Monday 30 October 2017

A look at my recent buys (Part 3) - 800 Super

I first came across 800 Super in 2015 when its price was only 40+ cents. A cusory glance at its balance sheet puts me off as it is in a net debt position and its debt had been increasing. The company’s share price burst into action in the second half of 2016 and reaches a high of $1.38 on 12 May 2017.

I finally took a small bite of it at $0.93 in December 2016 and sold it off at $1.26 in May 2017 for a 36% gain. The recent dip in its price to $1.1+ allows me to take a second bite at it. Together with the few recent buys of iFast, Hock Lian Seng and UMS, I decided to take a closer look at the company’s past record.

What do they do?
Listed on Catalist on 15 July 2011, 800 Super is an established environmental services provider for both the public and private sectors in Singapore. The Company's environmental services include waste management, cleaning and conservancy and horticultural services. The company is one of the four licenses public water collectors appointed by NEA. It has been the Public waste collector for Ang Mo Kio-Toa Payoh sector since July 2006, and was re-awarded the contract in 2014 for 7 years and 9 months.

In its IPO document, the company stated the following as their business strategies and future plans.
• Expand our material recovery facilities capacity and the capacity of our vehicle depots
• Enhance the efficiency of our services and capacity
• Venture into waste treatment and renewable energy businesses
• Focus on public sector projects
• Continue to focus on operational excellence
• Explore strategic investments or alliances and acquisitions
• Expand into overseas markets

Based on the past few years record, tt seems that they have been executing their plans, with the completion of the material recovering plants and vehicle depot at Tuas South. Also, they were awarded integrated public cleaning for North-West (6 years) and South-West (7 years) sectors in 2014.

Recent Development
The group had a hiccup in its growth of both top and bottom line in the latest year with poorer performance in the last 2 quarters. This coincides with the delay of its completion of its Waste-to-Energy (WTE) plant which was slated to be in operation in 2017Q2. I suspect they are ironing out some teething problems and hopefully it can come into operation by end 2017.

In October 2016, the company was awarded a15-and-a-half-year, S$133.65 million contract that the Public Utilities Board (PUB) for a sludge treatment facility. This is slated to be completed in 2018 second quarter.

In the latest financial year, the company continues to increase its dividend from 2.5 cents to 4.0 cents.

Management
The Lee brothers Lee Kok Yong (Chairman), Lee Cheng Chye (CEO) and Lee Hock Seong collectively have a 75% stake fo the company.

It is my opinion that they are networker and are people-oriented leaders with interest aligned to the shareholders.  My opinion comes from the position they held – Lee Kok Yong is a direction of Ang Mo Kio Joint Temple Association and Lee Cheng Chye is currently the treasurer for Bishan East Citizens Consultative Committee and was conferred the Public Service Medal (PBM) by the President of Singapore at the 2015 National Day Awards.

The company has also increased its dividend over the years, from 1 cent in 2012 to 4 cents  in the latest financial year.

Crunching the numbers













The company has grown its EPS by about 24% over the past 5 years. I opined that the company can at least grow by 15% in the next few years which would give its PEG of about 0.85.

Dividend has been increasing and based on the payout ratio and likely increase in cash balance, I think it can at least sustain its 4 cents and that provides an yield of about 3.3% based on current price of $1.215.

The company seems to believe in using debt to grow and it is not something that I am comfortable with. However, its ability to generate cash is improving over the past few years and net debt has gone down until the recent increase in debt to finance the buiding of the sludge treatment plant.

Conclusion
After taking a closer look at the company, I must say that I am impressed by how the company has kept to what it has set out to do in its IPO. It has grown over the past 5 years and increases its dividend. While debt is something I am not comfortable with, it seems that the company has been able to deal with it and moving forward, the chance of paring it down seems high.

Weighing the risk and reward, I decided to add on to my holding today, resulting in an average price of  $1.16. It now occupies 5.4% of my portfolio.

Thursday 26 October 2017

A look at my recent buys (Part 2) - Hock Lian Seng vs UMS

Hock Leng Seng (HLS) vs UMS? Why compare them? How are they related? 
Nothing except that both are listed on Singapore Exchange and I bought them recently in September as dividend counters.  

What do they do?
Hock Lian Seng is a leading civil engineering group that is established for 45 years. It is listed on SGX mainboard in December 2009. At any one period, the group does not have many projects but they have big projects with revenue that is recognized over a few years. Some recent completed projects include Marina Bay Station, Marina Coastal Expressway. On-going projects include CAG airport runway and Maxell Station. Upon listed, they forayed into property development and had developed industry building such as ARK@Gambas and ARK@KB and collaborated to developed the Skywoods condominium. The remaining project that the group is doing now is Shine@Tuas South. The other segment is investment properties which contributed negligibly in the latest financial year.










As seen from the segment value, the group seems to have gone a full circle with tapering civil engineering projects to an increase in it after a few years in experimenting properties development and investment. Going forward, it seems that they will be focusing on civil engineering business.

UMS is a is a one-stop strategic integration partner providing equipment manufacturing and engineering services to Original Equipment Manufacturers of semiconductors and related products. It is formed with the merger of Norelco Centreline (listed on SESDAQ in 2001 and upgraded to mainboard in 2003) with UMS Semiconductor in 2004. The key change in their product occurred in 2010/2011 when they acquired Integrated Manufacturing Technologies Pte Ltd and Integrated Manufacturing Technologies Inc. Since then, their revenue is mainly from Applied Materials.

Recent development, results and price movement
Hock Lian Seng proposed a special dividend of 10 cents in the latest financial year. Wow, a big windfall for investors who have invested in the company before that. Unfortunately, I am not one of them. 20171H performance has been muted as there is no contribution from property development. Revenue from Civil Engineering segment was flat from previous year. The bright spot since the beginning of the year is the record order book which stands at a high of 890 million. Also, it has about 27 cents of cash per share which means I am just paying about 18 cents for its solid order book. Share had drifted to $0.4+ in August/September when I made my purchase. It was moving up over the past week and is now at $0.51.

UMS renewed its integrated system contract with Applied Material for 3 years (and has the option of extending it for another 3 years). It is also attempting to diversify its customer base by subscribing to 51% of the enlarged share capital of Kalf. Recently, it has also gone XB for its 1-for-4 bonus. Its price has dropped from its high of $1.2+ (pre-bonus) in May/June to $0.9 (pre-bonus) when I made my purchase. It has gone ballistic after XB recently and is now at $0.99 (post-bonus).

Dividend and Sustainability?

Year         HLS         UMS
2016 12.5 c 4.8 c (adj)
2015 2.5 c 4.8 c (adj)
2014 4.0 c 4.2 c (adj)
2013 1.8 c 3.8 c (adj)
2012 1.8 c 3.8 c (adj)

As seen from the above table, both companies have been quite consistent in giving out dividends with HLS giving out special dividend periodically and UMS has increased its dividend.

Dividend payout for HLS around mid 30%, while UMS ranges from 70+% to 100+% if based on net profit. Based on free cash flow, UMS is around low 80%. Also, as mentioned earlier, HLS has about 27 cents in cash; while UMS cash holding is around 14 cents.

Based on the above, I am quite confident that both companies will sustain their pay out in the coming year (HLS – 2.5c, UMS – 6c) and this will translate to a yield of about 4.9% for HLS and 6.1% for UMS.

Conclusion
I first purchased both when their price has slid downwards in August/September. I was quite impressed by Hock Leng Seng as it has a strong net profit margin and return of equity. The property development has probably masked the NPM and ROE figures and I have not spent time drilling down on its AR. However, if I based it on 2009, 2010 figures when property development has not started NPM is around 10% and ROE is high 20%. Impressive numbers. 

Based on these numbers, order book and cash per share, I have added slightly more this month, bringing my average price to $0.45. I would like to see how things unfold in the coming quarters before deciding if I would accumulate more.

With the contract renewal, there is more certainty of  UMS for at least the next few years. I have not added to UMS since my purchase at an average price of $0.76 (adj) in August, as the price has ran up and I was waiting to see if it would correct to below $0.80 after XB. The run up after XB was totally unexpected. I would be waiting for its Q3 results and the price then before making further decision.

Wednesday 25 October 2017

Buy and sell actions in October

Unlike the past 3 months, I have taken relatively less actions in October.

1. Added more iFAST as I felt excited and confident of its future growth after reading through the past annual reports. See previous post on my thoughts about the company. It now occupies 5.4% of my portfolio with my average price at $0.935.

2. Added more Hock Lian Seng after learning more about the company through the past annual reports. With a strong order book and balance sheet, feel confident that it can maintain its 2.5 cents of dividend. That gives me a yield of 5.5% with my average price of $0.454.

3. Added more Frasers Centrepoint Trust after its stellar Q4 performance and price dipped to $2.17 from the recent high of $2.2+. Expect DPU and NAV to continue to grow next year now that AEI of Northpoint is almost completed. Assuming that DPU comes in at 12.2 c, it will provide a yield of 5.6% at $2.17. My average price is now $2.06 which is only slightly above its current NAV of $2.02.

4. Bought ULTA Beauty at USD196.85. Felt that it was way oversold from its recent high of USD300 in June, especially when it is growing at 20% to 25% for this financial year. Its current PE of 25-27 is much lower than its past 5 years average of 38.

5. Bought 800 Super at $1.21. After a closer look at its business, decided that there is still room for growth in the next few years especially with the Waste-to-Energy (WTE) coming into operation at the end of this year.

6. Sold CDLHT at $1.63, making a small gain of 2.7%. DPU after rights is lower and the outlook of the hospitality sector probably need another year or two for greater clarity. So decided to sell and use the proceed for other counters.

7. Sold OUEHT at $0.805, making a gain of 5.8%. Similar reason on hospitality sector. Decided not to wait for quarterly results in the coming week as I have made a small gain and am unsure how the DPU will be affected as there will be no more income support.

Saturday 7 October 2017

A closer look at my recent buys (Part 1) - iFAST

In August and early September, I have initiated positions on iFAST, Hock Lian Seng, UMS and 800 Super (re-entered) after chancing upon their price drop of about 20% from recent high in June. I did a quick scan on their news and did not find any major fundamental change in their business and hence took a bite.

I decided to take a closer look at the them to decide if I should add more to my initial holdings. I will start with iFAST as I am most excited about it after scanning through their latest annual reports.


What do they do?

Listed on SGX on 11 December 2014, iFAST business revolves around internet-based investment products distribution platform with assets-under-administration (AUA) of about 6.1 billions. It has presence in Singapore, Malaysia, Hong Kong and China. Two main business divisions, business-to-business (B2B) and business-to-consumer (B2C) with B2B contributing 75% of revenue in 2016. About 83% of its net revenue is recurring.

Recent development, results and price movement
iFAST has a strong rebound in their 20171H results. Revenue was up by about 20% and net profit up by 75% but this came from a weak 20161H results. The poor results in 2016, a 55% drop in EPS has caused the share price to plunge from $1.35 to $0.85 for that year. The price continued to slide in 2017 till April to reach a low $0.60. The release of its strong results this year has resulted in a strong rebound of its share price, reaching a high of $1.1+ in June.

It has also launched its SGX stockbroking service in June 2017 after being admitted as a Trading Member of Singapore Exchange Securities Trading Limited (“SGX-ST”) and a Clearing Member of The Central Depository (Pte) Limited (“CDP”).

Management

Based on what I read on the annual reports and action taken by the company, I think iFAST Chairman, CEO and co-founder Lim Chung Chun is a forward looking and strong leader who drives the company to put their company values (Integrity, Innovation and Transparency) into action. The following is the final paragraph from 2016 report.


"We are aware that our approach may sometimes cause disruption in the financial sectors that are often dominated by traditional business approaches and mores on how investors should be treated – if it means these disruptive changes we are introducing are pro-client, we will continue to remain steadfast in achieving this outcome in the markets we operate in. When changes are pro-client, we are confident we will succeed in the longer term despite shorter-term challenges."


And I do not think it's just talk. Fundsupermart.com in 2000, FSM Mobile in 2011, Bondsupermart in 2015, and robo-advisor last year are evidences that show that the company is among the first movers.

Crunching the numbers
With the exception of 2016, iFAST has grown both its top and bottom lines, with its EPS growth outpacing its net revenue growth.








Base on the above data, I believe the company should be able to continue to grow its earning at a rate of 20% to 30% for the next few years.

Valuation
Together with the rest of the market, iFAST's price has rebounded quite a bit since the beginning of October and closed at $0.96 on 6 October. Forward PE based on the current price and projected EPS is about 26x. Assuming I am right about its ability to grow at 20% to 30% in the next few years, forward PEG ranges from 1.1 to 1.3. My personal take is that it is fairly priced with potential to surprise on the up side but risk still lingers.

When will I sell?
These four rules still apply.
a. The fundamentals of the company has deteriorate
b. The company is overvalue at the current price
c. To raise cash for a better buying idea
d. To raise cash for other reasons

Conclusion
My first encounter with the company was more than a decade ago when I opened my Fundsupermart account. Did not really use its services as I was on dollardex then. Recently, I wanted to explore its FSMone platform for stock trading and hence decided to register an account. Apparently my record is still in their data base and I need to re-activate my account which I will probably do by the end of the year.

As an investing idea, I came across it somewhere in late 2015 but the PE was crazy then. The sell down due to poor results in 2016 and the recent correction provides me an opportunity to buy a small stake in the company.

I can sense my excitement as I read the development of iFAST over the years and imagine what more can come from them in years to come. Hence, I decided to buy more yesterday at a price of $0.975 (yes, I am not good at market timing). Together with my initial purchases, my average price is $0.93.

I am prepared to add more to this counter at the appropriate junctures.

Monday 2 October 2017

Why staying in the market works for me

In the recent 9-month report, I mentioned that I eked out a small return for the latest quarter due to a surge in price of Valuetronics and UMS in the last few days of September.

I am once reminded again that being an average retail investor, it works best for me when I just stay in the market, instead of frequent trading in an attempt to catch the low/high prices.

Taking a look at the year-to-date prices of a few of my holdings, one can see that the spike in prices only occur for a short period of time. Most of the time, the prices just fluctuate within a smaller range. If I have missed that few short periods, I would have miss the return.

Valuetronics
Food Empire























Straco











Of course, if I am a full-time expert trader and I monitor the price movement closely, I could still benefit from it. However, I am not and I couldn't possible be looking at the price movement so frequently while working. Even if I am not working, looking at the price at such frequency is not really what I would like to do.

Hence, the best method for me is to just find the correct business to invest in and once vested, stay in the market for as long as possible.

What if there is a market crash? Well, I just have to ride it out. Having a war chest also allows me to take the opportunity to buy more shares of the business that I like.