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Marco Polo Marine, Mermaid Maritime and Jaya Holdings.

Sunday, January 12, 2014

Someone asked me recently why didn't I buy into Mermaid Maritime or Jaya Holdings which are in the same industry as Marco Polo Marine?

He suggested that I look stupid now that Marco Polo Marine's share price is still languishing while those of Mermaid Maritime and Jaya Holdings' have shot through the roof.

Well, like I always say, I don't have a working crystal ball, only a working bowling ball and I am not even a very good bowler. Sometimes, my bowling ball ends up in the gutter. OK, ok, frequently, my bowling ball ends up in the gutter. So embarrassing.

Anyway, if you had bought shares of Mermaid Maritime or Jaya Holdings' and made a bundle, congratulations. Celebrate! Always good to make money.

I have said that fundamentals look strong for the offshore and marine industry, supporting buoyant demand in the oil and gas industry. Prospects look good for the next couple of years at least.


I haven't studied Mermaid Maritime or Jaya Holdings in detail but with Mermaid Maritime now trading at about 23x earnings and Jaya Holding's stock price at a 5 year high, Mr. Market has to be very optimistic indeed.

For example, he must be expecting the earnings of the former to at least double in the next 12 months in order for a 23x PER to be reasonable now. Is this possible? I suppose anything is possible. What is the probability? Anyone?

There could be explosive growth in business in the future for both Mermaid Maritime and Jaya Holdings but I cannot tell if it is going to happen. So, I rather prefer to buy cheaply.

If I am able to buy a company's stock at a PER of 8x in the same industry which has earnings growth visibility over the next 18 to 24 months, isn't that a better deal? Well, I think so.

Now, which stock could this be?

Let me ask my bowling ball.

Related posts:
1. Marco Polo Marine: Exciting times ahead.
2. When to BUY, HOLD or SELL?

40 comments:

ryan said...

Marco Polo Marine is the kind of stock I like. Not too flashy, simple, conservative. The nine consecutive years of revenue growth is based on good management decisions (like moving early to capture the cabotage market), rather than risky plays (think competitors arriving late at the party, and now building vessels even without orders).

I've been accumulating MPM shares and it's by far the largest holding, actually over 60% of my portfolio. I guess I can call that high conviction, lol.

AK71 said...

Hi ryan,

Wow! 60% of your portfolio! I now wonder what is the size of your portfolio. ;)

Yes, I share your sentiments but I cannot help but wish that Marco Polo Marine's management could be a bit more aggressive. LOL.

sillyinvestor said...

Hi Ak,

A little off topic, just a bit surprised that you actually have people making such comments like "look silly", "never look at MM, Jaya". I have always thought you have a very rock solid support base.

I kinda of regret blowing my cool when someone leave a rude comment on my blog twice, guess your EQ is really high, and the nice talking about bowling ball and crystal ball to defect the agreument.

That is something I can learn.

RayNg said...

MPM AGM is shcedule on 27Jan2014 @ Orchid Country Club.

Will attend the AGM and seek opportunity to ask the 'tough' questions.

SOLIDCORE said...

Hi AK,

Well, if it was aggressive, the boat would have left by now? :)

but I too, cant help but have to "enforce" patience through this rather comfortable ride with MPM.

Solace said...

Haha AK,

you should invite the person to do a guest post on mermaid maritime and Jaya.

So many listed stocks, one don't have all the time in the world to look at every single one as a retail investor. it would be good if they could share their findings

AK71 said...

Hi Mike,

Someone left rude comments in your blog? Your blog has definitely grown in stature as I was told trolls only target blogs of note. Why go after unknown blogs where the trolling would not be noticed? ;)

I have had my fair share of flaming and trolling. Some I could handle but some would require calling in the fire brigade. ;p

I always welcome constructive criticism and discussion. I welcome guest bloggers too. However, civility is dead in certain quarters of blogosphere. -.-

If I were to share details of some of the less savoury emails I get, you might be shocked. :)

AK71 said...

Hi Ray,

Unfortunately, I am unable to take leave from work to attend the AGM.

Will look forward to your sharing here. A guest blog, perhaps? ;)

AK71 said...

Hi Solidcore,

Well, slow and steady wins the race or so the saying goes. :)

You know what Warren Buffett would say about waiting:

"We don't get paid for activity, just for being right."

AK71 said...

Hi Solace,

Indeed so. :)

Well, I think the person was disgusted with my stock pick in Marco Polo Marine and I don't think there was any chance in him doing a guest blog for ASSI. LOL.

I perversely thought to myself that perhaps he would have found it too much of a challenge! OK, I am being wicked. Sorry.

Bad AK! Bad AK! :(

boonchin.ng said...

A little off-topic, wondering if Vivian Hsu gonna to the AGM too? If yes, might attract some "宅男" to buy MPM? Lol

AK71 said...

Hi boonchin,

Oooh! Wicked! ;p

Oi! I already bought lah. Or you not referring to me har?

-.-"

veronika said...

That depends on one's objective.

If the buying of shares is for the objective of capital gains, quickly, or within a specified time frame,then Jaya et al may be the way.

But if buying shares for the objective of earning dividends and growth then Marco may be the way. Time frame for holding usually will be longer than for quick capital gains.

The objective of earning dividends and growth usually will mean using funds that one is able to expense without feeling a loss for it.

In investments, a healthy mix of both objectives is one way. You buy a home to live in for the long term, you can buy another property ( may not be residential ) for "flipping" and earning quick bucks. This is the strategy used most often.... quick money.

And it is in the genes. Always get hold of the cash since "cash is king"
Might not be all the time. Banks buy freehold properties and hold on them for almost eternity. ( including insurance companies ) They do not sell them quickly... if ever.

Why do they do that?

AK71 said...

Hi Veronika,

I like the way you ended the comment. Indeed, why? ;)

I agree that whether we are investing or trading depends on our motivations. Of course, we could have a mixture. I am not a purist. ;p

I invest for income but I also invest for growth. I like to stay invested but at the same time I have a war chest ready. The optimal mix is one that gives me a peace of mind and what is optimal is likely to be different from one person to another. :)

AhJohn said...

Hi AK, I like your idea to position well no matter market up or down. May share your strategy? A fixed number for your mix? Or adjust according to market overall valuation?
I only 27% vested so far, a bit eager to invest more, but good stocks always don't move a lot, have to wait long time when become more attractive.

AhJohn said...

If only 1/3 vested, have to gain ~20% in order to have overall 6~8% return.

AK71 said...

Hi Ah John,

I try to be at least 50% invested at all times. So, if I am able to achieve a 10% return on investment annually, I am at least keeping pace with inflation or beating it, if we assume inflation is 5% or less per annum.

As revealed recently when I bought more Croesus Retail Trust and reduced Sabana REIT, I was about 70% invested. I will probably reduce some of my investments when the time is right to bring this number closer back to 50%.

If Mr. Market should organise a bargain basement sale, I could then increase exposure.

For example, during the depths of the GFC, when some were pessimistic and shorting, I was buying with every cent I could spare.

100% invested? It could happen again. :)

AhJohn said...

So you also thinking market will go down at least 10% sometime this year? US is expensive now, although I think SG is fair valued now.

AK71 said...

Hi Ah John,

I have absolutely no idea what will happen in future. Remember, I only have a working bowling ball. LOL.

What will be will be. :)

INVS 2.0 said...

There is a likelihood of an economic meltdown here due to our banks' heavy side on mortgage debts.

My warchest may seem very small in the view of today's share prices but if prices are declined to the lowest of the GFC days (or worse), I can stand a good chance. :P

Macroanalyst said...

What is the objective of participating in the markets? To prove that one is right or to make money? If it is the former, then one can sit on a losing position and wait to be proven right or wrong and in the meantime incur opportunity cost. If it is the latter, then one should not be focused so much on being right or wrong and simply follow the market because ultimately, the market is always right by definition. Remember, your account doesn't care whether you are right or wrong as long as it grows.

Tan said...

Hi AK

Just saw this post, was away for vacation in past whole week ....Marco dropped back to below 40cents ,giving us another chance to accumulate ...sometime ,investing journey is very lonely and not exciting at all,have to wait and wait ...

I feel that ASL,OTTO ,jaya all like goreng up by broker house ,if u have notice it,all analyst started cover them with buy call almost at the same time....

Gregg

AK71 said...

Hi Gregg,

Indeed, Marco Polo Marine's stock looks really cheap now in comparison to those you mentioned.

Well, just got to wait and see. :)

SOLIDCORE said...

Hi AK,

Any thoughts about this?
Video about Marco Polo Marine on Xin MSN


AK71 said...

Hi Solidcore,

Interesting video. Best to wait for a response from the company since I don't have the answers.

My initial thought is that the company needs a new accountant!

Tan said...

When was the video posted? Today?

I just email MPM to see do they reply SIAS, probably can send me a copy if they did.

Can I say that this is red flag?

AK71 said...

Hi Gregg,

I think the video says 10 Feb 14. So, MPM could take a few days to reply to the questions raised.

I think what the video says is a lack of rigour in MPM's accounting department. They need new accountants and heads will roll because of this, if they have not rolled already.

The auditors went through the numbers and made the necessary corrections. Final numbers were presented in the Annual Report.

Could there still be some monkey business going on in MPM? With the Lee family holding a 60% stake in the business, I think it unlikely that they would want to hurt the business in any way.

Also, although they could do what Hong Fok did and that is to reward the directors and give nothing to shareholders, they didn't do this either. So, I think they do care about shareholders and how shareholders think.

So, that leaves me with the last question. Are the managers competent? Progress to capture market share has not been rapid and numbers have not been stellar but I think things are improving. I am willing to wait.

Still, some people have to be spanked in MPM for shoddy accounting, it seems.

Tan said...

Hi AK

Just got the reply from MPM, we shall wait and see how it goes ......

"Thanks for the email. We are aware of the video and will be touch shortly."

AK71 said...

Hi Gregg,

Well, I am sure at least the people in the IR department will not lose their jobs. ;)

AK71 said...

Valuations are compelling - P/E of 5.2x/4.5x for FY13F/14F.

ROE is 15%, yet the stock unjustifiably trades at 0.74x P/BV, providing a large margin of safety for investors in an asset-driven business.

EV/EBITDA is 4.7x/4.4x for FY13F/14F.

Terence Wong, CFA

letissier07 said...

It has been 2 weeks since the video is published. Does anyone know if MPM has replied?

ckw-l99 said...

I am interested about any reply from MPM too... please do update if you hear anything

AK71 said...

Hi letissier and ckw,

I am sure that their reply will be available online when they get round to it. :)

Tan said...

Now we understand why MPM setup the MTN ,it has few announcement today especially on entering Jack Up rig business ...not too sure how does Mr Market going to gauge it tomolo but my thought is MPM is not yet established as Big Player in AHTS but entering a new field might pose a risk to them ...

Gregg

AK71 said...

Hi Gregg,

I just replied to another comment in an earlier blog post on Marco Polo Marine regarding this matter.

I am concerned about how this drilling rig is a huge financial commitment as well although they would only have to pay 10% of the cost this year and 10% by February 2015. Balance 80% to be paid only when they take delivery of the rig.

Sean Lee could turn out to be a true visionary and a savvy businessman because December 2015 is when the Cabotage Law extends to cover drilling rigs in Indonesian waters as well (or he could simply be batty).

Capricon said...

Seems that MPM did not respond to the video on Xinmsn ... Hmmm ...

AK71 said...

Hi Capricon,

I thought they did.

This one?

http://www.investorcentral.org/show_text.php?textid=18959

Dated 28 Feb 14.

Tan said...

Hi AK

I don think that link is official reply from MPM, it looks like more from retail investor or analysts ...

Tried to search in MPM website and sgx announcement but couldn't find anything .

AK71 said...

Hi Gregg,

Oops. Then, we continue waiting, I guess. :)

AK71 said...

Otto Marine on Sunday issued a profit guidance saying that it expects to report a net loss for its first quarter ended March 31, 2015.

"The company believes that the expected losses in the consolidated losses attributable to owners...was primarily attributable to the following reasons: decrease in vessels utilisation and lower charter rates amidst the current challenging market conditions particularly for the oil and gas industry; and provision and impairment.

"The company has since the beginning of this year taken steps and is continually implementing cost cutting measures across the group in response to the market conditions," it said.

Its shares last closed at S$0.031 on Friday. They have more than halved from its peak of S$0.078 last July.


Source:
http://www.businesstimes.com.sg//companies-markets/less-vessel-usage-lower-charter-rates-to-lead-to-q1-net-loss-otto-marine

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