Stock Portfolio Going Into 2015

My stock portfolio going into 2015:

1. China Merchant Pacific
2. Naratel
3. TTJ
4. Hock Lian Seng
5. Sports Toto
6. Kingsmen Creative
7. Saizen REIT
8. Fraser Centrepoint Trust
9. SembCorp Industries

Merry X'mas & a Happy New Year to all my dear friends out there.
I pray that this X'mas will be, for you,
a cheerful ending to 2014 and a great beginning to a happy 2015.

Divested Old Town

Divested Old Town.  Decision made not based on information regarding the company but rather because I want to raise some cash.  Decided to cut loss on Old Town, as among all my current holdings, this one is perceived with the narrowest of economic moat, and I have concerns about the Malaysian Stock Mkt in general as well as the RM.

Divested UMS, Added Sembcorp Industries

Divested UMS, not because i lost faith in its narrative, but rather that I need some cash (moved into new house, did renovations & planning holidays end of year =P)

Hence I rationalised amongst all my current holdings and decided that moving forward, the one with the narrowest economic moat is likely to be UMS.

However, at the same time, I recycled some of these freed up capital into SembCorp Industries, initiating a small position. Thought the market is overly pessimistic on SCI, driving it down to 4.50+... A blue chip with a reasonably wide moat, ROE 15%, stable earnings and a bright future with overseas growth potential.  Currently trading at close to 10x earnings, there seem to be a big enough margin of safety to go in.

 Now, my stock portfolio consist of:
1. China Merchant Pacific
2. Naratel
3. TTJ
4. Hock Lian Seng
5. Sports Toto
6. Old Town
7. Kingsmen Creative
8. Saizen REIT
9. Fraser Centrepoint Trust
10. SembCorp Industries

Divested Challenger

Lost faith in Challenger's narrative and decided to divest today... (need some cash also)

Update on my stock portfolio

During the recent market correction, added a little to Sports Toto as well as China Merchant Pacific.
Now, my stock portfolio provides approx. 6% yield and consist of:

1. China Merchant Pacific
2. Naratel
3. TTJ
4. Challenger
5. Hock Lian Seng
6. Sports Toto
7. Old Town
8. Kingsmen
9. UMS
10. Fraser Centrepoint Trust
11. Saizen REIT

UMS

Initiated small position in UMS today.

Prices still falling and may fall further but I decided its 'cheap' enough to start buying.
Was on my watch list for quite a long while but did not had any opportunity as I continue to watch this stock keep on running up...

In the biz of semiconductor industry and its downside risks is tied closely to its key customer Applied Materials (80% of revenue).
It has a contract with Applied Materials until 2017 (renewable) and to me, its strong relationship with Applied Materials is its economic moat.
Applied Materials recently is reducing its stake in UMS that is causing the plunge, plus the CEO selling his shares too.
I am buying as I am not trying to read too much into their actions.
Companies/people sell their stocks for various reasons so I am of opinion (optimistic) that it is not due to a deterioration of UMS fundamentals or relationship with Applied Materials.
Keeping fingers crossed.

At current prices, PE approx. 8, dividend yield >7% for a net cash company with sound fundamentals and strong earnings.
Sounds good to me.

Kingsmen Creative

Decided to initiate small position in Kingsmen today.

Designs & produce exhibits and reputed for quality interior design works,
with a niche in the mid to up-market retail sector.

Track record indicate that we are looking at a strong & steadily growing company,
PE 10 at current prices suggest it is slightly undervalued (for a steady grower).

Also looking attractive as a net cash company,
dividend yield 4.3% at current prices with a potential dividend growth story.
Am anticipating a bump up in dividends especially that we are expecting a good FY14.

Added TTJ to core portfolio

Added to TTJ recently, making my average price SGD0.289. 
Now total of 35 lots, significant to make it part of my core portfolio,
which now consist of 5 stocks, 2 REITs.

In the biz of structural steel, it is riding on the infrastructure boom in Singapore.
A net cash company with a good & growing earnings track record, looking at (based on 1H results) possible record earnings for this FY.
Dividends wise, at my purchase price only 3.5% yield but I believe there is a dividend growth story.
With the continuing positive outlook for the construction sector in Singapore, given TTJ's excellent track record, I am confident it will get its fair share of opportunities.
PE ratio about 6 for an established company with solid track record, I think it is undervalued.

Divested FCL

Sold all my 6 lots in FCL today, 30% capital gain.  I think the current valuation is rich.  And I need to replenish my almost empty war chest so that I will be able to capitalise on any opportunities arising later in the year.  Decided to harvest FCL, the only non-income stock/REIT in my core portfolio.

Core Portfolio now consist of:

1. Naratel
2. CM Pacific
3. Challenger
4. Hock Lian Seng
5. FCT
6. Saizen REIT 

Quick Analysis

Quick self-reflection on the key points of my current stock picking process (still evolving)

Main lines of thought:
Understandable Business; look out for a Dividend Growth Thesis; consider Downside Risks

Looking for a Moat in Quantitative Analysis:
Net Cash Company; gives out Generous Dividends; with good Earnings Track Record

Looking for a Moat in Qualitative Analysis:
Signs of good Management; has good Prospects; with a identifiable Competitive Edge

Margin of Safety:
Initiate position at or near fair value; and add when margin of safety opens up

Review:
Check if the storyline remains intact with no fundamental deterioration of its original thesis

Sold off Matrix

Earlier blog post I purchased Matrix at average price less than RM3, now I sold them all off at slightly over RM4. (small number of lots)

Reason:

Recently read an article and have a new understanding that most of its land bank are actually not owned by Matrix but rather by its JV partners.  With that understanding I opine that its RNAV is thus much lower than RM5 as I previously believed (hard to figure out exact value as they build the houses on someone's else land, they own the houses but not the land? mind boggling for a novice investor like me).  I conclude this is not an asset play.  I am also coming to have some doubts over the sustainability of its current level of earnings in the long term.

I am sticking to one of Warren Buffet's rule, invest within your circle of competence.  I originally thought it to be a simple asset play, now that it is not, that its business model is beyond my level of comprehension means it has fallen way out of my circle of competence.  Being risk averse, I decided to sell them even though it seems like to be continuing on an uptrend.  To have made some pocket money on this stock was solely due to luck, I am grateful for that and will not try to push my luck further.  To be able to sleep peacefully at night is very important to me =)

Oldtown - Aroma of Good Times

Initiated small position at RM2.05.

Think most of us should be familiar with old town white coffee and its café outlets.
Its core biz includes cafes and the manufacturing & selling of beverages (think instant coffee mix)
Old town is a market leader in white coffee,
established in Singapore/Malaysia and growing its presence in China, Indonesia & Australia.
I like its bold, clear and focused vision: to be Asia Pacific Leading White Coffee Brand.

A net cash company, growing earnings with potentially double digit growth over the coming years, given the large potential market in China and especially in its sale of beverages. 
They are well capable of ramping up production to meet that potential increase in demand, as the plant is currently being underutilised at only 40%.
Dividends only approx. 3.5% at current prices, but I am counting on a dividend growth thesis, if it maintains its 50% dividend payout, we should be looking at a more than 4% dividend yield after 3 years.

At PE 17, taking into account growth prospects, I think the price is reasonable.
But it is NOT cheap, hence don't dare to buy more, just hope that opportunity will present itself in the later part of the year...

Added a little China Merchant Pacific

Added a little at SGD0.915, making my average purchase price SGD0.885.
Decided to add a little more to another solid company with stable earnings and generous dividends.

Added a little Challenger

Added a little at SGD0.53, average purchase price now SGD0.505, total 18 lots.

It dropped quite a lot today due to a poor Q1 showing.

What's worrying to me is that its revenue seems to be growing slower than before, with narrowing margins.

The fact that I am still adding instead of selling means I remain optimistic that its earnings is still on a uptrend, although on a slower growth path.  I also remain confident in the management, based on its solid track record.

A net cash company, PE11, ROE 30% with an excellent earnings record, dividend yield around 5% and likely still room for a little more dividend growth, I decided to take advantage of the current price weakness to accumulate sufficiently to now consider it part of my 'core' portfolio.

Added a little Neratel

Added a little at 73cents.  Average purchase price becomes 68cents.

PE 11 for a net cash company with strong earnings record, generous dividends in excess of 8% yield and likely to register growth over the next couple years?

Sounds reasonable to me =)

Zen & Investing

I have reframed my blog to "Zen Mind, Value Investing Mind" from "Economic Moats, Margin of Safety" to reflect a desire to integrate my investing journey as part of my spiritual practice.

Zen is a way of life, one that aims to learn to live authentically, instead of dwelling in our self-centred dreams and thoughts.  Moving from a self-centred life to a more life-centred one. 

This doesn't mean we don't take care of ourselves, as a life-centred approach includes taking care of one's own-self as well as one's family (including investing to provide steady stream of passive income after retirement).  The key is not to get lost in our narrow self-centred obsessions and learning to live with a more open mind and heart.  This means, to me, not a radical change in lifestyle, rather a gentle shift in our everyday living to becoming a kinder person.

Through mindful awareness, we begin to notice the ways we are unkind.  Then slowly releasing and letting go of the ways we are unkind, slowly we allow the intrinsic kindness in our heart to slowly surface, in a gradual gradual way (hardly noticeable probably).

Relating to investing, while I try to bring more mindful awareness into the whole process, I am still unsure how this integration with my spiritual practice will turn out.  At this point in time, there is just an intention to integrate with no clear ideas on how to doing it systematically or what the outcome will be like. 

One glimpse of the outcome is perhaps what I have discussed in some of my past posts, where I made commitments to donating investment earnings to meaningful causes.  As I slowly move along my investing journey, at the same time learning to open my awareness to suffering out there in our world, and learning to make commitments to sharing a growing portion of my wealth with those who could use a little help financially.  For example, the commitment to sponsoring a child, which not only enable us to assist the child and his/her family financially, but through writing letters, we can also hopefully bring some positive influence and hope to him/her.

I am taking a gradual approach
May everyone be well & happy =)

A Strategy for the effective use of my War Chest

Mindful of the possibilities of corrections and economic crashes, I have decided to devise a strategy to create disciple and control over the use of my funds (War Chest for Investment)

1. Individual Stock Dips                     use up to 5% of War Chest
2. Market Correction of 10%              use up to 10% of War Chest
3. Market Correction of 20%              use up to 20% of War Chest
4. Market Crash of 30%                      use up to 25% of War Chest
5. Market Crash of 40% or more        use up to 40% of War Chest

Okie, now the job is to stick to the plan, probably the hardest part haha

Update on Core Portfolio

28 Apr	Lots	Cost Price	Market Price	Paper Gain/Loss
FCL	6	1.5	1.7	13.33%
Naratel	15	0.67	0.785	17.16%
CM Pacific	12	0.88	0.97	10.23%
Saizen	14	0.865	0.905	4.62%
FCT	7	1.64	1.8	9.76%
Hock Lian Seng	40	0.265	0.285	7.55%
Total		63.8	70.2	10.03%

No Selling, only the addition of Hock Lian Seng (previously holding a very small position).
Am impressed with Hock Lian Seng ability to maintain their profit margins, and the fact that they have clinched a number of significant projects recently that will provide earnings visibility over the next couple of years.  Coupled with the company's excellent track record in giving out generous dividends makes me decide raise my stakes significantly in that company. 

Stable earnings and Generous dividends =)

Hock Lian Seng

Added some recently and my average purchase price becomes SGD0.265.

Despite construction stocks being in a cyclical sector, HLS is somewhat mitigated by taking on government projects with the status of being a grade A1 contractor in the BCA civil engineering cat (I see this as a kind of economic moat for HLS where their "favoured status" should assure them a fair share of the pie for the foreseeable future). 

Recently it just clinched a 100 million Changi Airport project.
And only just over the weekend, it added to its order book a 220 million MRT project.
Cool... These news gives me some assurance over its earnings predictability for coming few years.

I also like HLS's strong balance sheet, wide gross profit margins (seem quite good at controlling their costs, especially in the difficult construction sector, rising labour & other costs can be quite tricky) and its high & consistent dividend pay-out. This year a DPS of 1.8 cents was declared.  This translate to a close to 7% dividend yield and the dividend pay-out ratio is less than 40% (likely sustainable given its track record).

With PE at 6 (should be less than 6 if we consider the two new projects) and at around NAV, while this is not a growth stock, HLS looks undervalued at 26.5 cents and an excellent income generator over the long term.  I am also hopeful for a bump up to 2 cents DPS in near future if they continue to do well.

Challenger

Added a little at SGD 0.59, making my average purchase price 50cents.

On Economic Moat:
Challenger is something that is probably familiar with most of us.  A retail play specialising in IT products, it has branches all over Singapore and still expanding (e.g. the latest store just opened in Tanglin Mall).
I like Challenger over its competitors such as Harvey and Courts for its more focused approach.
I also like the "membership" strategy which gives it a more consistent customer base.
I see the Valore brand products as a potential growth catalyst.
Its financial numbers support the above narrative with consistent & growing earnings and a strong balance sheet.

On Margin of Safety:
Current PE is close to 12 based on approx. 5cents earnings.  This being a growth company and anticipating some further growth to this company I think fair value is probably closer to PE 15.

My average purchase price 50cents gives me more than 20% margin of safety which is good enough for me.

Dividends & Debts:
This is what I like about this company, I am getting about 5% dividends and expecting further dividend growth.  It is also net cash.  =)

Matrix Concepts Holdings Bhd

Added a little at 3.72RM.

Matrix is a property developer based in Negeri Sembilan Malaysia, so this is an asset play.
It currently has two flagship projects in Seremban and Kluang, and also holds an ample balance of landbank in the pipeline to sustain its future operations until around 2020.

Strong balance sheet (net cash); good profit margins (PBT margin about 35%); ROA about 20% & ROE about 30%; and generous dividends (dividend policy minimum 40% payout).

At current prices, at a discount to RNAV estimated at close to 5RM(Based on RHB analysis) so margin of safety about 20%, PE ratio about 7x based on current year (I am expecting and hence assuming this level of earnings to be sustainable), dividend yield about 8% (may drop as this is based on payout of 60% this year, which they are not obliged to; but at 40% we should still expect a yield of 5%). In conclusion, this sounds like a reasonable buy. 

But note that I bought a little earlier at close to IPO price (regret that I didn't buy more back then haha), so I am averaging up.  My average price becomes around RM3 after current purchase so my actual margin of safety is bigger in this sense.

My Core Portfolio

Aim to review my stock portfolio half yearly and my rationale for holding them.
I will just highlight my top 5 significant holdings especially since they make up the main proportion of my investment portfolio (the core), without being distracted by some of my other scattered small number of lots in other stocks, preference shares, bonds and precious metals which serves more as diversification and/or "tikam tikam".

	Lots	Cost Price	Market Price	Paper Gain/Loss
FCL	6	1.5	1.525	1.67%
Naratel	15	0.67	0.73	8.96%
CM Pacific	12	0.88	0.905	2.84%
Saizen	14	0.865	0.885	2.31%
FCT	7	1.64	1.735	5.79%

1. Fraser Centerpoint Limited is my latest addition.  Am of the opinion that this one owns blue chip assets like capital land and Keppel land but more undervalued at current prices.  Also am hopeful that they will be giving out a generous dividend, as alluded to in their annual report.  We shall see...
2. Naratel I like its stable earnings and bought it for dividends, am delighted of its recent 6 cents dividends which is very generous.  Gives me a close to 9% yield. Am however unsure if this level of dividends is sustainable.
3. CM Pacific also like it for its stable earnings and brought it for dividends too.  Also think that it is undervalued, probably due to its status as a S chip.  Was delighted with the 7 cents dividends giving me a close to 8% yield.  But also need to try to understand if this is sustainable as well.
4. Saizen REIT is an undervalued REIT owning Japanese residential units, giving stable returns of 7.5% yield. 
5. Fraser Centrepoint trust is giving me close to 7% yield.  I like the stable earnings from its two main contributing assets, namely Northpoint and Causeway Point.

I realised that I used the words stable earnings and dividends a lot haha. I guess it reveals the kind of businesses that I look for to invest in, those with stable earnings and generous dividends.

I am getting approximately a good 7-8% dividend yield on this core portfolio.

China Merchant Pacific

Added a little today at SGD0.90.

I am investing in the economic moat of toll roads in China. 
The company buy toll roads and operates them.  Warren Buffet love businesses that exhibit "toll bridge behaviour", as they offer only one option for local consumers, use it or you don't cross the bridge at all...
So how about investing in the "real thing", the "toll road itself"?

The PE ratio is about 7, and dividend yield more than 6%. 
I think it is undervalued and intrinsic value should be more than SGD1.
I am also anticipating dividend growth from this company which is continuing to grow.
The company has announced that they are aiming for a listing in HK, and to qualify they will need to continue to acquire more toll roads. 

The gearing is high, but mitigating factor is the economic moat of this type of business which provide the company with steady and consistent cash flow.

One risk I suppose is that this is a S-chip, I suppose it being a S-chip has also something to do with it being undervalued...

Saizen REIT

Added a little at SGD0.89.

On Economic Moat:
This is a Residential REIT owning apartments in Japan and renting them out.
In a country like Japan, there is a sizable population who rent (as opposed to Singapore who are mostly owners), so while nothing exciting, I am expecting this type of REIT to remain stable over the long term.

On Margin of Safety:
Its NAV is currently estimated at about 1.20, that is more than 20% margin of safety.  I think Saizen REIT is one of the more undervalued REITs in SGX. Not sure why, but my wild guess is that it is just too boring? (think boring apartments in far faraway Japan... yawn...).

Dividend: Current dividend yield more than 7% which meets my expectations.

Debt: Gearing is 30% plus which is not low.  With the impending rise in interest rate due to QE tapering (which I suppose is a question of when not if), I need to be assured that the interest rate hike will not "kill" this REIT.  What I understand is that most of its loans are fixed at relatively low rates (I think Japan is trying to keep its interest rates low), as well as a recent refinancing of their loans extended their loan maturity commitments to 2018 (from previously 2015). Sounds like the management has got the situation under control.

Additional risk: Country risk and especially FX risk with the JPY possibly seeing further decline with so much "printing of money" under the new Japanese Prime Minister.

Fraser Centrepoint Ltd

Added little more at price SGD1.42.

Previously I bought a little at 1.6.  During the recent market correction, many stocks fell and FCL is not spared.  At 1.42, the margin of safety is more than 30%.  There are some other stocks that I am monitoring that are also near my target prices.  But I have only "one bullet" to spend and after some deliberation, decided in the end to take this opportunity to add to FCL.  Among the shortlisted stocks, this one at current prices look most attractive.  Super subjective of course.

Doctors without Borders

Began contributing approx. 50SGD monthly to Doctors without Borders. 

Another very meaningful organisation trying to improve the lives of people who need it the most.  It is an international medical humanitarian organisation providing medical help to populations in distress, such as to victims of natural or man-made disasters and to victims of armed conflicts.

In 1999, the organisation received the Nobel Peace Prize.

80% of their funding comes from private donations like ours. 
So our contributions are very important for them to sustain their operations
Do check it out if you agree its meaningful =)

Fraser Centrepoint Ltd

Took a small position at SGD1.60.

On Economic Moat:
This is a familiar (its most famous building probably being Centrepoint at Orchard Rd) property giant which is newly listed (due to change in owner), who develop as well as own both residential, commercial & hospitality properties in Singapore, Australia, China & other countries.
They are also planning a Hospitality REIT listing in near future which will be great.
I see this as a blue chip and a play on the property sector. 
In terms of market capitalisation, it is only slightly smaller than Keppel Land.

I am generally confident of their existing business model and track record, especially their ability in developing properties to generate high yield and then pass them onto their REITs to recycle their capital for new projects.
However there is some uncertainty concerning how the new owner Charoen will perform compared to the previous owner F&N who have been consistently growing its profits and assets as well as a possible management change in the near future as well.

Margin of Safety:
Based on NAV of SGD2.12, at current prices, we are talking about a 25% discount to book.  25% is quite a comfortable margin of safety for me, since I considered this a blue chip.  If we compare to other blue chip property counters like CapitaLand and Keppel Land, their current discount to book is only approx. 20%. Most property counters are trading at a discount due to the current gloom over the property sector.  If Fraser should trade at 20% discount too, their current fair price will be around SGD1.70.  So if you think they are comparable in terms of quality of assets,buying Fraser below SGD1.70 makes sense (note that I "discovered" this a little late, only during the weekend when I read THE EDGE, it was only about SGD1.50 on Friday). 

Dividends:
While there are no established dividend policies, they have already declared a 1.7 cents dividend, which works out to approx. 1%, and if I extrapolate this to be on a quarterly basis, then we are looking at potentially a 4% dividend pay out, my wild speculation of course...

Sponsoring a Child

While my primary purpose in investing is to derive passive income to support my family financial needs after I retire, but I also believe in giving back to humanity as part of my responsibility. 

Whenever I reflect, I see an interdependent world that we are living in.  For example, when I reflect the rice that I just put into my mouth, I realise that in order to put this rice into my mouth, so many people have worked hard to make it possible. From the shopkeeper that sold me the rice, to the people transporting the rice, to the farmers.  How about the indirect conditions that made this possible, like the tractor that someone made so that the farmer can farm, the ship that someone built so that the rice can be transported and the shop-house that was constructed by another builder.  The list of causes and conditions can go on forever =P

As an ordinary middle income Singaporean and being the sole bread winner, somehow there seems to be always only "just enough money" to support the everyday needs of the family, after setting aside a small sum for travel and luxuries as well as setting aside a sum to invest for retirement needs.

But I remind myself that my "first world worries (financial or otherwise)" are really insignificant when compared to some other places where people do not even have access to food, clean water and other basic human needs.  And that my worries are also peanuts when compared to those struggling with poverty and/or critical illness.

With this bigger perspective in mind, I make it a point to fix and set aside, on a monthly basis, a sum for charitable donations such as to the Singapore Cancer Society amongst others.

And one meaningful donation that I have began donating more recently is to "sponsor a child" from an area facing poverty and struggling with basic human needs.  Each month, I donate approx. S$50 to each child, to which currently I have sponsored two. 

I find this especially meaningful as without our support, the children may not even live to see adulthood.  And with our support, not only will their basic needs be met but they will also receive a proper education.  Hopefully that will help lift their family out of poverty.  Specifically our donation will provide the child:

• Food and clean water
• Medical care
• Educational opportunities
• Important life-skills training

This type of donation reminds me of the story about a man walking along the beach throwing starfish back into the ocean.  Someone asked him why he bothered to as there are so many beaches with so many starfishes all over and he cannot possibly save them all.  He replied as he threw another one into the ocean, "I made a difference to that one!"

If you google online, you will find a few organisations doing this, e.g. compassion & world vision, do your part if you think its meaningful too =)  It has another meaning for me as well, as I think it has educational value for my toddler son, who when able to read and write, will be able to write the letters to those children...

Its a new year, hence I thought its most meaningful to write this to remind myself of the bigger picture in life, and not get overwhelmed or lost in the petty concerns of my everyday life situations =)