Yongnam: A bad 2014. Could 2015 be better?

When I first invested in Yongnam, it was beginning to reward shareholders by paying dividends and being the biggest outside of Japan in what they do, I decided that they probably had a competitive advantage over smaller players.

Consistent with Yongnam's new direction to invest in infrastructural projects that would generate recurring income, together with two partners, it submitted a tender for the construction and operation of an international airport in Myanmar. I rather liked this new direction.

However, when Yongnam's share price was driven up on speculation that their consortium would clinch the project in Myanmar, I divested most of my investment in the company. Price had gone up not because of some fundamental improvements. It went up based on speculative pressure. As it turned out, Yongnam et. al. was unsuccessful in clinching the project that time.

Subsequently, Yongnam suffered setbacks in its business and its stock price tumbled. I added to my reduced long position when my initial purchase price was hit. Basically, by then, my long position in Yongnam was funded by capital gains from trading its stock as well as the dividends paid by the company.

I was willing to stay invested because I felt that the setbacks were project based and should be temporary. The weaker results were not due to some destructive force which was more enduring in nature. Given time, things should improve again, I thought.

Well, instead of the improvement in results I was expecting, a bigger loss was announced months later. In a blog post in August last year, I said I would not be adding to my investment as Yongnam's attractiveness as an investment for income and growth was undermined. The stock was trading at 22c a share back then and it didn't look like it would be able to pay a dividend. As expected, no dividend was announced in its full year results.

At that time, I said that I would like to see Yongnam's order book improving and if it did not, I might have to trim my exposure. Businesses like Yongnam's need to constantly replenish their order books. As long as Yongnam has new orders, it will have earnings visibility if nothing goes wrong.

In its latest results, Yongnam announced that, as of end December 2014, its order book stood at $405 million. This is an improvement over end December 2013 which saw order book at $340 million. The improvement is a relief for shareholders.

Although Yongnam with its two partners secured the mega project in Myanmar, this still remains a wild card for now. We might remember how Yongnam's stock price rallied briefly when the announcement was made a few months ago. The rally sputtered and the stock price resumed its slide downwards.

This is probably because it remains to be seen what are the details and terms of the public-private partnership agreement with a 30 year concession for the international airport project in Myanmar. In Yongnam's recent full year statement, it is stated that discussion is still underway.

Naturally, the project will require funding and will take time to complete. The Myanmar government will get a US$700 million low interest rate loan from the Japanese government while the consortium will secure about US$520 million in loans from private lenders as well as use internal resources in the construction of the airport. The airport will take about 4 years to complete construction. This project is likely to make material contributions to Yongnam's performance once it gets off the ground.

So, taking everything into consideration plus the fact that I am already holding on to a much reduced long position in Yongnam compared to the time when I was invested in it for income and growth, I decided to increase my long position in Yongnam today after its stock took a beating and price tested an important support level I identified.

Buying in at 16.1c per share represents a 32% discount to Yongnam's NAV and it also marks my first purchase of its stock in quite a while.

Yongnam had a terrible 2014 but could 2015 and beyond be better?

See financial statement: here.

Related posts:
1. Yongnam: Investing in infrastructural development.
2. Portfolio review: Unexpectedly eventful.
3. Managing exposure in AK's investment portfolio.

Spotting the next OSIM?

This is freshly taken from TheFinance's wall in FB. I made a few comments and I think this is substantial enough to share with readers who do not follow me on FB:

I have to go out in a while.

Have a good Sunday, everyone.

Related posts:
Managing exposure in investment portfolio.

Managing exposure in AK's investment portfolio: Examples.

I received a few emails and comments both in my blog and on my FB wall regarding Yongnam and Marco Polo Marine. In the wake of their dismal results, some are wondering if they should stay invested. Of course, I won't tell people what they should do but I can share with them how I manage my portfolio so that I do not lose sleep over it.

 

Regular readers and attendees of InvestX Congress a couple of months ago might remember the graphic of a pyramid which I shared. In case you do not remember, it is found in this blog post: Motivations and methods in investing.

Many know that I invest primarily for income and these investments form part of the wider base of the pyramid. It is about investing for a predictable and, ideally, sustainable flow of income. Such investments provide my portfolio with a measure of stability that I desire.

I also invest for income and growth. This is about investing in companies which have the potential to grow and have shown some promise through their track records. On top of this, I like for them to show a commitment to pay dividends. Of course, I said before that both Yongnam and Marco Polo Marine were in this category.

I also invest purely for growth but this is higher up in the pyramid and such investments, without any dividends, should form a smaller portion of my portfolio.

So, for example, I reduced my exposure to Marco Polo Marine as it would probably struggle to pay a dividend now because not all its businesses are doing well but I am still optimistic that the company would see impressive growth if the purchase of the oil rig should work out the way the CEO thinks it should.

Now, what about Yongnam? They announced a bigger loss than expected in its latest results. A question to ask is whether this weakness is enduring or is it temporary? I am inclined to believe that it is temporary. So, I am staying invested.

With Yongnam, it is about securing more projects and, hopefully, those with higher margins. Although I am optimistic that Yongnam will do better in future, in the near term, the thesis for investing in Yongnam for both income and growth has been shaken. So, I might reduce exposure, similar to what I did with my investment in Marco Polo Marine.

Now, some might ask if I would lose money by reducing exposure. I might.

Might? Yes, might, not would.

It is good to remember that in all my investment decisions, it is partly about getting in with a margin of safety. Of course, with trading decisions, it could be quite different.

Also, because I usually invest with an income angle in mind, losses, if any, are less daunting, taking past dividends into consideration.

If I had divested some of my investments when stock prices ran up, then, I could actually end up with a gain even if I were to reduce my remaining long positions at a loss later on. I did this for Yongnam before but, unfortunately, I did not do so for Marco Polo Marine. Why?

Yongnam's share price ran up because of speculation regarding its chances of getting that big job in Myanmar. Marco Polo Marine's share price ran up, I believe, because it was undervalued compared to its peers. So, a partial divestment in Yongnam's case when prices ran up was only reasonable to me but not in Marco Polo Marine's case.

We don't always do well in our investments as conditions change and these changes might throw a spanner or a few in our analyses. However, if we

1. Invest cautiously, always demanding a margin of safety,

2. Take some gains off the table when given the opportunity,

3. Stay invested if the investment still holds promise,

Over time, we won't do too badly.

Finally, it probably pays for some to remember that my investments in Marco Polo Marine and Yongnam are bits of a bigger investment portfolio. They are not my only investments. Remember the pyramid. Know what we are after and our methods should reflect our motivations.

Related posts:
1. Yongnam: DPS of 0.6c.
2. Marco Polo Marine: Reason for weakness.
3. Portfolio review: Unexpectedly eventful.

Portfolio review: Unexpectedly eventful.

At the end of last year, I shared the results of my efforts in the stock market and also my strategy to grow wealth and augment income in the new year. Quite a few things have happened since then. So, I decided to do a review of how things have moved.

In the S-REITs department, the biggest change this year to my portfolio has to be the major divestment in Sabana REIT. My current long position in the REIT is just a bit more than 10% of my investment at its largest. Whatever I have left is free of cost and will continue to generate passive income although on a much smaller scale.

Also in the S-REITs department, I took part in AIMS AMP Capital Industrial REIT's rights issue and tried to get more excess rights but without much success. Recently, I sold a small percentage of my investment, believing that it was the right thing to do as its unit price ran up, post rights. This REIT is still my largest investment in S-REITs. Having said this, passive income received from this REIT will shrink some 15% this year, given the dilution from the recent rights issue.

In the Business Trusts department, I decided to divest completely my investment in Perennial China Retail Trust after receiving another round of income distribution which I concluded was unsustainable. This was before the takeover offer by St. James.

Also in the Business Trusts department, in late January, I more than doubled my investment in Croesus Retail Trust, believing that, trading at a discount to valuation and offering an attractive income distribution, it is a more dependable passive income generator than Perennial China Retail Trust. Although its relatively high level of gearing is a concern for some, there is unlikely to be any nasty surprises in the area of financing over the next few years.

In other stocks, I added to my long positions in Yongnam and Hock Lian Seng. Yongnam hit a rough patch, as expected. However, things are likely to improve later this year and probably the next. It is a leader in what it does and it has a very good track record. Last year's performance was exceptionally bad and probably would not be repeated. I like how Yongnam started to pay meaningful dividends in recent years and this is likely to continue, conditions permitting.

Hock Lian Seng, like Yongnam, is in the construction sector and also like Yongnam, I expect it to be a beneficiary of increased spending on infrastructure projects in the country. Already, Hock Lian Seng won two major projects which have bumped up its order book and will provide earnings visibility for some time to come. There will probably be more order wins in future. Of course, Hock Lian Seng also pays meaningful dividends which I like.

One stock which I have been waiting for an opportunity to accumulate was CapitaMalls Asia. Well, it is a pity that it will be taken private by its parent, CapitaLand, which offered $2.22 a share. I feel that it is a fair enough price which, perhaps, suggests that the price at IPO was unfair but I will let readers draw their own conclusions in this contentious issue. My acceptance form has been sent out.

A stock which I have turned more cautious on is Marco Polo Marine. Recent developments mean that the business is now somewhat different from what I envisioned it to be in my initial investment thesis. Not giving enough consideration to how the tugs and barges could be a drag on overall performance before, I decided to trim my exposure to the stock. Things could improve in future but, for now, the level of clarity has lowered.

The first few months of the year have turned out to be a bit more eventful than expected on the investment front. My war chest is now fuller through some divestments as well as dividends received. I do not have any immediate plans for the funds and I will probably just hold on to them for now. After all, I had felt that I was too much invested in the stock market and had desired a bigger cash position.

Of course, if I were to keep the status quo, I will, for sure, receive a much lower level of income from my investments in S-REITs this year. How much lower? I guess we will know by end of the year.

Having said this, my decision to increase my level of investment in SPH and NeraTel last year so that my overall portfolio is less reliant on S-REITs for passive income was pre-emptive. Enlarging investments in Hock Lian Seng and Croesus Retail Trust earlier this year has also helped to reduce reliance on S-REITs for passive income.

What next? I certainly do not know if the economy will do well or if it would suffer a decline in the next few years. However, I do know that I am staying invested as long as my investments have reasonably sturdy fundamentals and, preferably, are able to generate reasonably good income for me. They don't have to be stellar performers and I don't have a problem with getting rich slowly.

I will simply wait for Mr. Market to feel depressed enough to sell more to me at prices I cannot refuse while I collect regular dividends in the meantime.

Related posts:
1. A strategy to grow wealth and augment income.
2. Sabana REIT: 1Q 2014 DPU 1.88c.
3. AIMS AMP Capital Industrial REIT: $1.425.
4. Perennial China Retail Trust: Fully divested.
5. Croesus Retail Trust: DPU above forecast.
6. Yongnam: DPS of 0.6c.
7. Hock Lian Seng: $221.8 million contract.
8. CapitaMalls Asia: Farewell.
9. Marco Polo Marine: Price weakness.
10. SPH: Within expectations.
11. NeraTel: A very good investment.

Yongnam: DPS of 0.6c.

With plans to double the MRT lines in Singapore by 2030 and with more public sector construction projects, investing in Yongnam seemed like a natural choice and I have blogged about this many times over the last couple of years.

Unfortunately, last year was a very bad year for Yongnam and they presented a more or less expected set of nightmarish numbers for FY 2013. To be fair, the management already warned way ahead of time that numbers are likely to be bad. So, no one was caught unaware and Mr. Market seemed to have taken the results in his stride. Yongnam did not see any big plunge in share price.

In summary, the problems were:
1. Significant cost overruns in 3 projects.
2. $8.1 million loss in selling off some steel pipe piles.
3. $5.1 million provision for bad debt.
4. Additional costs from alteration works for 2 projects.

All these meant that net profit fell 87% to $5.5 million, year on year, although revenue rose 20% to $362 million. ROE fell from 15.9% to just 1.3%. EPS fell from 3.45c to just 0.44c.

In an earlier blog post on Yongnam, I said that the question to ask was whether the problems were one off events or recurring in nature. If we believe that they are one off events and that Yongnam's business is still fundamentally sound, then, we should make use of market weakness to accumulate its stock.

Yongnam's order book stood at $340 million at the end of 2013. $185 million will be recognised this year. Of course, Yongnam is also taking part in tenders this year and winning some of these potential projects would bump up revenue figures. Expectations are for project wins with total value of almost $300 million.

As long as nothing like what went wrong last year happen this year, I believe that Yongnam's numbers for 2014 couldn't get any worse. Guidance is for gross profit margins to normalise to 20% this year and even if Yongnam did not win a single contract this year, which is highly unlikely, they would still be able to deliver a similar or stronger EPS.

On 31 October, I said that, "With a 3Q loss, they might or might not pay a dividend for the year although a lower DPS should not be demanding. Without major CAPEX in the year, this is a possibility."

Yongnam declared a DPS of 0.6c which is higher than their EPS of 0.44c. This signals Yongnam's ability as well as determination to reward shareholders despite having had a tough year. I appreciate it and, to me, it also shows that Yongnam is likely to reward shareholders more generously when its numbers improve again in future. Will it happen? Very likely, it will.

Someone told me that with EPS of only 0.44c, if we value Yongnam at 8x earnings, its shares should be worth only 3.5c each. I told him that I am a generous person. So, I value Yongnam at 11x earnings and will buy from anyone who is willing to sell to me at 5c per share. Any takers?

See presentation slides: here.

Related posts:
1. Yongnam: Substantial shareholder increased stake.
2. Yongnam: Profit guidance 3Q 2013.

What I do before I buy or sell a stock.

People sometimes ask me what kind of software do I use to keep track of investments or to decide what and when to buy and sell. They are always amused by the blank stare I give them.

AK71 is very old school which is a nice way of saying I am outdated when it comes to technology. No kidding.

OK, want an example of how I work? Here is a recent one:

This is the most recent of my scribbles regarding Yongnam.

Yes, I scribble on bits of paper (and hope I don't lose them which I rarely do, anyway).

Some of you might recognise what has been scribbled on the piece of paper. Technical analysis (TA). I usually do this when I have decided to buy or sell based on fundamentals and, yes, I scribble fundamental analyses (FA) I have done on pieces of paper too.

Some of my scribbles get organised and make it to my blog as fully fleshed out articles but many never do. Well, in my pre-blogging days, most of the scribbles would eventually end up in the bin. So, the current situation is probably a big improvement.

I also cut out articles from newspapers and periodicals, using a highlighter or pen to draw attention to what I think is useful information. Example? See: Art of wealth accumulation.

Oh, if you are wondering if I bought more shares of Yongnam's, yes, I did at 24.5c a piece yesterday. That is at a discount to their NAV/unit of 26c or so.

After divesting most of my initial investment in Yongnam in 2013, yesterday's purchase of the company's stock was my third since end October 2013. If Mr. Market continues to offer a good price, I would probably buy more.

Own the kind of assets Yongnam has at a discount? Own a business that will benefit from the projected doubling of  MRT lines in Singapore by 2030? Sounds good to me.

Whenever I scrambled to invest, often, I lost money. Whenever I scribbled to invest, often, I made money. What is the moral of the story? I wonder.

Related posts:
1. Strategy to grow wealth and augment income.
2. When to BUY, HOLD or SELL?
3. Recommended books for FA and TA.
4. 3 points in stocks investing.
5. 7 steps to passive income from stocks.

A strategy to grow wealth and augment income (2013).

I am primarily investing for income and in my last blog post, in what has become a yearly practice, I revealed my full year income from S-REITs as well as how they fit into my investment strategy. They are relevant to income investors but with the spectre of rising interest rates in the years ahead as well as a peaking in the real estate cycle here, it is sensible not to be overly optimistic about S-REITs in general.

So, apart from a large purchase made in Saizen REIT in the middle of 2012, I have devoted most of my resources to stocks. These should be undervalued and are likely to continue growing for years to come. Since I want to have income from my investments, I would also like for these stocks to pay dividends.

Marco Polo Marine's yard in Batam.

Now, with these stocks, the main strategy is to buy and hold. However, I am not averse to trading around my investments. So, I could divest partially or fully if it is a good idea to do so. For 9M 2013, I revealed that I locked in gains of S$188,625.13. Has the number changed?

Well, I mentioned that I partially divested my investment in Sabana REIT last month. This added S$12,860.03 to gains from trading in 2013.

So, total trading gains in 2013 is S$201,485.16.

What about adding to my long positions?

What I hope to do primarily is to identify good companies, initiate long positions in them at fairly good prices and then wait to add to these positions if there should be bad news which send their share prices down. These are companies which I am comfortable to stay invested in for years, knowing that they possess some competitive advantages which differentiate them.

Warren Buffett famously said that we should invest with the thought that the stock market could close the next day and not reopen for five years. What does this mean?

Invest in stocks of companies which we are confident will do better over the next five years. We wouldn't be bothered by any volatility in their stock prices in the meantime unless it is to add to our long positions with greater margins of safety. If we understand this, we will know what stocks to avoid. How? Do an inversion.


With this in mind, in the last three months, I added to my long positions in NeraTel and Yongnam as their share prices declined due to bad news which I believe are neither long term nor recurring in nature. I have received fairly good dividends from these stocks and I also made some money trading these stocks earlier in the year.

I also added to my long position in SPH. I was paid both the special dividend and the year end dividend for this as well.

Marco Polo Marine is still my single largest investment although its share price has not declined significantly enough for me to add to my long position. The much higher dividend per share paid out recently was a bonus.

I also retain long positions in CapitaMalls Asia and Wilmar International. These are strong companies and leaders in their fields. They are likely to do better in future.

So, was anything new added to my portfolio?

I initiated a long position in Croesus Retail Trust and even added to this position by using funds freed from a partial divestment of Sabana REIT.

Wait a minute? Didn't I say that I am wary of rising interest rates and a possible peaking of the real estate cycle? Yes, I did but Croesus Retail Trust owns malls in Japan and the BOJ is bent on keeping interest rates really low. Abenomics demand this. The Trust has a relatively low cost of debt which is locked in for 5 years.

Luz Shinsaibashi.

Japan has also suffered from continual deflation for 20 years. If anything, the real estate cycle should have a greater chance of bottoming than peaking. Anecdotal evidence tells of a recovering real estate market in recent months that is likely to pick up speed in future.

Although my strategy, with a generous dose of luck, has worked well this year, I can only hope that it will continue to work in the new year.

To grow wealth and augment income? Yes, indeed, that is the plan.

Related posts:
1. 2013 full year income from S-REITs.
2. Yongnam: Substantial shareholder increased stake.
3. NeraTel: Added to my long position.
4. Marco Polo Marine: Exciting times ahead.

Yongnam: Substantial shareholder increased stake.

Delta Lloyd Asset Management on 31 October 2013 bought 1,231,000 shares.

Price? 24.08c a piece.

They now have a total of 115,089,000 shares or a 9.08% interest.

I first made mention of Delta Lloyd Asset Management in the comments section of my blog in January this year and it seems that they have been a persistent buyer. I have probably missed quite a few instances of buying by them since then.

See my comments on their buying activities as well as their rationale for investing in Yongnam (translated from Dutch to English): here.

Related post:
Yongnam: Profit guidance.

Yongnam: Profit guidance 3Q 2013.

Yongnam's share price declined more than 10% early this morning. Reason? The management issued a profit guidance. It is more like a fair warning that the latest quarter's results will be negative and that investors should not be too optimistic. This is due to:

1. Cost overruns from 3 on-going projects, paring operating margin to new lows

and

2. A significant one-off loss on disposal of some fixed assets.

So, what did I do? Thanks to an SMS alert from a friend, I did a quick read of the announcement before buying more at 24c a share.



I believe that Yongnam's position in the construction industry is not shaken. It owns a large inventory of reusable steel struts which are valuable assets as they also present a high barrier to entry in Yongnam's niche in the industry.

The decline in share price has presented a good opportunity for me to buy into the business at a discount to NTA. I cannot see how it is a bad idea to own what Yongnam has at a discount.

Of course, cost overruns and suffering losses are unpleasant but we are buying a business with an eye on its future. So, it is important to question if such instances will become the norm? Will they happen again and again in the future? Will they be persistent?

I am of the belief that these are one-off events and that Yongnam's balance sheet will not be negatively impacted in any big way. Overall, Yongnam will still remain profitable for the year although it will pale in comparison to the year before.

Yongnam's future is bright as they will be a beneficiary of the government's drive to double the MRT network in Singapore and there will be work aplenty until 2030. Even if there should not be any iconic projects (which is unlikely), Yongnam will probably have quite a bit of work to keep them busy in the years ahead.

When one-off events like this send Mr. Market into a manic depression, they present a chance for me to buy a business with a proven track record and a bright future at a discount.

Some of us might remember there were times when Mr. Market was very optimistic about Yongnam (for example, on the Myanmar airport projects). Its share price rose to be much higher then. That was probably a bad time to buy.

Please note that I am not glossing over the challenges that Yongnam is facing. Like other construction companies, Yongnam is having a hard time with cost pressures.

With a 3Q loss, they might or might not pay a dividend for the year although a lower DPS should not be demanding. Without major CAPEX in the year, this is a possibility.

See:
Profit guidance: 3Q 2013

Related post:
Yongnam: A chance to accumulate cheaper.

9M 2013 income from S-REITs and more.

Three more months to the end of the year. Lots of things have happened in the first 9 months of the year. I want to zoom in on the investment front and record some of my thoughts.

The strategy to be invested in S-REITs for income is still working. Of course, with the spectre of the Fed cutting back on QE and a possible increase in interest rates in the next 2 or 3 years, Mr. Market has turned cautious on leveraged investments like S-REITs. This is only natural. Unit prices of S-REITs have become more realistic as a result.

When Mr. Market is pessimistic, that is when we are likely to get good deals. As to what is a good deal, I am sure this is rather subjective. Every person would have a different idea of what is an acceptable margin of safety. Every person would have a different perception of a REIT's prospects.

Having built up a relatively large portfolio of S-REITs, I devoted more resources to investing in what I believe are undervalued stocks, something which I continue to do in 2013.

So, essentially, what I have done is to keep what has worked well for me thus far while expanding my investments in certain companies, recognising possibly more difficult times ahead for S-REITs. 

This is an approach that requires more work than simply getting passive income from S-REITs but the time when it was a no-brainer to buy and hold S-REITs probably ended sometime in the second half of 2012.

For 9M 2013, how much did I receive in passive income from S-REITs? 

$92,872.65

Full year 2013 income from S-REITs is most likely going to be lower compared to 2012 because I sold a significant portion of my investment in LMIR earlier this year and also because Saizen REIT distributes income half yearly (i.e. there is no income distribution in December from Saizen REIT).

Also, we might want to bear in mind that, although hedged, the weaker Indonesian Rupiah and Japanese Yen could result in lower income distributions in S$ terms for unit holders of these REITs in the year 2014.

With twice as much industrial space being scheduled for completion in 2014 and 2015 than any single year in the past decade, the possibility of stagnating or even a reduction in income for industrial S-REITs in future cannot be discounted. This is why looking at WALE (Weighted Average Lease Expiry) of industrial S-REITs is more important now.

Although I would have liked nothing better than to sit back and collect passive income regularly from S-REITs, doing very little else, I decided to move out of my comfort zone. For sure, there were bumps along the way but my efforts have generally been rewarding thus far. 

What did I do?

I increased my investments in stocks which are likely to be dependable passive income generators such as SPH and NeraTel. 

I also hold long positions in stocks which I believe would benefit from the Chinese consumption story such as CapitaMalls Asia, PCRT and Wilmar. 

Any dividend from investing in these stocks and any gain from trading would go towards cushioning the possible decline in income from S-REITs in future.

Up to 15 September 2013, the total gain from trading this year amounts to: 

$188,625.13

It was fortuitous the way the China Minzhong saga turned out. It preserved my trading gains and grew it rather significantly at the same time. Apart from my long position in Wilmar, all other investments are in the black. 

So, what is my plan for the future? 

Nothing profound really. 

If prices were to decline much more, I hope I would be brave enough to buy more. If prices were to rise much more, I hope I would remember to sell some.

The grand scheme is to augment and not to replace my passive income portfolio. 

For sure, it doesn't mean that I think S-REITs are going the way of the Dodo. Indeed, they are still good investments for income at the right prices. For me, passive income from S-REITs will still be an important pillar in achieving financial freedom. This is unlikely to change in the foreseeable future.

Remember, this blog is not meant to instruct but if anyone finds it inspiring, I will be happy enough.

Related posts:
1. 2012 full year income from S-REITs.
2. Never lose money in real estate and S-REITs?
3. Do not love unless it is worth the loving.
4. Motivations and methods in investing.
5. Be cautious climbing the S-REIT tree.
6. Be comfortable with being invested.

What do these stocks have in common?

Which stocks am I referring to?

1. Marco Polo Marine
2. Yongnam Holdings Limited
3. AIMS AMP Cap Industrial REIT
4. Asian Pay Television Trust
5. Saizen Real Estate Inv Trust

They have all been upgraded by Maybank Kim Eng to 100% valuation in their list of marginable stocks.

Own any other stocks shown in the photo?

Yongnam: A chance to accumulate cheaper.

If anyone is still wondering why Yongnam's share price plunged today, it is due to a 28.6% drop in quarterly net profit, year on year. The weakness in share price now has a reason.

The question to ask is whether this drop in net profit is because of an enduring change in Yongnam's businesses or is it a one off event?

Yongnam posted a quarterly net profit of S$ 8.6 million attributable to shareholders which is lower than the S$ 12.1 million a year ago. This is after a S$ 5.1 million provision for doubtful debt because Alpine Bau GmbH, the main contractor for the Downtown Line 2 MRT project, went bust.

Now, if this had not happened, Yongnam would actually have seen a 13.2% growth in quarterly net profit, year on year, instead. This tells me that Yongnam's underlying businesses are probably still doing well and that this provision, as long as it does not become a regular occurrence, does not have any long term impact.

There are three other points which I want to highlight:

1. Gearing has gone up a notch to 0.45x. This is not a bad thing if the borrowings are able to generate greater returns but we should always keep an eye on gearing.

2. Gross margin in the last quarter went under 20% to 19.4%. Ignoring the provision for doubtful debt, net margin is 11.9% which is still pretty good for a construction company but it tells us of the existence of rather significant cost pressure.

3. First half EPS now stands at 1.59c. Unless the second half results are so abysmal as to be a loss of more than 0.59c, Yongnam is fully capable of paying a dividend this year and going by what happened in the last two years, it would probably happen.

I put in a buy order at 28c last night and the stock also hit a low of 28c a share today. A total of 17 lots changed hands at 28c but, fortunately or unfortunately, my order was not filled.

If Mr. Market should continue to feel rather depressed about Yongnam in the coming sessions, I will make use of the opportunity to accumulate.

See Yongnam's presentation: here.

Related post:
Yongnam: Buy since price is more reasonable now?

Yongnam: Buy since price is more reasonable now?

Yongnam's share price has been declining and in the last session, it closed at 31c. Now, this got my attention.

I initiated a large long position in Yongnam at 24.5c and have collected two rounds of dividends. I have also divested three quarters of my investment in the company by now as its share price rose. As I started divesting a bit too soon, I estimate that only two third of my remaining long position is free of cost.

Including dividends collected, however, close to 90% of my long position is free of cost. Remaining long position still shows a 26% paper gain even after the decline in the last session. All in all, this has been a pretty good investment for me.

So, why do I like Yongnam?

Yongnam is a natural beneficiary of the planned expansion of the MRT network in Singapore. It is a leader in the provision of structural steelworks, specialist civil engineering and mechanical engineering services. It has a proven track record even in Hong Kong, having clinched many contracts in the territory's MTR network expansion, the latest of which was announced on 25 June 2013. Why won't its businesses be chugging along nicely?

Yongnam's competitive advantage is to a large extent due to its massive investment in reusable steel struts. To have such assets and in such quantity like they have at today's price is not easily achievable and this presents a high barrier to any potential competitor. That was also a reason why I thought paying a price slightly above its NAV was acceptable when I got in at 24.5c.

The updated NAV/share on 31 March 2013 for Yongnam was 26.5c. So, my buy price is now at a discount to its NAV. This is a positive development.

I also like how Yongnam has plans for a recurring income base although this will take many more years to bear fruits. An example of this is a joint venture for the construction and management of an international airport in Myanmar. Result of that tender exercise has yet to be released, I believe.

When this news was made known, many people chased the share price of Yongnam and it hit a high of 38.5c not too long ago. This was all based on speculation. There was no certainty that Yongnam would get the contract and even if the consortium it is a part of should get the contract, it would not see immediate benefits. With share price at 31c now, probably, many got burnt.

Isn't Yongnam a good stock? Yes, qualitatively and quantitatively, I believe so. So, why did this happen? Well, even with a good stock, the more prudent thing to do is to wait for a pull back to what is a more reasonable valuation before buying.

Is the valuation more reasonable now at 31c a share since I said it got my attention. Well, it is definitely more reasonable now than at 38.5c! That is a safe answer to give. OK, end of blog post. Kidding!

Let us look at earnings? 1Q EPS was 0.91c. If we annualise this, we get 3.64c which gives us a PER of 8.52x with a share price of 31c. At 38.5c, the PER was 10.58x. Remember that all these calculations do not take in probable improvement in EPS in future quarters.

If we are conservative, buying at NAV is probably a good idea. However, I would say that paying a small premium to its NAV is acceptable. I liken it to paying a higher price for a powerful weapon in a fantasy RPG game that will give me an unfair advantage over others. Evil grin!

As usual, I am corrupted by TA and if we look at the chart, the longer term uptrend is still intact if we take reference from the 200d MA which is still rising. It now approximates 29c. This is a long term MA and is expected to provide stronger support although it does not mean that price might not whipsaw which could see 27.5c as a possible target.

So, I should rush to put a buy order at 27.5c? Remember, TA is about probability and not certainty. A smallish hedge at the 200d MA might not be a bad idea.

Reminder: I am talking to myself.

Results announced on 15 May 2013: here.

Related posts:
1. Yongnam: Investing in infrastructural developments.
2. Yongnam: 1c dividend per share.

Hock Lian Seng: Buying on weakness.

In my last blog post on Hock Lian Seng, I said that we could see its share price moving lower and it has moved lower. 

Do I believe that this is the lowest it could go?





Well, I certainly do not know if the stock price will stop declining although I will say that it could have found support. 

We can see this if we draw a trendline connecting various lows. 

Also, the higher low in the CMF gives us a positive divergence against a declining share price.

More likely than not, there will be a host of positive catalysts for Hock Lian Seng's share price to move higher but investors must be willing to wait. 

While waiting, the company's payment of meaningful dividends to shareholders annually will provide some comfort. 

If the dividend per share should be a more conservative 1.5c, with a share price of 26c, we will have a yield of 5.77%.





The weakness in Hock Lian Seng's share price allows me to buy more with a bigger margin of safety and any further weakness will create more opportunities to accumulate.

Related post:
1. Hock Lian Seng: Dividend of 1.8c per share.
2. Hock Lian Seng: Insider buying.

Yongnam: Partial divestment at 33.5c.

Building on my observation that Yongnam's stock price seems to move in blocks of 1.5c, I have been putting in overnight sell orders at 34c for a few sessions. These sell orders did not manage to get filled even as the stock touched 34c in recent sessions.

With CMF forming lower highs, we have to think that smart money has grown less enthusiastic about the stock even as the recent high of 34c was repeatedly tested as resistance. So, I made a decision to partially divest at one bid lower than 34c today.

This batch of shares was purchased in February 2012 at 24.5c a share. So, the result is a capital gain of 36.73%. Of course, I also received 2 rounds of dividends of 1c per share in the same period. Total ROI is 44.89% over a 15 months period. Not too bad.

Yongnam's stock is trending up and the channel is clear to see. It is currently testing the resistance of the channel. There is a chance it could break out of resistance but with volume anaemic, the chance is slim. There is also a chance it could pull back to test support provided by the rising 20d MA or even the support of the rising channel.

Technically, it seems more prudent to lighten my long position in Yongnam and to wait for a pull back before loading up again.

Related post:
Yongnam: Partial divestment at 31c.

Yongnam: Partial divestment at 31c.

Last month, I commented that I was almost sure that Yongnam's stock would hit 31c per share and this has happened sooner than expected. Today, the stock hit an intra day high of 31.5c.

Technically, I have observed that the share price seems to move in bands of 1.5c. So, overcoming resistance at 31c, we could see share price rising to 32.5c and 34c over time.

Fundamentally, it is not so easy to forecast Yongnam's earnings as it depends on the number and value of projects they might capture in future. There really is no consistent recurring income base which can be used.

However, if we were to accept last year's performance as the worst case scenario and be more conservative, at 31c per share, Yongnam is trading at a PE of almost 9x. It is hardly expensive.

If we accept CIMB's forecast of 5.2c EPS in 2013, then, PE is much lower at almost 6x. Definitely inexpensive.

CIMB thinks 5.2c EPS is attainable because previously delayed projects would be ramped up in 1Q 2013. Various landmark projects are also expected to boost earnings in 2013. (See CIMB's report: here.)

Is share price going higher in the next few sessions? The formation of a long white candle on the back of extremely high volume is very bullish. Share price could indeed move higher but because my initial target price of 31c has been hit, I decided to do another partial divestment today.

After all, to sustain the upward movement in price from here, much higher volume is probably required. Is this likely? I don't know but locking in some gains as price action went parabolic seems like a good idea.

Keep an eye on the momentum oscillators. If lower highs form although share price has moved higher, we would see the formation of negative divergences. This would sound a warning bell although it does not mean that share price would decline right away.

Related post:
Yongnam: Investing in infrastructural developments.

Yongnam: Investing in infrastructural developments.

I like what I read in The Business Times today on how Yongnam is leveraging on its core competencies to diversify into investing in infrastructural developments which would generate recurring earnings in future.

This is an astute step in the right direction since Yongnam is already a leader in the provision of structural steelworks, specialist civil engineering and mechanical engineering services. So, they have an upperhand in undertaking infrastructural developments.

Yongnam has, together with JGC Corporation and Changi Airport Planner and Engineers Pte Ltd, looked into possibly submitting a tender for the construction and management of an international airport in Myanmar.

This new business direction and the burgeoning pipeline of infrastructure projects in Singapore to 2030 hint of more vibrant times ahead. Yongnam is, more likely than not, going to be a steady performer and could surprise with better results in time to come.

Dividend payout remained the same at 1c per share despite a decline in EPS. This suggests to me that Yongnam is commited to paying at least 1c per share in annual dividend in future.

I am rather contented to be paid to wait for Yongnam's results to improve meaningfully over time.

Related post:
Yongnam: Declared 1.0c dividend per share.

Yongnam: Declared 1.0c dividend per share.

EPS tumbled by more than 30% and yet Yongnam's share price stayed resilient today.

2.17c (2007)
2.79c (2008)
3.27c (2009)

4.38c (2010)
5.06c (2011)
3.45c (2012)

Buying in when I did at 24.5c a share in February 2012 a year ago, it was at a PER of 3.7x, using EPS of 5.06c from the year 2011. A PER of 3.7x is pretty cheap.

Paying 24.5c a share was also approximately at a P/BV ratio of 1.04x. Yongnam's assets are a strong reason why it has a durable competitive advantage. To amass the volume and type of productive assets like Yongnam's is not an easy feat. So, paying slightly more than book value is, I believe, more than reasonable.

Although in the longer term, Yongnam is likely to benefit from Singapore government's commitment to build a more extensive MRT network through 2030, its near term performance could be lacklustre. This might or might not be reflected in its share price.

At 28c a share, PER is now 8.12x. Although not expensive, it is not cheap either.

Anyone buying into Yongnam now is buying into a strong belief that much better days are ahead for the company. Indeed, with its strong track record over the years, there is no reason to believe otherwise.

Technically, however, it is obvious that 29.5c is the immediate resistance and the selling pressure could be quite strong if it should be tested again.

"Outlook for the construction industry both in Singapore and the region remains positive as governments step up on infrastructural spending for projects like roads, railways and airports.

"Yongnam’s strong competitive advantage in the Structural Steelworks and Specialist Civil Engineering infrastructural works is expected to support the Group’s active pursuit of approximately S$1.3 billion worth of new projects in Singapore, Hong Kong, Malaysia, India, Indonesia and the Middle East."

See slide presentation: here.

See news release: here.

Related post:
Yongnam: Broke resistance! 29.5c tested.

Yongnam: Broke resistance! 29.5c tested.

On 14 February, in a reply to a reader regarding my take on Yongnam, I wrote:

"My view? Technically, positive momentum is very strong and there is a chance that resistance could be taken out if this keeps up."

Hot on the heels of that statement, the share price broke resistance at 28c today on the back of heavy volume to touch a high of 29.5c. Spooky!

Of course, based on my observation that Yongnam's share price seems to move in bands of 1.5c, 29.5c is the new resistance to watch. 28c is the new immediate support.

On 15 February, in another reply, I wrote:

"Although I don't have a working crystal ball, I am almost sure that Yongnam would hit 31c a share in the next 12 months. There, I know I shouldn't say things like this but I am not WB. So, indulge me."

Now, if 31c were to be reached this week, it would really be spooky!

Related post:
Yongnam: Partial divestment at 27.5c.
(See the comments section.)

Yongnam: Partial divestment at 27.5c.

Further weakening could see 25c tested as support. It is also where we find the 50% Fibo retracement line.

I decided to lock in some gains yesterday at 27.5c as price spiked very much higher on the back of heavy volume. I did this as, although Yongnam is a fundamentally sound company, my portfolio is too heavily loaded in the stock.

Related post:
Yongnam: Looking forward to further weakness.