products. Ermmmmmm........................ am I missing something here?

If McDonald's was experiencing a beef patty shortage due to lack of abattoirs, will building a new slaughterhouse solve the issue? Wouldn't the slaughterhouse be empty due to the labor problems?

hmm.....

anyway....

1.) History of Consistently increasing sales, earnings and cash flow
SALES: sales in 2010 dropped YOY in 1st quarter (no explanation), grew in 2Q, Dropped in 3Q due to the reasons stated in the profit warning.


Profits: Gross profits increased YOY in 2Q, but dropped in 1Q and 3Q.

Net profits: Again, slid during 1Q and 3Q but increased in 2Q.

Ok, net profits, gross profits and sales roughly correspond, which does not lead me to question the earnings quality.


2.) Good competitive advantage
Competitive Advantage: one of the biggest(if not the biggest) backpack/luggage manufacturers in PRC leads it to have substantial economies of scale in production, logistics etc
But other than the economies of scale, I fail to see how it has a wide economic moat. In fact, it seems to have little to no other competitve advantage other than the EOS.
It is a non branded manufacturer, means "DAPAI" doesn't have the cachet that LV, AX has. Not even deuter, nike or adidas. In other words, it's products are in what economists term a "monopolistic competition" as compared to an "oligopoly" in the luxury bag segment. what monopolistic competition means in theory is that firms like dapai don't have much price setting power like Louis Vuitton or even Nike/Adidas has. i.e. If all non branded bags are selling at RMB 100, if it prices it's dapai brand bags at RMB 101, people won't buy it. Whereas Nike can price their backpacks at SGD 50, and Tan Ah Kao brand undercuts Nike by selling at SGD 20, people will still buy the Nike.

3.) Future growth drivers
 As an industry, yes, due to the rapid affluence of PRC, people are able to travel more, and buy proper bags like dapai makes. But other than the industry increase, I don't see much growth drivers for dapai specifically.  Having said that, it would be good to buy into industries which are in sector rotation now.
4.) Long term debt < 3x per annum profits
Dapai is in good financial shape. other companies have Non-Current liabilities. Dapai has non current liability.  yes, singular. RMB22.68mil in deferred tax liability, and RMB 33million in bank loan, which is payable within 12 months. Year to date Dapai's profits are RMB215million . Can easily pay off it's long term debt with just a single quarter's earnings.

5.) ROE above average

Assuming Dapai continues at it's current pace (i simply divided the 3 Quarter earnings by 3 and multiplied by 4), it's ROE is 18.5%
Not sure how impressive is that, I can't find another backpack maker listed on SGX.

6.) Low capital expenditure reqd. to maintain current operations
Well, obviously since the board has mandated that a new facility to be built, a substantial amount of capex is required, but relatively short term. Other than that, can't see much capex required to sustain the business, which is good.

7.) Senior management staff are holding, buying the stock
Chairman Chen Xizhong owns slightly more than 50% of the stock.

When to Buy:
1.) Undervalued
Px less than intrinsic value

Ok, here goes my intrinsic value calculations again.


Discount Rate of 10%
No Growth :RMB 2.66 or SGD 0.52
5% Growth: RMB 3.45 or SGD 0.68
10% Growth:RMB 4.59 or SGD 0.91

Discount Rate of 15% (hurdle rate)
No Growth:RMB 2.16 or SGD 0.43
5% Growth: RMB2.72 or SGD 0.54
10% Growth: RMB 3.49 or SGD 0.69

P/E Ratio: Price: 0.200
                Earnings: average of first 3 quarters made up to 1 year: SGD0.0576
which leads to a low low P/E Ratio of 3.47

P/NAV:
NAV RMB 1.5481 or SGD 0.30534

P/NAV or otherwise known as P/book value: 0.667!!!

Stock Price looks very cheap. 


2.) Stock price in consolidation phase/ uptrend

Downtrend since the profit warning.

My conclusion:

The business doesn't look very attractive, yet, it's financial position is strong. However, has significant blemishes  as it's cash flow dropped from 2009 to 2010. Company is getting poorer.
The stock price is extremely undervalued however you look at it, even when i used a super high discount rate and no growth, the intrinsic value is still at 43 cents.
Trading at 2/3 of NAV.

As for the business side:
most of which i've covered on top; one thing i don't like is that dapai is opening 500 new stores in PRC, by 1H 2011. erm...if you open new stores with lack of inventory...what are you gonna sell?

my opinion: I might enter small , maybe 4 or 5 lots or so. I don't like the business, but it's very cheap. I'll have to think very hard on this. With the supplier issue, it's 4Q results are going to be poor too.
Any opinions?

Disclaimer: I base all my opinions that the books are not cooked. Which cannot be assumed for these S-chips. 

Cutting Losses and unpredictability of stock market

This morning, I FINALLY cut my loss on NOL. Sold off my warrants at a 20%+ loss, wiping out all my SembMar + Coscocorp warrant sales on Monday, and still incurring $20 loss.

It was a good thing, as the market took a turn for the worse in the afternoon, had I not sold my stake, I would have incurred another 10% extra loss. big phew.

 I'll just take the $20 as a lesson learnt on not buying at the resistance and to watch the market makers' pricing on the warrants for at least a day or two, AND to buy In The Money(i.e. worth something) Warrants to be safe (since after all I'm still a novice)

Anyway today I bought a large stake in KeppelCorp's warrants issued by Deutsche Bank. I "amalgamated" my buys, which means I only pay 1 brokerage fee even thought I bought the warrants at 3 different times. I bought twice in the morning and once in the afternoon, averaging my cost price and achieving a decent price on it (considering I can't predict the market with much accuracy). My average cost price was $0.355/warrant, and last done price was $0.335, which means i lost $20 on each lot of warrant I bought, not including brokerage fees. Nevertheless, I've come to realise that I will ALWAYS lose on the first day of buying, simply because of the volatility of warrants, brokerage fees and the spread. Anyhow, I still believe KeppelCorp is on an uptrend, and my target period to sell the warrants are before CNY, when they still have 3/12 to expiry.

Petrobras is about to annouce the winners of it's rig tenders, and KeppelCorp, together with Jurong Shipyard(subsidiary of SembcorpMarine) are strong contenders. Hopefully, Keppel wins a contract which boosts it's stock price in the short run, and makes me some money in the process! Keppel today was a victim of the market, along with most of the other STI component stocks, in the huge sell off in the afternoon.

Looking at chart nexus, Keppel Corp's charts don't look too good; hence I will set a tighter stop loss for this warrant. KepCorp fell at a moderately HIGH volume of 7.83 Million today, and the MACD line diverged even more from the signal line today, plus, Blue line in Stochastic dropped even further from the red, and is inching it's way toward 50%, which is not a good sign.

KeppelCorp DB eCW110530
High: $0.375
Low: $0.325
Close: $0.335
Effective buy price: $0.355
Break even price: $0.361
Profit taking level: $0.40-$0.43
Stop Loss level: $0.310 (13.85% loss)

Friday, December 10, 2010

KeppelCorp Technical Analysis

After selling my sembcorp marine stake, I'm still bullish on the Offshore Marine Sector.
Since I can't buy Keppel Corp (too expensive), I am keen on buying some underlying warrants on KepCorp.

As you can see from the graph,

Stock price is WAY above all moving averages, a very bullish sign
Stock price has been on an uptrend since 25/08/2010
Volatility, as seen on the bollinger band range, is low, making the warrants cheaper
HOWEVER, prices are above the middle band for quite awhile already, indicating overbought territory/little upside.
PSAR indicates bullish trend
MACD is somewhat bullish...Both signal lines and MACD line is above 0, however signal line is above MACD Line
No trend in RSI, whether overbought/sold
Stochastic basically shows the same thing as MACD

KepCorp is currently consolidating and the TA indicators are only somewhat bullish (MACD/Stochastic/MA bullish trend, Bollinger, RSI neither bullish nor bearish, PSAR bullish). I will KIV this counter. If KepCorp can break out of it's $11.00 resistance at high volume, it would be a good time to get a warrant on it. However if it drops below $10.75 support then it'll be time to stay out.

But since the TA indicators are somewhat bullish, maybe I should take a punt on KepCorp...

Anyway, for Kep Corp some of the warrants I'm eyeing are:
1.) Something medium term (3-6 months long)
2.) Must be in the money

KEPCORP DB ECW110221 (LT3W) ASK: 0.630
Exercise Price 9.10
Expiry 21 Feb 2011 Break even price at Expiry 10.99
Last Trading Date 14 Feb 2011 Moneyness 16.21% ITM
Time to maturity 72 days Intrinsic Value per Warrant 0.593



And
KEPCORP DB ECW110530 (MN6W) ASK: 0.395
Exercise Price 10.10

Expiry 30 May 2011 Break even price at Expiry 11.285
Last Trading Date 23 May 2011 Moneyness 7.00% ITM
Time to maturity 170 days Intrinsic Value per Warrant 0.260



The former looks good as the ask price is close to the intrinsic value and Delta is 0.87, however, it's spread is 1 cent while the latter's spread is 0.5cents.

Shall track KepCorp and these 2 warrants.

SembMar warrant sold

So today, SembMar went up to almost as high as yesterday's high. Sold off my warrants at 0.490 each, a 22% profit after taking brokerage fees into account.
However, my other STI component stock didn't do too well today, NOL, and I'm hoping that it'll bounce back next week.

My mistake, after using chartnexus to plot NOL, was buying at the resistance.
However, The technical indicators for NOL seem to be bullish, yet, NOL keeps decreasing day by day! sigh.

Anyway, for NOL:
As you can see:
MACD is above 0, MACD line is slightly, just slightly, above the signal line. Both above 0, so this is a bullish sign.
RSI: No trend.
20day MA and 50day MA both below stock price
Stochastic essentially giving same signs as MACD
PSAR: Bullish.

Yet, stock price is falling!
Oh well, I've decided to cut my loss at 0.225-0.230 region next week.

Next target for momentum trading will be Keppel Corp, IndoAgri and Olam, all of which fell today.

Thursday, December 9, 2010

Greed and Fear

This morning, one of my warrant's underlying, SembCorp Marine, powered thru and went up to 5.1++. My warrant therefore moved up to 0.500, 25% more than my purchase price of 0.400. At that price, I would have had earned 300+, a 20+ % return in less than a week. However, greed got the better of me and I decided to wait for SembMarine to rise even more. Unfortunately, it went down all the way to yesterday's closing price of 5.08, leaving me with alot less profit. This has taught me a valuable lesson, to be disciplined not only in stop loss, but also profit taking target. once I have set a profit taking level, I should stick to it, and not hope for better price, since i am, after all, speculating.

Oh well, hopefully sembmar will rise to today's level and I will take my profits tomorrow. =)

Monday, December 6, 2010

Raffles Medical Group

 My Fundamental Analysis of Raffles Medical Group
 1
1.) History of Consistently increasing sales, earnings and cash flow
 Yes, Sales has increased 10% YOUY, Earnings 13% YOY, Cash flow increased YOY
2.) Good competitive advantage
Yes, there is a competitive advantage here, as Raffles medical group is a private medical group which purports to offer value added services to people who are willing to pay, and to cater to the growing medical tourism sector. As a consolidated company which can cater fully for the medical tourists, foreigners will flock to RMG for ease and convenience.
3.) Future growth drivers
Yes,
-Ageing of Singapore
-Medical tourism
-Prosperity of Singaporeans leading them to prefer private hospitals, though more expensive, to restructured
4.) Long term debt < 3x per annum profits
Yes. Debt is at a comfortable 22 million level. Profits to date is already 30 million.
5.) ROE above average
15%, MUCH MUCH higher than SG medical and Healthway
6.) Low capital expenditure reqd. to maintain current operations
Hmm, I'm not sure about this. Would probably be a yes. RMG already has it's own building, expensive MRI/CT etc machines have been acquired.
7.) Senior management staff are holding, buying the stock
Yes. Dr. Loo Choon Yong , CEO, 54%

When to Buy:
1.) Undervalued
Px less than intrinsic value

P/E Ratio: $2.34/$0.08= 30 (WAY too high for a defensive stock)
note: Healthway has a larger PE Ratio because it's earnings have fallen off a cliff. Still, RMG's PE ratio is too high at this point of time.
P/Book Value: 2.34/$0.525= 4.45(Again, too high)
Intrinsic Value: I used Excel and calculated it's future cash flow for 20 years.
Assume modest 5% P.A. Growth, 12.5% Discount Rate: Intrinsic Value $1.96
5% growth, 10% Discount Rate: IV $2.30
Best Scenario:10% Growth, 10% Discount Rate: IV $3.38
Worst Scenario: 0% Growth, 12.5% DR: IV $1.47
(EDIT: I edited the discount rate. my discount rate previously was way too low at 3%, it should be closer to 15%, i put it at 10 and 12.5%, with the current low interest rate environment)


As you can see, Intrinsic Value at modest growth rate and modest discount rate is still only $2.30. Trading at slight premium to IV. Hence it leads me to the conclusion that it's overvalued, when PE, P/BV are put in context.

2.) Stock price in consolidation phase/ uptrend
Currently Long Term Uptrend, beating STI

Conclusion:
Looks good, good fundamentals, very healthy (health care stock healthy, ha ha ha) but seems to be too overvalued as of now(by it's PE ratio/ Price over Book Value ratio). I will KIV this stock and wait till it's ratios/price comes down to a more reasonable level before entering. After all a defensive stock shouldn't be trading this high.
Current Opinion: Stay out
If price drops (or earnings increase substantially) to PE 15-17, P/BV to a more palatable 2x, it would be a good investment. Also trading at a premium to IV, which i am extremely uncomfortable with.

These are simply my opinions.

Sunday, December 5, 2010

the 7 and 2 tenets of value investing according to Adam Khoo

Adam Khoo, in his book "secrets of millionaire investors", teaches how to identify great companies (the 7 tenets) and when to buy them (the 2 tenets). He incorporates both Technical Analysis and Fundamental Analysis in his approach toward stocks.

Honestly this isn't strictly his approach as I've read another book that states basically the same thing

I'll put the 9 tenets up here for easy reference for future use
Criteria for Value Investing
1.) History of Consistently increasing sales, earnings and cash flow
2.) Good competitive advantage (good thing i studies Economics at A levels)
3.) Future growth drivers
4.) Long term debt < 3x per annum profits
5.) ROE above average
6.) Low capital expenditure reqd. to maintain current operations
7.) Senior management staff are holding, buying the stock

When to Buy:
1.) Undervalued
Px less than intrinsic value
2.) Stock price in consolidation phase/ uptrend

I used to think that A levels were a waste of time...that we studied things that were not useful in reality, like differentiation, organic chem, quantum physics (urgh) and economics...but since I started my investing journey, i've realised the importance of ALOT of what A level econs taught us... Perfect Competition, Oligopoly, monopolistic competition , demand and supply etc...

anyways, i will be posting on some companies i'm currently interested in soon, when i have the time. Currently interesting in Singapore Medical Group, NOL.

Friday, December 3, 2010

NOL MBL eCW110303, SembMar MBLeCW110303

Bought more warrants this time.

I've read that what I'm doing is speculating (momentum trading), not investing. And yep, I agree with it, I am speculating. :)

In the long run, value investing is my target investment style, however, I'm trying my hand out in momentum investing for now. Reason being, i don't have much money, hence warrants can get me large exposure to equities with just a fraction of the cost, being safer than CFD, yet being able to achieve high percentage gains (and losses.)

Anyway, I made a small mistake today. in buying NOL MBL eCW 110303, i accidentally saw the price wrongly and ordered at a higher price than market rate. hence POEMS transacted my order at the current market price, which was not very attractive. I bought 5 lots at $0.24 each, thus immediately losing about $100 since the buy price dropped to $0.230, inclusive of my brokerage fees.

Anyway, i didnt make the same mistake when buying SembMar a few hours later. I placed my order (and double checked!) at a low price, $0.400. SembMar dropped and i got it at that price.

With regards to Coscocorp warrant that i bought last friday, it went thru a tumultuous week, at one point i lost about 20% of the warrant value when cosco dropped below $2. but cosco seems to have rallied with their announcement of the 2 contracts they received, and I'm hoping that the fabled "SANTA CLAUS RALLY" will help me gain some profits for christmas.

Apparently, December to February has historically been the best months of the year, one reason being that retail investors sell off in dec to claim capital loss for tax reasons, and unit trust managers have to transact to meet requirements. not sure how true these reasons are, but since 1930+, most of the market rallies have been at the year end.

Reason for buying NOL:
Profit and revenue rose YOY consistently, Most of the fundamentals look good, it's PE ratio is around 11, however I'm concerned with its high debt level, at USD 1.3 billion, which is 20% of net equity. Bought the short term warrant instead of the share due to the reasons mentioned above.

Reason for buying SembMar:
Revenue has dropped, yet profit has increased, they are in the running for Petrobras' 27 rig building contracts, debt level is pretty good, yet i can't afford it's share price. sigh...

NOL MBL eCW 110303
Buy price: $0.240
Target profit taking level $0.30
Stop loss level: $0.180 (25% away- loss of $350 incl brokerage)

SembMar MBL eCW 110303
Buy price: $0.400
Target profit taking level : $0.460-$0.480
Stop loss level: $0.300(25% away- loss of $350 incl brokerage)

CoscoCorp BNP eCW110530
Buy price: $0.485
Current price: $0.500
Revised profit taking level: $0.580
Revised Stop loss level: $0.385(21% away- loss of $250 incl brokerage)

In a side note,

Why are brokerage charges so HIGH in Singapore? In the US, POEMS comparable internet trading like E*Trade, TD Ameritrade, Charles Schwab, Fidelity charge a FLAT rate of US 7.95-USD9.99 for non advisory! Why is Singapore so expensive? could be due to Economies of Scale i guess.