Great Singapore Sale

I must say, since my last update, the markets have gone on a wild ride. Valuations have become so depressed, that I could only stand at the sides and dip a bit of my toes in, only because I haven't had the capital to purchase much more than I would have wanted to.

This entry is only going to be a generic one, I've been so busy will only start updating regularly in a few week's time. Nonetheless, I managed to take out some time to analyse a few companies and pick up some shares, including Kepland at 1.45, Tat Hong at 0.385, Olam at 0.89, 2nd chc at 0.17. Those who have waited to "time" the market might have missed it's bottom at around 1,500 (might, because no one knows whether it has bottomed or not, and I am not interested in attempting to call for one). The point is that, do pick up any counters with significant margins of safety and do not hesitate when you see them.

Anyhow, would like to talk about a discussion I had one day with a friend. Were talking about some counters I had in mind but do not intend to purchase at the moment. One of these companies is C&G Industrials. It released its financial results quite recently, and on this grounds, I think it is trading at too ridiculous valuations. With about 560 million RMB in cash(about 100million SGD) at hand(in the bank), the cash per share is about 25cents. Now? it's changing hands at 6 cents. The maintenance capital expenditure is estimated at around 120 million RMB(based on past year experiences). So, if the company continues to expand at the rate it has been doing so far, and earns zero profits, we can safely assume that the company can stay solvent for 4 years plus. The management has released statements on scaling back of capital expenditure in the coming year and has just pulled out of one project. This can probably result in a cutback in cash burn rate. Attractive? maybe. I've not taken a look at the business of C&G, so I may not be in a position to make comments.

For 2nd Chance, a company that has posted 6 straight years of record profits, its profits had taken a turn for the worst recently due to its securities portfolio. As I had previously mentioned, one of my concerns was its increasing share in the portfolio. Sadly, the words have come back to haunt me, as they have to book a loss in the coming quarter due to its unrealised losses in securities. The market immediately punished 2nd Chance, dropping about 20% in one day of trading. Rational? I don't think so. It is an unrealised loss, and not loss in cash or its core businesses. The management have already provided guidance, that the securities portfolio will be limited and not added upon. The loss is only an accounting procedure for booking it into the P & L statement, and its profits will still provide the cash for its dividend payout. Thus the decision to pick up more at 0.17.

Some of the property stocks out there are trading at relatively ridiculous valuations of around 0.3X book, and around 0.5X RNAV. The market seems to be pricing in for a prolonged downturn in the property market. However, for those with a long-term point of view again, might want to look at some companies who have vested interests in other countries like Vietnam (where the PDI is rising at CAGR of around >10% and mean age around 40 years) and China. The long-term fundamentals are still intact, unless a war erupts.

Most importantly, we should look at companies where the earnings visibility can be projected far ahead. By this definition, I might be tempted to exclude the O & M sector (darlings of yesteryear) and the technology sector to a certain extent, but property companies might still tend to trend upwards due to demand for their assets in the long run. Cash is also important at this moment, so companies which are sitting on hoards of cash right now might survive, increase market share and thrive. An e.g. could be the change in the automotive industry landscape, with Toyota poised to overtake General Motors as the market leader, as the latter might face insolvency from high cash burning. Might be time to take a look at some market challengers, and if they are holding onto large amounts of cash compared to leaders who have been less prudent, keep a watchful eye.

Have a great day shopping on the Singapore Exchange. But compare the prices and do your homework before you open your wallet.