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.

Chats with readers on Japan, bonds, properties, GFC etc.

AK is an accredited kay poh and spends quite a bit of time chit chatting with readers online. When I shared with a couple of fellow bloggers and also some friends that I spend at least 3 to 4 hours online answering questions everyday even if I am not blogging, they were amazed!

Here are some recent chats:

Sent to me by Paul who is vacationing in Japan:

Paul: U come japan so often, they name a burger after u?

LOL!

Then, G thought of buying some bonds:

B had some questions on investing in real estate in Singapore:

E discovered that AK is quite good at side stepping questions:

W had questions about war chests and allocation:

P asked about averaging up or averaging down on our purchases:

I forgot to mention that I kept adding to my investment in Hock Lian Seng over the years when I thought Mr. Market offered me more attractive prices at different times.

I enjoyed all the chats. I hope you did too. ;p

Related post:
An evening with AK and friends: Photos.

Hock Lian Seng: Testing 39.5c resistance.

The last time I blogged about Hock Lian Seng was in December last year. Since then, the stock has seen its price rising almost relentlessly. Drawing some Fibo lines shows that share price is now probably testing the resistance at 39.5c. It is a golden ratio and probably quite a strong resistance.

I have readers asking me if they should sell their investment in Hock Lian Seng in the last month or so. I said it is really up to them.

I am not ready to sell because I invested in Hock Lian Seng for income and even at 36c a share, a 1.8c dividend per share (DPS) would still mean a 5% dividend yield and that is based on a 40% pay out ratio. Still a pretty good income generator. So, even at 36c, it wasn't a price I would sell at.

Just now, I was alerted by a reader that Hock Lian Seng is declaring a 4c DPS and although I thought a bumper dividend possible before, it is still a pleasant surprise. This means a dividend yield of as much as 16.67% based on my lowest entry price in October 2011.

Over the years, Hock Lian Seng has been a very rewarding income investment for me and the higher DPS declared today is the icing on the cake.

What about the future?

Hock Lian Seng has been winning projects and their order book is now worth about $457 million. Even without new order wins which I think is unlikely, they will be kept busy for many years. This is in line with my initial investment thesis that Hock Lian Seng is a natural beneficiary of our country's escalating investment in infrastructure projects till the year 2030.

Hock Lian Seng has another industrial development property project which will obtain TOP probably in the next month or so. This will mean recognising more net proceeds as the project is almost 90% sold. An interim dividend, perhaps? Well, we can always hope although given the conservative nature of Hock Lian Seng's management, I doubt that it would happen.

Now, let us look at the burr in Hock Lian Seng's side, the Skywoods. Although the Skywoods condominium is less than half sold, I have written a pretty detailed piece before on how Hock Lian Seng's business is much more than just Skywoods. This residential development project, a joint venture, is expected to obtain its TOP sometime in 2016.

Recent transactions for Skywoods.

I would have been quite contented to stay invested in an income generating business that Mr. Market wasn't paying much attention to as I would have liked to build a bigger long position at lower prices. With the attention that Hock Lian Seng is now getting, I feel that its stock is no longer undervalued but, taking everything into consideration, it isn't expensive either.

See financial statement: here.

Related post:
Hock Lian Seng: Robust order book.