Monday, March 21, 2016

USP Group Limited - My Major Bet On Discount To Net Asset Value Again...

Sorry but I have been extremely busy lately, thus the lack of posting.

Anyway, as you should have read, I am exploring a new way of looking at investing – Deep Value Investing. I will only be allocating about 10% of my portfolio to this portion of investment.

BBR Holding Ltd is one of the examples.

For stocks in my portfolio that pass Triple S Scorecard or of Blue Chip Status, I realise that they are meant for the LONGER TERM. It’s wise to just ignore them for now and not actively monitoring them.

However, for an investor like me, I am always tempted to look at the stock market regularly, especially for news update. Thus, I felt it is better to have a separate account for stocks that are invested meant for active monitoring.

For me, these stocks are my Deep Value Investing Stocks – They are did not pass Triple S Scorecard and do not consist of any Blue Chips, but they are at least 40% discount to its Net Asset Value with a catalyst or a reasonable business model.

So here is the next example that I added recently and NOT REPORTED in my most recent The Value Portfolio post – USP Group Limited (yes I know…it’s another addition!!!)

Profile In Short

USP Group Limited engages in oil blending activities in Singapore, China, Hong Kong, and India. The company operates in three segments: Oil Trading, Property, and Others segments.

It engages in the research and development, engineering, manufacturing, and consultancy for the biofuel industry; processing and selling biofuels; and blending and distribution of diesel and engine oil.

The company is also involved in property holding, development, management, and other related property activities primarily in the residential and commercial sectors; and trading of diesel.

The company was formerly known as Unionmet (Singapore) Limited and changed its name to USP Group Limited in March 2015. USP Group Limited was founded in 1999 and is headquartered in Singapore.

There will be no Triple S Scorecard review.

Why So Good?

Upfront – USP Group Limited has been very upfront about what they intend to do with their announcements. There are updates on corporate actions, business update and even publishing their letter to their associate.

Diversifying Into Property – Although I do not know how the significant drop in Oil price will affect their oil blending business, but I believe their recent acquisition of 2 companies (will be explain below) shows that the company is diversifying into property rental business for a more consistent  recurring cashflow.

Catalyst – USP has recently acquired 2 other companies – Koon Cheng Development Pte Ltd (Read here on the proposal) and Supratechnic Pte Ltd (Read here on the proposal). Basically these 2 companies will increased the Net Asset Value of the firm as both companies have a relatively high number of properties in Singapore and Overseas.


Why So Bad?

Amount of Debt - I hate debts and the increasing amount of debt the company takes on makes me uneasy.

Is my calculation right? - My view of the Net Asset Value maybe wrong. If the discount is not as great as I expected it to be, the opportunity of this investment will be high.

Oil Business - I am still unable to know how a low oil price will affect its main business.

4 to 5 years in losses - The company have been making losses for a significant number of years, can these new acquisitions provide any positive catalyst for the company?

In Short


As per many deep value stocks, I decided to buy USP Group Limited mainly due to its potential increased discount to the Net Asset Value and the increased diversification into property rental business.

A calculation below indicates my view of the Potential Net Asset Value:

>Based on the latest corporate update, the acquisition of Koon Cheng Development will result in USP Group Limited having a NAV of $0.06.

>Based on these 2 announcements (here and here), the acquisition of Supratechnic Pte Ltd will add net assets of $15 Million. USP Group Limited will need to pay $9.69 Million in Cash plus go through a share lending program. Taking in consideration the new number of shares will be 787,753,814 and ignoring the share lending program (assuming it doesn't change the number of shares of USP Group Limited), the additional net asset value is [($15 Million - $9.69 Million)/787,753,814]=$0.0067.

>> Eventual Potential Net Asset Value - $0.0667! Almost 59% of margin of safety!

Please note that I am not requesting my investment to achieve a price of $0.0667, but at least a 20% to 35% capital gain.

Current Price: $0.027 as of 21 March 2016

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

Do note the author is vested in this stock/company at 0.029.

So if you are interested in my Triple S Scorecard, contact me through my blog or message me on my T.U.B Investing Facebook Page.

As for the online course, its on! Contact me if you are interested. Furthermore, we are thinking of changing it into a full fledge course (still in the mist of preparing).

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2 comments:

  1. 4 to 5 years in losses - The company have been making losses for a significant number of years

    Obvious value trap, LOL

    ReplyDelete
    Replies
    1. That's why I believe the company is diversifying and hopefully I am right.

      Delete