So much cheap money, why are we still holding on to cash.

Fed's bond buying program had reached $4 trillion worth in assets and they are not ready to stop yet. People who have not invested in the stock market may see their value of the cash or savings getting lower as commodity prices increase along with the cheap money floating around the world.

Source: http://online.wsj.com/article/BT-CO-20131219-710800.html

Next year, SMRT announced that they may increase fares to keep their business sustainable. This is an indicator of inflation.

Source: http://sg.news.yahoo.com/fare-hike-proposals-submitted--ptc-105820955.html

The amount of money printed is close to about 3 times of what they printed previously, erasing debts too much to be repaid. When debts are reduced, the banks keep the borrowing costs low for enterprises or state-owned enterprises to lend cheaply to boost economy. This could led to the increase in share prices across the world, but the only thing that does not change is the value of the currency and the fundamentals of the company.

Companies that take in more loans to try to increase profits may not be able to sustain. It is because when operation costs far outweighs the profit, no matter how much loan the company take to improve profit, in the long run it will still incur losses due to high interest rates and operating costs.

Therefore, it is very important to look at the past performance of the company. Fundamentally strong companies, with this historical excellent performance will continue to do well while weak companies will continue to deteriorate.

It is the same principle why the rich gets richer and the poor gets poorer.

There are still good deals out in SGX for grabs.

Tapering! Should i enter?

Should we as investors care about Fed's tapering even if stock prices has gone down quite a bit? Low interest rates has certainly improve earnings across companies. There are certain companies with low debts or rather no debts and still maintain constant earnings.

Tapering will only affect those companies with high borrowing rates and will affect less for companies with low or close to zero borrowings.

As economic outlook improves, tapering might kick in to maintain or improve the strength of the currency.

When it doubt do not enter the market, there are still uncertainties ahead and nobody knows what will happen next.

2 REITS have entered the Australian Market

AIMS AMP Capital Industrial REIT plans first Australian acquisition

Source: http://www.theasset.com/article/25629.html#axzz2lkKTuyag

Suntec REIT buys Sydney office tower for S$481 million

Source: http://www.todayonline.com/business/suntec-reit-buys-sydney-office-tower-s481-million

Australian's economic prospects

Australia's Treasury Secretary Martin Parkinson said it would be "prudent" to raise the legislated debt cap from 300 billion Australian dollars(US$282 billion) to A$500 billion, given a worsening economic outlook as the country grapples with the end of a decade long resources boom. But the Labor opposition, swept aside in September elections dominated by a slowing economy and rising unemployment, rejected the request, joining forces with the Greens party holding the balance of power in the upper house to block the move. They have offered to approve a A$400 billion cap on borrowing instead.

Source: http://www.nasdaq.com/article/australia-sees-grimmer-economic-outlook-amid-debt-row-20131120-00070#ixzz2lkPtQzXc

The increase in debt limit will means that inflation rates are set to soar in Australia while interest rates remain low which favored foreign investors, especially in the property sector whereby huge loans are required. The acquisition of Australian Property from Suntec and AIMS would also mean that they could be taking advantage of the low australian currency to make acquisitions which could profit or save the company money and these money could be used to pay the loan's interests.

When is a good time to buy?

I have no answer to my own question but i might be able to predict the period of dropping using graphs.

Let's look at 2 stocks that i might want to buy and based on a 5 year average determine the period to purchase the stock.

Color code indications:
Red - Aug-Sep
Black - Feb-Mar


HK Land

Source: Bloomberg

SATS

Source: Bloomberg

However, it does not always happen for all the stocks. It just happened that these 2 stocks show slight similarity in their drop periods.

Both stocks showed that their major drop in share prices happened between August to September.
It would be good now to wait till February to see if the tapering announcement in January really kicks in or will the Fed continue on their monthly bond purchases and keeping interest rates low.

China's hidden debt problem

China's shipping dragon rests where the Yangtze River flow towards the sea north of Shanghai, which was previously the rising nation's biggest private ship builder became quieter on a recent morning whereby China Rongsheng Heavy Industries Group Holdings Ltd's 38,000 employees went jobless as the the company struggled to stay afloat over the past 2 years. With 80% of the employees being sacked, the restaurants and shops serving them have since closed.

After accumulating $4.1 billion in debts, Rongsheng seeked a government bailout is a example of a company overly invested that have gone bust.

Source: http://www.businessweek.com/news/2013-11-18/credit-driven-china-glut-threatens-to-turn-into-bank-debt-crisis

Many of China's companies are facing these issues as the domestic consumption of the population remained low and bank funding to companies not being able to land in the correct place.

People of china sees property investment as the safest form and would save up to buy a property which have already inflated a bubble in the China's property market, therefore affecting domestic spending.

The company funds that were borrowed did not contribute effectively to the economy because of the lack of demand for products and services, but the CEOs and the directors were still being paid. These people became richer and those funds that they earned goes into other parts of the world while the company's financial position is in a bad state. This is one of a similar occurrence that happened during the Lehman Brother's financial crisis whereby bankers were so well paid that even if the company went burst, the employees benefited from it in the expense of the company.

The problem had been hidden by the China's government though, but when it became too big to be hidden, the financial world will take a huge plunge.

Suntec REIT buying an office tower in Australia

News of Suntec REIT acquiring an prime office tower to be developed in Australia for A$413.2 million cause the share price to drop ~2% on last friday.

A further 1-5% may be expected to drop next monday as this stock as the debt ratio nears 40%.

Although this acquisition is expected to generate more returns for unit holders, in the short term, will affect the group's net income as acquisition costs will be funded by borrowings. Coupon payments will be issued to unit holders during the construction phase of the tower to mitigate lower DPU.

Source: http://www.channelnewsasia.com/news/business/singapore/suntec-reit-acquiring/888214.html

Funds movement

Global fund movements might have caused the STI to be slightly weaker than it was suppose to be. Last friday, the Dow Jones  Industrial Average gained 1.08% while the STI dropped 0.78%.

More funds have been moved to the US in favor of the bond purchases by the Fed and  although investors are anxious about a taper in bond buying, they are still very positive about the US market. The continuous bull trend in the US might be causing a bubble that could burst anytime with a 5 year high Dow Jones, S&P 500 and NYSE. What goes up must go down.

If more investors get positive about the US markets, funds may be withdrawn from Asian markets as Asian stocks get more expensive.

Be on the lookout for some good deals in the STI if it continues to drop further.

Semiconductor companies report better earnings

Hi-P

Report quarter profit increase of 5.2%
YTD profit increase of 771.1%

Serial System

Report quarter profit increase of 35%
YTD profit increase of 40%

Source: SGX

These 2 companies may not be a good indicator that the semiconductor market will continue to do well in the next 5-10 years but is able to show some indication of a positive pickup in the industry in a short term perspective.

Likely market correction

China set up 3 yuan hubs in the top financial countries namely Singapore, Hong Kong and London as it reduces its US treasuries holdings. This happened chronologically after Obama administration warned the Congress of a possible US default on its debts in October, China reduced its holdings by $11.2 billion to $1.268 trillion in August.

Source: http://www.straitstimes.com/the-big-story/asia-report/china/story/more-offshore-yuan-hubs-no-fears-singapore-20131024

Source: http://www.globaltimes.cn/content/819847.shtml#.UmzZp5SkzaE

NYSE hit a 5 year high despite risks of a US default on debts and no signs of tapering of US monthly bond purchase. 

Source: Bloomberg

US markets are in their 5 year high and with the debts problem still unsolved. The risks of a correction are present but still not visible in the short term. 

Singapore markets might be affected by the correction if investors panic sell stocks.

Protecting your portfolio

Investments can rip high returns, and may also rip high losses. I started investing with a mindset of buying low and selling high, which sometimes can lead to high losses in the stock market.

The thought of buying low and selling high often traps investors, including myself into a value trap. A value trap means that the stock can be on a downtrend but the investor keeps holding the stock thinking that it will go up eventually after a crisis. But if the stock do not go up, the investor will risk better returns elsewhere because the current stock bought at an overvalued price did not get sold away.

Do not fall into a value trap while preparing for a crisis

While thinking of what to sell in your portfolio to prepare for a crisis, what have gone down in value cannot be ignored. Instead of thinking of the losses due to the sale, think of how much lower the stock will go in the event of a crisis. By changing the way you think, you can avoid more losses than what you have already incurred.

Protecting your portfolio

By having a diversified portfolio of stocks, you mitigate your risk of a single sector downfall and keeps your portfolio balanced. For example, in a diversified portfolio, you may see stocks spreading across a few sectors like 'services, finance, transport'. A financial crisis would likely bring the prices of stocks in the finance sector on a downtrend while the services and transport sectors helps to keep the portfolio buoyant.

Making prudent decisions

It is very important to make prudent decisions in the equities market because as what Warren Buffett said, "If you buy things you don't need, soon you will have to sell things you need."

This is what happen when 3 stocks, namely Blumont, Liongold and Asiaons plunged up to 80% after SGX suspended trading on them. They are highly speculative stocks and anyone who bought it at a high price will soon realised that they are holding on to huge paper losses.

Even when the prices have dropped tremendously, people still think that the stocks are undervalued. and there are no indicators or rather unknown indicators of its future growth prospects.

Although the temptations of a 'buy low sell high' mentality is strong, i would like to remind myself to be prudent in investing and of what Warren Buffett said.

Correction risks and knowing where they are

Nasdaq Composite Index at 5 year Highs

Source: Bloomberg

New York Composite also at 5 year high

Source: Bloomberg

STI not belonging to a 5 year high

Source: Bloomberg

Conclusion

The US market is likely to correct as it has gone up to a 5 year high. Stocks had been rallying at a steady pace even with the government shut down. Investors are still optimistic that the continuation of QE will bring about better profits for businesses and are not worried about the impact of the government shutdown.

 STI still have correction risks, but the government are still running without major problems. The economy is growing, although at a very slow pace.

Taking the story of the race between a fast but complacent rabbit losing to a small but steady turtle can be used to describe how long term investing can win the race by placing assets in a slower growing market and avoid the risks of complacency which might lead to a major stocks correction.

SGX Stocks Starter Kit

The image above shows a starter kit provided by myself for initial investments of up to $25K. The rational for this starter kit is to help people who do not know about investments to get started with some of the good stocks i've picked up over the years.

A diversified portfolio helps an individual to hedge against risks across different sectors. This starter kit will help to kick start a fresh equities investor and journey him to finding the best mix for himself in future, with good returns yet protect against the downfalls of the stock market.

*note: Invest at your own risk. I will not be responsible for any of your loses or winnings.

Cheap outdated electronics caused by QE

With the continuation of quantitative easing in the US, inflation as a whole will rise and that will force growing countries in Asia to strengthen their currencies against a weaker USD.

Food prices, fuel prices will rise as well as transportation costs. The medium income group which i call the savers group will be badly affected by this.

On the other hand, the IT geeks are able find great bargains from IT products as the electronics sector are facing an overwhelming supply of products in the market. Technology companies compete very fiercely to innovate and push out better products.

Consumers, on the other hand are also sitting on the addiction to upgrade their products. The electronics second hand market is facing a problem of over-supply and people are all-time ready to sell their second hand electronics to upgrade to a better model.

The second-hand markets are filled with bargains or cheap electronic products as people seeks to upgrade their model.

There could be other sector that may be affected by this, by i think the most visible market to me is the electronics market.

SGX breaking into the China Market

SGX yesterday announced that it had signed a memorandum of understanding with the Bank of China to develop RMB products and services and expand the exchange business in China as well as helping the Chinese to expand their products in Singapore.

Singapore is a small country and it is tough for SGX to grow its securities and derivatives business in the region. Given the largest population country like China, SGX is able to leverage on the population numbers to better grow its business. 

Furthermore, companies in China still lack good corporate governance and locals seeked to park their cash elsewhere. SGX, as Geoff Howie, market strategist at SGX, explains that SGX remains one of the most diversified exchange in the world perfectly caters for the people in China, who are in search of companies with better corporate governance and good returns on investments.

Fed Delay Taper, So what's next for the market?

Fed's decision to taper was because unemployment rates were still high. However, cheap money does not seemed to flow to where it is suppose to flow. According to Bloomberg, the QE saves companies such as Verizon, Apple and other companies about $700Billion in interests payments. However, it does not seem to effectively bring the jobless rate down.

What is seen is that stock markets are rallying and companies are able to lend cheaply to expand business. This can lead to a bubble when some companies spend the cheap loans on bad investments, and later not being able to pay back. Another scenario can be as such that companies took advantage of the cheap loans to borrow excessively, without concerns of being able to pay back and when interest rates hike, these companies default on their payments.

These two scenarios are likely to bring about a great correction like the Lehman Brother's bankruptcy back in 2009. And this time it could be bigger because this time the target audience are companies instead of the local public. The companies with good management and strong cash flow will inevitably benefit from the QE in the long run.

Therefore, right now the good investment opportunities lies in the US.

What about Singapore stocks? 

The cheap money continue to flow into Asia by spurring US companies spending and currencies has to be strengthened to control inflation growth.

Stocks will likely to grow at a slower pace, as spending power is dispersed within the Asian region. I expect to see healthy and steady growth in the Singapore stocks. STI could go up to 3,300 this year, but looking ahead, tapering could set in a major correction in the stock market. Now is a good time to offload stocks which are heavily in debt, and then buy back when STI retreats to 3,000.

Companies with solid fundamentals and remains low and or zero debt position will bear sweet and juicy fruit in the long run.

Source: http://www.bloomberg.com/news/2013-09-17/bernanke-saves-companies-700-billion-as-apple-to-verizon-borrow.html

Hafary paying out 29% dividend

They supply flooring tiles to the Singapore market by importing from manufacturers located around the world.

Such companies do not produce good cash flows, but this time they are paying out a dividend yield of 29%. Such a huge payout may not be sustainable for the company to grow healthily, but if they are able to consistently grow, then i think it is an attractive bet.

But for now, markets are cautious about the bond tapering which is expected to happen this month. I will be cautious about it too because when markets fall, fundamentals will not work on those who deal in large volumes.

SATS, stable recurring income

SATS two main stream of incomes lies in its gateway services and food solutions.

Its gateway services operate in Changi Airport and Marina Bay Cruise Centre which are the 2 major tourist stopovers.

Their food solutions served mainly the Airline catering and also SFI, which feed the soldiers in Singapore every day.

These 2 businesses experienced high daily traffic and deemed to supply the company with stable recurring income in the long run.

Sgx on google finance

Sgx had finally listed their counters on google Finance which is excellent for the business as it is able to attract more global participation.

Sgx had quietly been growing it's business for the past few years and is slowly reaping better net margins.

It has also managed to attract China investors by introducing RMB currency in one of the its counter.

Prices had gone up for sgx after hitting its low at 7. Nevertheless, as it increased it dividend payout over the years while maintaining a zero debt position, it will be one of the safest blue chip to acquire.

Growth in China's food consumption

I spent my last long weekend in China town today. The crowd consists of mostly tourists with restaurants charging a premium for tourism eats, and stores selling China souvenirs ranging from Chinese paintings to calligraphy brushes and signature stamps made from jade.

Indeed the place really looks like a mini China, with all sorts of China-related products and also the shop houses were well preserved to bring out a historic look.

Since i came back from my China exchange in Beijing back in 2008, i had never tasted food that I tasted in China until i came across a Chinese food shop house. Looking at the amount of food the people ordered and the tongue curling accent, it appears that the place was operated by a native chinese. 

I ordered some pork belly and beef bbq sticks and they tastes exactly like the ones in China. Very tender and tasty with flavoring powder added to them.

It was a great meal and my stomach was filled to its brim. The price of the food was reasonable and the portions were more than what i expected.

Now going back to the growth in China's food consumption, the people dining over at the restaurants have big appetites because i see them ordering a lot of food. The fact that almost all the customers in the restaurants had filled up the dining tables tells a little bit about the pace of food growth in China.

In fact, back in 2008 when i was in China, people also ordered food generously especially with friends or family. 

The food is spicy and sometimes oily, and beer(Tsing Tao or Harbin Beer) goes along well with their food. 

About 2/3 of their food comprised of vegetables which were used to add into dishes as flavourings or purely vegetables for consumption.

There is a china listed stock which produces vegetables and markets to Asia, Europe and US. Trading at a PE ration of 3.8 and net Book value of 0.7 gives a stock a very good value. However it had yet to pay dividends to shareholders, but the price of vegetables will increase given the rising food consumption, and also the lack of farmers in China as more people in the village seeks to urbanize in developed cities in search for a better life.  

Below is the products produced by China Minzhong: 

Shareholder's member card

"As a token of appreciation for the continued support of our valued shareholders, the Board of
Directors of the Company is pleased to announce that the Company will be giving a Privilege Card
(the “ST Card”) to its shareholders. The ST Card shall entitle the shareholders, their family members and friends to a special room rate and 10% discount on food and beverage at our Nantong and Suzhou hotels.

Hotel Room Type Rate

Nantong Santeh Hotel Deluxe Standard Room with breakfast for one RMB410 per night
Suzhou San Teh Hotel Superior Standard Room with breakfast for one RMB398 per night

Shareholders whose names are registered in the Depository Register and Register of Members of the
Company as at 5.00 p.m. on 31 July 2013, including CPF investors will be entitled to the ST Card."

Source: http://infopub.sgx.com/FileOpen/Privilege_Card_for_Shareholders.ashx?App=Announcement&FileID=249014

This is the first of such initiatives i've seen to provide shareholders with benefits.

Cheaper Suntec REIT, but is it worth buying?

Source: bloomberg

Suntec REIT currently have a NAV of $2.03 and priced at $1.53 on 20 Jul 13, Fri. However, gathered sources reveal that it had one of the most expensive management fees in SGX REIT section, and also had stopped receiving income support for its One Raffles Quay (ORQ) property. Management blamed the 4.7% fall in DPU on the partial closure of Suntec Mall and Suntec Singapore for enhancement works.

Source: http://www.todayonline.com/business/suntec-reit-posts-47-fall-q2-dpu
Source: http://infopub.sgx.com/FileOpen/Suntec-2Q2013-Presentation.ashx?App=Announcement&FileID=248407

Suntec REIT might be affected by the possible hike in interest rates in the future, However, with the basket of good portfolio assets, it may become profitable in future when its Suntec assets reopened fully and is able to extend the lease of the current office tenants which lease is set to expire in 2013.

Apart from that, it is also able to benefit from the increasing office rates, especially in key CBD areas in MBFC and OFQ

Manipulating the stock market

Ben Bernanke had once again manipulated the markets with his speech on continuing the $85M monthly bond purchase which he previously hinted a possible tapering in purchases.

Stocks across the world rallied on the comment, but despite the rally, the euro zone crisis is still not over and interest rates are quietly rising.

Source: http://www.forbes.com/sites/robertlenzner/2013/07/12/how-bernanke-manipulates-the-markets-in-3-easy-steps/

I still think that there are downsides to the market sometime around mid 2014 due to the forecast of bond tapering by Bernanke and markets will still continue to be on the uptrend for the next few years due to inflation caused by bond purchases.

Banks are a good bet against rising interest rates and stocks with low borrowings as higher interest rates affect profit.

Investing in SGX

There had been much volatility in the stock market this week and stocks were moving up and down in anticipation of the Fed's announcement to the tapering of bond purchases in the US.

Portugal's economy was left in a mess when two ministers resigned from coalition government. Stocks around the world plunged in reaction to this incident, causing more uncertainty looming in global equities.

I was prepared for a crisis, seeing SGX plunged from a 6 months high of $7.8 to $7.03 on 28 June 13. And furthermore SGX, reported higher revenue and net profit amid a 10% drop in price. A 10% drop in price does not justify the strong performance of SGX, which is the sole leader of equities and derivatives products in Singapore.

Source: Bloomberg

Genting SP in a difficult position

S$9Billion in debts (bonds) + S$2.5B secured loans

Their total debts make up to about 11.5B. and they managed to pay back S$122M first quater this year and at most S$488M this year.

They are still left with S$10.512B of debts to repay plus bonds interest payout of 5%, which make out to be about S$45M per quarter.

To hold or sell will be your choice to make. Good luck :)

Correction underway

Embrace the bear and enjoy the ride later!

Very unpredictable market

The recent drop of STI suggests that investors are taking a very cautious approach to the reduction of QE by the Fed, ignoring fundamentals of good stocks which are making money as stated in their financial report.

One thing for sure is that the next announcement by Ben Bernanke will affect the market movements on the direction of further QE.

If the Feds decide to stop QE, the market is pretty sure to hit the bear stance and start dropping as most investors will anticipate a huge drop in the market. A Ben Bernanke's exit may direct markets as well.

Fund managers are on standby with cash to seize the great opportunity when the markets start dropping.

Hope i have enough cash to size the opportunity, so can you. In the meantime, be cautious with stocks and hold some cash for the GSS.

Good luck people :)

STI down! Don't panick.

The STI had been performing badly these few days and a lot of red numbers are coming up from the SGX website.

US was upgrade to stable by S&P, and Japan upgrades its economic outlook.

Source: http://www.reuters.com/article/2013/05/20/us-japan-economy-report-idUSBRE94J00S20130520

Source: http://money.cnn.com/2013/06/10/news/economy/sp-u-s-credit-rating/index.html

Both of them are good news but despite that, it still is not able to push up the markets. At current situation when the market is selling, most people out of fear, will start selling as well.

"The market is there to serve you, not instruct you" as stated by Warren Buffet.

Be determined and stick to your decision.

Good luck

Bears are tired while Bulls attack

The Straits Times Index dropped from a 5 year high of 3600 to 3300 in two week period. Blue chip stocks like ST Engineering and GLP see some fluctuation in stock prices. However, the tide is turning around with some good news.

Spain's economic position improved as it sees better export numbers.

Source: http://www.bloomberg.com/news/2013-06-03/spain-s-crisis-fades-as-exports-lead-the-way.html

This correction period could be a good chance for investors to buy stocks. A further bull run in future may occur as interest rates around the world remain low. 

Good luck to all investors.

Azeus Systems, a hidden pot of gold

This company just reported strong profits in its FY2013. The jump from FY2012 was 199%, which reflected strong performance of the company.

It is going to issue out about 12.5% dividend yield to shareholders this financial year, which is very attractive for shareholders.

However, the problem with this company is that it lacked analyst reports on the stock, and many people are not aware of this stock yet.

Its main currency is in HK and they are an IT solutions provider, mostly for the Hong Kong government departments. They deal mainly with maintanance and support contracts and several large scale software development projects.

I'm buying this stock tomorrow. My advice to you is to recognize this stock before the market do. :)

Dilemma in choosing a stock to sell

Last week i bought XMH holdings, and realised that i ran out of cash because for the past few days i was constantly purchasing stocks.

There was a dilemma in choosing what stocks to sell since most of my purchases are for long time holding. Then i started reading financial statements on some of my stocks which i recently purchase to fund my XMH holdings.

I read MTQ corp financial statements and realized that they are on average debt levels with $73M debts and $40M cash holding, about 1.8 times.

Swissco Holdings, although have some good future growth prospects but their debts was bad at about 6 times their cash holding. They are in a riskier position as they do not hold enough cash to pay back the debts when the need arises. And furthermore, they reported weaker earnings in their latest results.

Ezion was bad with debts with about $706M in debs and $148.5M in cash, which is 4.75 times their cash holding.

Companies with higher debts reflect that they need much more money to generate better revenues or better profit margins which may put the company in a riskier environment in an event of unforeseen circumstances. And furthermore, debts reduces shareholder value as the shares contain more debt than assets.

I arrived at a conclusion and sold both Ezion and Swissco Holdings.

Comfort Delgro, a comfortable one indeed

A global transport company with major operations in Singapore, as well and UK and Ireland, Australia, China and minor operations in Vietnam and Malaysia.

ComfortDelGro has expanded significantly and now operates in seven countries and has a global fleet of about 45,800 vehicles.

ComfortDelGro’s businesses include bus, taxi, rail, car rental & leasing, automotive engineering services, testing services, driving centre, insurance broking services, outdoor advertising and car dealership.

Source: http://www.comfortdelgro.com.sg/ourcompany.aspx?id=4

Below in their FY2012 financial highlights and they are growing decently throughout the years. 

  The graph above highlights their successful growth track record since 2008. This stock is a good stock to own despite the recent drop of $0.255 due to the sell down of major share holder, Singapore Labour Foundation.

This could mark a decent opportunity to buy into the stock and hold it forever.

Stocks will go up in the next 10 years

“As price of risk assets improve, there are more pressures and temptations to reach out,” said Lim, 42, who previously oversaw GIC’s investments and relationships in Europe, Africa and the Middle East.

“Though valuations are not low currently, longer-term prospects are not to be missed,” he said.

Source: http://www.bloomberg.com/news/2013-05-21/gic-says-returns-on-stocks-and-bonds-to-lower-in-next-10-years.html

Although stock prices are not low at the moment, but quantitive easing in Japan and US as well as low interest rates around the world are spurring companies to grow and may cause a slight recovery in the global economy.

Some companies may still lack behind, but there are still opportunities present with the current high valuations.

Let me share with you one of the factors of growth in the oil and gas industry.

the Obama administration apparently supports the expansion of the natural gas industry and the controversial technology of hydraulic fracturing.

Source: http://communities.washingtontimes.com/neighborhood/climatism-watching-climate-science/2013/may/22/obama-administration-supports-fracking-and-natural/

From Hiap Seng's 3rd Quarter FY2013:

The outlook for the oil-and-gas and petrochemical industries which the Group serves still remains
positive.

Source: http://info.sgx.com/webcoranncatth.nsf/VwAttachments/Att_17CFF9306C301F2248257B0B0027D0D2/$file/HS_Q3FY2013_results_announcement.pdf?openelement



From MTQ's FY2013 ended 31 Mar 13:
Conditions are expected to remain buoyant in the oil and gas industry.

Source: http://www.mtq.com.sg/financials.html

Both these companies have great opportunities for future growth. Hiap Seng recently announced a joint venture with KUB Builders to bid for the Petronas Rapid Tank Farm Project in Malaysia.

MTQ Corp, which reports doubling of pre-tax earnings in Q4 FY2013, complained of overwhelming demands from Bahrain.

Fearing a correction? Go for small caps

Stock markets are soaring and are mostly driven by countries printing money or cutting interest rates in an effort to spur growth in the economy. However, some rises are not justified by fundamentals, therefore are vulnerable to correction. Although there are many overpriced stocks being overbought but some of the low volume small caps stocks are still undervalued and not overbought yet.

This is a period when companies are releasing their results and some of the companies are reporting significant earnings but have not risen in value.

My advice is to take a look at the results and seize the opportunity before the markets realized them.
Stocks like Singtel and Starhub are likely to correct, especially Starhub which had been constantly rising in value.

MTQ Corp and Ezion, the rapid growth of the oil and gas industry

MTQ Corp FY2012 net profit surged 148% as compared to FY2011 while Ezion's net profit surged 227%

Ezion's report in the next 12 months:

The Group expects more Service Rigs to be deployed in 2013. The Group is also expected to enjoy higher
revenue from Australia with the commencement of the APLNG and GLNG projects in 2013. Leveraging on its track record, experience and existing business infrastructure, the Group will continue to pursue business
opportunities to support LNG related projects in Australia and its vicinities. The Group will also continue to focus on investment in Service Rigs to meet the strong demand from its customers in the oil and gas industry.
Barring any unforeseen circumstances that may arise to destabilise the current financial market and global
economy, the Group expects to perform better in the financial year ending 2013.

 

MTQ Corp's report in the next 12 months:

Conditions are expected to remain buoyant in the oil and gas industry. With a wider geographical presence and a much broader suite of subsea and engineering services to offer, the Group will continue its strategy to strive for organic growth and benefit from the buoyant oil and gas industry.

MTQ also acquired Neptune Marine Services at a discount of A$6.4M.

Their total Equity for Half Year Results Dec 2012 is about A$64M after deducting accumulated losses and their takeover bid is A$57.6M.

Evolving Stock Market

Since the 2008-2009 stock market crash, the market have been moving with a lot of uncertainty. Sentiments of a stock market crash have been underway since 2012 and there are fears in investing into equities.

After a report by Jim O'Neill saying that it makes sense for central banks to own equities, the stock market has already been on a bullish path. He also added that many sovereign wealth funds which are tied to central banks have already invested in stocks.

Source: http://www.cnbc.com/id/100674247

The increased in liquidity could probably explains why stocks are rising. And the reason why equities are preferred rather than commodities is that they give dividends to shareholders while holding on to commodities like silver and gold doesn't provide any returns on investment.

Stock prices also indicate an improving economy in the U.S. and the rest of the world as companies report better earnings.

Source: http://www.bloomberg.com/news/2013-05-01/stocks-beat-bonds-dollar-for-second-month-as-commodities-slump.html

A visible pattern can be seen in the current stock market that seems to be different from how it was in the 2008 stock market crash.

The increased liquidity injected into equities are more fluent and steady in a way that is more evenly distributed. Stock markets are less prone to over-heating as previously stocks are blindly bought with "free cash flow".

Rising equities can be seen as inflation and banks and economies developed better counter-measures for overheating. Singapore currency went up against the USD to counter overheating. The Japanese Yen weakened together with the USD and drives exports in both Japan and the U.S. Asian countries like Singapore, welcomes "cheap money" in the stock market, which explains the rise in equities. 

Back in 2008, the crash seems to be engineered in a sense that the media and the rating companies were reassuring the public to stay invested when the fundamentals are not in place. However, now the rising bubble seems to be more cushioned thanks to mistakes in the past and also indicative of a slow global economic recovery. But that said, rating companies like S&P and Moody's rating cannot always be used as indicators as they might be able to engineer a certain outcome. 

From 

to 

Hyflux, the next big thing?

Hyflux have faced stiff competition in the water market. They specialised in Seawater Reverse Osmosis(SWRO) plants which due to high expenses, may not be the most preferred choice.

However, Hyflux did not give up hope on the China market, which it seen to contain huge potential to its business, managed to sign two memoranda of understanding (MOU) in China.

"Hyflux said in a statement it had signed two memoranda of understanding (MOUs) with the governments of Chuxiong and Qujing.

The total investment value is estimated to be around 1.2 billion yuan (S$240 million) for the projects in Qujing and less than 2 billion yuan for the projects in Chuxiong.

The projects covered under the MOUs include developing water recycling, wastewater treatment and potable water treatment plants."

Source: http://www.straitstimes.com/breaking-news/money/story/hyflux-signs-mous-develop-water-and-environmental-projects-yunnan-20130404

The table below shows that other companies are able to penetrate China better than Hyflux. The major revenue from Hyflux is from Singapore.

Source: http://www.sharesinv.com/articles/2012/03/02/can-hyflux%E2%80%99s-tap-continue-to-flow-beyond-the-home-turf/

Hyflux generally has grown in terms of revenue and net profits but however, despite the high expenses and competition from the water industry, the outlook for Hyflux doesn't seem very favourable. Furthermore, the issuance of preference a few years back with the guaranteed returns of 6% may give Hyflux a tougher time to refinance or buy back the debts.

Hyflux's high debt position remains a challenge to its future. Once the Tuas Desalination Plant in Singapore is operational, Hyflux may see a brighter light with more profits coming in from Singapore. With adequate funding, Hyflux may be able to better finance its debts and grow healthily.

A "HOLD" rating will be given due to high debts and expenses incurred by Hyflux.

Sneak peak at the Telecom Sector

Generally, telecom sector stocks like Starhub, Singtel and M1 have grown quite well in the recently. Let's look at their performance for the past 6 months.

Starhub increased from 3.68 to 4.35 in the last 6 months, up 18%

M1 Ltd, owned by Telecom Giant Axiata Group Berhad went up from 2.61 to 3.17 in the last 6 months, up 21%.

Temesek Holdings owned Telco, Singtel, went up from 3.21 to 3.77 in the last 6 months, up 17%. It last announced to set up a subsidary into the newly open economy, Myanmar but still pending for further updates. Myanmar could be seen as a major growth benefactor for singtel

Corporate Rating for Thai Bev

Standard & Poor had remove Thai Beverage from its credit watch. Its rating had also been changed from BBB to BBB- with negative outlook.

According to S&P website:
‘BBB-‘—Considered lowest investment grade by market participants.

The first reason was due to the high cost of the F&N acquisition which amount to about US$11.2Bn. The company debts are expected to remain high and cash flow to remain adequate. 

The second reason was that TCC Assets hold about 61% of F&N and no plans were known as to how the debt will be financed.

With that being said, F&N still remains strong in its beverage sectors owning 100 PLUS, Fruit Tree, Seasons and Ice Mountain.

Drinks made up majority of profits in coffee shops and will continue to grow because people will need to quench their thirst. This stock poses strong upside potential and will possess the financial strength to handle the debts.

Source: http://info.sgx.com/webcoranncatth.nsf/VwAttachments/Att_901BDC35F61B0FFB48257B4A004547E9/$file/Corporate_Rating_by_SP.pdf?openelement

Source: http://blogs.wsj.com/deals/2013/04/12/thaibevs-fn-deal-prompts-credit-rating-downgrade/

Olam in danger?

I've a friend who bought this stock and i was a little speechless because since he bought it, wouldn't be a good idea to pour hot water on him. But i try to put it in a polite manner, "Well, have you read its financial reports? Do you have good understanding of its business operations?" And he said, "Not really but since it dropped quite a lot since last week, looks like a good buy so i bought it". And the fortunate thing is Temesek Holdings was willing to support their rights issue during that period and he managed to sell it for a decent profit. I was glad for him.

Not that i knew a lot about Olam but looking at the financial report, it kind of make me uneasy. Below is the financial statement for the first half ended 31 December 2012.

Both figures which are highlighted in red indicates the revenue and net profit respectively. In short, Olam has revenue close to about $9.6bn. However, after deducting the expenses, the company earns close to $200m which translates to about only 2% of revenue. This looks crazy to me because the company incur some pretty dangerous operation costs.

Below shows the their borrowings which have grown 15-30% from last year to this year(bad indicator).

Moving on to the financing activities for the company, the only thing i want to highlight here is that there is no indication of them paying off debts, which is one of the most dangerous parts that normal investor will not be able to see. Their debts are increasing, and yet they are having trouble paying them off.

In summary, this company is in trouble but some people are still betting their money on it. Let time decide if this company will survive and make it. I highly doubt this company will ever be profitable in this current state.

Source: http://info.sgx.com/webcoranncatth.nsf/VwAttachments/Att_022449932FC2A5F648257B0B002FE6CA/$file/7Feb2013-H1FY2013_Results.pdf?openelement

complicated business, Capital Land

For 3 years of my investment experience, i have never read about capital land's financials or even think of investing in this company, not because it doesn't look attractive but rather i do not know the valuation of the company. Their assets are very broadly scattered and thus, is difficult to know or understand the nature of their businesses.

Lets take a look at Capital Land:

Capital Land had tried to reduce their debts but even after its bank borrowings and issurance of debt securities, they are still negative of about $680m on cash flow.

There are no clear indications of how the investments will generate high returns but their debt level doesn't look good.

Although their Net Asset Value(NAV) is close to its buy price, the PE ratio of 16 indicated that the earning potential of the company is still not fantastic, or rather they have not reap what they sow yet.

An image of Capital Land's cash flow statement:

Source: http://info.sgx.com/webcoranncatth.nsf/VwAttachments/Att_0770123F1FB525A548257B18003C1D91/$file/CL_4Q2012.Results.21Feb13.pdf?openelement

These are some factors to consider when buying a stock

For this post, i will quote the example from Swissco Holdings FY2012 financial statement.

Source: http://info.sgx.com/webcoranncatth.nsf/VwAttachments/Att_7E3838BAE920403448257B1E0033133B/$file/FY2012SHLYearEndAnnouncement_26Feb13.pdf?openelement

• Repayment of borrowings > Proceeds from borrowing (both in 2011 and 2012)
• Net increase in cash and cash equivalents (both in 2011 and 2012)

When the repayment of borrowings amount is more than the proceeds from borrowing means that the company is able to generate more cash from previous borrowings to reduce its debts. It is good for the shareholders because it allows shareholders to own more assets than the company's debts.

Below is the image showing the Net Asset Value(NAV) per share. When debts are reduced, NAV will increase.

The net increase in cash and cash equivalents also reflected positively on the company's performance as it is able to generate more cash than expenses.