Tuesday, November 1, 2011

3Q2011 Updates

This quarter was filled with much volatility, I did not expect that the chart I did up on Euro/ Global indebtedness would come in so relevant, more so than the bottom up pickings which were absolutely boring this quarter with the exception of Koon which announced a 15% JV into real estate development, not surprising which I mentioned since they bought GPS Alliance, the real estate agency and advisory firm in 1H2011. 

NY Times had one good article talking about the Euro problem (with a far more impressive and interactive chart) than my boring table.http://www.nytimes.com/interactive/2010/05/02/weekinreview/02marsh.html. Well it appears by the reps of which countries are mentioned, Greece seems to be very crucial in the equation of solving the debt issues. However there's more than meets the eye. By absolute numbers, Spain and Italy send shivers down the spine, with related creditors such as Britain, Germany and France likely to be affected in a web of debt that makes Greece look really like David rather than the Goliath. 

I have also learnt many a thing during this quarter, one of which "Your selling price is only as good as how much you bought it for". Undoubtedly, Nanyang Holdings is an extremely undervalued counter and I mean "very", I ought to have bought it lower especially when I expected the Euro debt issue to be replayed. 

World precision had some good support on price level with its steady growth. News of China slowing down the infrastructure spending and words of worker with wages on credit also toned down the enthusiasm for the company which announced significant investment in railway and automotive machine production which currently contributes over 50% of revenue in 2011. Utilization figures also suggest the economy has not yet slowed down significantly however we do expect the numbers to slow down sometime in the next few quarters. World precision is currently China's 3rd largest precision stamping tool manufacturer with 2.9% market share and needs to triple sales to top the charts which should not be too difficult given its technological tie ups with PAMA Group and Aida from Italy and Japan. Management owning over 77% of total shares and its record of stable dividends have also been comforting. Price wise, the last attempted takeover was at S$0.70-75 per share or S$ 395-423 million in total which is in my opinion a low target for the firm. Management has also stated that replacement cost for the plants alone stand at over RMB 1.5 billion or about S$ 300 million. Order book is at RMB 1.2 billion with LTM net margins at 15.3%, lowest 12% in 2010. Market values the firm now at over S$200 million.

Lastly I have also exited a negligible position in Unidux with the takeover at S$ 0.143 per share for a good gain. Illiquidity of the counter did not allow for a good accumulation even though the case was clear.

I will also cover the shorts now to focus on the longs and their related experiments.

Feel free to email me any queries.


HcoRealEstates said...
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Dennis The Menace said...

I would like to bring to everybody's attention that invests in value stocks. Their is one overwhelming fact when it comes to value investing and that is you must buy decent companies with very low price to sales ratios to have a high probability of making a lot of money buying value stocks their is no other way believe me This is something that is seldom talked about on business TV. The method is so simple but so very powerful that it scares me. And what is a very low price to sales ratio. First let me explain very clearly to everyone what a low price to sales ratio is. The price to sales ratio is the market cap of a stock compared to the sales that the company of the stock does on a annual basis. In other words the company I talk about below has a market cap' which is all the shares of the company issued and outstanding of just eight billion dollars. But the comapny does fiftyfive billion dollars in annual sales. In other words the market is valuing bunge at just eight billion dollars but the company does fiftyfive billion dollars in annual sales get the idea. Ok one other thing never forget this warren buffett could never have made the enormous returns buying value stocks unless he was buying value stocks with very low price to sales ratios period' and I am almost certain if you asked him he would totally agree. Bear in mind I would not say something that I cannot back up believe me. I will give an example of a company of really decent quality that I consider really undervalued. The company is Bunge Limited symbol {BG} engages in the agriculture and food businesses worldwide. The stock currently trades around 59 dollars a share. I think the stock could easily get to 450 dollars a share over the next five years. Yes you heard it right four hundred and fifty dollars a share. Assuming their are not stock splits. And what do I base this on If the companies profit margain expands from around 1.75% to 4% over the next five years and if the sales of the company expand from 54 billion to 85 billion thats growth of about 7 or 8 percent a year and if the companies stock than trades at a price earnings ratio of about 20. That would put the price of the stock at 450 dollars a share. It could even be more than 450 dollars a share if you reinvest your dividends the company pays a dividend also if the company does a share buyback this could increase the value of the stock even more. Keep in mind that their are stocks that are popular that trade at much higher price earnings ratios than 20 times earnings one example is whole foods market it currently trades at 35 times earnings. Also keep in mind that bunge is a company of really decent quality not at all a high risk stock. It has the potential to leave a company like proter and gamble in the dust. I understand your skepticsm if you are reading this but go to any stock broker or financial planner CPA that knows how to value stocks and they will confirm everything that Im saying here.



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