22 July 2018

HC surgical (Target price: S$0.67)

HC surgical (S$0.67; mkt cap: S$100m)

FY18 PE: 22.4x
Dividend yield: 3.1% 
Net cash, Free cash flow yield: 5.8%

Our View
While notably, HC Surgical is not cheap at 22x FY18 PE, when compared to its peers like Singapore Medical Group or Singapore O&G who are trading at 15-19x FY18F PE. However, we thought it is worth keeping it in our watchlist given the recent surge in FY18 profit which was driven by both organic and inorganic growth. The group has done a series of acquisitions in the last 2 years, which showcased its ambitions for expansion, and potential for further earnings growth going forward.

Why we think it looks potentially interesting-

The (opp of) law of large numbers. HC surgical caught our eye due the surge in revenue and profit for FY18. Its adjusted net profit to owners surged 60% yoy on both organic and inorganic growth. Despite the strong growth, its net profit is still relatively small (when compared to its SG listed peers with profit of S$8.5-32m) at S$4.47m. If we believe in the law of large numbers (which states that small cap companies have more room to grow (at a faster rate) than larger market cap), then it is worth digging abit further into HC Surgical’s growth plans to see if that growth is sustainable, and if it can grow into at least the size of its closest competitor whose profits are 90% larger than them now.

Since its IPO in just 2 years, HC Surgical has done a series of (small) acquisitions,
-  The price tag are typically less than S$5m each (The largest one seems to be Medinex done at    S$4.3m), which we think showcase the company’s prudent investment approach (it is likely more easy to integrate smaller companies than larger ones, even if it fails, the financial impact on the group will not be as huge). Collectively, these (along with organic growth) have helped HC grow their profit by more than 60% from FY16 (S$2.7m) to FY18’s (S$4.5m). These acquisitions include Specialists, GPs and medical support services (Medinex).
-  While this is a bit of a crude way of calculating, if we roughly add up all the announced acquisitions/investment consideration (about S$12.2m) and divide it by the increase in profit from FY16-FY18 of about S$1.8m, the PE from the acquisitions are about 7x- which is very value accretive (given despite the de-rating in the medical sector, medical listed peers are still trading at least 15x PE)

Growth plans looks likely to continue, given HC Surgical continue to add another specialist in May 18 and formed a joint venture with a GP group, Island Family In Feb 18.

FY18 results: Revenue +69%; Adjusted net profit to owners +60% yoy to S$4.47m; Total Dividend: S$0.021

The surge in revenue and profitability was due to both organic and inorganic growth (full 12 months consolidation of specialists, GP and medical support services acquired during FY17 and FY18)

Free cash flow generation is also strong (most likely due to nature of business), with S$5.8m of free cash flow generated for the year (Operating cashflow – Acquisition of PPE) translating to a free cashflow yield of 5.8%.

The strong free cashflow underpins the ability of HC Surgical to return value to shareholders, where it has declared a total dividend of S$0.021 for FY18 (70% payout ratio) translating to a dividend yield of 3.1%.

Net cash balance sheet 

11 July 2018

Singapore Medical Group (SMG) ($0.43)

Singapore Medical Group (SMG) ($0.43)

Our View
Markets have been volatile amidst the rising political tension and the official start of a trade war between China and US. Singapore being an export-driven country is likely to affect as well, with the STI currently down about 4.6% YTD, and 11% from its 52 week high. Nonetheless, it serves well for an investor with a long-term investment horizon to remain focus and pick up quality stocks when the opportunity arises.

We like SMG as:
·         its earnings are the more domestic focus and less likely affected in a trade war (although there is likely still indirect impact, should a trade war result in a recession and possibly less demand for private healthcare vs public).
·         However, over the long term, there is still a rising demand for quality healthcare in the region amidst an ageing population.
·         Share price has taken a beating of more than 40% from its highs, amidst market jitteries, medical sector currently not in play etc- such that the stock is now one of the cheapest among its local healthcare peers, and at just 14.3x FY19F PE (which is at a significant discount to historical medical sector range of about 18-28x PE.
·          It is very clear that management thinks there is value in the company and is keen to enhance shareholder return as evident from their subscription to the latest rights issue (11% premium to current share price) and exploring avenues such as share buybacks and dividends.
·         Company is still growing as shown in its latest 1Q18 results which saw new profit surged 139% YOY (FY18F EPS forecasted to grow 38% YOY , followed by 8-9% growth p.a. over next 2 years).

Nonetheless share price action continues to remain weak despite its attractive valuations. Will recommend this for long term investors with at least a 3-5 years horizon, and accumulate using a dollar cost averaging strategy (given the current weak share price action)
SMG is a private healthcare provider based in Singapore, with 35 clinics. It is led by a group of reputable management (who successfully turned the company around from a loss in FY13 to a profit of S$8.5m in FY17) armed with an ambition for regional expansion- SMG has invested in JVs in overseas markets such as Australia, Jakarta and Vietnam.

Key business:
  1.   Healthcare: Oncology, Obstretrics & Gynaecology (O&G), Paediatrics
  2. Diagnostics & Aesthetics

Investment merits
An aging population – bodes well for rising healthcare needs in the region.

The cheapest among its local healthcare peers. Trading at 15.4x FY18F PE, 14.3x FY19F PE (EPS forecasted to grow at 8-9% p.a. for next 2 years) according to Bloomberg. This vs its local healthcare peers who are trading at 15.5x-32.3x FY19F PE. It is trading at an 8% discount to its closest competitor Singapore O&G and at the widest discount to Raffles Medical since 2016 at 14.8x blended forward 12M PE vs Raffles Medical’s 29.1x (according to Bloomberg).

Major shareholders and management show confidence in the group by taking up the recent rights issue at S$0.48/share (11% premium to current share price). While share price has went below the recent share price placement, management and Cha healthcare has went ahead to subscribe to their share of the rights, showcasing their confidence in the group’s future and expansion plans. 

SMG continues to deliver. 1Q18 Revenue (+37% yoy), Gross Profit (+47% yoy), NPAT (+139% yoy) on the back of increased revenue from both Health business segment and Diagnostics & Aesthetics business segment. Overseas operations are also starting to see improvement, as share of loss of JV and associates decreased 75% to a net loss of S$12k for 1Q18 on improvement in PT Ciputra SMG and share of profits from CHA SMG Australia Pte Ltd, offset by losses in SMG International Vietnam (where investment was made only in Jan 17, and is still in ramping up phase)

Growth set to continue- SMG opened its new 5,500 sqft center at Novena Medical center in Feb 18, and expected to add an additional radiologist and visiting consultant radiologist in cardiac and paediatrics to business in 3Q18. In Apr 18, completed acquisition of majority stake in Pheniks, operator of aesthetics and plastic surgery clinic, SW1, which will help contribute to profit and hopefully drive cross selling opportunities for SMG’s women’s health segment.
  • ·   In its latest corporate business update, the group stressed its strategy to continue its “buy and grow” strategy – which is buying  profitable business and growing it organically (as with its Astra acquisition where SMG has opened 2 new O&G clinics since) 
  • Strong growth potential overseas. For Eg. Vietnam’s healthcare market is an underserved market with number of physicians to population ratio at 0.8 per 1,000 below the OECD average of 3.3 per 1,000. SMG having identified the opportunity early, has grown its Vietnam presence to over 60 multidiscipline specialists and a team of 6 paediatricians

Improving shareholder return. While there are no firm plans announced, Management has highlighted that it is exploring avenues to enhance shareholder return including setting a formal dividend policy and share buybacks.

04 July 2018

Qns: Is it correct to do a Regular Saving Plan for stocks?

Qns: Hi Mr Stockbroker, is it correct to do a Regular Saving Plan for stocks? I have been doing it for insurance, should I do the same for equities?

Ans: I think one common misconception about investing is that you plough your salary into investment every time. But it is important to have a sizable war chest as well. In a bull market, your stock picks provides the return, but in a bear market, you have enough cannons to slowly nimble if the market gets over irrational and there is blood on the street and panic in the stands (and forums)

And so when major declines occur, if you hold a sizable war chest, you will find opportunities while others around you lose their heads in the bloodshed.

The greatest advantage normal investors have over institutions is that we can afford to hold cash which generates zero returns.

So back to your question, I do not think it is simply a correct or wrong thing to do. In every transaction action, regardless long term or short, we are always aiming to fulfil the equation of "Buy low, Sell high". If the regular saving plan has a way to maximise your profits gains, then, by all means, you should do that.

28 June 2018

Do you know STI 3250 is a TURNING point?

As mentioned in my previous emails, the target 3250 was supported yesterday as predicted.

If it does not hold up at this level of 3250 by end of the day, there is a chance to move and test 3200 mark.

If it does hold up, then it should be moving within the row of 3300 and 3250 as marked on the chart.

Fundamentally looking ahead, President Donald Trump said the tariffs, which will start on 6 July, are intended to reduce China’s dominance in industries. That gives us about 1 week's time to monitor and observe any upcoming developments of the intended tariffs. And not to mention, equity markets all over the world are facing a sell off; case in point, Dow Jones down 400 points last night.

I am forwarding some details as shared by my friends and clients, reposting below the Year lows and highs, as well as institutional buys and sells. Hope that it will be useful as a reference.

Group effort is always more efficient than individual effort, feel free to share with me too.

27 June 2018

STI to CRASH or BULL again?

Taken from https://newsletters.tradingcentral.com/view.aspx?pk_mail_nl=1546&pk=2781066&stats_nl=1346274&token=xHnyI9NiuMck0WA51MJqKR8T2MuMndU7FUcH8%2fJ5pVlREv%2b9%2bHUIkw%3d%3d

The Straits Times index fell 0.38% or 12.6pts to 3287.4 (day range: 3294.84 - 3270.15) on Friday. The index is below its 20d MA (@ 3417) and below its 50d MA (@ 3495). 10% of the index constituents are above their 20D MA (vs 7% the previous session) and 10% of the shares are above their 50D MA (vs 7%). Technically, the index has drifted lower while scaling the lower Bollinger band. The relative strength index, capped by a declining trend line, remains subdued below the over-sold level of 30. Therefore strong downward momentum persists, and the index should proceed toward 3190 on the downside (around the low seen in September). Only a return to the key resistance at 3430 on the upside would bring about a bullish reversal.

Opinion published is a ST (short-term) view. Green Lines Represent Resistance | Red Represents Support Levels | Light Blue is a Pivot Point |  Black represents the price when the report was produced

- Trade issues could continue to dog the market as President Trump mull fresh tariffs against European cars and new measure to restrict Chinese investments but some reprieve may come from PBOC's reserve requirement cut to free up USD100b in liquidity before US tariffs take effect next week.
- Technically, the STI is heavily oversold with immediate support at 3,280, while resistance lies at 3,340.

**Sembcorp Industries
- Secured a 50MW project from the HDB and the EDB to build, own, operate and maintain grid-tied rooftop solar systems across 848 HDB blocks and 27 government sites in Singapore.
- Construction will begin in 3Q18, and is targeted to be completed by 2Q20.
- This deal makes Sembcorp a major solar player in Singapore with combined solar energy portfolio of 104MW across more than 1,500 sites.
- Trades at 13.2x forward P/E.

*CITIC Envirotech
- Awarded a Rmb2.5b EPC ecological restoration project in Meigu County, Sichuan province, China.
- The group will undertake the design and construction of essential housing and infrastructure including water supply, wastewater treatment, garbage disposal and other auxiliary facilities in 11 newly designated residential areas for 2,000ha of land across 36 townships.
- Work will commence in 4Q18 and is expected to be completed by Dec 2020.
- The project will contribute positively to the group's FY18-20 revenue.
- Trades at 9.5x forward P/E

*RH Petrogas
- Awarded new 20-year contract terms for both the Kepala Burung and the Salawati Kepala Burung Production Sharing Contracts (PSC) upon the expiry of their current terms in 2020.
- The new PSCs are based on the gross split model implemented by the Indonesian Government in 2017 to replace the cost recovery regime in existing PSCs.
- It currently holds a majority 60% participating interest in and operates the Basin PSC and holds a non-operated 33.2142% participating interest in the adjacent Island PSC.
- The two PSCs produce ~3,940 boepd net to the group's participating interests.
- Trades at 3.7x trailing P/E

*Noble Group
- Proposed sale of a Kamsarmax dry bulk carrier vessel, Ocean Ambition to Fairmyl Shipping for US$23.415m.
- Built in 2014, the 81,616 dwt vessel is employed to service external customers as well as the group's internal freight requirements.
- The one-off disposal gain would amount to US$0.7m based on the carrying value of the vessel of US$22.72m as at Mar'18.
- Part of the proceeds will be used to pay down the amounts owed under the relevant facility.
- The sale will not significantly impact the operations of its freight business as it intends to charter back the vessel on a time charter basis.

*Advancer Global
- Proposed subscription by Japan-listed Fullcast Holdings of 65m new shares at $0.34 each or 11.5% premium to last close.
- This represents 25.2% of the enlarged shares and proceeds will be used for business expansion and working capital purposes.
- Separately, both parties have agreed to discuss a potential JV to provide foreign labour staffing and employment in Japan.
- The proposed JV will be well-positioned to address the current labour shortage issue in Japan.
- Trades at 18x trailing P/E.

*OUE Lippo Healthare
- 50:50 JVCo with China Merchant Group (CMLHM) has entered into a framework agreement with China Changjiang National Shipping Group and Shanghai Changjiang Shipping to incorporate a new JV.
- The new 51:49 JV will manage the operations of Shanghai Changjiang Hospital in Pudong, currently operated by Shanghai Changjiang.
- Trades at 2.2x P/B.

*Singapore Kitchen
- Submitted application to SEHK for the proposed dual listing on GEM, subject to approval from HKEx, shareholders and SGX.
- Trades at 1.3x trailing P/B.

- 80% owned Acropower extended its MOU with HL Plus to 31 Jul '18.
- This relates to a project to build, own and operate an organic waste-to-energy plant on the future poultry farm site of Chew's Agriculture at Neo Tiew Road, off Lim Chu Kang.
- Trades at 2.5x P/B.

26 June 2018

STI 3300 mark to be broken!

Wed, June 20, 2018 

This morning STI opened below the 3300 mark from yesterday. This results in a gap between yesterday's and today's session. Also as guessed in my previous email, it was hovering over the range of 3320 forming a temp base before moving down. It is almost similar to my yellow markings on yesterday's chart, but it seems that it is falling so much faster this morning.

1. Assuming if STI did not recover and cover back the gap of back to 3300 and above by the end of today, may continue to fall over the next few days. And rest at 3250, hopefully. Not to mention, there is a need to monitor news and fundamental developments over the weekends as well.

2. Why 3250? To 
me this is a psychological mark, which is also the low during Oct 2017. At the same time, the public and long-term investors may come into the queue for strategic prices given that it is almost 1 year low. As a result, it may hover around that range as short positions will start to unwind and cover back.

3. Now making another assumption here that trade war was to persist and worsen, UK still not able to get a good Brexit deal, and etc, it may move down past 3250 mark and the level at STI 3200 may be tested. 
Though there will be a short rebound after which too as the technicals are too oversold.

4. But if all the negative news as mentioned above are reduced/mitigated with new positive developments, STI should recover and attempt to breach/touch 3340 
mark. This is the highest point based on the market this week.

A few assumptions made, nothing concrete, but it helps to crystallize my thoughts, sharing with everyone at the same time. my 2 cents here. Feel free to email me to discuss.

21 June 2018

US China Trade War on STI 3250

Tuesday, June 19, 2018 

The dollar fell against the yen in early Asian trade on Tuesday after U.S. President Donald Trump's threats of more tariffs on China raised worries about an escalating trade war between the world's two largest economies. As much as I think trade war will not be full blown, there may be a possibility it might actually happen. If that is the case, it will cause a drag on all markets.

Looking at the STI index chart, yesterday closing is a slight rebound from the low. However, the tail and the hair of the candle indicate an almost equal force between the bulls (buyers) and the bears (sellers).

Possible to witness a slow gradual rebound till 3350 this week given the oversold conditions from the past few days. Though the technical stage is set for a rebound, fundamental news drive the next market direction as well.

For traders, possible to try to catch the possible rebound. For example, yesterday DBS entry at 26.90 and sold 27.20, or even today's 27.36. Possible counters for considerations, Singtel, Raffles Medical, Keppel Corp, Venture. These are oversold counters which may be rebounding.

For investors, i think it may be still too early to enter. If trade talks were to drag on, all the current prices will be moving to a lower range, resulting in a better entry price. Should that be the case, STI may retest 3250 level, which is 2017 Oct lows.

my 2 cents

- The market could face further pressure amid escalating US-China trade tensions with latest news that US President Trump has threatened to hit China with new tariffs on USD200b of Chinese imports.
- Meanwhile, oil rose as some producers mull a smaller output boost ahead of OPEC meeting later this week..
- Technically, the STI is grossly oversold but appears entrenched in a downtrend after breaking below its 200-dm at at 3,340 and could head towards the next support at 3,280.

*Lian Beng
- Awarded $95.8m contract by Tripartite Developers to build a condominium at Flora Drive.
- The development comprise nine 8-storey residential blocks, clubhouse with one basement car park, swimming pool and tennis court.
- Construction is expected to commence in Jul '18, for a period of 33 months, and contribute positively to FY5/19 results.
- This will lift its order book to $1.02b.
- Trades at 5.1x forward P/E and 0.47x P/B.

*Addvalue Technologies
- Entered into a new distribution contract with Zhongyou Century (Beijing) Technology to supply satellite communication terminals for small fishing fleets operating in China regional seas.
- Total contract value is worth at least US$1m, if terminals are fully delivered within FY3/19.
- The new contract supersedes the 3-year collaboration entered in Apr '16 to supply > 5,000 units of satellite terminals, which was later found to be inadequate for the needs.
- Trades at 5.2x P/B.

- Secured a $37.7m contract from Oxley Holdings for a 160-unit condominium project, The Verandah Residences, at Pasir Panjang.
- Work includes the construction of four blocks of 5-storey apartments, three 2-storey strata landed houses, and a basement car park, clubhouse, swimming pool and communal facilities.
- Construction is expected to commence in Jul for a period of 28 months.
- Net cash position of $54.9m is substantially higher than current market cap of $38.1m.
- Trades at 0.75x P/B.

*Kingsmen Creatives
- Secured $29m worth of contracts from F1 Singapore Grand Prix.
- Deals involve fabrication and construction of circuit-wide grandstand seats, paddock club, corporate suites at pit straight and hospitality facility at Turn 23 over a 4-year period, and paddock kitchen over a 2-year period.
- Works will commence from 2018 and are expected to contribute positively from FY18 to FY21.
- Trades at 11.4x trailing P/E.

- May '18 passenger load factor (PLF) climbed 2.6ppt to 79.6% as pax traffic (+9.6%) overtook capacity expansion (+6.1%), with all regions except Europe showing an increase.
- But cargo load factor dropped 3.9ppt to 62.6% as air freight loads (-3.3%) weakened against capacity addition (+2.7%).
- Trades at 0.93x P/B.

*Ascendas Hospitality Trust
- Updated that there is no physical damage to its existing property - Hotel Sunroute Osaka Namba as well as the three hotels that it is acquiring in Osaka following yesterday's earthquake.
- Trades at 7.6% yield and 0.84x P/B

*Allied Tech
- Proposed placement of 420m new shares (31% of existing share base) at $0.06 apiece to four high net-worth investors.
- Net proceeds of $25.16m will be used for potential acquisitions to further expand and strengthen its service offerings in its new e-commerce segment, including centralised customer relationship management, loyalty program and electronic payment.
- In the longer-term, the group also aims to integrate various sub-segments of its business such as online ticketing and online corporate travel solutions.
- Based on the enlarged share capital, the stock trades at 20.4x trailing P/E and 0.78x P/B.

*No Signboard
- Acquiring remaining 20% stake in Danish Breweries for $0.4m via 10 monthly instalments.
- Upon completion, the group intends to expand its distribution (currently 300 outlets) of Danish Breweries' signature brand Draft Denmark beer in Singapore.
- Separately, the group has inked a franchise agreement to develop and operate Little Sheep restaurants in Singapore.
- Little Sheep is a well-known hot pot restaurant in China, with 280 outlets (270 franchised) in China, US, Canada and Japan.
-The group intends to open the first outlet by early 2019, while targeting to open at least one outlet per year over the next five years.
- Trades at 9.2x trailing P/E.

- Added two additional "JJ Lin Sanctuary World Tour" shows as the existing two shows were completely sold out.
- Trades at 52x trailing P/E.

- Acquiring Ban Joo Pawnshop for $3.3m or at 1x P/B.
- Ban Joo operates a licensed pawn broking business at Tanjong Pagar Plaza and posted a FY17 net profit of $0.2m.
- The acquisition is in line with the group's expansion strategy.
- Trades at 8x trailing P/E.

06 June 2018

AAC Tech (2018 HK)- reaching first TP

AAC Tech is having a good day today up 7% currently along with its peer, Sunny Optical, which is also up about 5%

No particular news, could be riding on the back of recent positive market actions in US, as well as recent Apple worldwide developer's conference highlighting updates to its AR platform, and Credit Suisse's report about smartphone demand to have bottomed out

Nonetheless after the surge, AAC is near our first TP of $131.2.
Investors may look to take some profit off, or leave a trailing stop. Our Next TP is $139.2- (17.4x FY19F PE, 12.7x EV/EBITDA) – 5 year +1SD.

Current consensus is $146.03

30 May 2018

AAC Tech (2018 HK)

AAC Tech (2018 HK)

Noted that the name of the blog is SGstocks&shares. but cant really find anything interesting in SG, so thought of writing a fun piece on HK. This is just a summary of the (brokers) research we have read, meant as an introduction and for fun learning. 

AAC Tech (2018 HK) - HK$118
Seems to have bottomed out and may be attractive at current levels - key risks are the maturing smartphone market. A side play on Apple as it derives about half of its profit from Apple, and supplies 50% of acoustic components to Apple

major supplier of miniature electronics components to Apple, Samsung and Chinese mobile phone brands - manufactures acoustic components, such as speakers and receivers, haptics, radio frequency (RF) solutions, and microelectromechanical systems (MEMS) for electronics products, from smartphones and tablets to wearable devices.

Currently trading at 18.3x FY18F PE, 14.8x FY19F PE – bounce off its 10year average of 13.0x. – AAC has steadily enjoyed a valuation re-rating since 2010 (PE moving higher)- has reached as high as 22x PE (implied TP: $176, 16.1x EV/FY19 EBITDA)

Our near term TP is $131.2 (16.4x FY19F PE (+1SD of 10 year range), 12x EV/EBITDA

$139.2 (17.4x FY19F PE, 12.7x EV/EBITDA) – 5 year +1SD

AAC is projected to grow at an average of 20% from FY18-FY20. – PEG of about 0.8-0.9x

Concerns priced in? AAC Tech has retraced as much as 42% from its high. Previous pullbacks (except 2008) has been up to 38.7%. The pullback may have been due to the slowdown in smartphones. AAC has also cut its CAPEX budget for 2018 by 15% - up to 50% will be allocated to expanding the optics business, 20% to acoustic products, 5% to haptics, 25% to upgrades and maintenance.

Investment merits
Has about 40% market share and is the world’s largest smartphone acoustic components supplier.

Apple supply chain proxy : Supplies 50% of Apple’s acoustic components since 2010 (Also supply Samsung since 2011) – Apple est to formed about 47% of revenue.

Andriod haptics upgrade to provide catalyst? Currently most smartphones equipped with haptic components are iphones. With the gradual removal of physical home buttons, it could lead to an upgrade haptics from android phones (which we are already seeing in likes of S9 etc) Haptics can enhance user experience on smartphones which highlight edge to edge display and AR features. Haptics & RF modules have grown to become 50% of FY17 AAC’s revenue. Analysts are expecting a 2H recovery driven by Haptics which could also help improve his margins.

One of the leading players in Optics (Smartphone AR). AAC has expanded in the WLO market 5 years ago (which are used in 3D sensor manufacturing) – has the potential to grow significantly and penetrate into Apple’s 3D sensing suppliers. Currently low competition, due to high barriers of entry 

Concerns priced in? AAC Tech has retraced as much as 42% from its high. Previous pullbacks (except 2008) has been up to 38.7%. The pullback may have been due to the slowdown in smartphones. AAC has also cut its CAPEX budget for 2018 by 15% - up to 50% will be allocated to expanding the optics business, 20% to acoustic products, 5% to haptics, 25% to upgrades and maintenance.

Risks: Customer concentration (Apple forms nearly half of revenue) Collectively, Apple, Samsung, Huawei, Oppo and Xiaomi formed about 90% of revenue. Smartphone market slowdown/slow refresh cycle, Trade war

15 May 2018

2Q18 SGSAS FX Trading Results

Since SG market has been rather quiet, I decided to do some early accounting to tabulate the profit and loss of my FX trading this afternoon.

These are my trades on EURUSD. I don't touch other currency pairings as i do not have the time to do so. I prefer to trade on 1 currency pairing only as well. Not to mention, I will trade continuously, even during important event dates


Markets are all connected. Using equities index, it is easier to have a feel how the markets swing during that time.

Comparing to 2017 and even 2016, my returns for 2Q18 so far has been rather flat, if not, not as great. This is especially so during Feb 2018. Not one but two 1,000-point plunged for the Dow Jones Index. And a powerful comeback that almost went straight back up! During this swing, I have to cut my losses thinking the direction has changed. But it didn't. Totally crazy. It is a crazy ride!

Dow plummeted more than 3000+ points in just two weeks, then stocks raced back to life, at one point recovering about three-quarters of those losses.



Moving forward, I have to be nimble. And it has to be a balance between conservative and taking risks for greater returns.

So yea, this documents my thoughts, comments and strategy for my future reference. Cheers!

05 May 2018

Sunningdale- a value stock for the patient investor

Sunningdale has fallen as much as 48% from its high following a sector de-rating and a dismal 1Q18 results. There are other reports and blogs out there citing the main reasons of why it’s a value pick. Will not go too much into it here, you can read it else where, I will just summarized the main points below, and explain the rest of our thoughts.
  1. Attractive valuation: 3-3.3x FY18-FY19 EV/EBITDA, 6.6-8x FY18-FY19F PE, with a dividend yield of 5.5%
  2.  Attractive dividend yield (rising dividend, sustainable payout ratio) – General rising trend over the years, FY17 dividend of S$0.07 translates to dividend yield of 5.5%, payout ratio of 43%
  3.  Supported by good balance sheet and good cashflow generation (net D/E of 0.3%)
  4. Reputable management with skin in the game: Mr Koh Boon Hwee, the chairman of Sunningdale, is the largest shareholder of the company with a 15.8% stake according to Bloomberg. Of noteworthy, Mr Koh’s last purchase was in Apr 17, a 12.998m shares purchase at about S$1.717/share. (This is 43% of his current position)
  5. Potential takeover target
The recent entry of another value investor, LSV asset management, is hopefully another affirmation of the potential value that is current present in Sunningdale.

Where do we think the floor is (potentially and hopefully) at? Notwithstanding a financial crisis, Sunningdale has traded at a floor valuation of  near 2.2-2.7x EV/EBITDA. We use EV/EBITDA (to take into account the gearing of the group and because depreciation is typically a huge expense to companies like Sunningdale)- this implies a potential price floor of about 0.93-1.15 (if we work back based on consensus FY19 EBITDA)- that’s about 10-26% away or 10-30c away or S$20-60m market cap away. (We will look more at the 10-30c rather than the share price of 0.93-1.15, as we think there are potential for the "price floor" to be nearer.. see below)

our “floor” calculation is based on EV/EBITDA, where EV (Enterprise value = Market cap + net debt + minority interest etc). 

So assuming the consensus EBITDA is correct and constant, to reach our potential "floor EV/EBITDA" our EV has to come down by S$20-60m, which could come in either of the following ways: 
  1.       Share price has to drop more (i.e. drop in market cap) or
  2.       Sunningdale has to have more cash (i.e. lower net debt), which could be potentially from

a.  Proceeds from its potential disposal of its China factory. On 25 Apr 18, Sunnningdale announced its intention to dispose of its factory in Zhongshan, as it is a non-core and excess asset. Depending on how big it is, the potential sales proceeds may help to further improve the balance sheet of Sunningdale and further lower its EV/EBITDA valuation towards our "floor" 
b.  Cash accumulated and generated from operations (which will take time) average Free Cash Flow generated/year since FY14 was S$20m. Operating cashflow/EBITDA has averaged about 80% since FY09.

FY 2013
FY 2014
FY 2015
FY 2016
FY 2017
YE 31 Dec

Net Income
OCF/ Net income
Cash From Operations
Capital Expenditures
Free Cash Flow
Free Cash Flow Yield
Net Debt
Dividends Paid
Dividend Payout Ratio %

Our View:
Sunningdale ticks most of a value investor checklist of having a low P/B (0.6x), low PE (6-8x PE), good balance sheet (nearly 0 debt), good cashflow generation, good dividend yield and a reputable and good management with stakes in the company. 

Investing is about following your investment checklist and buying good companies when its out of favour (sentiments etc) 
When we look at Sunningdale now, the sector and the company is out of favour but do we think the sector will be in play again 1 day? (yes) 
Do we think the company can get out of its current rut? 
we dont know, but we think it can. The 1Q18 results is bad on first glance (-75% yoy) but its not end of the world. It is partly due to forex loss (excluding which, results is still -25%yoy to S$7m,  due to lower consumer/IT sales from lower demand etc which had a double whammy effect as margins took a hit with the lower utilisation) Manufacturing is a cyclical sector- i think the more important question is if Sunningdale are reacting quick and enough to customers and are they maintaining and gaining new projects? From the results commentary, i think they still are.. as they cited a stable order book, and continued business enquires from new and existing customers and potential new projects which will be commencing mass production. They are still continuing investing in new technology and machinery to be cost competitive, and building new manufacturing sites to be near customers (sounds reasonable and sensible to me)

In our short investing journey in the local market, (we think) there are less and less manufacturing companies listed in Singapore as we see them gets privatised and/or taken over. This could be either due to low valuations of Singapore manufacturing co. (relative to likes of HK etc) and/or consolidation of the industry as customers nowadays look to consolidate their suppliers (deal with a few rather many).  M&A activity is likely to continue as the industry consolidates and existing players look to grow their economies of scale.

That is why we think Sunningdale being one of the largest plastic precision companies in the world serving a diversified group of MNC customer base (no one customer forms more than 5% of the group’s total sales) makes them an attractive M&A target (for its scale and wide network of customers) one day. Even if they are not being acquired, they may also take the chance to buy over another company should the opportunity arises as with the case of First Engineering in late 2014, growing its profit and hopefully consequently their market cap and dividend.

Prices have found abit of a base here after falling more than 48%, and the emergence of some value back to the stock. If we assume a "floor" valuation based on EV/EBITDA, hopefully a floor is in sights, and may be even nearer should the disposal of Sunningdale's China factory happen and be of a significant size. Even if it doesnt, Sunningdale has proven in the past to be highly cashflow generative which could help accumulate cash in its balance sheet and move it closer to its "floor valuation as time passes" 

Will buy some here, but leave some spare bullets. Remember this is still a very cyclical sector that is very dependent on the economy strength (there have been increasing concerns of a recession lurking around despite the current strength in the global economy), and not to mention how fragile the market has been recently. Investors have to take a medium- long term view on this, as we wait for earnings to hopefully recover (led by a respectable management) and the sector to be in play again