CHINA SUNSINE, CHIP ENG SENG, NORDIC: How I picked these winners

Saw Wei Jie (left), a dancer turned full-time investor, contributed this article to NextInsight

I HAVE several strategies for investing and one of these focuses on a mixture of earnings (scale and visibility), valuation and discoverability.

My portfolio is relatively concentrated and recent winners from this strategy are Chip Eng Seng, China Sunsine and Nordic Group. 

» Chip Eng Seng (stock price +25% in the past 12 months): One of my biggest winners last year. I bought CES below 70 cents and sold it at 96 cents. 

Again, the investment was based on the criteria which I have mentioned. At that time CES had plenty of fully sold projects under construction but not recognized due to the amended accounting policies, which stated that certain projects could only be recognized upon TOP instead of the usual progress based earnings recognition. 

This meant that there was high visibility and a lag between sales and reported earnings, a situation that is similar to China Sunsine. There was high visibility,as it was relatively easy using market data to estimate the profitability of each project. 

Sales price, GFA and cost price could all be accurately estimated. Based on my estimates back then, the earnings spike would be substantial, accounting for more than 30% of its NAV. As before, cheap valuation, predictability, substantial upside were all present.

One such opportunity that I missed was Hock Lian Seng. It had fully-sold properties under construction which could not be recognized due to accounting rules. Their industrial properties were fully sold at a good margin and recognized only this year when they obtained TOP.

In fact, several other property counters exhibited the same characteristics back then.

L-R: Group Financial Controller Catherine Thung and Executive Chairman Chang Yeh Hong after a 4Q2014 results briefing. NextInsight file photo.» Nordic Group (stock price + 80% since the start of 2015): The upside was apparent after the Austin Energy acquisition was announced. Prior to that, Nordic released its 4Q2014 presentation slides citing its dividend policy, which will see it increasing the payout ratio to 40%.

Connecting both pieces of information, I concluded that the dividend would increase substantially in future and at prices back then, the yield was good. 

While there are business risks in Austin Energy and Nordic's subsidiary MultiHeight Scaffolding and earnings fluctuate, there is enough margin of safety given the low stock price and big increase in earnings via M&A. 

As for the contractual nature of the petrochemical services business which Austin and MultiHieght, they seem to be doing relatively well at least in the medium term given its current contract win with Chervron. To date, the management has proven to be credible and I will be keeping a close eye on whether they deliver on their commitments.