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My investment thesis:

The Big Picture
Since the 2nd World War, the world has slowly moved towards a peaceful and harmonical environment. Most countries started moving towards the direction of capitalism and economic growth. Per capita income has grown substantially over the decades.

At this time of writing, US has become the largest economy in the world, with China (one billion population) closely behind.

As population increases, the land available for development has become lesser and lesser. The only solution for this is that building has to go up and/or down.The resultant effect is that buildings have become taller and higher i.e. skyscrapers.

In addition to this, economic growth and urbanisation encourage people with disposable income to seek better and luxurious apartments for their accommodation and investment. Commercial and industrial buildings are also likewise.

Property in today's context, not only serves as an accommodation/usage but also as a form or investment. People buy it to store value. People buy it to generate income.

What all these mean are that financial resources are channeled to owning property. Taking up spaces that not necessarily mean that someone is staying or using that space. That is the culprit of over-consumption.

So how? Hungry and greedy developers build more by building up to satisfy the demand. One can see that buildings get higher and higher. Land classified for landed houses/low-rise apartments or commercial buildings have become lesser, or none.

In most countries, city areas are only meant for high rise buildings and apartments. Also, low-rise apartments had been en bloc or torn down for redevelopment to skyscrapers Our country is a good example.

Furthermore, under-developed and communist countries have opened their doors to the world for economic growth so as to fight against poverty. China, Vietnam, Myanmar, Cambodia, etc.

Keeping all of the above in mind, leasing of tower cranes become a must for all property developers., whether is for residential or commercial buildings. This is the economic moat I am interested in.

Tat Hong, being 7th largest in the world, 2nd largest in China and the largest in Asia-pacific region, has secured a sweet spot in the construction industry. With their vast network spread across the globe and their massive tonnage, they enjoy economies of scale and therefore, have immense bargaining power to attract customers.

The tower crane is a capital intensive expenditure! None of the developers will think of owning tower cranes when they can lease one.

It is for this reason that developers are encouraged to lease. Leasing helps to lighten their balance sheet and generate more cash flows from property development/sales.

Tat Hong being an industry leader, prompts any property developer who wants to construct buildings to think of them (the CEO has built up a very good relationship with the suppliers and the customers over the decades).

Their position in the industry has also indirectly squeezed out small players. The last 2 years of weak demand and slowdown in the construction industry have also punished players with weak balance sheet, pushing them out of the industry.

Unfortunately, Tat Hong is also a victim.

As the crane industry consolidates, the big players will emerge even stronger once the property market and/or economic growth improves.

An intelligent way to watch would be more child policy, more marriage policy, the opening of immigration policy, lifting of property curbs by the government and/or incentives support by the government.

Should the borrowing rate be stable or increase marginally, property sales should pick up and hence, property development (please take note that property development refers residential, commercial and industrial).

This will directly expand the gross profit margins and hence, Tat Hong should be able to return into the black and generate profits in the coming years. Don't forget that Tat Hong has a dividend policy of 30-40% from the net profits. This policy had been reassured by the Chairman of the company at the recent AGM.

In the event that Tat Hong starts to generate profits and pays dividends, at today's price of 0.35 (market cap of S$250m) is a steal!

With a revenue of more than half a billion per annum and an NTA of 0.80 (approx after ex-rights), I will slap myself one year down the road if I ignore it now.

I like to invest in industry leader stocks. They are the target for the private equity/competitors.

The margin of safety is huge. The rights issue has strengthened the balance sheet. Minus those one-off losses, the core divisions continue to generate profits and positive cash flows. I personally think it is a screaming buy!!!

Take note! The company was approached by a private equity firm with a buyout offer in early 2016. I supposed the offer was turned down due possibly because of the low market cap valuation. The Ng family and parties control more that 55% of the company!

Risks
1.stock market collapse
2.property market continue lack-lustre
3.interest rate hike substantially
4.intense competition in the crane industry
5.income still in the red

CAVEAT EMPTOR

Current liabilities 09/2016
Trade and other payables 160,844
Financial liabilities 216,416
Current tax payable 4,798
382,058

Current assets
Assets held for sale 12,122
Inventories 144,456
Trade and other receivables 228,106
Cash and cash equivalents 97,788
482,472



Non-current assets
Property, plant and equipment 762,338
Subsidiaries 369,484
Associates 43,318
Joint ventures 3,607
Other financial assets 1,524
Deferred tax assets 8,833
ntangible assets 6,570
Trade and other receivables 427
826,617


Non-current liabilities
Trade and other payables 2,393
Financial liabilities 185,291
Notes payable 98,137
Deferred tax liabilities 22,707


Total assets 1,309,089
Total liabilities 690,586
Total equity and liabilities 1,309,089

Equity attributable to owners of the Company
Share capital 325,849
Reserve for own shares (2,622)
Share-based payment reserve 444 517
apital reserves 30,389
Fair value reserve (6) 174
Currency translation reserve (45,323)
Accumulated profits 265,827
Non-controlling interests 43,945
Total equity 618,503


Amount repayable in one year or less, or on demand
Secured Unsecured
S$’000 S$’000
69,475 146,941

Amount repayable after one year
Secured Unsecured
S$’000 S$’000
117,359 67,932

Source: 2Q 2016 Results SGXnet

Gong Xi Fai Chai!!!

ACQUISITION OF PROPERTY

The Board of Directors of Fragrance Group Limited wishes to announce that the Group’s subsidiary, Fragrance UKBlackpool Limited has entered into a contract to acquire The Imperial Hotel, Blackpool located at Promenade, Blackpool, FY1 2HB, United Kingdom (the “Property”), at the purchase consideration of GBP12,800,000.

The Property – an existing 4 star hotel, built in 1867 and one of the first hotels the Victorians built in the new seaside resort of Blackpool - has a freehold tenure with a total land area of approximately 9,388 square metres.

Situated on North Promenade, the Property is a Blackpool landmark, and has welcomed a host of royalty, politicians, statesmen and stars of the stage and screen over the years. The Property enjoys spectacular sea views and close proximity to all major
attractions.

This stunning Victorian Blackpool hotel boasts unblocked panoramic view of the Irish Sea. With 180 modern bedrooms it offers all the amenities expected from an outstanding 4 star hotel. It also has an indoor pool and the No.10 bar, which has served drinks to many British Prime Ministers.

With 14 flexible meeting rooms for up to 600 delegates, 180 bedrooms, 9 suites, free Wi-Fi, plenty
of parking, and less than a mile from the train station, this is an excellent destination for conferences in the North West of United Kingdom.

The acquisition of the Property is not expected to have a material impact on the net tangible assets or earnings per share of the Company for the current financial year ending 31 December 2017.

Upon completion, this transaction is expected to contribute positively to the results of the Group for the current financial year ending 31 December 2017.

None of the Directors nor Substantial Shareholders of the Company has any interest, direct or indirect, in the abovementioned transaction, other than their indirect interest by virtue of their shareholding in the Company

Fragrance Group’s newly established wholly owned subsidiary, Fragrance UK-Liverpool, has emerged as the top bidder for a property located on Dale Street, Liverpool, in the United Kingdom. Shares in Fragrance closed at 17.5 cents on Tuesday.

India announced record spending of 3.96 trillion rupees ($59 billion) to build and modernize its railways, airports and roads as Prime Minister Narendra Modi aims to upgrade the strained infrastructure in Asia’s third-largest economy.

The government will build airports -- now a near monopoly of the state -- in smaller cities in partnership with private companies, Finance Minister Arun Jaitley said while presenting the government’s budget proposals for the fiscal year starting in April. More suburban railways will come up across the country and Indian Railways, a state monopoly, will form ventures with logistics companies to provide greater connectivity to ports, he said.

History could be set to repeat itself as excessive growth has left the U.S. dollar poised for a collapse in as little as a year, the co-founder of London-based advisory group Official Monetary and Financial Institutions Forum (OMFIF) has told CNBC.

David Marsh, a financial specialist that advises asset management firms, is predicting a dollar crash akin to that seen in the 1980s, as the world's reserve currency continues to rally off the back of the new U.S. administration following continued gains seen over recent years.

The dollar has been going up by approximately 10 percent per year in real terms over the last three to four years, Marsh explained, adding that it was "doing exactly the opposite of what (President Donald) Trump says he wants."

"I foresee it will carry on getting stronger for a year or so and then we will have a dollar collapse, just like we did in the early 1980s," he claimed."All the things that Mr. Trump says he wants to do – protect American workers in the heartland – are not going to be helped by this."

One of President Trump's core campaign policies centred on re-establishing America's manufacturing base, an industry which is hugely impacted by currency fluctuations. However, the U.S. dollar has continued to rise since his election win in November, prompting critics to accuse the president's policies of being supportive of a higher dollar.

Last week, the dollar slipped from its 14-year highs of 103.82 to 99.23. Marsh is predicting the dollar will regain ground in the near-term, which in turn will do "real harm" to those President Trump said he would help, before later experiencing a downturn.

Attempts at a new Plaza Accord – the agreement made among G-5 nations to realign world currencies – could be made to control this, suggested Marsh.

However, this "seems a long way away" and in the short term is likely to see Trump "lashing out more and more", Marsh added."Somebody else will be blamed for this: It obviously won't be America's fault, it'll be somebody else. It may one day be China, next it will be Japan, Germany comes into line. You have the feeling there's a sort of roulette wheel on Mr. Trump's bedside table which he swings round every night … And he hones in on them and then the next moment he's off somewhere else."

Source: CNBC

Gold will climb about 6 percent through the end of the year as investors seek a shelter from the rising political risk surrounding President Donald Trump, according to Independent Strategy Ltd.’s David Roche, who has about 45 years of experience covering markets.

Bullion is set to rise to $1,300 an ounce, while most assets, such as bonds, will post negative returns, the president and global strategist at the London-based economic and financial consulting firm, said in an interview on Feb. 3.

“The amount of political risk being created by this new U.S. president and administration is going to create an enormous amount of international tension and uncertainty, and will probably result in a trade war at least with China and possibly other areas,” Roche said by phone from Hong Kong. “I want to see what this administration, what sort of mistakes they’re going to make.”Trump’s first two weeks in office have fired up investor concerns with his withdrawal from the Trans-Pacific Partnership, commitment to build a wall on the Mexican border, and a storm over immigration curbs on seven Muslim-majority countries.

While the Federal Reserve may raise interest rates three times this year, increasing risk will lure investors to gold, Roche said.

Source: Bloomberg