How to determine a Buy period

Using SGX as an example below: 

This method of analysis is not a professional technical analysis but a basic analysis on the low period of this stock. However, this method may not be applicable for every stocks. 

The pattern i noticed about SGX is the price is normally at its lowest in May. So if you wanna buy SGX, you can wait till May to see if the price drops to a satisfactory level. 

Same method can be used to analyse the highest price period too which i see is probably in November period before issuing out their dividends.

The Hour Glass

This premier watch retail outlet sells one of the most expensive watches, with its fine exquisite design featuring only the rich. In good or bad economic situations, The Hour Glass (THG) displays a constant growth of about 5%-15% in net profits. The resilient display of its stable returns coupled with its price close to its book value. The price i bought was $1.425 and its Net Asset Value (NAV) was $1.25. I'm actually paying about 90% of its assets value.

THG brand is unique due to its careful watch brand selections and the locations of their retail store. Their retail stores are located in places which targets the most high end customers like Paragon, Marina Bay Sands. They do not want to open stores in Yishun, Woodlands or neighbourhood places which will tarnish the premier brand of the company.

They also states in their FY2011 annual reports that they will be adding more retail stores in their key markets namely Singapore, Australia. Hong Kong.

Value Investing

Investing in SGX is all about buying low and selling high. Warren Buffet likes to pay $0.50 for a $1 worth of stock.

However, many people are not able to tell the true value of the stock and sell it rashly when the stock go up thinking that the stock is under speculation. However, as inflation rises with time, the value of the stocks appreciates together with it. Just like food and oil prices are constantly rising. You cannot or seldom will find a main course dish in a food court for $2, for now it costs $3-10, which if you can buy a Mac Chicken meal for, even with drinks and fries. Stall rentals in food courts have increased, same goes with food prices.

Value investing speaks from the true intrinsic of a company. The rate of growth the company, ultimately how the company will be valued now and in the future will determine a buy or a sell. If because of a certain decision the company makes which will increase their debts in future, and knowing that the company will have difficulty financing its debts because of bad profits or due to an stronger competitor, then you may decide to sell it or cut loss. One example is Tiger Airways which its share price dropped from $2++ to $0.70++ today due to increased competitions and high oil prices. The unfavourable position of the company makes it hard for it to grow its earnings as competitions are very stiff after the opening of Scoots, a budget airline by Singapore Airlines.

Value investing also comes from the a fundamental analysis point of view. How much risks the companies are exposed to. Airline companies in general are exposed to a constant number of risks which will affect their profits. A plane crash for example will affect huge losses for the company. An increase or a significant increase in oil prices will affect the company. A lack of a minimum required number of passengers in flights, meaning less people want to travel to a country that is part of the airline routes. There are so many factors which will affect the profitability of airlines company. A company that makes more sense in value investing is a company like SIA Engineering (SIAEC) who has a monopoly in its way. Of cause there are much more companies that have the same fundamentals which include Vicom, Singapore Exchange (SGX), Singapore Pools (but is not listed in SGX), ERP (also not listed in SGX). How SIAEC makes money is from the number of airlines landing is Changi Airport per day basis. Because all the airlines need to undergo overhaul operations and maintenance before making the next flight. These airlines have to go through SIA engineering's Overhaul and Maintanance hangars to service their airlines. And thus, SIA Engineering is the monopoly of the overhaul business in Changi Airport. As the number of airlines landing in Changi increases with the completion of Terminal 4, SIA engineering (SIAEC) will grow in terms of profits. As long as airline numbers landing in Changi Airport increases, will benefit the growth of SIA engineering. Inflation will also cause maintenance cost to increase and that will also contribute to SIAEC earnings. In value investing, we look at the factors that will affect the profits of SIAEC. If we know that the airlines traffic numbers are likely to increase, maintenance prices are going up, and SIAEC's stock price had gone down quite a bit, then we know that it is time to buy SIAEC.

I'm selling Thai Beverage

Thai Beverage had gone up a lot, and based on its current price of $0.39 per share. It is only yielding ~3% dividend.

And furthermore, it is buying off F&N at an expensive price previously to compete with Dutch Brewer, Heineken. 

As an fundamental analysis, InvestingSGX.blogspot.sg will recommend a sell on this stock!

My opinion on QE3

Since QE3 will bring up inflation due to dilution of cash in the economy. One reason i can think of is china, which kept its currency low to boost exports despite US claims that they are manipulating the currency.

Firstly, China did not appreciate their currency. US can print more money to buy their assets. And these assets will be come a discounts because it is bought by money being created out of nothing.

Secondly, QE3 is targeting more towards China based on the recent US trade claims against them. These claims, according to Kennedy, G (2012) states that "Chinese government has subsidized its automotive export industry in a way that is not allowed under World Trade Organization rules. As a result of the move, China filed a complaint with the WTO against a new U.S. law aimed at combating China's subsidies. The move is called "Countervailing duties" and includes tariffs on tires and steel."

My take on these were the claims may not be strong enough against China , and therefore decided that an alternative as to be in place. The Quantitative Easing 3, probably to flood China economy with cheap money.

Reference List

George Kennedy 2012, Obama calls for trade case against China, viewed 19 September 2012
< http://www.autoblog.com/2012/09/18/obama-calls-for-trade-case-against-china/>

Anthony Shoemaker 2012, China is ‘unfairly keeping its currency low,’ U.S. Rep. Turner says, viewed 19 September 2012
<http://www.daytondailynews.com/blogs/content/sharedgen/blogs/dayton/ohiopolitics/entries/2012/01/12/china_is_unfairly_keeping_its.html/>

3 REITS for sustainable risks and returns

When the US Fed Reserve Chairman announced QE3, i'm still wondering what will happen in the financial world and how it will impact the markets.

Snyder, M (2012) says, "This time, the quantitative easing is going to be open-ended. The Fed is going to buy 40 billion dollars worth of mortgage-backed securities per month until they have decided that the economy is in good enough shape to stop."

Inflation rates will go up as the US floods the world with more money. Singapore, like other countries, have to protect itself by strengthening its currency. And it has to be well managed because if our currency becomes too strong, it will affect our export rates as our prices will become expensive for other countries to import our goods. Therefore, QE3 will still cause our inflation rates to rise, but probably at a slower rate.

In order to curb inflation, we can hold assets like properties, commodities and stocks which is not affected by export numbers.

Focusing on 3 REITS which i particularly like because of their presence in Singapore

Starhill Global - owner of Wisma Atria and Ngee Ann City retail and offices in Central

CapitalMall Trust - owner/leader of the malls located in different parts of Singapore located n Bugis, Sembawang, Orchard, Clark Quay, Jurong.
More info of its portfolio: http://www.capitamall.com/our_portfolio/portfolio_overview.html

CDL Hospitality Trust - owns Orchard Hotel, Grand Copthorne Waterfront Hotel, M Hotel, Copthorne King’s Hotel, Studio M Hotel, Novotel Singapore Clarke Quay.

Starhill Gobal yields about 7% for $0.75 per share

CapitalMall Trust - yields 5.7% for $1.985 per share

CDL HT - yields 5.4% for $1.965 per share

Reference List

Michael Snyder 2012, QE3: Helicopter Ben Bernanke Makes It Rain Money, viewed 18 September 2012
< http://world.hawaiinewsdaily.com/2012/09/qe3-helicopter-ben-bernanke-makes-it-rain-money/>

REITS, an appreciating gem in Singapore

Blackden, R (2012) says "Federal Reserve chairman Ben Bernanke has announced a third round of quantitative easing in a bid to help America's weakening economy, as the IMF warns that Greece will need a third bail-out.  America's central bank said it will purchase $40bn (£25bn) of mortgage-backed bonds a month to stimulate the housing market and keep long-term interest rates low."

US is slowly recovering as they are now purchasing back their debts. However the Euro Crisis will need a longer time to be resolved as the IMF warns of the third bail-out of Greece as stated by Blackden, R (2012).

The odds of the third bail-out is unknown, but if it happens, stocks will continue to go on the upward trend as inflation rates increases.

The rationale for the upward trend of stocks is because when more liquidity is injected into the Greece economy, the liquidity will flow into countries with good returns and stable economy. Singapore is one example of a stable country with AAA rating by Standard and Poor.

REITS in Singapore had been the best performing assets. If you do not have enough money to buy property assets which was likely to be an uptrend in singapore for the next 5 years due to land constraints, you can invest in REITs in Singapore for good returns.

Some of the REITS:

• Starhill Global
• CapitalMall Trust

Few types of REITS to look at

• Commercial Warehouses / Factories
• Retail
• Hotels
• Residences
• Offices

Reference List

Richard Blackden 2012, Federal Reserve announces QE3 to aid US recovery, viewed 14 September 2012
< http://www.telegraph.co.uk/finance/economics/9541857/Federal-Reserve-announces-QE3-to-aid-US-recovery.html>

Why i think China Stocks will go up

China stocks did not perform very well in SGX for the previous years. I hold a couple of them which up till now seen its value depreciate up to 30% in value as compared to the price i bought it for.

My uncle, who is a CFO of an SME company told me that China companies generally have two different types of accounting standards, one for the public's view and the other one for their own management which was not shown to the public. Because of the lack of trust for china companies, many of the investors prefer to stay away from them.

However, i ignored the negative sentiments for them and went in to buy a few of the china stocks, hoping that they will be part of the China's 10 year growth plan, and appreciate in value in future.

These are the few stocks that i own namely Midas, which business is providing steel related products for the railway sector. Another stock i own is Hu An Cable, which deal with cable products etc electrical wires.

I believe that these two companies are well positioned to tap the expansion plans from the chinese government. Both Midas and Hu An had been constantly winning contracts from the government to build railway trains, extend electric cables along the china provinces.

Below is a news that China had started its expansion plans.

Wang, J (2012) says, "China approved plans to build 2,018 kilometers (1,254 miles) of roads, spurring the biggest stock- market rally in almost eight months on signs the government is stepping up stimulus efforts to revive economic growth.

The government also backed nine sewage-treatment plants, five port and warehouse projects, and two waterway upgrades, according to statements on the website of the National Development and Reform Commission yesterday. No investment amounts were given."

Midas and Hu An Cable went up slightly today. But in the long run, it is still uncertain whether investors will start regaining confidence on chinese stocks. But i am sure that the contracts they won will contribute positively to their revenue at least by end of 2013.

Reference List

Jasmine Wang 2012, China’s Roads-to-Subways Construction Spurs Stocks Rally, viewed 7 September 2012
< http://www.bloomberg.com/news/2012-09-06/china-approves-plan-to-build-new-roads-to-boost-economy.html>

Blindspot

Why i named this topic blindspot is because this company was here for a long time but because of the market noises, i was not able to discover this gem until i read these blogs from two wisemen. Refer to the reference list below

One of the blogs i read was a person who is a long term investor of Kingsmen Creative. Below is what he gathered from the 2012 AGM.

financiallyfreenow (2012) says 

• "One shareholder asked about the competitors of Kingsmen. Benedict Soh, the co-founder and Executive Chairman, said that the competitors vary for each division. He also said something very significant. He said that Hans Bruder, Managing Director of Octanorm, told him, “No other company in the world has the same breadth of services as Kingsmen”. I felt elated at hearing this. Ben joked that now he has someone to quote instead of him always saying that Kingsmen is a strong company.
• 70% of Kingsmen’s clients are repeat customers. Ben said that clients come back to Kingsmen just like how patients always visit the same family doctor for illnesses. Word-of-mouth recommendations have also helped Kingsmen’s business.
• Revenue contributions from Singapore takes a huge percentage of total revenue. Many of the projects done overseas are still billed in Singapore as the Singaporean teams are involved in the project overseas even though the clients are overseas clients."

These 3 points indicate that Kingsmen business is fundamentally sound, meaning to say that their business is resilient to competitions but does not mean that they are not exposed to competitions at all. I do not have a very detailed overview of this company but based on the numbers from recent years, the company had substantially grew their revenue at a steady pace. Next is the quote from sgmusicwhiz, who is also believes greatly in its strong business fundamentals.

sgmusicwhiz (2012) says "Kingsmen’s revenues have seen a steady rise from S$53.5 million in FY 2003 to a high of S$190.6 million in FY 2008, in just a span of 5 years. 9M 2009 revenues were S$151.6 million, and as 4Q is traditionally their strongest quarter, the FY 2009 results may yet surprise on the upside."

CNBC with Wires (2008) says "Financial institutions globally have recorded more than $500 billion of write-downs and credit losses as the U.S. subprime mortgage crisis has spread to other markets." with context to the Lehman Brothers bankruptcy issue caused global investors worldwide to lose confidence, meaning to start withdrawing out money from their investments from bonds, equities, banks etc. This in turn caused a market turmoil. Investors worldwide being fearful, decided to stop spending/investing and soon more and more businesses got affected.

However, if you look closely at the earnings from Kingsmen Creative at the 2008-2009 mark during the turmoil, their revenue was not at all affected. This shows that the company is resilient because it is able to deliver earnings with the presence of an economic crisis.

Now with the Price to Earning(PE) ratio of ~9 is still a cheap buy for this stock.

Reference List

CNBC with Wires, 2008, Lehman Brothers Files For Bankruptcy, Scrambles to Sell Key Business, viewed 2 September 2012
<http://www.cnbc.com/id/26708143/Lehman_Brothers_Files_For_Bankruptcy_Scrambles_to_Sell_Key_Business>

sgmusicwhiz 2012, Kingsmen Creatives Analysis of Purchase, viewed 2 September 2012
<http://sgmusicwhiz.blogspot.sg/2010/03/kingsmen-creatives-analysis-of-purchase.html>

financiallyfreenow 2012, Kingsmen Investment Fair 2012, viewed 2 September 2012
<http://financiallyfreenow.wordpress.com/2012/05/19/kingsmen-annual-general-meeting-fy-2011/>

More indications of Tourism Bloom in Singapore

Lim (2012) stated that "Both Singapore and China are hoping the Giant Pandas can fly to Singapore by the end of the year."

On the other hand, with the completion of the new Terminal 4, SATS will most likely be the main operator for their gateway services. SATS core business includes gateway services and food solutions. As the operator of the new Passenger Cruise Terminal, they are in a good position to capture the tourism bloom in the next 5 years.

Another GEM that i missed out is Genting Singapore, previously turning a 2Billion in debt 2-3 years ago into 0.5M in cash. 

LEISURE & ENTERTAINMENT (2012) states that "The construction hindered Genting from aggressively pushing the new Equarius and Beach Villas." The completion of the Marine Life Park will attract more people to the luxury tourist accomodations. Genting Singapore will definitely benefit from the Tourism Bloom in the next 5 years as well.

Reference List

Lim, K 2012, Pandas' arrival from China set for year-end, viewed 31 August 2012
<http://www.channelnewsasia.com/stories/singaporelocalnews/view/1201688/1/.html >.

LEISURE & ENTERTAINMENT 2012, See how Marine Life Park's construction screwed Genting's new VIP products, LEISURE & ENTERTAINMENT , Singapore, viewed 31st August 2012, 
< http://sbr.com.sg/leisure-entertainment/news/see-how-marine-life-parks-construction-screwed-gentings-new-vip-products>.

Attracting more Foreign investments to Singapore

Two articles to share

Singapore Bonds Beat Peers In Shrinking AAA Pool: Southeast AsiaThe securities are poised to return 11 percent this year on aU.S.-dollar basis, compared with a 0.9 percent advance for developed markets including Australia, Canada and the U.S., according to indexes compiled by Bank of America Merrill Lynch. The Singapore dollar has strengthened against 14 of its 16 major counterparts this year as the island’s central bank said in April it will allow faster gains to curb inflation.
Singapore Bonds Beat Peers In Shrinking AAA Pool: Southeast Asia, para 2
<http://www.bloomberg.com/news/2012-08-30/uob-fund-return-beats-peers-with-perpetual-debt-southeast-asia.html>

UOB Fund Return Beats Peers With Perpetual Debt: Southeast Asia
UOB Asset Management Ltd.’s Singapore dollar debt fund is beating most peers by buying perpetual bonds and investing 70 percent of its money overseas as rates on bank deposits and sovereign yields approach zero.

UOB Fund Return Beats Peers With Perpetual Debt: Southeast Asia, para 1

< http://www.bloomberg.com/news/2012-08-30/uob-fund-return-beats-peers-with-perpetual-debt-southeast-asia.html >

3 long-term stocks to hold

SIA Engineering. Why?

1. SIA Engineering Secures MRO Contract for Scoot B777 Fleet
• Source: http://en.acnnewswire.com/press-release/english/8707/sia-engineering-secures-mro-contract-for-scoot-b777-fleet
2. Previously mentioned the construction plans for the new Changi Terminal 4 which will accomodating 16M passengers a year as compared to the previous budget terminal which handled 4.6M passengers in 2011.
• Source: http://www.airlinesanddestinations.com/destinations/singapore-changi-airports-budget-terminal-to-make-way-for-new-larger-terminal-4

Why SATS?

1. To operate the new cruise Passenger Terminal

• Source: http://news.asiaone.com/News/Latest%2BNews/Singapore/Story/A1Story20120522-347652.html

Raffles Medical

1. Travelling miles for trusted care

In 2011, the hospital drew more international
patients from all over the world. Patients from
Indochina saw a significant increase. Patient
visits from the Middle East saw a double
digit increase, and many of them sought
treatment for complex medical conditions
at Raffles Medical. Strong and effective marketing
efforts through patient referral networks,
international insurers, medical evacuation
companies, overseas liaison offices and
associates contributed to the growth.

Taken from: Raffles Medical Annual Report 2011.

Why Raffles Medical
Many patients are willing to travel from overseas to singapore to seek quality healthcare from Raffles. This proves its marketing and branding success of the company.

The company grows ~10% despite the Europe Debt Crisis that is slowing the growth in the Asian economies.

Taken from: Raffles Medical Annual Report 2011.

3 reasons for Tourism Boom in Singapore

Here is 3 reasons why:


Opening of the Gardens By the Bay - 29 Jun 12:
Source: http://www.relax.com.sg/relax/news/1176948/Gardens_by_the_Bay_A_new_icon_for_Singapore.html

Opening of the new Passenger Cruise Terminal in Marina - 26 May 12:
Source: http://www.relax.com.sg/relax/news/1119546/Singapore_eyes_Asia_cruise_market_with_new_terminal.html

Changi Terminal 4 to be completed in 2017:

Source: http://www.channelnewsasia.com/stories/singaporelocalnews/view/1186306/1/.html

How i look at stock market

Let me bring you back to the period of Apr this year. The "ultra low cost financing" from ECB to the rest of the European banks which to me means the printing of about 1 trillion euros.

Source: http://money.cnn.com/2012/04/19/markets/ecb-euro-financing/index.htm

Some of these money as indicated by the source went back to the government bonds. The rest of the money will flow to Asia and the other parts of the world.

My previous study of Foreign Direct Investments (FDI):
Source: http://investingsgx.blogspot.sg/2012/05/fdi-in-singapore-global-recession.html

My assessment of the cash injection will impact the markets in approx. 1 year. The injection in April this year will likely cause stock markets going at an uptrend from Nov 12 to Apr 13.

When the stock markets are high may mean 2 things.

1. The liquidity/FDI hit the asian markets or ...
2. Inflation rises, therefore causing market prices to rise

However, in the long run, markets are not likely to stay bad forever. Here are two examples of why:

1. Asia Buyers Snap Up Australian Hotels As Mining Boom Fills Rooms. Source: http://www.bloomberg.com/news/2012-08-06/asia-buyers-snap-up-australian-hotels-as-mining-boom-fills-rooms.html
2.    Movement in the Breweries sector, F&N( Fraser and Neave), Thai Beverage, Heineken and APB( Asian Pacific Breweries). Source:  http://business.asiaone.com/Business/News/Story/A1Story20120804-363352.html

Conclusion

Companies / Sovereign Weath Funds are still buying up assets around the world. There are still cheap bargains out there waiting to be bought.

 Wilmar price in May: $4.9. Now : $3.27

Blue Chip Stocks are up

Bullish on Aviation Overhaul Companies

Singapore Telecommunications went up from 3.12 to 3.4 in about 2 weeks.

China Stocks going up in Nov 12

China forcasts their GDP growth to about 8% this year. However their growth in Q1 is only 1.8%. Therefore for the rest of the year, they have to grow about 6.2% more.

The first time they cut their interest rate was from ~6.5% to 6.~6.31%.

The second time they cut further from ~6.31% to ~6%.


China cuts interest rates for the second time in a month
http://www.bloomberg.com/video/china-cuts-rates-for-second-time-in-a-month-neObpBcOQv2O09xvh4CVxA.html


With the cut in interest rates, more companies will start borrowing to expand their businesses. There will definitely be a slowdown in growth in the China economy. However, my view is that in November, china stocks will start to see the effect of the reduced interest rates.

Companies may see more contracts coming in, and old customers being able to pay up for existing contracts.

One example:

Hu An Cable clinches RMB101.3 million contract  

• Group to supply low-voltage aerial bundled cables in largest contract to date with long-time client, Hubei Province Electric Power Company.
• Ability to secure large contract from  provincial power grid demonstrates Group’s increasing reputation outside of its home base, Jiangsu province.  
• Group expects more projects of such scale in coming years. 

Source: 

http://huancable.listedcompany.com/newsroom/20120703_173059_KI3_4D604984906FD28548257A3000335658.1.pdf

Volatile Market

SGX is in a very volatile position given the problems of the European Debt crisis involving Spain and Greece. Investors are speculating of a Greece exit on euro and Spain's debt problems, causing uncertainty in the markets.

China's still slowing on on growth had now decide to cut its interests rates from ~6% to ~3%. However it is still a question on whether companies with their tight financial position will tap onto the lower  interest rates.

These 9 People Are Planning To Make A Fortune Off Of The Euro Crisis

http://www.businessinsider.com/making-a-fortune-from-the-euro-crisis-2012-6#carlos-slim-1

Despite Facebook's IPO, I am bullish on 3 other tech stocks

According to CNBC's interview, Facebook do not need the money from its IPO. Apple is holding about 100B in cash and yet to spend on something.

CNBC's interview also states that Facebook will go more into mobile.

Therefore i'm bullish on 3 tech stocks that will grow with the abundance of cash these tech giants will spent on.

Harddisk Stock - To support Apple on cloud storage expansions and to facilitate the increase of facebook users.

 To Tap on facebook's mobile growth as well as global demand for smartphones.

Dukang reported 3Q2012 exceeds FY2011 results

Dukang's 3Q12 earnings were about 96% of FY2011

Their business grew about 10% or more each year

Asian Stocks drop on JP Morgin US 2B loss

Silverlake, a hidden gem

Silverlake is one of my favourite companies to invest in. They released their 3Q12 ending 31 Mar 12 yesterday and posted a Revenue increase of 21% and net profit increase of a whopping 63%.


About Silverlake
Silverlake Axis Ltd (SAL) is a leading provider of digital economy solutions and services for major organisations in Banking and Financial Services,
Payments, Retail and Logistics businesses. The Group's Silverlake Axis Software and Services Solutions are delivering operational excellence and
enabling business transformations at over 100 organisations across Asia including 40% of the top 20 largest banks in South East Asia.

Their Products

Singtel Announce FY11-12 Results

Singtel's revenue grew by 4.2% while its net profit grew by 4.3%.

Their Global footprint from SGX:

Heeton Releases 1Q12

Heeton Q1 net profit rises 31% due to the absence cost for Juluca but posted a 6.6% decline in revenue. However they will have more projects on hand, and managed to step up their borrowings to about 700M to fund them while now the interest rates are low.

Heeton Holdings also declared a dividend of $0.011 per share

Facebook IPO

Facebook's had 2 core business which about 84% from advertising while Zynga contributes about 16%. They target to go on IPO on the 17 May 2012.

Facebook's initial IPO may attract investors from all over the world. The starting price may fluatuate a lot due to speculations. However, this IPO may attracts more shareholders from its competitors like YAHOO, GOOGLE, and thus the share price of these companies may drop 1-3mths after facebook's IPO.

Hu An Cable

News
According to OCBC research,
Infrastructure expansion in China.
Hu An Cable (Hu An) is one of the top 10 largest integrated cable manufacturers in China. Under the 12th Five Year Plan for China (2011-2015), RMB5.3t will be spent on capital expenditure in the power industry. This represents a 67.7% increase from the RMB3.16t that was earmarked for 2006-2010 under the 11th Five Year Plan. For 2011-2015, China will spend approximately RMB610b on power cables (+103% from the 11th plan), RMB500b on ultra-high voltage power cables (+2400%) and RMB521.6b on rural grid power cables (+38.5%). Urbanization in the form of 400m migrant workers becoming city-dwellers within the next 20 years will greatly boost electricity demand.

New factory for mid- & high-end cables manufacturing.
The company group to enter the high-end cables market to boost its profitability. It is building a factory with the capacity to manufacture mid- and high-end cables at a location close to its current factory in Yixing City, Jiangsu Province. The capital expenditure of RMB430m will be funded by internal cash, bank borrowings and IPO proceeds from the SGX listing. Two production lines for mid-voltage power cables and one production line for high-voltage power cables were installed as of Oct 2011. We believe that production will start sometime during the middle of this year.

Undervalued compared to peers.
Hu An appears inexpensive compared to its peers which are listed in China and Taiwan. It is trading at a P/E of 3.6x, P/B of 0.6x and offering a dividend yield of ~4.6%. In contrast, the overall medians for its peer group are as follows: P/E of 22.8x, P/B of 1.4x and dividend yield at 1.0%. We note that Hu An is also trading at an attractive estimated FY12 P/E of 3.1x.

Analysis
With reference to the OCBC reseach, the company is expanding with the setting up of new factories to manufacture higher end cables. The expansion plans were also strongly supported by the 12th five-year plan with RMB5.3 trillion (SGD$1.04 trillion) on the power industry. Capital will flow into this company as the years pass. Be patient.

Dividend Yield
Approx. 4% with the price of $0.162 a share.

PE Ratio
Based on the shareholder’s valuation, PE ratio of this company is at a low 4.


About Hu An Cable (From SGX)
On 26 May 2008, the Company was incorporated in Singapore as a private company limited under the name of China Hu An Cable Holdings Pte Ltd. On 27 January 2010, the Company converted into a public limited company and changed its name to China Hu An Cable Holdings Ltd.The Group is a fully integrated manufacturer of wire and cable products in China. Its core capabilities include the design and development, manufacture and supply of a wide variety of low, mid and high end wire and cable products used across many industries (in particular the infrastructure development as well as other important industrial markets) in China’s national economy.

The Group’s wire and cable products are widely used in power generation plants, including traditional power plants (such as coal fired plants) and alternative power plants (such as nuclear power plants, wind and solar power plants), power transmission and distribution grids, coal mining and ship-building industries, transportation networks and real estate projects, various electrical equipment and devices for industrial and household uses.

The Group also has the capabilities to manufacture a variety of other products such as aluminium rods, copper rods and plastic cable materials including insulating materials, sheath materials and other auxiliary materials which are used in the production of wires and cables.




Published on 06 May 2012

Dukang Distillers

News
• 2Q2012 revenue up 22.0% yoy to RMB540.0 million; ASP and volume boosted by
Luoyang Dukang’s strong branding and an extensive distribution network
• Net profit up 55.2% yoy to RMB94.4 million on further margin improvements

Outlook
"We delivered record sales volume, revenue and net profit for the past quarter," said Mr. Zhou Tao (“周涛”), CEO of Dukang Distillers. "In short, this quarter’s results bear testament to the strength of Dukang’s brand, the Group’s marketing creativity and its extensive distribution network.” China’s bajiu industry has maintained the growth momentum experienced during the last five years with the industrial production volume witnessing a 30.7% 1 yoy growth for the calendar year ended 31 December 2011. The Group’s 10.7% yoy growth of sales volume in 1H2012 lagged behind industry due to its limited production capacity of grain alcohol for Luoyang Dukang.  In order to capture the growing demand for Baijiu, the Group recently added another 50% of capacity with the revival of 1,470 unused fermentation pools for the production of Luoyang Dukang grain alcohol.
In 2Q2012, its 2,968 fermentation pools with an overall production capacity of 7,610 tonnes of grain alcohol were almost fully utilised.  After a 60‐day fermentation period, the grain alcohol is aged between 7 to 24 months before it is ready for sale.

Analysis
With the increase in net profits and strong branding, this company is able to minimise its reliance on bank loans. With the full utilisation of the fermentation pools, they are also able to further increase their profits for the 3rd quarter. However, they are likely not to payout dividends within these few years.

Dividend Yield
No dividends. I emailed their investment relations officer, Yit Sung.He wrote me a detailed reply.

“We have a dividend policy to distribute 5%- 20% of the distributable earnings for the year as cash dividend since 2011, this is required by TWSE when we list our TDRs.

According to the CEO, for 2nd tier baijiu enterprise like us in growing stage, our annual growth will be more than 30% for several years consecutively. So it would be wise to reinvest the cash in a compounding machine, where we believe the growth in business will bring value to investors in terms of more premium share price. The board has discussed this matter before as well, like giving out S$0.01 dividend. With approx. 800m shares, the company will need to pay S$8m (~RMB40m). And with RMB40m, we can actually dig 1000 new fermentation pools to increase our grain alcohol production cap, which is our plan in 2012 (We plan to dig 1500 new fermentation pools). This does not include the cost for land, fermentation pool shelter and other peripherals like excavators and distillation lines.

As you can see, paying out dividend now will actually set us back on our expansion plan. If we were to payout now, we will need to raise funds elsewhere, which may dilute the interest of existing shareholders. Many investors don't understand this and I am glad to that I have the opportunity to explain to you.

Nonetheless, we understand where the investors are coming from and we do hear your voice. The board will be reviewing this issue during the approaching board's meeting together with other agenda like share buyback scheme.

I will be in Zhengzhou this May, will check on few concerns from investors and do some channel checks. Feel free to let me know if you have any concern that I can bring up to the management. Will keep you posted.”

PE Ratio
13

Net Asset Value
The price of $0.25 entitles you 144.31% of their assets


About DuKang Distillers (From SGX)
The Company was incorporated in Singapore on 7 July 1976. On 26 December 2002 it was Dukang Distillers Holdings Limited (previously Trump Dragon Distillers Holdings Limited) is a leading producer baijiu in Henan Province, the PRC. The Group carries a broad range of baijiu products that are sold and marketed under two distinct brands, ‘Luoyang Dukang’ (“杜康”) and ‘Siwu’ (“四五”). Named after the forefather of baijiu and supported by a history of over two thousand years, ‘Dukang’ (“杜康”) is a well‐established national brand with a rich cultural heritage that focuses on the mid to high‐end baijiu market in the PRC.    
With its extensive range of affordably priced products, the Group’s ‘Siwu’ (“四五”) brand targets the mass to mid‐end baijiu market and has an established consumer base in Henan Province.   
The Group’s products are sold through distributors to hospitality establishments, supermarkets and specialty stores selling tobacco and alcohol products in the PRC. With the acquisition of Luoyang Dukang complete in May 2010, the Group has significantly increased its production capacity, and is primed to strengthen its market position and competitive edge in baijiu industry within Henan Province as well as across the PRC. The Group has been listed on the SGX Mainboard since September 2008 and on the Taiwan Stock
Exchange via Taiwan Depository Receipts since March 2011.




Published on 06 May 2012

FDI in Singapore (Global Recession Timeline)

FDI figures are taken from http://unctadstat.unctad.org

2007 Foreign direct investment in Singapore in approx. $37B USD.

8 February 2007: HSBC WARNS OF SUBPRIME LOSSES
2 April 2007: NEW CENTURY GOES BUST
9 August 2007: CREDIT MARKETS FREEZE
14 September 2007: RUN ON THE ROCK

2008 Foreign direct investment in Singapore in approx. $8.5B USD.

17 March 2008: BEAR STEARNS RESCUE
7 September 2008: FANNIE MAE RESCUE
15 September 2008: LEHMAN BROTHERS GOES BANKRUPT
17 September 2008: LLOYDS TAKES OVER HBOS
3 October 2008: $700BN BAILOUT APPROVED BY CONGRESS
13 October 2008: UK GOVERNMENT RESCUES RBS AND LLOYDS-HBOS
16 December 2008: FED CUTS KEY RATE TO NEAR ZERO

2009 Foreign direct investment in Singapore in approx. $15.2B USD.

14 February 2009: US CONGRESS PASSES $787BN STIMULUS
2 April 2009: G20 SUMMIT IN LONDON
22 April 2009: UK BUDGET REVEALS HUGE DEFICIT

2010 Foreign direct investment in Singapore in approx. $38.6B USD.

Summary
Between 2004 to 2006, US interest rates rise from 1% to 5.36%. Homeowners, who have problems paying their mortgage loans when the interest rates were low began to default on their mortgages. Therefore in 2007, foreign direct investment total up to about $37B USD does not justify the fact that world economies are doing well at that time but rather an indication that problems are coming. Reference

The high amount of foreign investment in 2007 was a prerequisite of the sub-prime mortgage crisis in US. Huge amounts of loans were left unpaid, but Collateralised Debt Obligations(CDOs) which bundles loan securities, bonds and assets resulting from unpaid loans were sold to many financial institutions, banks. Credit markets freeze as banks do not want to lend to each other fearing the huge amount of debt loans / CDOs they owned. Reference

In 2008, a $700B USD was approved by the congress to rescue the US financial sector. I believed that parts of the bailout funds were parts and pieces of the $8.5B USD that made up the amount of foreign investment in 2008.

There were 2 liquidity injections made in both 2008 and 2009, a bailout and a simulus plan respectively.  In 2008, an approx. $700B USD bailout was approved by the congress to rescue the US financial sector. In 2009, a $787B USD was approved by the congress said to save or create more than 3.5 million jobs in the US.

Both the bailout and simulus may contribute to a slightly higher FDI in the year of 2009 amounting to approx. $15.2B USD and subsequently a higher amount of $38.6B USD of FDI in 2010.

Impact of cash injections on the STI index by ECB
According to this BBC article dated 1 Mar 12, last December 11, 489B Euros of liquidity was injected to banks by ECB and this year 29 Feb 12, another 529.5B euros of low-interest loans were lent to 800 banks across Europe. According to bloomberg charts, STI index hit one of its lowest point on 19 Dec 11 at 2618.09 and rose about 14.3% to 2993.49 last friday on 2 Mar 12.

Outlook of STI
According to this BBC article, Greece are prepared to get the 130B Euros bailout. However, the bailout will not proceed till the deb swap with private bondholders on 8 Mar 12.

My Assessment
I mentioned that there were 2 liquidity injections in both 2008 and 2009 previously in this article. The impact of the liquidity injections were only visible on 2010, with reference to the FDI figure of $38.6B USD. The duration of the impact is about 1 year. If the same effect takes place this year, stocks are expected to rise till end of 2012, with or without the consideration of the bailout deal in March 12.


Global Recession Timeline
taken from http://news.bbc.co.uk/2/hi/8242825.stm


8 February 2007: HSBC WARNS OF SUBPRIME LOSSES

HSBC reveals huge losses at its US mortgage arm Household Finance due to subprime losses, in one of the first signs that the US housing market is turning sour, and that it could have a knock-on effect on the global financial sector.

2 April 2007: NEW CENTURY GOES BUST

New Century Financial, a leading subprime lender, files for bankruptcy. It is the first signal that something is seriously amiss at US mortgage lenders. Shares in other US mortgages banks like Countrywide come under pressure.

9 August 2007: CREDIT MARKETS FREEZE

Credit markets go into freefall after Paribas announces that two of its hedge funds are frozen due to "complete evaporation of liquidity" in asset backed security market. European Central Bank injects 170bn euros into the banking market and Fed lowers interest rates. Bank of England refuses to intervene in credit markets.

14 September 2007: RUN ON THE ROCK

Savers in beleaguered UK former building society Northern Rock begin withdrawing their savings after the BBC reveals the bank has received emergency financial support from the Bank of England. Northern Rock is in trouble as it was heavily reliant on the wholesale money market to fund its operations, and these markets have dried up.

17 March 2008: BEAR STEARNS RESCUE

US investment bank Bear Stearns is rescued by rival bank JP Morgan Chase after the US government provides a $30bn guarantee against its mounting losses. It is the first sign that, rather than easing, the financial crisis is getting worse but investors are relieved that US government prepared to act as lender of last resort.

7 September 2008: FANNIE MAE RESCUE

US government rescues giant mortgage lenders Fannie Mae and Freddie Mac, taking them into temporary public ownership after they reveal huge losses on the US subprime mortgage market. Their failure would have triggered a run on the dollar as many foreign governments had invested in their bonds, believing they were already guaranteed by the government.

15 September 2008: LEHMAN BROTHERS GOES BANKRUPT

US investment bank Lehman Brothers goes bankrupt after the US government refuses to bail it out. Merrill Lynch is bought by Bank of America after revealing it also is facing huge losses. Insurance firm AIG, which issued credit guarantees for subprime mortgages, is rescued the next day with an $85bn loan from US Treasury.

17 September 2008: LLOYDS TAKES OVER HBOS

Lloyds agrees a £12.2bn takeover of the ailing Halifax Bank of Scotland (HBOS), the UK's largest mortgage lender, after its shares plummet amid concerns over the firm's future. The UK government invokes a national interest clause to bypass competition law, as the new bank is responsible for close to one-third of the UK's savings and mortgage market.

3 October 2008: $700BN BAILOUT APPROVED BY CONGRESS

The biggest financial rescue in US history is approved after a gruelling debate in Congress, and initial defeat a week earlier. Republicans and Democrats alike were reluctant to bail out the banks with such large sums while ordinary citizens were suffering in the recession. Both presidential candidates endorse the bail-out.

13 October 2008: UK GOVERNMENT RESCUES RBS AND LLOYDS-HBOS

Two of the UK's major banks, RBS and HBOS, are in major trouble as financial markets collapse. Having merged with HBOS in September, Lloyds is hit by the huge debts built up by its new partner in the mortgage market, while RBS is struggling with its expensive merger with ABN-AMRO. The UK government injects £37bn to stabilise both banks.

16 December 2008: FED CUTS KEY RATE TO NEAR ZERO

The US central bank cuts its interest rate to 0 - 0.25% in an attempt to stem the deepening recession, and begins to consider a programme of quantitative easing to throw money into the economy to help make borrowing easier. It is the lowest interest in the history of the Fed.

14 February 2009: US CONGRESS PASSES $787BN STIMULUS

President Obama wins his first major victory in Congress as it passes a huge economic recovery plan aimed at preventing the US falling into recession as a result of the credit crunch. Much of the money will go to the states to prevent them laying off public sector workers, but some will be invested in infrastructure projects like roads, schools and green energy.

2 April 2009: G20 SUMMIT IN LONDON

World leaders pledge an additional $1.1 trillion to help emerging market countries and promise coordinated action to fight the slump and improve regulation. Gordon Brown emerges triumphant from a global summit, which he claims is a turning point in the crisis, and stock markets begin to revive. However, not all the money pledged is actually delivered.

22 April 2009: UK BUDGET REVEALS HUGE DEFICIT

The UK Chancellor Alistair Darling reveals that the credit crunch will lead to the largest budget deficit in UK financial history of £175bn, with total government debt set to double to £1 trillion by 2014. Mr Darling admits it will take two Parliaments, or 10 years to get the budget back to the position it was in before the credit crunch.



Published on 04 Mar 2012