Pubs Updates

1) Lifebrandz closes Ministry of Sound

Many Singaporeans may have heard and/or been to Ministry of Sound (MOS in short). Me? Never! You always get long queue and I hate long queue. Reported in Business Times today, club operator Lifebrandz closed its Ministry of Sound outlet at Clarke Quay on 6 Sep, less than three years after operations. Lifebrandz said that it has terminated a licence agreement with Ministry of Sound International, which owns the franchise. It said that it plans to redevelop the 40,000 square foot dance club premises into an entertainment centre 'which will be different in concept from the Ministry of Sound outlet'.


2) St. James

Without MOS, we still have St. James. And do you know that St. James is listed! Actually St. James was not listed through an IPO but it was bought over by then listed company JK Technology. I’ve been joking with my friends by inviting them to “my pub” to drink. I don’t own ST. James of course. But since it is listed now, I will get a chance to own it…. very soon.

let’s take a quick look at St. James' performance for the year ended 30 Jun 2008.

Revenue: S$35m (39% variance)
NP: S$4.3m (127% variance)
Margin: 12.3%

Working capital: 1.03 (low but is acceptable since the business deals maintain in cash or equivalent)
Gearing: 0%

The group currently also own Bar None and The Living Room at Marriot Hotel. The group also announced that it has acquired the assets of former Crazy Horse cabaret and turning it into a restaurant with live music – The Bellini Grande. The restaurant is expected to open in late Sep 2008.

Dow Jones Crashed To New Low

From Nasdaq website, DJIA plunged another 508 points (5.1%) to 9,447. Nasdaq and S&P500 also plunged by 5.8% and 5.7% respectively.

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There you see.... how you define "low"?

STI Crashed To New Low

STI plunged 128.8 points to 2,168.32 - lowest since June 2005. This is a complete reversal of the bull market few years ago.

Patience Is A Virtue

The following article from Business Times is an excellent report and I shared the same view. When you walk around city area or onboard a train, you will see adverts saying something like stock prices are low, hidden opportunity, this and that has strong fundamentals etc. I always laugh at it. It was all crap to me but I don’t blame the fund managers. This is because if people stop buying the funds and pull out their money, then the fund managers and analysts will be out of job soon.

The following is a good article especially to those with the idea of rushing into the market to buy while it is cheap. As always, how do you define “cheap”? Remember; always to take cue from global/local economy for your investment decision. The economic indicators are the leading indicators.

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Business Times - 02 Oct 2008

Time to buy? No - patience is a virtue

By R SIVANITHY

WHENEVER stock markets behave as they are now, it's tempting to ask whether it's time to 'bargain hunt'. Indeed, as each passing day brings a new low - be it 24, 25 or 26 months for the Straits Times Index - the temptation to buy probably grows stronger, aided no doubt by a steady stream of 'buy' calls from brokers, all and sundry.

So will it soon be time to buy? Maybe it will? And perhaps for the Straits Times Index, the fact that the 2,300 level has held twice in the past fortnight suggests this may be where there is strong support?

Our take, though, is that there is no need to rush and that patience is a virtue. Brokers and independent researchers have consistently under-estimated risks to the downside for the past year, so their 'buy' calls should be taken not with a pinch of salt but a bucket.

Analyst credibility aside, a major reason for saying this is that despite America's woes, and despite it triggering the biggest financial meltdown ever, US stocks have not capitulated yet. Even after Monday's 7 per cent collapse, the Dow Jones Industrial Average was down only 22 per cent this year and the S&P 500 down 25 per cent - much less than the 35-50 per cent falls suffered by other markets.

From its all-time high, the Dow's loss to 10,365 was 27 per cent and the S&P's loss 28 per cent - over almost a year, compared with the 20 per cent crash in one day on 'Black Monday' Oct 19, 1987.

Seen in this light, the current losses on Wall Street could justifiably be taken to be part and parcel of a normal bear market and not really that much cause for concern.

Why has Wall Street not fallen as much as other markets? One possibility is the huge amount of liquidity the US Federal Reserve has pumped into the system. But more likely, it's the still-lingering hope of a government-led bailout, despite the initial proposal being rejected.

If a modified proposal is cobbled together before the end of this week and if this is again rejected, the full-scale removal of a 'bailout premium' will see US stocks start to reflect their true fundamental values.

Furthermore, it is debatable whether any US Treasury-led bailout would have any effect at all. Recall that on Monday, markets went into a tailspin many hours before the US Congress voted on the plan. So, even if a second plan is pushed through and even if this does push stocks up, it can only be a matter of time before reality sets in with regard to the US market and its fundamentals. And once this happens, investors might just cotton on to the fact that US stocks are grossly over-valued.

Bloomberg's analytic service gives the S&P 500 as trading at a historic earnings per share consensus analyst estimate of US$51 and a forecast figure of US$83. With banks disappearing, unemployment rising, consumer spending shrinking, no growth to look forward to, no bottom yet in housing and a possibly vicious recession just around the corner, how likely is it that US corporations will report such a big jump in earnings?

As for the local market, Citi Investment Research warned last week that it is possible for the STI to fall to 1,800 - a warning many investors reckon is too pessimistic. But if the index were to drop to 1,800, that would only take it to a four-year low which, given the huge risks to growth posed by America's problems and the unpre-cedented nature of the present bank failures, is arguably within reason.

The upshot of all this is that risks are still tremendously high and that Wall Street is still heavily exposed to the downside.

Investors should also realise that even if the STI's bottom does lie at 2,300, this does not automatically mean the start of a new bull market - stocks can drift for years within narrow bands before embarking on any uptrend. As such, it is clearly not time to buy yet.

Stock Market Review - Oct 08 (Part 2)

3) China Sunshine Chemical. Actually I don’t really want to discuss on “red” stocks in this series of stock market review. This is because my confident on China companies has always been low due to their corporate governance and internal control. Now before you jump to conclusion, I must let you know that I have nothing against China nationals. In fact I have close friends from China, I have colleagues from China and I love to visit China. But comes to business, I am really worried. I have friends importing goods from China sharing with me the Chinese’s mindset, attitude and method when dealing with business. I don’t think you want to know or perhaps you already knew. So when these red stocks found their way to the SGX, I seldom apply for their IPOs, let alone talking about investment. Yes I know many have made good money out of it, but that’s not my point. My point is with doubt on their corporate governance and internal control, I dare not invest in China companies.

“How come you have doubt? Can you quantify?”

Read the paper lah, brother! Even if you don’t read Business Times, at least read LianHeWanBao right? And I’m not only talking about current milk powder issue. Notwithstanding my negative thoughts, I am still willing to take some risk on a few really good ones. So here I am going to share with you on China Sunshine Chemical.

Firstly, I did not make any profit from this counter. In fact since the day I invested in it, it did not perform as expected. And right now I am sitting on significant losses instead. Then did I make a mistake in my investment decision? I don’t think so. Besides, there are also other professional analysts drawing the same conclusion. Then what’s the basis of my recommendation back then? Firstly, the company is producing a type of chemical that is essential to make rubber into something like a car tyre. The company is one of the world largest producer supporting many world-renowned tyre manufacturers such as Bridgestone, Michelin, Goodyear, Pirelli etc. Most importantly, this chemical only takes up a small percent of a tyre’s manufacturing costs. And in my opinion, recession or economic boom, people still own car, F1 continue to race, buses and airplanes continue to roll out. China Sunshine Chemical is currently priced at $0.205. What about its recent financial performance and position?

Business: one of the largest rubber accelerator manufacturers in the world and in China in terms of production capacity.

Report: 1H2008
Revenue: surged to Rmb402m (41% variance)
Net profit: surged to Rmb61m (37.3% variance)
NP margin:13.3%

Cash: Rmb37.4m
Working capital: 3.84 (healthy)
LT debt to total capital: 0% (wow!!!)
Basic EPS: Rmb10.89 cents
PE: 9.41
NTA: Rmb1.01
Yield: N.A.

Director’s remark: expect to continue its growth for FY2008.

My remarks: I believe the business, to certain extent, is immune to economic downturn. There may be some impact but should not be severe. The company is currently reasonably priced.

4) Courage Marine. Courage Marine was really one of the last marine companies to perform in terms of share price. This was partly due to the fact that it was a new IPO. But what really caught my attention on this company was its high profit margin. And honestly, I don’t understand why its profit margin is so high. So early last year (2007), in the midst of the bull run, I bought Courage Marine at a very cheap price - $0.19. One year later, I sold it at 100% capital gain, excluding dividends! Actually the dividend payout can be very high if not of its high quantity of outstanding shares. Courage Marine, after recent blood bath, is currently trading at $0.215. What about its recent financial performance and position?

Business: ownership and operation of dry bulk carriers and the provision of marine transportation services.

Report: 1H2008
Revenue: surged to US$50m (43% variance)
Net profit: surged to US$30.3m (51% variance)
NP margin: 60.6%!!!!!!!!

Cash: US$68.6m (fat)
Working capital: 16.5 (OMG! Super healthy)
LT debt to total capital: 0% (OMG!!!)
Basic EPS: US$1.67 cents
PE: 9.19
NTA: US$11.75 cents
Yield: 4.65% (for half year)

Director’s remark: BDI collapsing to 5,600 level (I got no clue what’s a BDI). Company expects demand from China to remain strong and the group to continue to do well in second half.

My remarks: Similarly, if not because of uncertain global economy, I would have started buying Courage Marine.




…….To be continue

Stock Market Review - Oct 08 (Part I)

It’s about time we review SGX-listed stocks. We’ll take a look on their current status and look back on its performance few years back. I had spend a few days reviewing all the listed stocks and truth be told, most of them are currently cheaply priced. What do I mean by “cheap”? In 2004, local economy and stock market started to recover. I remember that in mid 2003, I saw the indicators and believed that we are going to bottom up. Before I quit the Army, I told my ex-colleagues that “I think it’s about time”. I launched my first wave on the tech stock/funds. And from 2004 – 2005, many stocks were lagging behind because Ms. Market was shaky; she wasn’t sure. Index was fluctuating without clear direction. As such, I spend considerable amount of time finding gems rather than following “road-runners”. I found quite a lot of it and I’ll share a few with you today. Some of my readers may have followed my recommendation and benefited from it. Appreciate if you can testify here.

In my opinion, right now most of the counters are priced at a level similar to 2005. No doubt still has room to plunge further, but really quite cheap comparatively.

The Index

As expected, STI could not hold its ground since late last year. When sub-prime woes were exposed, STI took a hit in around July 2007. However, in around September 2007, global market under-estimated the damaging power of US financial crisis, it continued to move up. And in around Dec 2007, with surging oil price, global market started to loss steam and it was “neither here or there”. And then I’m sure it’s GAME OVER. Thereafter I started to advise my friend to either hold or sell BUT do not give a single cent to Ms. Market – she is breaking down soon.

(Note: some of you may know that “Mr. Market” is a term used by Warren Buffet and his teacher Benjamin Graham to describe market behaviour. But I used “Ms. Market” instead as I find the market behaved like a girl – temperamental!)

In early January this year, STI was around 3,400 points. As at today, STI stands at 2,361.34. Approximately 1,000 points had been wiped out. So this proves my points that although there will be fluctuations along the way, ups and downs but overall it’s coming down. And unless you speculate, you will not make it if you invest along the way.

This is the downtrend of the business cycle.

Selected Stocks

1) AusGroup. Now this is really one of mine favourite stocks. I (and my all-time favourite analyst, BT Snr Correspondence, CFA Charterholder - Ms Teh Hooi Ling) found the gems before it skyrocketed. Hooi Ling visited AusGroup’s management in Australia and wrote an excellent report published on the paper. The stock was initially priced around $0.30 in 2006. And then it became a rocket surged all the way to around $2 almost non-stopped. And what is its price now? Unbelievable $0.265! What about its recent financial performance and position?

Business: supporting oil & gas industry.

Report: FY2008
Revenue: increased to A378.9m (34.8% variance)
Operating profit: dropped to A21.7m (23.9% variance)
NP: dropped to A14.4m (27.8% variance)
NP margin: 3.8%

Cash: A18.7m
Working capital: 1.61
LT debt to total capital: 28%
Basic EPS: A3.6 cents
PE: 7.36
NTA: A22.5 cents
Yield: 2.3%

Director’s remark: secured higher orders; expected FY2009 to be profitable.

My remarks: margin and yield is unimpressive. Profit may soften further but likely to remain positive. I do not expect oil price to stay below $1 next year. Overall performance and position looks fine.

2) Bonvest Holdings. This is yet another company which make me proud; make me scream. In 2005, Bonvest was a lager and I found this gems. I studied its businesses and strongly believed that it worth more than $0.55. However, Ms. Market has different opinion. So I bought in the share and within that year, I disposed it at $0.905 – too early!!! You must be shocked when I say “too early”. Yes, after I locked in my profit, Bonvest continued to surge to around $1.70!!!!!

“Wow, then you must have regretted and jump!”

No, remember that in investment, your greatest weakness is greed and fear. I’ve earned my money, I moved on. Bonvest is currently priced at $0.72. What about its recent financial performance and position?

Business: property development and investment, food and beverage, hotel ownership and waste management.

Report: 1H2008
Revenue: dropped to S$119.7m (28.1% variance)
Operating profit: surged to S$100m (238.8% variance) due to revaluation gain of $70.3m. Without it, operating profit should be around $30m (about the same as previous identical period)
NP: surged to S$86m for the same reason (266.2% variance)

Cash: S$89.5m (fat)
Working capital: 2.15 (healthy)
LT debt to total capital: 0.26% (extremely low)
Basic EPS: S$20.7 cents
PE: 3.4
NTA: S$1.65
Yield: N.A.

Director’s remark: challenging and competitive market. Minimal contribution expected from most of its business segments.

My remarks: You want to know how I feel now? I feel that there is a very beautiful lady standing right before me, single and available. And luckily you’ve stopped me otherwise I would have jump onto it like right now! I mean if you buy Bonvest now, you are paying S$0.70 for a company that worth S$1.65! Bonvest’s financial position and performance is very impressive although it may not be able to hold its ground in view of intense market competition and uncertain global economy. And that’s exactly why I’m not calling a buy but close monitoring. US economy is highly uncertain couple with high oil and food prices; we are really not sure where this is leading to.





…… To be continue