All this time, Level 13 had been trailing as the market became more buoyant. Then as the market sank, his short positions proved a winner.
Sebastian Chong, who had been leading all this while, saw his portfolio give up gains, as did DanielXX.
In all, there are five participants for this Stock Challenge, who contributed $100 each to a pool, from which the following will be given out in two months’ time to the top 3 players: $350, $100 and $50.
Details of everyone's performance to date:
| Stock | Number of shares | Average Purchase/Short price ($) | Feb 27 closing price ($) | Value of holding ($) |
Bright World | 141000 | 0.293 | 0.20 | 28,200 |
| UOB | 4000 | 13.56 | 9.99 | 25,128 |
Cash | 60,523 | |||
Total | 113,851 (+13.85%) |
Level 13 is a 31-year-old investor and a business analyst with 4 years of investing experience. Check out his blog for insights on financial matters (mainly equities).
Level 13 says:
In Feb 2009, I bought back and closed all my outstanding short positions in DBS at $8.02. The proceeds from this trade were $59,665, including the initial capital outlay.
My closing of this short position does not mean that my view of financial companies in this downturn has changed. On hindsight, I have closed my position a tad too early. DBS closed at $7.84 last Friday.
In the short term, there are no catalysts for the share prices of banks to go up. Loan impairment and asset value write downs will still take center stage for the next quarter or so. As for Bright world, it has successfully overcome a large hurdle in ensuring that the takeover by CHAC turns out to be a reality by having a profit after tax of at least 91% of what was achieved in FY2007.
There are still pre-conditions to be fulfilled. The obstacle that everyone will focus on now will be the shareholders' meeting organised by CHAC. In that meeting, which will take place before 10th March, CHAC shareholders will vote on the takeover offer. The green light from the authorities on both sides should also be made known in March.
*****
| Stock | Number of shares | Purchase price ($) | Feb 27 closing price ($) | Value of holding ($) | Percentage change (including dividend*) |
| SGX | 4,000 | 4.46 | 4.54 | 18,160 | +2.6%* |
| Jardine C&C | 2,000 | 8.20 | 8.84 | 17,680 | +7.8% |
| Capitaland | 3,000 | 2.08 | 1.98 | 5,940 | -4.8% |
| KepLand | 3,000 | 1.49 | 1.30 | 3,900 | -12.8% |
| Wilmar | 3,000 | 1.87 | 2.88cd | 8,640 | +54.0% |
| Sino-Environment | 20,000 | 0.425 | 0.33 | 6,600 | -22.4% |
| Straits Asia | 8000 | 0.825 | 0.805cd | 6,440 | +2.4% |
| Mercator | 50,000 | 0.115 | 0.13 | 6,500 | +13.0% |
| Li Heng | 20,000 | 0.20 | 0.14 | 2,800 | -28.0%* |
| Yanlord | 5000 | 0.74 | 0.71 | 3,550 | -4.1% |
| Metro | 10,000 | 0.37 | 0.27 | 2,700 | -27.0% |
| Bukit Sembawang | 1000 | 3.61 | 2.98cri | 2,980 | -16.0%* |
| Synear | 20,000 | 0.115 | 0.16 | 3,200 | +39.1% |
| Ascott REIT | 10,000 | 0.555 | 0.36 | 3,600 | -27.9%* |
| CapitaRetailChina Trust | 10,000 | 0.565 | 0.67cd | 6,700 | +28.3% |
Cash | 360 | ||||
| Total | 99,750 | -0.25% |
Sebastian Chong has invested actively in equities since the 1970s. He is managing director of Financial Info Analysis Pte Ltd, a company he founded after he retired as an accounting professor at the National University of Singapore. He now runs his popular investing website, www.shareowl.com
Sebastian says:
On 27 Feb 2009, the STI closed at 1,594.87. This compares with 1,746.47 on 30 Jan 2009 when the portfolio was up 20.0%. The STI has fallen by 8.7% in February but my portfolio value has plunged by 16.9% in the month. I am now back to square one. I started Stock Challenge at noon on 28 Oct 2008 with $100,000 and my portfolio value now is just $250 below that initial capital.
Obviously I have failed to lock in the gains made in January 2009. Indeed hindsight tells me I should have sold off everything when the index hit 1,960 and I would be holding cash worth at least $135,000. And now would be the time to buy stocks again on the cheap. I do sound like an old record for that is what I said a month ago. However the need to take profit in an uncertain market is worth repeating since a potential gain of $35,000 in a few months is a lot of money on a starting capital of $100,000.
It is now obvious that 2009 is going to be as volatile as in 2008. The US, Japan, and European economies as well as the Singapore economy continue to be pummeled by discouraging macro economic statistics and corporate results. The balance sheets of banks in the US and Europe have not yet stabilized and drastic rescue moves are still being engineered as exemplified by the big increase in the US government’s stake in Citigroup just a few days ago.
Although the portfolio value is now at almost the same level as the starting capital, it can be seen that certain stocks have made good gains (notably palm oil stock Wilmar which is up 54%) while other stocks are “below water” (especially the China stocks like Sino-Environment and Li Heng). Li Heng is facing short term challenges in an industry slowdown but because of its large cash reserves, it can easily tide over the slowdown period and live to see better times ahead in 2010.
However Sino-Environment is likely to see even higher earnings in 2009. On 28 Feb 2009, the company released its results for Q4 and full year 2008. Its huge markdown of its investment in an equity swap worth $69 million to protect its convertible bond holders was more than its net operating profit; hence, the bottomline result was negative for 2008. I expect this equity swap writedown to be reversed entirely by 10 July 2010 when convertible bondholders can opt for a redemption of their loan to Sino.
The important thing is that Sino grew its net operating profit and net operating cash flows strongly and such growth is likely to continue into 2009 and 2010 and beyond because of the China government’s increasing spending on environmental engineering projects and because of Sino’s proven effectiveness and efficiency in project execution.
Sino has already built up strong order books in waste gases treatment for factories, dust elimination, and the desulphurization and denitrogenation of coal-fired power plants. It also has a profitable waste water treatment although this segment is still relatively small.
Sino’s share price was beaten down in line with many other S-chips including China Hongxing, Celestial, Li Heng, China XLX, Synear, Beauty China and China Zaino. The S-chips have been thrashed because China company Fibrechem’s listing on SGX was suspended because its financial statements could not be cleared by the external auditors by the 28 Feb 2009 deadline. Fibrechem’s accounts receivable and bank balances still remain unconfirmed and in view of the accounting mismanagement, the executive chairman and CEO recently resigned and was replaced by his deputy.
We may expect a few more S-chips and Singapore small cap stocks to be hit by similar scandals in the months to come. I have not sold off any of the small caps in the portfolio yet as I do not expect any of them to be hit by an accounting fraud. But, it is likely that I will switch some of the portfolio components to other stocks. The fundamentals of certain counters in the portfolio have weakened and I have identified potential new portfolio components with strong fundamentals that are worth buying at current prices.
The past one week saw numerous results announcements and corporate comments on their outlook for 2009. Many of the announcements were released as late as 27 and 28 Feb 2009. It is possible that external auditors are spending more time this year to examine the financial statements and accounting records up to 31 Dec 2008 because of deteriorating business conditions and the higher risk of accounting manipulation and/or over-statement of profits because of inadequate provisions uncollectible accounts receivables, obsolete or slow-moving inventories, and impairments of fixed assets, investments and intangible assets.
It was because of the higher risks in current times that I decided on a highly diversified portfolio even for a portfolio of just $100,000 when this round of Stock Challenge began. Even so, in view of fast changing business conditions, I reckon I would need to make changes to the portfolio in March 2009 since 28 Feb saw the end of the results reporting season for 2008. Now, it is easier to decide which stocks to eliminate and which stocks to bring into the portfolio.
*****
| Stock | Number of shares | Purchase price ($) | Feb 27 closing price ($) | Value of holding ($) |
| Swiber | 37701 | 0.495 | 0.460 | $17342 |
| China Taisan | 107142 | 0.140 | 0.130 | $13928 |
| SMRT | 15723 | 1.590 | 1.60 | $25157 |
| Capitaland | 5474 | 2.740 | 1.98 | $10838 |
| Capitaland (Rights) | 2737 | 1.30 | - | - |
| Cash | $30000 | |||
| Total | $97265 (-2.7%) |
Kennysjq is a young investor whose investing approach involves studying company fundamentals with a mid-to-long term horizon in mind. He advocates risk taking with caution because he knows we can’t avoid it. Enjoys his daily Business Times, especially so with an americano expresso.
Kennysjq says:
I didn’t add any new buys this month. Still undecided if I should purchase more Capitaland shares from the rights issue, I think I might just do that.
Prefer to keep some cash in hand so that I will still be able to grab some good buys should the market continue to dip further.
*****
| Stock | No. of shares | Price bought at $ | Feb 27 price | Total shareholding value $ | Vested dividend S$ |
| SMB United | 227,273 | 0.11 | $0.12 | 27,273 | - |
| CH Offshore | 113,636 | 0.22 | $0.24 | 27,273 | - |
| Celestial | 64,103 | 0.39 | $0.19 | 12,179 | - |
| Tat Hong | 43,478 | 0.575 | $0.56 | 24,348 | 0.035 |
| Total | 91,073 | 1,522 (Total) |
DanielXX is a 30-something investor who is well-known in certain online investing forums as well as for his blog, where his writings on investing reflect depth of thought and analysis.
DanielXX says:
As of Feb 28, the total value of my portfolio = shareholding value + dividends = $92,600. It is down by 7.4%. It does not look like there will be a swift resolution to the economic problems. The US has to come up with three packages: one for economic stimulus (already passed), one to save the banks (in progress), one to save the homeowners (coming up).
The main problem threatening Europe currently is two-fold: heavy loan exposure by European banks to Eastern/emerging Europe which has been hit badly; and the overall unity of Europe as differing fiscal situations and depth of economic collapse have been leading to differing opinions among member countries.
(In my view, Germany and France are the strongest; the former due to its traditionally conservative corporates and the latter due to its credit-averse consumers which have turned out to be a strength).
Asia cannot recover until these two engines show signs of recovering. My portfolio has been hit mainly by its exposure to Celestial. The extent of its stock collapse has been pretty surprising and there comes a time when decision-making must ignore valuation and consider other factors….. I’ll have to re-look my position in coming days.
Comments on specific stocks:
SMB United: dividend is not that great at 1 cent, but it’s close to 8%.
CH Offshore: If there’re no contract cancellations, it’s a potential multi-bagger.
Celestial: too cheap to ignore, in view of its large operational scale for an S-stock.
Tat Hong: could benefit from infrastructure theme. Weighed down by AUD weakness, though.
*****
| Stock | Number of shares | Average Purchase price ($) | Feb 27 close ($) | Value of holding ($) |
China Milk | 20,000 | 0.39 | 0.335 | 6,700 |
| China Taisan | 200,000 | 0.145 | 0.12 | 24,000 |
China Zaino | 20,000 | 0.21 | 0.175 | 3,500 |
Celestial | 80,000 | 0.26 | 0.19 | 15,200 |
Sino Techfibre | 20,000 | 0.18 | 0.115 | 2,300 |
Li Heng | 50,000 | 0.22 | 0.14 | 7,000 |
Cash | 25,600 | |||
Total | 84,300 (-15.7%) |
Gary Teh, 39, is Asia sales director for a semiconductor company. He graduated from Melbourne La Trobe University School of Economics with a Bachelors of Economics with an accounting major in 1991. As for his stock market passion, he has been greatly influenced by his dad who, despite a modest income as a government servant in Malaysia, managed to accumulate a nestegg for a comfortable retirement by investing in stocks for over 30 years. Penang-born Gary has been buying and selling stocks, mainly on the Kuala Lumpur Stock Exchange, since he was around 16. He is married and lives in Singapore.
Gary says:
China Milk: Has always been a personal favorite. The recent melamine scandal is an inflection point for its business as farmers will begin to realize the importance of a good quality breed in order to produce good quality raw milk. It has a business moat that will be rarely challenged in the future and can only gain strength with continuous investment in R&D.
Milk is a raw commodity and the Chinese will consume more as GDP per capita continue to rise. On average the consumption of milk and milk related products is still in infancy and exponential growth will return once the Chinese economy regains traction. Recently posted commendable results with bottom line growth of 10% in a difficult environment. Trading at close to NCA. Market depressed sentiment especially towards S-Chips has caused the severe unjustified price erosion. Maintain a strong buy rating.
China Taisan: No news. Possible general fear of slowdown in textile related stocks. May add after qtr results. Strong balance sheet (net cash) and has a relatively strong business moat/niche within the highly competitive segment. It's trading below NCA. Add another 100,000 shares @0.125 on 17th Feb. Recently announced strong set of 4th qtr earnings and 2008 earnings. Upside surprise was the dividend payout yielding approximately 14%.
China Zaino: Possible general fear of slowdown in textile related stocks. May add after qtr results. Unjustified as it still has cash backing of 0.16 per share and well below NCA.
Celestial: New entry - Heavy selling possibly due to fears of refinancing of bonds maturing this year. I may continue to add new position as heavy sell volumes continue to appear. This is a favorite among punters and value investors. As the price slide persist long term value investors will continue to add position. Stock will soar 20%-25% once the fear abates but still 800% below 5 year forward fundamental valuation.
Soy and soy related products have recently gained popularity due to the melamine scandal. The business has increase from strength since it's IPO in 2004 and fundamentally stronger from every angle. The only reason for the selldown is investors being skettish thus an assignment of historcial PE of less than 2. Never mind the balance sheet and the investment in additional capacity. Add another 20,000 shares @0.255 on 17th Feb. Add another 20,000 shares @0.235 on 20th Feb. Recent results released have caused me some concern over the cash flow with the upcoming bond redemption.
Sino Techfibre: Possible general fear of slowdown in textile related stocks. May add after qtr results. May wait for news on their pmp update. Market leader Li Heng took a heavy beating as it gave negative outlook for the 4th qtr financials possibly reporting an unexpected loss due to continue deterioration in ASP, production output and one time exchange loss. Sell down may persist but it is well back by solid balance sheet of 0.25 cash per share. I like the management transparency, market leading position and also as mention solid balance sheet. Downside is limited and will consider adding to both Sinotech and a new position in Li Heng. Fast forward 5 years (2013), at this price a 10-bagger seems to be conservative.
Li Heng: New entry - Heavy selling possibly due to fears of the recession and also recent annoucement of negative profit guidance (loss in diplomatic terms). It is trading at all time low since IPO. The balance sheet strength (net cash per share of 0.14 and net current asset of 0.27) makes this a Benjamin Graham buy. On the longer term horizon in a highly competitive market, the market leader tends to grab market share over the weaker players and Li Heng is in a comfortable position to further capitalize on the general market weakness.
I expect my equity position to move closer to 100% vested by March or April. Still a relatively high position in cash. This may change in a moment as I get more bullish as the market weakens further. Absurd as it might sound but most of the recent buys have all been Benjamin Graham value with significant margin of safety with most at Net Current Asset or less...except for Celestial with the bonds maturing June 09 overhang.
Archive of other Stock Challenge stories here.
