Every Dog Has Its Day
I always tell all my friends that in stock market, nothing is impossible; nothing is for sure. There is always opportunity and threat. Yesterday’s penny stock may become today’s hot stock when the tide changes. Similarly, today’s hot stock may become tomorrow’s penny stock; some may even collapse. This phenomenon offers us both opportunity and threat at all times.
In mid-90s, Indonesia company Van Der Horst was a hot stock traded at around $5 or $6 a share. I was a beginner then without any knowledge of value investment. With limited cash, obviously I could not afford Van Der Horst. But sometime at the end of 90s, something happened to Van Der Horst, something very severe causing its share to plummet all the way to below $1. I remember that I tried to punt for quick bucks by buying it at around $0.60. Unfortunately the share price continued to head south and I had no choice but to cut my losses.
And we have a whole list of this kind of story - Chartered Semi-Conductor, Creative Technology (they call it a “mid-cap” now), Informatics etc.
Sometime in 2003, I had a coffee session with my CFA coursemates. We were discussing whether Venturing Corp’s success story will repeat, i.e. any company displaying such potential. Venture started of as a Sesdaq stock, according to a friend. I was still in college then. Year-after-year, the company continues to deliver exceptional result and at its height, its share was traded above $20. Every year, Venture made a next profit of around S$200 million. So we are interested to know whether if there is any more such potential technology company. I opined that three companies may have such potential. They were – Beyonics Technology, Brilliant Manufacturing and Fu Yu Corp. And so I started of by investing in Beyonics and Brilliant. And a few years later, I bought Fu Yu.
Fu Yu Corp – An Update
For those who have been hanging around in the market for last ten years should know that Fu Yu was once a hot stock. The company was highly profitable and at its height, its share price was traded above $1. However, in 2006, something happened. Its China subsidiary suffers significant losses and dragged the group’s performance down. Its local business also faced intensive competition. In fact, for the year ended 31 Dec 2005, Fu Yu had reported a significant dropped in net profit to $12 million. I bought Fu Yu about a year ago despites the profit plunge. Unfortunately, Fu Yu releases bad news one after another. Then why would I still hold on to Fu Yu while others are running away? I “choose” to stay with this company as I have my own reasons. The answer lies in the general economy and Fu Yu’s financial strength.
Last year, global economy and that of Singapore’s was strong and many company including technology companies were making good monies. This is especially so for the mid-caps and blue chips. And a few of them were even taken over and/or delisted. I believe you still remember MMI which was traded above $1.50 before it was bought over by Precision Capital Pte Ltd and delisted in Jul 2007. MMI’s net assets value before delisting was worth around S$0.50 but the company was bought over at $1.65 a share! Jackpot for long-term shareholders. And what about Brilliant Manufacturing? The company reported profit plunge and one of its director was sue for some scandals and yet, the company was brought over and delisted in Aug 2007. The existing shareholders were offered S$0.418 a share while Brilliant’s net assets value then was around S$0.22.
All these goes to show that the global economy is good, confidence was high and many foreign MNCs were willing to buy over local companies. And what about Fu Yu? If anyone would asked me to summarise Fu Yu’s financial health, I’ll do it with two words – “fat meat”. Fu Yu has been making lots of money before it becomes a falling star. For many years, the company has not been generous in giving out dividends and as such, it has huge reserves. In its interim report (1H2007), you will see that Fu Yu has cash holdings of around S$50 million and reserves of around S$150 million.
FU YU REALLY HAS LOTS OF FAT MEAT!!!
The only problem is that it is making losses. But should Fu Yu be taken over, and with its net assets value of approximately $0.44 a share, the take over price would be much higher. No doubt a take over news would be good but what I was hoping was that Fu Yu could resolve/restructure its operations and back to profit again. Since other similar or related companies were making at least decent profit, I believe Fu Yu can do it too. Ok, fine, I agree that this would be speculative on my part since I don’t have evidence to support my views. Unfortunately for me again, lately Fu Yu suspended its trading and a few days later, it released another bad news – Letter of Demand by the BANKS!!!!!!!!
I am totally disappointed with such news; its worst than reporting loses. When banks throw in their towels, this is horrible for three reasons:
· Other creditors will follow suit to get back their money.
· Suppliers will be worried and may resort to cash payment.
· When banks throw in their towel, they must have done their homework very thoroughly and deemed that the company is shaky.
I had already made a loss when I invested in Fu Yu at around $0.325. Now with this news, Fu Yu’s share opened at $0.15 on 15 Oct 2007 after the company lifted its suspension. My loss compounded. Honestly, I really never thought that Fu Yu would become a falling star.
“So what are you going to do now?”
I will have to cut loss but not immediately. Since Fu Yu is not a “dying old man” but rather a “sick man”, I do hope that it can be a shooting star again. Certainly, no more further investment in this company and I would not recommend anyone to buy.
Conclusion
So, there are two things we (including myself) can learn here. Firstly, in stock market, there is always opportunity and threat. When tide change, a super star company can become a falling star and vice versa. Take a look at the construction companies. Many were worth less than 10 cents before the recovery of construction sector and the IR project. Secondly, I made mistakes. Yes I made mistakes too just like any human beings and I had been honest with my friends who learned value investment from me. I am sorry if any of my friends is disappointed because I am not. I could have, just like many speakers and writers, telling you only the success story so that you can keep paying for the seminars and books. They never tell you their mistakes. But that probably explain why they are rich and I am not. But yet the most important lesson to learn is actually not the success story but others’ failure so that you do not make the same mistake. Anyway, that’s my character - I’ll always reveal the truth, and the truth will set you free.
I always tell all my friends that in stock market, nothing is impossible; nothing is for sure. There is always opportunity and threat. Yesterday’s penny stock may become today’s hot stock when the tide changes. Similarly, today’s hot stock may become tomorrow’s penny stock; some may even collapse. This phenomenon offers us both opportunity and threat at all times.
In mid-90s, Indonesia company Van Der Horst was a hot stock traded at around $5 or $6 a share. I was a beginner then without any knowledge of value investment. With limited cash, obviously I could not afford Van Der Horst. But sometime at the end of 90s, something happened to Van Der Horst, something very severe causing its share to plummet all the way to below $1. I remember that I tried to punt for quick bucks by buying it at around $0.60. Unfortunately the share price continued to head south and I had no choice but to cut my losses.
And we have a whole list of this kind of story - Chartered Semi-Conductor, Creative Technology (they call it a “mid-cap” now), Informatics etc.
Sometime in 2003, I had a coffee session with my CFA coursemates. We were discussing whether Venturing Corp’s success story will repeat, i.e. any company displaying such potential. Venture started of as a Sesdaq stock, according to a friend. I was still in college then. Year-after-year, the company continues to deliver exceptional result and at its height, its share was traded above $20. Every year, Venture made a next profit of around S$200 million. So we are interested to know whether if there is any more such potential technology company. I opined that three companies may have such potential. They were – Beyonics Technology, Brilliant Manufacturing and Fu Yu Corp. And so I started of by investing in Beyonics and Brilliant. And a few years later, I bought Fu Yu.
Fu Yu Corp – An Update
For those who have been hanging around in the market for last ten years should know that Fu Yu was once a hot stock. The company was highly profitable and at its height, its share price was traded above $1. However, in 2006, something happened. Its China subsidiary suffers significant losses and dragged the group’s performance down. Its local business also faced intensive competition. In fact, for the year ended 31 Dec 2005, Fu Yu had reported a significant dropped in net profit to $12 million. I bought Fu Yu about a year ago despites the profit plunge. Unfortunately, Fu Yu releases bad news one after another. Then why would I still hold on to Fu Yu while others are running away? I “choose” to stay with this company as I have my own reasons. The answer lies in the general economy and Fu Yu’s financial strength.
Last year, global economy and that of Singapore’s was strong and many company including technology companies were making good monies. This is especially so for the mid-caps and blue chips. And a few of them were even taken over and/or delisted. I believe you still remember MMI which was traded above $1.50 before it was bought over by Precision Capital Pte Ltd and delisted in Jul 2007. MMI’s net assets value before delisting was worth around S$0.50 but the company was bought over at $1.65 a share! Jackpot for long-term shareholders. And what about Brilliant Manufacturing? The company reported profit plunge and one of its director was sue for some scandals and yet, the company was brought over and delisted in Aug 2007. The existing shareholders were offered S$0.418 a share while Brilliant’s net assets value then was around S$0.22.
All these goes to show that the global economy is good, confidence was high and many foreign MNCs were willing to buy over local companies. And what about Fu Yu? If anyone would asked me to summarise Fu Yu’s financial health, I’ll do it with two words – “fat meat”. Fu Yu has been making lots of money before it becomes a falling star. For many years, the company has not been generous in giving out dividends and as such, it has huge reserves. In its interim report (1H2007), you will see that Fu Yu has cash holdings of around S$50 million and reserves of around S$150 million.
FU YU REALLY HAS LOTS OF FAT MEAT!!!
The only problem is that it is making losses. But should Fu Yu be taken over, and with its net assets value of approximately $0.44 a share, the take over price would be much higher. No doubt a take over news would be good but what I was hoping was that Fu Yu could resolve/restructure its operations and back to profit again. Since other similar or related companies were making at least decent profit, I believe Fu Yu can do it too. Ok, fine, I agree that this would be speculative on my part since I don’t have evidence to support my views. Unfortunately for me again, lately Fu Yu suspended its trading and a few days later, it released another bad news – Letter of Demand by the BANKS!!!!!!!!
I am totally disappointed with such news; its worst than reporting loses. When banks throw in their towels, this is horrible for three reasons:
· Other creditors will follow suit to get back their money.
· Suppliers will be worried and may resort to cash payment.
· When banks throw in their towel, they must have done their homework very thoroughly and deemed that the company is shaky.
I had already made a loss when I invested in Fu Yu at around $0.325. Now with this news, Fu Yu’s share opened at $0.15 on 15 Oct 2007 after the company lifted its suspension. My loss compounded. Honestly, I really never thought that Fu Yu would become a falling star.
“So what are you going to do now?”
I will have to cut loss but not immediately. Since Fu Yu is not a “dying old man” but rather a “sick man”, I do hope that it can be a shooting star again. Certainly, no more further investment in this company and I would not recommend anyone to buy.
Conclusion
So, there are two things we (including myself) can learn here. Firstly, in stock market, there is always opportunity and threat. When tide change, a super star company can become a falling star and vice versa. Take a look at the construction companies. Many were worth less than 10 cents before the recovery of construction sector and the IR project. Secondly, I made mistakes. Yes I made mistakes too just like any human beings and I had been honest with my friends who learned value investment from me. I am sorry if any of my friends is disappointed because I am not. I could have, just like many speakers and writers, telling you only the success story so that you can keep paying for the seminars and books. They never tell you their mistakes. But that probably explain why they are rich and I am not. But yet the most important lesson to learn is actually not the success story but others’ failure so that you do not make the same mistake. Anyway, that’s my character - I’ll always reveal the truth, and the truth will set you free.
