Tuesday, November 27, 2018

Big Idea 11


Okay… it has been almost 2 weeks since I wrote anything. It is easy to just state that I was busy. However, it is probably due to me, wanting so time off the market, in order to give myself a break from all the hectic work online and offline.

Nevertheless, I continued to share on my Facebook page and significantly on our Fundamental Scorecard Telegram Group. Thus, a lack of write up here does not meant that I have been on the sidelines.

Thus, I had delayed the write up of Big Idea 11 up till now.

Currently, as of this post, I had already mention about 11 big ideas despite my target to reduced number of companies in my portfolio. But do note that I had already fully sold Big Idea 4 and Big Idea 6. Thus, I should only be holding 9 different big ideas.

Big Idea 11 is a new company in my portfolio since I only purchased it in October this year. However, I used to talk about this company in this blog and had sold it at a 70% gain at the end of 2017.

Reasons Why This Counter Qualifies as a "Big Idea"

1. Technology Company in a Different Industry

I deem this company as a technology firm that is in an industry that many will not associate with the word “Technology”. Recently, it has even went into 3D Printing in such a laid back and manual industry.

In my opinion, it is the forerunner in its industry in terms of technological advancements. With such continuous innovation, I believe the company has create a huge competitive edge against many of its peers.

The important factor is that many companies will innovate at the expense of net profit. But not for this company, it continues to make positive income over the years.

2. High Order Book

As of its latest 3rd Quarter 2018 report, it has S$607 million of order book that will last till 2020.

In May this year, it was awarded 3 civil projects – 2 schools from MOE and a 10-stories polyclinic and long-term healthcare facilities from MOH – due to its competitive advantages. These 3 projects already amount to over S$151 million of order book.

This could also be an indication that the company is the 1st choice among its competitors for such civil projects.  

3. Property Developments in China

The company has 2 main property developments in China. The first development has already been 92.1% sold. The 2nd project is a longer-term project that will last till 2020. It is currently 69% sold.

However, the sales of these properties have been slower lately due to China’s cooling measures. In addition, these properties seem to be sold at a slight loss lately.

Nevertheless, I believe that once the citizens get used to the measures, the sales will pick up again.

4. Future growth, Current Cost

The company has entered into a joint venture which had 2 Enbloc purchases in 2017 and 2018. The expected net margins of each development will probably be in the range of 10% to 15% from the calculation of the construction costs and Enbloc prices.

In addition, the company has also purchase lands in Malaysia to expand their production capabilities.

All these factors will eventually leads to future growth. But this could also be a double edge sword as the company will need to service the costs of these projects currently. In the event, it tries use leverage to support the costs of these projects. It could be bad in view of the rising interest rate environment.

In Short

I purchased Big Idea 11 based on the positive reasons above, and of my understanding of its competitive edge and the industry.

However, there are still risks involved in investing in such a company, especially when its industry is not in a good shape either.

This is also reflected in the share price of Big Idea 11 as it has been on a downtrend since the peak in July 2018.

Please do your own due diligence before you invest this counter (if you knew what it is).

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