Tuesday, April 25, 2017

A talk on "Fundamental Analysis: The Contrarian Approach"

For those who still do not know, I will be collaborating with InvestingNote by giving a talk on "Fundamental Analysis: The Contrarian Approach".

Unlike the previous talk which focus on my scorecards or investing methods (there will definitely still be overlapping information), I will be focusing more on talk about investing via a contrarian approach.

In my own opinion, if everyone thinks in the same way, it will be hard to make gains.


The details as follows: -
Date: 28 April, This Friday
Time: 7 to 9.30pm
Location: CMC Markets, 9 Raffles Place, Republic Plaza Tower, #30-02/03

If you are interested in this talk, do click on this LINK to purchase the tickets.

For those who had already purchase the tickets, thank you for your support!

This quote was actually a part of Apple's 'Think Differently' campaign, crafted by both Steve Jobs and the masterful creative team at TBWA/Chiat/Day:

“Here’s to the crazy ones — the misfits, the rebels, the troublemakers, the round pegs in the square holes. The ones who see things differently — they’re not fond of rules. You can quote them, disagree with them, glorify or vilify them, but the only thing you can’t do is ignore them because they change things. They push the human race forward, and while some may see them as the crazy ones, we see genius, because the ones who are crazy enough to think that they can change the world, are the ones who do.”

Oh... and do remember, please like our Facebook page (T.U.B Investing) and follow me on InvestingNote.

Monday, April 24, 2017

Review of Singapore's Construction Sector - Part 2

This is Part 2 of the Review of the Singapore Construction Sector.

Part 1 was meant as a more qualitative approach. Part 2 will be using a quantitative approach instead.

Do read up on Part 1 here.

Prior to this writing, SG Thumbtack Investor has pointed out on InvestingNote, this maybe too much a generalization of the companies within the construction industry.
Read his full comments via the link!
I totally agreed on this point as I may have leave out some "good" companies in part 2 of this review. So in the end, I decided to do the review with all the companies again. 

However, I also do not want to deem my initial effort as "wasteful". So I decided to come out a contrarian approach to determine the companies I want to review - a scoring system.

By picking out the information from SGX Stockfacts (Based on the information on 21st April 2017 after trading hours), I selected Dividend Yield, Price to Book, Price to Earning and Debt to Equity as criteria for the scoring (I understand the numbers may not be exactly correct, but its the "cheapest" source to get the data).

I also include the segment I deem the company to be in and my conclusion that if I will include the company in my next review.

The scoring will be:

Debt to Equity: Below 25% - 1 point, 25% to 50% - 0 point, Above 50% - (-1) point
(25% as a cut off point is my personal preference.)

Price to Earnings: Below 11 - 1 point, Above 11 - 0 point, Equal to 0 - (-1) point
(I deem anything below 10 to be undervalued. 11 is to take into account those companies that are borderline cases. Equal to 0 is deem as making losses.)

Dividend Yield: Above 2.8% - 1 point, Below 2.8% - 0 point
(3% is my personal preference. 2.8% is to take into account those companies that are borderline cases.)

Price to Book: Below 1.1 - 1 point, Above 1.1 - 0 point.
(I deem anything below 1 to be undervalued. 1.1 is to take into account those companies that are borderline cases.)

Deem to be "In/Out" this review: "In" - 1 point, "Out" - 0 point.

The full scoring as the picture below:

The full list

With that I will be looking into those companies that passed the scoring system (with 3 and above points):
  • T T J Holdings Limited
  • OKP Holdings Limited
  • Nam Lee Pressed Metal Industries Limited
  • Keong Hong Holdings Limited
  • King Wan Corporation Limited
  • Figtree Holdings Limited
  • Tai Sin Electric Limited
  • Swee Hong Limited
  • Lum Chang Holdings Limited
  • Transit-Mixed Concrete Ltd
  • Tiong Seng Holdings Limited
  • BBR Holdings (S) Ltd
  • Kori Holdings Limited
  • Huationg Global Limited
  • KSH Holdings Limited
This will be further reviewed in the final revelation of this trilogy.

Before I end, I believe it will be good to look into each segment to decide if the segment has any similar characteristics that investors should take note of.


More than half of the companies in this category is in my next review list. This is similar to my conclusion in part 1. 

In terms of PE ratio, expect for 2 companies making losses and 2 other companies that seem to be overvalued in terms of earnings, the rest seem to have a good financial year as the PE ratio is rather low. 

More than 60% of the companies in this segment gave dividend. 

As for PB ratio, except for Swee Hong and Koh Brothers Eco, most of them are below 1.


There are too little counters to do a good comparison. However, it seems that either you are doing very well in this segment, or you do very badly. If you are interested in this segment, a deeper analysis will be required.


For this segment, an interesting observation is that many of the counters has high debt. 1 of the reason I can think of is that most of them also diversified into property development or taken up a minority share in the development they are constructing. Therefore, they decided to use debt to finance this portion of their diversification. This debt will be "expected" to be paid off in the future once the property attains TOP and is "fully sold out".

The above is also indicated in their PB ratio as 75% of them are below 1. On the other hand, 58% of the companies gave out dividends yield of more than 3%.


Despite having more companies, only 2 companies from this segment falls into my next review. 

Only 25% of the companies have a low PE ratio of below 10. This may have meant that the companies in this segment could be overvalued. Their low earnings will have affected their dividend payout, resulting in only 33% of the companies giving out a reasonable dividend yield of more than 3%. 

Thus, on an overall generalization basis, this group of companies seems to be overvalued at their current price.


Similarly, the low number of companies in this segment makes it hard to make a judgement. However, from the figures, it seems that the performance of this group of companies is not up to par with only 1 counter falling into my next review list. This also seems to be in line with my initial view.

With that, I will be doing more research on the list of companies I stated above for the final write up.

For those interested in understanding a bit more of my Contrarian Approach, I will be having a short paid seminar on 28th of April. Do click on this link to know more on the seminar! Thanks for your support!

Oh... and do remember, please like our Facebook page (T.U.B Investing) and follow me on InvestingNote.

Friday, April 21, 2017

Review of Singapore's Construction Sector - Part 1

Dear Readers,

I am continuing my search for, what Warren Buffett will have exclaimed – the next “wonderful company at only fair prices”.

Therefore, to search for this company, I decided to try searching within the construction industry.

The interest in construction industry was triggered due to a few reasons such as:
  1. This video via Flyinpeach – Singapore continuous infrastructure development for the next 2 to 3 years will continue to provide projects for the construction industry, especially those in the civil engineering sector. 
  2. The recent purchases for land at high prices via SP Sertia and Sing Holdings.
  3. The continued urbanization of the world, especially within South East Asia.
Before we start, do note Companies that are within the construction industry but also within these areas of business will be ignored:
- Companies earning more than 50% from Overseas. (I may not have the knowledge to fully understand these companies’ revenue stream. Ex. Civmec)
- Furniture/Maintenance companies (Ex. Design Studio, Nobel Design, ISO Team).
- Equipment Rental/Soil Investigation companies (I generally believe they are in a very bad business environment right now. Ex. Tritech, Tat Hong, CSC Holdings).
- Companies that intends to be delisted (If I come across…)
- Industrial Conglomerates (Ex. Keppel and Sembcorp)

Without further ado, lets understand the Construction “Food” Chain 1st. 

Developers and owners (including HDB and Stat Boards) are deem to have the biggest chunk of profit or the biggest say at the pricing of the projects. Contractors will need to bid for the projects and normally the “best” deal will get the project (Do note that currently for Singapore Government, lowest bid for project may not necessary get the deal). Thus, I deem them to be at the top of the food chain.

Contractors are next in line. They have the right to choose whom are their sub-contractors or from whom will they get the construction materials.

Finally, it is the Sub-contractors. This category of companies includes the building products distributor, the pre-cast manufacturer, the steel fabricator, etc. I believe they do not have much say in the project and their net profit are strongly linked with raw materials prices.

With that, I have gathered a list of companies specially selected due to their involvement within the Singapore construction industry as per Stockfacts segments – Building Products, Construction and Engineering, Electrical Equipment, Industrial Conglomerates and Trading and Distribution. 

I have proceed to break them into 5 different categories:
  1. Civil (Including Stat Board) 
  2. Industrial/Commercial 
  3. Residential (Including HDB) 
  4. Sub-Contractors
  5. Materials
Civil (Including Stat Board)

Civil construction includes tunneling, drainage work, roads, MRTs, desalination plants, Changi Airport Terminal, sea ports, bus terminal, bus stop etc.

I believe this is where more projects will be revealed over the next few years. Although the margin may not be amazing, since most of the requirement comes from stat boards, but the margins will be higher than the next group I am going to talk about.

These companies will be included in my research for part 2.


For companies in this group, I don't have a good feeling about them. They tend to evolve into industrial/Commercial owners eventually. These companies will then need to be responsible for occupancy rate. If the occupancy rate is low, it will be money wasted on the development. Furthermore, their competitors are the REITs which are so much better at achieving higher occupancy rate.

If not, they may tend to divest into other areas which they may not have experience in. This will incurred additional initial cost and negatively affect their net profit margins.

So I will ignore this group of companies.

Residential (Including HDB)

My belief is that for this group – the future is bleak UNLESS THERE ARE INNOVATIONS involved.

My reasons are simple. 

If you look at the recent award of the lands to SP Sertia and Sing Holdings, the land price is $939 psf and $517 psf respectively. If the land prices are already so high, at what price psf will the property be sold at?

I have talked to a valuer previously and he stated the high land prices are a result of foreign companies also bidding for the land in Singapore. In the past, local developers can expect a 15% to 20% of net profit margin. But when these foreign developers came into the scene, they started overbidding the land prices. These foreign companies is willingly to stand by lower margin of 5% to 10%, in view that they get the project. Thus, the local developers must also up their bid prices, resulting in the high land prices when they are awarded to the developers.

On the other hand, this will also mean that the high property prices may never go away and the government will have to continue to implement stop gap measures to protect the property bubble from bursting. Therefore, this also meant that developers, such as Bukit Sembawang Estates, holding onto huge plots of land will be in a more advantageous position in future.

With the above information, lets' estimate that Singapore’s property price has continued to rise over the next year and SP Sertia is able to sell the property at $1800 psf (Do note that based on URA Cavaet, the property prices in Toh Tuck Road area is about $1500 psf to $1800 psf currently).

In addition, lets assume the developer will need to achieve a 35% gross profit margin (Have not considered the overhead cost, ABSD and the extra QC charges) in order to achieve just a small 5% net profit margin. Thus, the gross profit will should be about $630 psf ($1800 x 0.35).

Based on this formula: 
Property Selling psf - Land purchase psf - Construction Cost psf = Expected GROSS PROFIT for the Developer.

$1800 - $939 – Construction Cost psf = $630. So the maximum Construction Cost will be $231. 

Based on the latest BCA estimate, the construction cost for a standard high rise apartment is about US$1300 to US$1500 per metre square. This works out to be S$196 psf (1500 x 1.4 / 10.764). In view of inflation and potential rising material cost, we deem that the overall cost to be 10% higher at $215.

Therefore, we can deem that the GROSS PROFIT the Construction company is about 7%. This exclude the taxes, the overhead charges, the financing cost and the director salaries. THAT IS HOW BAD THE SITUATION CAN BE FOR A CONSTRUCTION COMPANY IN THIS SECTOR.

We can always argue that the figures above are based on very exaggerated assumptions. But what I am demonstrating here is that construction companies within the residential segment will be squeezed very badly by the developers. 

This maybe another reason why construction companies involved in the residential projects, such as Keong Hong or KSH, take on a minority percentage in the development in order to supplement their lower net margin in the construction segment.

For those who believe that helping HDB build housing might provide a better margin for the construction firms – In my opinion, you are wrong. Remember the "lower" prices HDB have to price their BTO at?

Regardless, construction companies that worked on HDB projects will still have an assured source of cashflow to allow the company to operate consistently. However, in future if they do not engage in more advanced way of building flats, the companies will become irrelevant.

Therefore, in my opinion, the only way that these companies can progress forward is through innovation and technology - such as Prefabricated Pre-finished Volumetric Construction (PPVC).

From the list of companies that are intending to get PPVC Manufacturer Accreditation Scheme as per BCA, only the following have applied:

  1. BBR Holdings Ltd (Moderna Homes Pte Ltd)
  2. Tiong Seng Holdings Ltd (Tiong Seng Contractors Pte Ltd and Steeltech Industries Pte Ltd)
  3. Chip Eng Seng Corporations Ltd (SPP System Pte Ltd)
Therefore, I will only be adding these 3 companies into the research I will be doing in the next post.


These sub-contractors are mainly involved in the M&E segment. As per my personal view, I feel this segment is too competitive and the net profit margin maybe too low. Other than the 6 companies listed above, there are still a lot of other M&E companies! Furthermore, their low margin may affect the future dividend payment (Remember the "Food" Chain?).

However, I must say there are still "wonderful" companies in the above list, such as Tai Sin Electric Limited.

But based on an overall segment category, I will be ignoring this group of companies.


For this final group, the companies can be sub-categorized as "Cement", "Steels" and "Parts of Homes" segment. Generally, this group of companies may seem to be squeezed for margins, but it may actually be one of the most special group. This is because their products are not restricted to a single segment of the construction industry and at times, they maybe the price setter of the whole project. This is because without them, some of the projects may not be able to proceed.

Pan-United Corporation Ltd
Transit-Mixed Concrete Ltd

Cement should be deem as the raw material for many construction projects. Thus, I will be looking into them.

BRC Asia Limited
Hupsteel Limited
Asia Enterprises Holding Limited
HG Metal Manufacturing Limited

Next, I will definitely be ignoring the steels segment. I used to be significantly vested in the steel segment. However, I feel that this group of companies are supported mainly via its inventory. Furthermore, in my opinion, their value-added services, such as fabrication, seems "too common", resulting in low barriers of entry.

Parts of Homes:
KLW Holdings Limited
Hor Kew Corporation Limited
GDS Global Limited
Hafary Holdings Limited

Parts of Homes segment includes companies that manufacture doors, windows or provide tiles. These are the basic requirements for residential, commercial or industry buildings. This is an interesting group. The main issue is to find out the barriers of entry to this group of companies. I will be adding them into my research for part 2.

In Short

In conclusion, the above are only my thoughts about the current construction industry. This will be the end of part 1 of my review. For part 2, I will be looking deeper into each respective segment and shortlist a few of the counters for an extensive review for part 3.

Do note that there might be some missing companies, such as LTC Corp and Ocean Sky International, that are not included in the grouping due to their categorization of Stockfacts.

Nevertheless, I believe the above companies will be enough "work" for me to research on for my trilogy on the construction sector.

For those interested in understanding a bit more of my Contrarian Approach, I will be having a short paid seminar on 28th of April. Do click on this link to know more on the seminar! Thanks for your support!

Oh... and do remember, please like our Facebook page (T.U.B Investing) and follow me on InvestingNote.

Wednesday, April 12, 2017

An Interview With "BULLytheBEAR"

The next person appearing on my interview series is "BULLytheBEAR", as he is known within the blogosphere and InvestingNote platform.

He has been in the finance blogsphere long before I started my blog. Despite being so much more famous/popular than me, whenever I chatted with him on any of the platforms, he is always ready to help.

My initial impression of him is that he is a FA investor (maybe because he is a tutor?). But after learning more about him, I realised he is actually more of a TA investor. However, if you read his blog, you will seldom find any trances of TA on his blog (maybe only in his older posts).

His blog posts also always tend to be are quite deep and, in my opinion, a deep person always tend to be more FA. But he proved me wrong.

Anyway, his new role as a father will definitely keep him busy for a while (Congratulations!) and I am just glad he agreed to my interview!

Without further ado, let's get straight to the interview questions and "BULLytheBEAR" answers!

1. Pardon my ignorance...but why is it a picture of a Cat? And how did you come up with such an interesting nick, BULLytheBEAR?

BULLytheBEAR: I like cats...a lot. They represent the best that I want to strive for - calm, zen, independent and stoic. Even my tuition site (I'm a private tutor) has a cat somewhere in the name : www.kungfucatsacademy.sg LOL! Why bullythebear? I really don't know because it had been around for more than 10 years. It has a certain ring to it and I really like the play on words. Is 'bully' a verb , as in "They bully him", or is 'bully' a noun, as in "Can you call Bully to come in please?" I really like the ambiguity of it all.

2. Tell us more about yourself. 

BULLytheBEAR: I'm a private tutor, but I majored in civil engineering. I always say that the world loses a great engineer but gains a great teacher in return lol! I don't think anyone has a childhood dream of being a tutor. You can say it happened onto me. I was waiting for my then gf to go overseas to further my studies, so in the meantime I was doing some tutoring to earn a living. I grew to like it so much that I decided this is what I wanted to do. I was offered a pHd scholarship locally but I rejected it in favour of this less trodden path. Everyone was against it, including my parents, who until recently finally got used to the idea that I'm never going to hold a 'proper' job.

I'm a pretty introverted person, but I strive in the online environment well because I have the time to consider and think through my responses. I'm much more quiet in person. Everyone thinks that as an engineer, I'll be more left brained. But I really love doing arts and craft and design work. I made a handicraft for my wife before our wedding (link) and also did a fair bit of drawing.

3. Do you see yourself as a trader or investor?

BULLytheBEAR: I see both as the same thing. They are just names. But if you put a gun to my head and ask me to choose, I'll choose 'trader'. Specifically a counter trend trader, which is a rare thing in InvestingNote (and almost everywhere I ask). Usually traders are trend followers (buy high sell higher), but not me. I find that this divergence style fits my personality a lot, maybe because my life is also about not following the path of others and acting independently. In the past, I was like trying to find the holy grail in trading/investing, thinking that if I find that magic ratio or magic indicator, I'll be able to earn more money. How foolish and naive lol.

4. What is your thought process when it comes to stock-picking?

BULLytheBEAR: I have four watchlist:

1. General watchlist
2. Bullish divergence
3. Bearish divergence
4. Close monitoring

The first watchlist (General watchlist) is a collection of companies that I've heard about and is interesting to me at that point in time. Usually this consists of roughly about 2 pages worth of various companies from different industries. If I hear or read about anything interesting, this is the watchlist that the company first get stored under.

The second watchlist (Bullish divergence) belongs to a collection of companies that I think will have a potential to go up. Because I'm looking at daily, weekly and monthly timeframe, sometimes the signal might take a while before it happens, so this is a place where I will check on the chart every weekend. During market extremes (usually a fierce market selldown or euphoria), I might even check it every end of the day.

The third watchlist (Bearish divergence) belongs to a collection of companies that I think will have a potential to go down. This is simply the opposite direction of the second watchlist.

The last watchlist (close monitoring) is the one where immediate action needs to be taken in the next trading week (within 5 days). This is where I will check intraday (the charts from InvestingNote are live intraday!) and also end of each trading day. Queue orders will be submitted if I think a trading signal is satisfied.

Having a watchlist is not the end point. The key thing is that after every round of homework towards the end of each trading day or trading week, I'll shift them around the four watchlist. Sometimes counters in the general watchlist get shifted to the bullish divergence one, and after some time, they get 'upgraded' to the close monitoring for further action.

The way I do my divergence is detailed out in this post here.

I also do a very quick check on the financial statements of the company. I confess I'm not the best in looking at the statements so I play according to my strengths. I'll check on the ROE and using dupont analysis to break up into the 3 components. From it, I will check the ratios across the years and try to construct a story to explain why it went up or down. I can buy a company based on price action alone, but never on the FA alone, that's my rule.

5. What is your best investment and worst investment since you started investing/trading?

BULLytheBEAR: Worst should be longcheer. I was in my 'value investor' phase and I thought it was a value buy. I bought, the price went down, I average down a total of 3 times, and eventually cashed out at a huge loss. I knew it was bad because I went into a depression because of the amount of money that I lost. Life is strange; you thought that was the worst mistake, but on hindsight, it corrected a major flaw in me. If this did not occur when I was younger and poorer, I might have made a catastrophic mistake in the future when I'm richer but none the wiser.

It's cliche, but the best investment was in myself .That came about because of another mistake - I over committed on a whole life insurance plan and it felt wrong in my guts but I didn't know why. I was determined to find out and became reading a sorts of finance books. Eventually it became a goal to read 52 books a year. The amount of things I learnt from that mistake spilled to different parts of my life, forming my current philosophy towards life. Truly nothing was ever a mistake.

In trading, you either make money or learn something or both. I realised life is also the same.

6. How many stocks do you think one should hold for diversification?

BULLytheBEAR: The level of diversification should be inversely proportional to the amount of knowledge you have. The more you know, the less you should diversify and the less you know, the more you should diversify. I also think that the more money you have, the more you should diversify too. The thing about diversification is this - the more diversified your portfolio, the lower your returns but the more robust it gets.

7. Any view of how long do you think this bullish trend will last?

BULLytheBEAR: I'm short term bearish, mid term bullish, long term bearish and very long term bullish, LOL! As long as there are no reports of students quitting school or stop going to work and starts trading for a living, I think we'll still have some time to go before the party ends for the night.

8. What are your advice for those that are worried about the possible-but-may-never-come crisis?

BULLytheBEAR: Holding cash is also a position, but holding too much will drag your performance. There are so many corrections along the way, and if you've never pulled the trigger before in such minor corrections, chances are that you will never pull the trigger when a real bear attack strikes. You need to practice pulling the trigger in small gummy bear attacks to prepare yourself when the real big mother bear comes. Less thinking and more investing/trading!

9. Able to reveal which stocks are currently on your watchlist?

BULLytheBEAR: To sell: comfort delgro, isoteam, kepdcreit, vicom. To buy: none. As you can see, I'm in a selling mode now.

10. Finally, any advice for newbie interested to get into investing/trading?


1. Ask yourself if you should even be in the market. Have you saved 30 to 50k? Have you settled your insurance? Have you invested in yourself in your career? Have you settled your emergency cash? If you're looking to earn enough from the market to fund your next holiday trip, you might end up losing enough money to NOT go overseas for the next few years.

2. Once you settled (1), read all you can read, then start small. Track conscientiously and reflect relentlessly, and keep a journal. If you earn consistently, then increase your portfolio. If you lose consistently, stop for a while, reduce your position size until you earn consistently. Never leverage.

3. Don't think that after reading a book on TA or attending a course on FA, suddenly the world is your oyster. "The market is not your mother. It consists of tough men and women who look for ways to take money away from you instead of pouring milk into your mouth" - Dr Alexander Elder. Always remember that.

4. Read wellhandy's ultimate resource for newbies: https://www.investingnote.com/posts/47950. It should have all the things you need to begin. May the odds ever be in your favour.

Hope you like this interview series and please do remember to like our Facebook page (T.U.B Investing) and follow me on InvestingNote.

Saturday, April 8, 2017

Launch of T.U.B Circle

Dear Readers,

T.U.B Investing will be launching its database site - T.U.B Circle. 

This database will contain of my scorecards of the various companies in SGX.

The database contains Enhanced Triple S Scorecards, which I no longer distributes. and all the Super Scorecards that I had done. Over time, I will continue to add more Super Scorecards of companies I analyse into the database.

If you are interested, simply sign up/email with me.

The subscription will be $20 for 3 Months.

Everyone whom sign up will be given a Super Scorecard Excel Template and a Super Scorecard Handbook on how to use it.

To further extend your subscription (upon expiry), simply provide me with 5 Super Scorecards you have done to get extended for another 3 months for FREE! This is simply to encourage people to use it constantly and understand the company's fundamentals.

Do note that the Super Scorecards in the database are downloadable. Thus, if you are interested in a particular company within the database, you can also download its Super Scorecard and use it again if a new quarterly report is out for the counter!
*Do note that this is not applicable for the Enhanced Triple S Scorecard within the database. 

Anyway, once you get registered on T.U.B Circle and it is activated, proceed to log in:

Then click on "Get Started" on the Home Page:

Then search for the companies you are interested in (Do note that only companies with the scorecards attached are within the listing):

Next, select the Scorecard based on the quarter you will like to review:

After selecting, the scorecard will appear:

Click on the right top corner of the scorecard to retrieve the full scorecard and download it if you are interested in it:

If you click on the "Summary of Company Score" on the Home Page, you will be able to get the list of companies within the database. 

That's all folks. Please contact me if you are interested in signing up!

Oh... and do remember, please like our Facebook page (T.U.B Investing) and follow me on InvestingNote.

Thursday, April 6, 2017

I Purchased This Counter At Last!

Recently, rather than bottom fishing for counters, I decide maybe I can try to find the next counter that has the possibility of doubling in share price within the next 2 years. I had a few good picks in the past, such as PNE Industries Ltd, Hock Lian Seng Holdings Ltd, Ellipsiz Ltd and Captii Ltd, that has gain significantly - doubling or almost doubling in share price over a 2 to 3 years period.

One of the counters I come across is Japan Foods Holding Ltd (deem as JF for the remainder of the post below)

This was a counter I had been eyeing for the longest time. This counter is like the restaurant you never entered before, even though you walk past it everyday and know it serves very good food and has been wanting to try their food. But you just find the price a bit too expensive.

In past, I already knew this counter has a great business model with a strong balance sheet. It also gave up great dividends. However, I didn't purchase this counter because its PE is always too high for my liking. Nevertheless, I decided to do a review on it and see if I should purchase the counter.

On the other hand, during my trip in Hong Kong, I saw a few of the Ajisen outlets and was trying to find out who owns them. I was wondering if it is JF. I eventually found out that these outlets in Hong Kong were owned by Ajisen (China) Holdings Ltd (deem as AC for the remainder of the post below) listed in Hong Kong stock exchange.

Since I have also started looking at counters in Hong Kong stock exchange, I decided to compare both of the counters to find out which one should I be investing in.

Profile of JF and AC

Both JF and AC got their franchise from Shigemitsu Industry Co., Ltd. (“Shigemitsu Industry”), the main franchiser of Ajisen Ramen.

Katsuaki Shigemitsu, the President and Chief Executive Officer of Shigemitsu Industry since 1997, has been the non-executive director of the JF and AC since their respective listing.

Established in
Listed in
No. of Brands
Numerous Brands
Mainly Ajisen Ramen
Business Activity
Manufacturing of Noodles and related products
Number of Restaurants
70 (50 in Singapore, 4 in Malaysia, 2 in Vietnam, 9 in Hong Kong, 5 in China)
650 Restaurants (35 in Hong Kong, 1 in Rome, the rest in China)
Singapore, Malaysia, Vietnam, Hong Kong and China
*Malaysia and Vietnam are sub-franchisee.
China, Hong Kong and Rome
Other Investments
No investment other than other restaurants brands.
Had quite a few other investments in the IT space such as Baidu Takeout Delivery.
Insider ownership
Above 66% - Takahashi Kenichi (CEO)
43% - Ms. Poon Wai (CEO)
Exclusive Franchise
Within South East Asia (deem from its location)
Within China, Hong Kong and Macau (as per annual report)

Anyway I decided to use the Super Scorecard on both of the counter and here is the summary:

Both companies scored 7 pointers and have many similarities!

The main differences between the 2 companies are (1) AC has much lower PE (x 3.8) as compared to JF whose PE ratio is 16.8, (2) JF last 3 year trend is on an improving trend while AC is on a down trend, and finally (3) the alternative methods valued JF closer to its current price as compared to AC.

Nevertheless, I will deem that JF to have passed the super scorecard while AC failed it. This is because JF is a Singapore counter and AC is a Hong Kong counter. I will require Hong Kong counters to score at least 10 points in order to pass since it is a foreign counter (with currency risk) so I will want a bigger margin of safety. 

(Do note that the counter I bought within Hong Kong stock exchange has scored above 10 points.)

Comparing Franchise fee between JF and AC

As per AC’s 2015 annual report – “Pursuant to the Franchise Agreements, the franchise fees and technical fees are payable by the Group to Shigemitsu. The franchise fee is calculated with reference to the number of restaurants and the technical fee is an annual payment for the business of manufacturing and distributing noodles under the “Ajisen” trademark.”

As per JF’s 2016 Annual Report – “The royalty, franchise and licence fees paid to Shigemitsu Industry in FY2016 comprise: (i) fees paid for the use of the “Ajisen Ramen” brand amounting to S$341,000 (such fees relating to the “Ajisen Ramen” brand are deemed to have been specifically approved by Shareholders at the time of the Company’s initial public offering in February 2009 and are not subject to Rule 905 and Rule 906 of the Catalist Rules to the extent that there is no variation or amendment to the terms of the relevant franchise agreement); (ii) fees paid for the use of the “Keika Ramen” brand amounting to S$47,000; and (iii) the right to use the technique for the production of noodles amounting to S$18,000.”

Franchise Fee Paid by AC and JF
Shigemitsu Industry
(About S$6.09 Million)
(About S$5.9 Million)
Unable to find out any information
Shigemitsu Industry
Other Brands

Number of Restaurants
Ajisen Ramen
Ajisen Ramen (Including Keika Ramen)
Other Brands (Excluding sub-franchise and associate companies restaurant)

Franchise Fee per Restaurant (SGD)
Ajisen Ramen
Est $9,107
Est $8,859
Ajisen Ramen
Other Brands (Excluding sub-franchise and associate companies restaurant)

Revenue per Restaurant (Based on Segment Results and solely from Restaurants, excludes manufacturing Income, rental income and sub-franchisee income)
Revenue (HKD’000)
(Actual RMB 2,219,230)
Number of Restaurants – Owned and Managed
Revenue/Restaurant (HKD’000)

Revenue/Restaurant (SGD’000)
Revenue (SGD’000)
Number of Restaurants – Owned and Managed
Revenue/Restaurant (SGD’000)

With that, I will conclude that I prefer JF than AC, even through their franchise fee were more expensive, due to the following:
- JF has higher insider ownership.
- JF passed the Super Scorecard.
- JF owns more brands.
- JF's revenue per restaurant is almost twice that of AC.
- I do not even need to worry about currency risk!

But how about other F&B Restaurant Counters?

As per SGX Stockfacts (Dated 6/4/17)

Debt to Equity
PE Ratio
Dividend Yield
PB Ratio
ABR Holdings Limited
Soup Restaurant Group Limited
Kimly Limited
Jumbo Group Limited
Japan Foods Holding Ltd.
Katrina Group Ltd.
Tung Lok Restaurants (2000) Ltd
ChasWood Resources Holdings Ltd.
0 (Made Losses)
Sakae Holdings Ltd.
0 (Made Losses)

While comparing across all the F&B restaurant counters in SGX, JF did not fare badly. In fact, it score well - with the lowest PE ratio and the highest dividend. It is also not drastically overpriced in terms of PB ratio and it also has a very low Debt to Equity ratio.

Anyway I also decided to compare the revenue per restaurant for each counter. Do note that we are only comparing the Singapore restaurant operations and Singapore revenue since JF's revenue is mainly from restaurants in Singapore.

This is based on best effort basis - Mostly FY2016 Revenue:

Soup Rest
Tung Lok
No. of Restaurant
*Chaswood Resources is ignored as there are no Singapore Revenue.

By comparing Revenue per Restaurant, I am quite stunned that JF is one of the lowest! Even Katrina has a higher Revenue per Restaurant.

Nevertheless, you have to remember that JF has the lowest PE ratio (despite having a low Revenue per Restaurant)! This meant that JF is working very efficiently. Remember all the IPAD bookings on each table when you visit an Ajisen Ramen outlet in Singapore? Thus, if only the remaining counters review their operating expenses and worked as efficiently as JF, I will still prefer JF! 

But why choose JF in a bull market and on an Up-Trend?

Other than all the information stated above, there is 2 more important piece of information.

95.25% of the shareholding are held by top 20 shareholders. Therefore, for the shares to have a drastic drop in share price, one of the 20 shareholders have to be selling. But from the recent company announcements, there are only insider buying and share buy-back. Therefore, I believe there is more strength in share price currently.

Furthermore, there is a new substantial shareholder (from deem shares) - Wong Hin Sun, Eugene - owning about 5.44%. If you compare via the annual report 2016, he only own 4.12% via Sirius Venture Capital Pte Ltd and 0.73% of Chin May Yee, Emily, whom is his wife. His recent increase in shareholding is due to his wife purchasing more shares. 

So why did his wife purchase the shares in Jan 2017 - at such a near time when they are announcing full year financials?

In addition, do note that Wong Hin Sun, Eugene WAS also a director for AC. But he left in Feb 2016. Why? Maybe to concentrate on his job in JF? Do note that he has also sold some Neo Group Limited shares in August 2016.

These questions led to to believe that JF will be announcing a very good year ahead and maybe more dividends.
However, there are some worries too. Other than the low Revenue per restaurant, the company also has a very high dividend payout (above 90%). Unless they maintain their dividend payout ratio, the share price maybe affected negativity. Moreover, JF's share price is very near 52 weeks high. If the market have some negative overall news (maybe due to Trump), the share price will be easily negativity impacted.

In Short

Despite the possible negativity, I decided to purchase the counter due to it passing the super scorecard, high dividend yield, high insider ownership, a high probability of stability in its share price, restaurant business model with numerous brands, clean balance sheet with significant cash percentage and finally a focus growth strategy. 

Do also note that I deem this as a counter I expect to rise significantly and I will be holding on to it for 2 to 3 years.

Current Price: $0.440 as of 6 April 2017.

Please do your own due diligence before you invest in this stock. 

Do note the author is vested in this counter/company at $0.440. 

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