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Stock picking: Spotlight on Marco Polo Marine.

Friday, February 22, 2013

I received a very well written email from a reader with some very good questions. I have a gut feeling that the questions and my reply could be of interest to other readers and decided to publish our emails:
 
Hey AK,

I have been quite an avid reader of your blog since I chanced upon it last year. Your blog has taught me a lot about investing, in particular, fundamental analysis (I was a complete klutz on this before). I believed more in technical analysis back then, but your blog has shown that a good investor has to accord time and effort to both technical and fundamental analysis, in order to make rational decisions. So, just wanna say a word of thanks for showing me the ropes and helping me be a better investor.

I find your analysis very objective and illuminating, and truly I am learning something new with every post you publish. But above all, I am struck by your humbleness and willingness to help other budding investors out with tips to aid our financial journey. I dare say, precious few who are blessed with such good grasp of the market as you are, will be willing to share this with other people.

If you don't mind, I like to ask you a question on fundamental analysis, as I concede I am really terrible at it. Take for instance, Marco Polo Marine, where you have astutely highlighted out its sound fundamentals and strong economic moat. Can I just enquire what made Marco Polo stand out as an outstanding stock to you in the first place i.e. how did it get on your radar? I read that you noticed the high insider trades... is monitoring of insider trades a first requisite step to identifying strong fundamental plays? I'm asking because, there are so many companies out there, and one cannot possibly research everything, so I was wondering what aspect of their fundamentals you will notice first, before it gets on your "monitoring list" for further research? (Btw, I have taken your advice, and taken a closer look at MPM and am now vested in it too - so really wanna shoutout a word of thanks)

Secondly, and still on MPM, I understand that a great portion of the moat comes from the cabotage law. Would you say that actually this makes MPM rather vulnerable to policy uncertainities in Indonesia? For instance, if Indonesian authorities face strong appeals from the Indonesian oil and gas lobby and then decides to rescind the cabotage law - then surely MPM could be, pardon the pun, be left high and dry, its moat all gone. Additionally, is reflagging one's vessels under Indonesian colours a substantial barriers to entry? If not, then we could see supply (in terms of reflagged vessels) coming back into play, eroding any advtg MPM had. Of course, I do still have my
eye on the attractive P/E of MPM at 6 vis a vis its peers e.g. Jaya, ASL. But in your opinion, if not for the Cabotage Law, would the P/E of 6 be sufficient reason for you to purchase MPM?

Keen to hear your thoughts on the matter, and once again, thanks for all your insights.

Cheers,
T..


 
 
My reply to T..:
 
Hi T..,

First off, I don't give advice. I am not allowed to. My blog is a place where I talk to myself and I cannot help it if people overhear what I say (as I talk rather loudly). If overhearing me talking to myself has helped you on your own journey, I am happy. ;)

Regarding Marco Polo Marine, yes, it was the continual insider buying that prompted me to dig into the stock. Insiders could sell their stakes for myriad reasons but to increase their stakes and by large amounts, it could only mean that they think the stock is undervalued.

Keeping a tab on insider buying activities is one way we could possibly find undervalued stocks since insiders know their businesses best. Of course, it should not be the only thing we look out for. We would still have to look into the numbers from reports and look at analyses by research houses if they are available.

As for how to generate a "monitoring list", I try to read as much as possible. I like to get a feel of macro economic trends which are helpful in telling us about the health and prospects of different sectors and countries. This is, of course, a top down approach.

This should be followed by a bottom up approach as we look at different companies with businesses in the sectors and countries which are likely to do well. Of course, this is where we examine the income statements, the balance sheets and the cash flow statements. Then, there are all the different ratios.

Having done all these, I would look at the charts as I believe technical analysis provides a window into the collective pyschology of market participants. In a bearish situation, cheap could get cheaper. In a bullish situation, dear could get dearer.

Then, make a decision. Of course, decision making is based on the best knowledge we have at any point in time. That best knowledge must also include the risks involved from a fundamental as well as a technical perspective.

The most important knowledge of all is self knowledge. Can we accept the risks involved? Don't just think of the possible gains. In the event that we should suffer a paper loss, how would we probably react? I always say that a peace of mind is priceless.

Now, all these might make me sound like I am infallible. I am not.

Sometimes, I get lazy. Sometimes, I make mistakes. Sometimes, I get in too early. Sometimes, I miss the boat.

Before I digress further, on your concern that Marco Polo Marine's moat might dry up, I would say it is a pertinent question.

I cannot make any representation as to how probable a change to the cabotage law in Indonesia is going to be. However, if we take the cue from Mr. Lee Wan Tang who probably knows the sentiments of the Indonesian government better than us, then, it is a reasonable risk that we are accepting as investors, isn't it?

Foreign competitors could reflag their vessels if they are willing to take a minority stake in a potential Indonesian counterpart. Whether they are willing to do this, I don't know.

Would Jaya be willing to go into a joint venture with an Indonesian company, taking a minority stake, so that 3 of their OSVs (in a fleet of almost 30) could get back into Indonesian waters? Your guess is as good as mine.

Marco Polo Marine was able to react very swiftly and decisively to the cabotage law because the Lee family are Indonesians and the Indonesian company that Marco Polo Marine took a 49% stake in was their own. Indonesia is Marco Polo Marine's own turf, so to speak.

To answer your last question, although the cabotage law has been fortuitous for the company, without it, Marco Polo Marine's much cheaper valuation against its peers in the sector would be compelling reason enough for me to buy its stock as sector fundamentals suggest that positives are on the horizon.

I hope that I have addressed all your concerns.

Best wishes,
AK
 
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14 comments:

yeh said...

Thanks AK,
I learn something about Marco polo from your post today!

AK71 said...

Hi yeh,

Good to hear that and I am glad. :)

seefei said...

Thanks for sharing, AK. Foreign ships operating in Indonesia water under an Ali Baba scheme is my concern too. Since the Lees own their subsidiary it is a reassurance of their interest not being compromised although they are just minority shareholders.

AK71 said...

Hi seefei,

Only 24% of BBR is now in public hands. The Lee family still has effectively a 76% stake in BBR. They are not a minority. :)

JCK said...

"My blog is a place where I talk to myself and I cannot help it if people overhear what I say (as I talk rather loudly)."

Ahemmmm.....i overheard*

Talking to oneself is ....?

Inspiring? :)

yeh said...

Hi AK,
What is your target price for Marco polo.
0.45 Liao.

AK71 said...

Hi JCK,

I try to inspire myself by talking to myself more often. ;p

AK71 said...

Hi yeh,

Target price?

If you are asking me about valuations, I mentioned it on and off in my past blog posts. Search and you will find them. ;)

Ray said...

"... I cannot help it if people overhear what I say (as I talk rather loudly..."

I love to eavesdrop when AK is talking out loud.

AK71 said...

Tsk, tsk. What can we do about nosey neighbours? Terrible, I say!

Forex Guru said...

AK,

Marco Polo seem to have very support buying interest around $0.43 level... just refuse to go down. :) Hope to be able to add more to my holding.

Close my holding with Sound Global after the weak result as well as sudden resignation of CFO. Don't look good to me finanically as
Finance expenses shoot up significantly.

Technically it seem like more correction on the way.

Regards
Yee

AK71 said...

Hi Yee,

Marco Polo Marine's stock price is bahaving similarly to the stock price of Hyflux Water Trust years ago. Correction using time. :)

As for SoundGlobal, I share your concerns and I have divested. There could be a better time to invest in the company again. Technically, we could see longer term support at 57c tested.

Forex Guru said...

Hi AK,

Great mind think alike for Sound Global... :)

I have loaded KSH Holding today at around $0.43 and $0.435. What is your view on this counter?

Finanically they have many property projects which already sold out and have strong book order for their construction business.

Regards
Yee

AK71 said...

Hi Yee,

Well, it is too early to say if we made the right decision. The only person who is always right is Mr. Market whose mind is the only great one! ;p

As for KSH, I have read good things about it in research done by some brokerages. However, I think I will give it a miss because my plate is quite full. :)

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