Stock Sniper's Portfolio For December 2017

Read about Stock Sniper's Portfolio HERE

 

Transactions done in Dec 17:

1. Fufeng Group

Initiated a new position in this company.

 

Fufeng is the largest manufacturer of MSG and Xanhtan Gum in the world.

The competition in the MSG market has eased since 2016 with many unprofitable small and mid sized producers exited the market after years of price competitions. With the liberalization of the corn market in the Northeast China and Inner Mongolia, Fufeng benefited from the lower input costs in 2016 and 1st half of 2017. Also, it completed the first phase of its manufacturing plant upgrades in 2016 which helped to improve the efficiency and lower its manufacturing costs. The Xanhtan gum prices also started to improve in 1st half 2017 after years of sluggishness due to low oil prices and demand.

Back by these positive factors, Fufeng reported a revenue growth of 5.1% and profit growth of 111.6% in 2016 and revenue growth of 12.7% and profit growth of 83.4% in 1st half of 2017. Note that the net profit growths were much faster as compared to the revenue growth due to improving gross profit margins as Fufeng had adopted a competitive pricing stance to consolidate its  market share leadership.

Key risks: Input cost of corn.

2. Singtel

Increased position slightly to take advantage of the price weakness after the share went ex-dividend. At this current price, it offers a dividend yield of 4.9% excluding special dividend.
(Refer to related articles HERE)

 

 

News for the rest of Portfolio companies during the month:

1. Goldpac:

(i) Goldpac announced receiving following awards:

a.  Model Enterprise for the "Mass Entrepreneurship and Innovation" and "Innovative Pilot Enterprise"

b. Enterprise for the 2017 Strategic Emerging Industries (Intelligent Manufacturing) 

 

Once again, these awards are further testimonies to Goldpac's leadership in the industry.

 

(ii) Executive Chairman, Mr Lu, purchased 1 million shares at the price of $2.10 as the share price experience much volatility in Dec 17.

 

(iii) On a side note, Gemalto, its substantial shareholder and strategic partner, accepted the buy out offer from Thales. It is not clear whether this move would have any impact on Goldpac at this juncture.

(Refer to related articles HERE)

2. Hopefluent:

Executive Chairman, Mr Fu continued to purchase more shares in Dec 17, buying a further 4,894K shares at an average price of $3.47.

For 2016, the insiders (Mr Fu and his wife, Ms Ng, both Executive Directors of the company) had recorded a total purchase of 13.3 million shares at an average price of $3.57, spending a total of HK$47.48 million.

(Refer to related articles HERE)

Overall, at the end of 2016 the portfolio is only about 50% invest. Shall keep on hunting for good value stock in 2017!

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Stock Sniper's Portfolio For November 2017

Read about Stock Sniper's Portfolio HERE

 

Transactions For Nov 17:

There was no new transaction done in Nov 17.

News of Portfolio companies during the month:

1. Singtel:

Singtel announced its Q2 result with profit increased by 197% to S$2.9b on NetLink Trust divestment. It also decided to pay a special dividend of 3 cts.

Summary of operating results (source: The Business Times)
- Operating revenue for the quarter rose 6.9 per cent to S$4.37 billion from S$4.09 billion a year ago.
- Earnings before interest, tax, depreciation and amortisation up 5 per cent
- Underlying net profit for the quarter fell 4 per cent, impacted by Airtel, which continued to face intense price competition in India. This mainly led to a 10.6 per cent fall in associates' pre-tax earnings to S$648 million.

Apparently, the market wasn't too impressed by the results, and particularly the low amount of special dividend declared, being less than a quarter of the total proceeds of S$2.3b from Netlink Trust IPO. Singtel had stated that it would like to retain remaining the proceeds for investments. The share price initially dropped from almost the high of S$3.78 prior to results announcements to a low of S$3.66, before closing the month at S$3.76.

2. Goldpac:

There is no new announcement from the Exchange during Nov. However, Goldpac did announce its Smart Card shipments for the first Three Quarters in Oct which I had inadvertently missed:

- Smart Card Shipments: year-to-date growth of 8.6% to 135.59m
- Credit Card business: growth of 30%

Based on my own estimations and tabulations above, the growth of Goldpac's quarterly IC card shipments has continued into Q3, albeit at a slower pace compared to Q2. 


3. Hopefluent:

While there is no corporate news from Hopefluent, but there were quite abit of insiders' activities announced in Nov 17.

Non-executive Director, Mo Tian Quan had recorded his first sales of shares in Oct 17 since his last purchase through China-Net Holding (Soufun) of 700K shares at average price of HK$2.183 in 1st Dec 2016. Strangely, while these sales transactions were done in Oct 17, they were only recorded with the HKEx on 13th Nov 17. In total, Mr Mo sold 812K shares at an average price of HK$3.7252.

Is this share sales is a cause of concern?

In my opinion, it's a matter of time that Mr Mo would have to decide what to do with his investments in Hopefluent. As mentioned in my initial posting HERE, there have not been any apparent progress in the cooperation between Hopefluent and Soufun since its strategic investment in 2014. Mr Mo also had not been attending Hopefluent Board Meetings for the past two years according to the annual reports.

On the other hand, the Founders and Executive Directors recorded a total purchases of 2,496K shares at an average price of HK$3.5496 in Nov17.


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Stock Sniper's Portfolio For October 2017

 

Read about Stock Sniper's Portfolio HERE

 

Transactions For Oct 17:

1. Singtel: Added into the portfolio in line with the objective of generative passive income from investments. Uninvested cash balance reduced to near 60% of the portfolio.

Reasons for purchase:
- From the desktop review HERE, it appears that Singtel has the best financial ability among the three Singapore telcos to ride out the rough patches from the increasing local competitions. Also, based on the financial ratios, Singtel has the best ability to sustain its current dividend payout. At this price, the dividend yield is expected to be 4.5%.

Review of other investments:

1. Goldpac:

- There is no new announcement from the Exchange during the period.

- However, on the corporate side, Goldpac did announce that it provided to the China Merchants Bank, an exclusive "Blockbuster " King of Glory co-branded credit card which looks quite cool.

- Still Trading at around 2x ex-cash PE. Valuation HERE



2. Hopefluent:

- Executive Chairman, Mr Fu bought a further 500,000 shares at an average price of HK$3.7195 during the month.

- Property related stocks took some beating during the month as there were news that property sales in China dropped for the first time in more than two-and-half years in September and housing starts slowed sharply.

- The PRC leadership also announced during the 19th Party Congress in October that it would be curbing speculative demands in the property market with tightening measures to cool down the housing prices further and so that housing can be within the reach of the masses.

- Are these developments a cause of concern for Hopefluent?

When the investment decision was first made with this analysis, it had already been expected that the property cooling measures would impact the number of transactions in the short term. Hence, these developments should not come as a surprise. In fact, having a stable property price and enhancing affordability to the masses would improve the demand over long term. The new land releases by the government would also increase the supply of new properties that the property companies and its agents can sell. Hopefluent does not take the risk of property, it just earns from broking property transactions.

- With a strong balance sheet, Hopefluent should have no problem to tide it through. There is still high MOS with net cash/share. See valuation HERE

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Dividend: Romance Of The Three Telcos – Singtel, Starhub & M1

Telcos have been the traditional favourite investment choice for many dividend investors.

Since the news of the 4^th Telco entry and the potential heighten competition from Netflix on the pay-TV segment, share prices of the existing 3 listed telcos in Singapore have not been doing well, particularly from September 2016.

From January 2016 to October 2017, the share price of M1 & Starhub have retreated by more than 30% and 24% respectively while Singtel is relatively resilient, edging up by 6.2%

Investing in Singapore Telcos

Without delving into their operational performances and speculating about the future, let’s run some quick trailing twelve month (TTM) numbers to see how each Telco stacks up against one another.

Company	Share Price	Dividend (cts)	Dividend yield	EPS (cts)	PE	ROE	P/B	Debt/ Equity	*Dividend payout ratio	*Free cashflow/ share cts)
Singtel	3.76	17	4.5%	23	16.3	14%	2.1	0.34	74.8%	11.93
Starhub	2.68	19	7.1%	17	15.8	96%	11.7	2.48	110%	5.19
M1	1.785	11	6.2%	14	12.8	35%	4.3	1.15	77.6%	10.76

Reference: MorningStar dated 19 Oct 17                       
* Indicates calendar year-end data information

In terms of financial matrices, it seems that Starhub scored the worst among the three due to its highest debt ratio and dividend payout ratio exceeding both EPS and free cashflow. This implies that the current rate of dividend payment might not be sustainable for Starhub.

Conversely, Singtel has the strongest balance sheet (lowest debt ratio) and while its PE seems to be the highest, its Price-over-Book ratio is the lowest among the three telcos. So it would mean the price that the investors are paying for Singtel are backed by more assets. Also, Singtel has the headroom capacity to gear up its balance sheet further should it need to and still could maintain its dividend payment (note that Singtel’s free cashflow/share for FY17 was 17.36cts and in the current period, it has received S$1.1bil in proceeds from Netlink IPO)

In conclusion, it seems that the financials of Singtel is rather strong and it has probably the best ability to sustain its current dividend among the three telcos.

On another side note, all three companies have engaged in share buy-backs as their share prices declined over 2016 - 2017. Let’s us take the hindsight view of the outcome:

Interestingly, despite larger amounts spent on buy-backs, the share prices of M1 and Starhub continued to decline further. M1 which utilized the highest amount of S$28M on share purchases, saw its share price still decline 26% below its average price paid. For this year, Starhub seems to have “thrown in the towel” and stopped buying back its shares to-date 2017 while Singtel actually increases its share buyback this year, but spending a modest amount of only S$4.7M vis-à-vis its market capitalization (probably main purpose of Singtel's buy backs is for its employee stock option scheme?).