Thursday, December 27, 2018

Big Idea 12

This article contains PORTION of the information from the 4th Scorecard Newsletter written on 27 Nov 2018 for my Moat Scorecard subscribers. Full disclosure was provided for the Moat Scorecard subscribers. 

This new Big Idea was stated in both my previous 3rd and 4th quarter reporting. But it has not been revealed yet. For the last post of 2018, I will be talking about this final Big Idea in my current portfolio.

As I had already sold 2 big ideas previously, I currently have 10 big ideas that is based on my Big Ideas Investing Theory.

Big Idea 12 is a new company in my portfolio since I only purchased it in October this year.

Reasons Why This Counter Qualifies as a "Big Idea"

1. Great Balance Sheet

Big Idea 12 Balance Sheet

If you look at the balance sheet, you will be able to understand that the company has high cash, high current ratio, low leverage and low gearing. This just simply shouts that this is a very good balance sheet.

2. Free Cash Flow Generating

For many companies, profits do not necessary generate into cash flow. But for Big Idea 12, its profits have constantly been able to generate into Free Cash Flow since 2015. This has increased its cash holding from S$136 Million in 2015 to S$203 Million in 3rd Quarter of 2018.

However, it is important to note that since a high amount of the company’s business operation is in China. There are restrictions in bringing the cash out of China. As of Annual Report 2017, over S$139 million of cash are subjected to China control regulations unless it is for normal dividends.

With that, this brings me to the next point...

3. Dividend

Since capital controls in China only allow the company to export these funds out through distribution of normal dividend means, this meant that Big Idea 12 will probably keep paying its dividend on a regular basis.

In my opinion, I have come to realise that dividend or special dividend could be a double edge sword. Too much of it will push the share price up to an unsustainable level.

Since the company is able to generate free cash flow consistently, this should not be too much of a concern. In addition, dividend is another form of return for me in order to reward me for holding on to a good company.

In Short

This is definitely not the full article that I wrote for the Moat Scorecard subscribers. In that article, there are more positive pointers and I also commented on some negativity on Big Idea 12.

From the above reasons, you may see that I purchase this company due to many of its positive financial reasons. Nevertheless, if you come to realise which company it is, you will have also knew about Big Idea 12's competitive edge.

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

If you are interested to know more about The Ultimate Scorecard or Full Analysis, do visit the Fundamental Scorecard website for more information! 

We have also released the Moat Scorecard with InvestingNote. Do take a look!

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