Sunday, September 23, 2018

War Among the Titans

This article contains PART of my 1st Scorecard Newsletter written on 22 Aug 2018 for my Moat Scorecard subscribers. 

This is the 1st write up of the Scorecard Newsletter just for you, as a subscriber. 

This write up will comes with full disclosure on the companies that I will be discussing, even if they are in my portfolio. Do note that this write up will be reproduced on TUB Investing Blog 1 month later without full disclosure.

Before I start, I like to discuss about the consequences that occurred during the Turkey-US crisis. 

Basically, market went down quite drastically and it caught quite us by surprise. This signifies the volatility of the current market – a simple discussion between countries can result in multiple ripples globally. 

This is most probably the Nth time I had said it – as a retail investor, we need to invest in a strong fundamental company to be able to avoid these ripple effect. Companies with strong moat will have strong fundamentals. With strong fundamental, companies will be able to avoid these ripple effects. But if a “wave” comes along, regardless of its fundamentals, no company will be able to avoid that. But fundamentally strong companies will most probably be able to recover faster.

Anyway back to the main topic…

For this write up, I will be writing about the Moat of the Telecommunications companies (aka Telco) listed in SGX – Singtel, Starhub and M1. 

Once again, let me emphasize that Moats are referred to as competitive advantages a business has over its competitors in order to protect its long-term margins.

This also has something to do with the Big Ideas Investing Theory strategy I came up lately. I tend to look for moats within these Big Ideas. Because for these Big Ideas, I intend to keep for a longer period of time, and also to expect their margins and returns to increase over time.

I refer to a quote by Robert Vinall - "The vocabulary of moat is international.  There are basically seven moats the world over: brand, switching cost, regulation, patents, cost advantage, network effect, and culture. In a great business you can spot them a mile off.  If you are not sure what a company's moat is then normally it does not have one or at least not a wide one."

Although slightly different from the 5 different moats (Intangible Assets, Switching Cost, Network Effect, Cost Advantage, Efficient Scale) stated on the net, but I think that Robert Vinall had just broken down the moats more detailly into 7 different versions.

So why did I choose Telcos for the 1st write up?

This is because I assume that any investor will have owned one of the Telcos in their past or current portfolio. Furthermore, these 3 companies have quite a high moat score.

Based on the 7 different kinds of moats described by Robert Vinall – brand, switching cost, regulation, patents, cost advantage, network effect, and culture – I could potentially identify at least 2 moats that each Telco have.

1. Switching Cost – This is easy to identify with. Customers of the Telcos have a high switching cost as they have to sign at least a 1 year plan with a Telco in order to use their services. After signing on to a plan, a customer will need to pay an high one-time fee in order to exit a relationship with the Telco. Even if you have completed your contract, switching Telcos will be hard if you want to retain your phone number. Furthermore, there are always extra freebies to influence existing customers to re-contract with the Telco.

2. Regulation – Prior to opening up to the 4th Telco (TPG) to enter the Singapore Market, the Telcos were protected from competition by the Singapore Government. If any customer wants to have a mobile phone or to use data on the go, they will need to sign up with either 1 of them. 

Nevertheless, even with Moats, Telcos share price have came down significantly since Dec 2016 when TPG won the bid to be the 4th Telco in Singapore. The downward spiral of the share prices occurred, even though TPG has yet to rolled out any plans and require at least another 1.5 years before they can officially operate in Singapore.

Just looked at the change in Share Price below for Singtel, Starhub and M1:

Furthermore, we also must not forget the other competition from the MVNOs – especially in my opinion, MyRepublic and Circle Life.

At this point I like to highlight another quote from another famous investor, Mohnish Pabrai, stating, “Even businesses with durable moats don’t last forever”.

With existing competition from MVNOs, it is important to review the changes in the revenue and net profit of the Telcos for the last 2 years in order to understand the impact of the current competition and how it could possibility change when TPG enters the Singapore market.

As per table above, despite revenue increasing, net profit of the Telcos has decreased. This has further contributed to Starhub and M1 reducing their dividend for the latest reporting year.

Other than competition, in my opinion, there could potentially 2 other reasons that caused the net profit to decline. 

Failure to innovate and react to the changes in the industry – It seems that prior to the announcement of TPG as the 4th Telco, the existing Telcos did not innovate much from their existing business. Thus, by rushing to innovate now, the Telcos have to incur extra expenses.

Bidding of Bandwidth as per April 2017 – The bidding of the bandwidth in 2017 resulted in higher loans taken by the incumbents to pay for their winning bids. Thus, higher loans resulted in higher financing cost, which eventually could have reduced the net profit.

If you are interested to know more about Moat Scorecard, you can sign up for the latest workshop to understand more.

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

Wednesday, September 19, 2018

How To Invest During A Weak Market?

Market has been moving on a downward trend. So how has your portfolio been doing?

If your portfolio is down more than 3%, you will have been better off investing in the STI ETF.

On the other hand, you may have exited many of your positions and will like to invest in companies that could probably be the fastest to rise back. You will be looking for companies that will be able to produce a “V” shape recovery and not a “U” shape recovery.

Being the scorecard creators, Simple Investor and I had continued to create our 3rd Scorecard – The Moat Scorecard (yes, I am repeating…).

We believe that a company with a strong moat will be able to withstand the volatility of our current market and even if its shares are on a downward trend, it will probably provide the investor with a “V” shape recovery.

For this post, I will not be repeating what about what the Moat Scorecard can do. But I will like to highlight on the backtesting we had done for this scorecard.

Moat Score against Total Returns for 3 Year Holding Period

Moat Score against Total Returns for 5 Year Holding Period

Through the graphs, you can see that if you invest in company with a Moat Score of 60 to 80, you will be getting a decent return of 25% to over 50% based on either a 3 years holding period or a 5 years holding period.

Average Return vs Moat Score
Furthermore, we have plotted the Average Return vs the Moat Score along with the removal of outliers that skews the data. 

It seems like holding a company with a 80 to 90 Moat Score for 5 years will potentially give you a very good return of over 200%.

Thus, if you wish to know more about the Moat Scorecard, Simple Investor and I will actually be conducting a workshop on it.

The details of this investing workshop is as follows: -

Venue: 73 Ayer Rajah Crescent. The Meeting Point, Event Hall 1, Singapore 139952 
Date: 24th September, Monday 
Time: 7pm to 8.30pm

Please click on the LINK to purchase your tickets!

**Use exclusive promo code to get $6 OFF: EB37

It has been such a long time since both of us conduct a workshop together and we have been planning this workshop for a VERY LONG TIME.

Eventually, we just hope everyone whom attended this workshop will be able to return home learning something new about investing!

See you there!

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

Sunday, September 16, 2018

A Letter to My Fundamental Scorecard Website Subscribers

Dear Subscribers of Fundamental Scorecard,

Thank you for continuing to subscribe to us. The database has been updated.

How have you been? As the 3rd quarter draws to a close, this year seems to give us a peak towards a pre-crisis market.

Having a long-term mindset, we try our best to understand Mr Market while holding our core investing principles firm.

This resulted me in changing The Ultimate Scorecard once again (without change name). As I have stated previously, I removed the dividend scorecard portion and expanded on the valuation portion.

Currently, the expanded valuation portion acts as a separate calculation of the valuation of the company based on the free cash flow it generated.

It is called Estimated Valuation.

It is an estimation of the value of the company based on

1. 0% growth; and 
2. a series of discount rate ranging from 15% to 30%; and
3. The last 5 years of free cash flow it generated

There is a second check on the valuation based on Graham Method. However, this is for the defensive investor whom looks for positive net profit and positive equity in a company.

Even if Graham Method is unable to produce a value due to the company reporting losses or having negative equity, the Estimated Valuation of the scorecard may still inform the user to buy the company at the current share price due to the series of free cash flow it has generated over the last 5 years.

Another way you could use the Estimated Valuation portion is to find a share price where you may sell the company. Furthermore, do also note that many S-Chips and RTO companies may passed  the Estimated Valuation of the scorecard. Please ENSURE you knew what the company is doing prior to investing in it.

An extract of a Estimated Valuation
Do note that this section is meant to be read separately from the value scorecard portion. Both portions could indicate different results, but each portion is just an indication that the company maybe undervalued at the current share price.

The best company is always one that passes both portions.

Once again, thank you for subscribing.

If you have any question, feel free to email or contact us!


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!

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

Monday, September 10, 2018

My New Role

I may seem to be sharing less on InvestingNote, My Facebook Page, and on my blog.

This is because I am currently in a new job and a totally new role.

When I say it is a new role, it actually meant that the job title did relate to what I had did over the many years, BUT THE ACTUAL ROLE IS TOTALLY DIFFERENT.

The actual role and the expected role is like ketchup and chili sauce. Rightfully, it cannot be mixed. But they mixed it together. Previously, I was always able to tell black and white. Now, I find myself stepping into the grey area.

One of the reason is because this a lean organization.

This is only into my 6th day in the new role and I met lawyers, customers, came out with policy, met referrals and even looked at pricing and budget.

I am like running my own business => Stress + No Time.

During the last 6 working days, I also did not look at the market and I realise the STI and the market has fallen quite a lot. 

But amazing, my portfolio only lacks behind the STI ETF (including dividends) by 0.2%.

Anyway, after all the thoughts above, I have to say I have yet to regret my decision in taking the leap of faith moving from a "9 to 5" role to a role in a Fintech company.

For all that I experience for these 6 days, I will never ever be able to do that if I continue in a 9 to 5 role.

In addition, this role have also given me more thoughts about the progress of fundamental scorecard website and what I could possibility do in the future.

Let's just enjoy the moment now and work harder.

If you find that I am sharing less, please understand for now.

Thank you for reading.

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!

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

Friday, September 7, 2018

An Interview With The Trendlines Group

Recently, I had emailed 2 separate companies' investor relations department. Both of the companies are in my portfolio but only 1 had replied. I am still waiting for the other company to reply...

For those that have been waiting for this interview, sorry for the delay.

Here it is - An Interview with The Trendlines Group!

Do note that some of the questions came from other investors of The Trendlines Group.

1. Trendlines Group (aka Trendlines) has a decrease in the portfolio value as per the latest financial statement. May I know if it is due to writing off of companies?

No companies were written off in Q2 2018.

Only one company was written off in Q1 2018 due to lack of sufficient technological advancement and funding (amounting to approximately US$0.8 million - reported in the Notes to Income on page 14 of our Unaudited Financial Statements Q1 2018). The decrease was mainly due to a decrease of US$2.3 million in the fair value of Stimatix GI Ltd., which was because of a change in the net present value of projected cash flow due to an adjustment in the discount rate used to calculate the present value and increased sales model accuracy as we observe the product launch.

As explained in our press release, the external valuation company uses the average of the 10-year and 20-year Corporate Bonds (Aa/AA) Median Yield, for the discount rate. As the market rates fluctuate, unrelated to the Stimatix GI Ltd. product, the company uses the updated rates, which had an effect on the calculation, but not necessarily reflects what will happen in reality.

2. As per the past and present presentation PowerPoint, Trendlines has shown that many of the Top 10+1 companies have achieved FDA clearance. I understand that only with FDA clearance, then the product can be sold in USA. However, what happens if a product is unable to achieve FDA clearance? Will Trendlines still be able to sell in other markets?

Many companies apply for regulatory clearance in a number of markets – for example, CE for Europe, Amar for Israel and CFDA for China – depending on their marketing and commercialization strategy.

A company like ApiFix has multiple regulatory clearances in many countries and has performed over 230 surgical procedures (in Europe, Israel, Canada, Singapore) prior to FDA clearance.

3. In addition to the above question, what are the advantages and maybe the disadvantage of achieving FDA clearance?

The advantage is that receiving FDA clearance gives a company access to one of the biggest medical device markets (the US). I don’t think there are any disadvantages.

4. There are currently 49 companies in the portfolio. How many companies have been written off? Able to disclose the average amount of each company that was written off?

According to slide #16 of our investor presentation, which is available on the investor section of our website and updated every quarter, we have written off 30 portfolio companies since establishment.

We do not have a figure for the average amount of write-offs.

5. In addition to the above question, how many companies have Trendlines exited? What is the expected potential % increment for each future exit?

Trendlines has exited 8 companies. The details can be found on page #7 of our investor presentation and on this page of the investor section of our website:

As to the expected potential percentage, as you can see by the table, it varies greatly depending on the company, its market and the stage it was sold. This makes predictions on future exits and their potential very difficult.

6. It is stated that Stimatix was valued at over fifty million in the annual report by independent valuer. Is the methodology disclosed? What are the assumptions and inputs to the valuation model, such as projected sales, market share, margins etc? Knowing these will provide investors with info to judge on the valuation.

The valuation of Stimatix that appeared in our annual report for 31 December 2017 was US$ 42.6 million. We cannot disclose the inputs into the valuation methodology since they would require us to reveal confidential B. Braun information.

In general, our fair value measurement is explained in Note 6 of the Financial Statements, page 110 of the Annual Report for FY2017.

7. How long will the royalties of Stimatix last? 10 years or 20 years? That will give us a rough guide of how much the dividend will be based on its current valuation of over 50M SGD.

B. Braun agreed to be disclosed as the acquirer of Stimatix GI, but not to disclose the terms of the deal. As we respect their right as a private company not to disclose this, we are unable to comment on this.

8. This is a question regarding one of the ostomy competitor's product, TIES, which uses a titanium ring implant. How is it comparable to Stimatix AOS 2000? In addition, is this a direct threat to their share in the ostomy market? Are there any other new products in the market that are affecting their Stimatix valuation?

The TIES product claims to be for ileostomy patients, while the Stimatix product is for colostomy patients; these are two different segments of the ostomy market. Moreover, the TIES product seems to require a surgical procedure since it is an implant, while the Stimatix product does not require any additional surgical procedure.

9. Apifix has applied for US FDA for its device Mid-C in April 2018, and a study (still recruiting) will be conducted within the period ending in 2022. Does that mean any exit will only come after it obtains the FDA?

Not necessarily. Other companies have exited prior to receiving FDA clearance, but FDA clearance is frequently considered an important inflection point.

10. How long is the average period between adding a company to the portfolio and then potentially getting an FDA and then exiting? 

Again, this is very difficult to predict as each company functions in a different market.

Some companies, such as Gordian Surgical received FDA clearance within 4 years of its establishment, but other may take longer. As noted above, FDA is not necessarily a perquisite for exiting.

11. 2 senior executives (CFO/VP BD) had left the company this year. Is it something related to restructuring or the actions taken by the company to strengthen strategic support by these senior roles? or the two left on voluntary basis?

As we noted in the announcements that we published, in both cases the cessation of their work at Trendlines was not connected to the restructuring or cost-reduction program. Gabi Heller and Moshe Katzenelson both left on a voluntary basis to pursue other professional directions.

12. The placement done last year to institutions/wealthy individuals' subscriptions at 14.03 cents were supposed to provide some support/or even boost the share price, but it obviously did not turn out that way - the price has further deteriorated since then. Are these institutions/private investors still hanging on?

We cannot release any information about our shareholders, other than what is publicly available.

13. Is there any share buy-back plan in place?

No, not at this time.

In Short

I do hope that. after reading this interview, investors will have a better understanding of The Trendlines Group. As of now, I am still vested in the company and mostly will stay an investor for some time. I guess, as I had said previously, do not expect short term gains if you are vested in this company. This is a very long term investment.

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!

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

Saturday, September 1, 2018

Big Idea 10

Now you must be wondering, "where the h*** did this idea came from?"

Firstly, this is not a new idea. It has been in my portfolio since February 2018. As readers of my blog, you will have known that I had been consolidating my portfolio. But this idea has been in my portfolio and I realized I wanted to keep it. Thus, I decided to deem it as part of my Big Ideas Investing Theory.

Before I continue, it is important to note that Big Idea 10 is not a company. It is a Real Estate Investment Trust (REIT) in the retail industry.

Did you just said: "Oh My God? A Retail REIT? Don't you know that eCommerce is taking over the world? Retail shops has been closing here and there! Even Forever 21 is left with 1 shop in Singapore. Why did you choose a Retail REIT?"

To answer that, I have to state that I believe retail space are still required.

1. eCommerce giants has went into the retail space, although these businesses are minly supermarkets. 

This video shows Jack Ma showing us what he deems as "The New Retail". On the other hand, Amazon has also gone on to acquire Whole Foods, and started supermarket without checkouts.

2. "Online to Offline" (O2O) 

As per article, O2O commerce is a business strategy designed to bring online customers to brick and mortar locations as well as create a seamless digital experience before, during, and after. In the article, it also states that despite the superb growth in online sales, offline sales will still contributes to 88.1% of the global retail market.

3. Expansion of Online Shops

Closer to home, we have one of the most successful blogshop in Singapore - Love Bonito - opening a flagship store at 313@Somerset. Other blogshops, such as Hervelvetvase, MDS, as well as Love and Bravery, also having retail stores along the malls of orchard road. Reebonz, an online platform for buying and selling luxury products, also has a store in Vivocity. In my opinion, this just emphasize that the continuation expansion of an online platform could possibly just be offline. 

4. A Place to Hang Out

This is just my personal opinion. I believe people still want to hang out together. No one wants to just stay home and buy stuff online. Thus, shopping malls also becomes an alternative for people to hang out and spend their time together.

Therefore, these are the reasons on why I chose a retail REIT.

Reasons Why This REIT Qualifies as a "Big Idea"

1. Master Lease/Long Term Lease Agreement Contributes Over 49% of Gross Rent

With these agreements in place, there are less stakeholders for the REIT's management to deal with. In addition, this factor provides a stability to the occupancy rate and this will also lead to a stability on the dividend that it gave out.

2. Share Price Within Range 

Since June 2013, the share price of this REIT has been ranging between 60 cents to 90 cents. I believe one of the reasons is due to the law suits when it comes to the renewal of master lease agreements. The possibility of the master lease not being renewed could have caused the share price to drop.

However, if you have continued to purchase this REIT whenever the price drops, and along with a stable dividend, the dividend yield for this REIT remains high.

3. Master Lease Agreement Brings In "Atas Brand"

Over 20% of the gross rents comes from this master lease agreement that brings in "Atas brands". My point is that I do not think these brands will just leave the retail space when their lease period is up. This is because they will continue to have sales.

Not many will just buy a LV bag without looking at the actual product. Since customers will continue to go to their shops, there is no point to leave this retail space. Thus, these brands will still continue to lease the retail space for years to come.

4. A Global Retail REIT

Despite having over 60% of the gross rent coming from Singapore, but there is still some diversification in terms of the collection of gross rent geographically, as compared to other retail REIT in Singapore.   

5. No Rights Issue Since 2009

Other than having a 1 for 1 rights issue in 2009, this REIT has not declared another rights issue. This adds on to the stability of the share price over the years.

In Short

To be frank, I were never an income investor. Whenever I invest in REITs, it was more of a capital gain factor due to a foreseeable increment in dividend. In other words, you could say I were trading REITs.

However, I choose this Retail REIT as Big Idea 10 mainly due to the expected stability - stability in dividend due to diversification and master leases that led to a general share price range.

The strategy is to buy whenever the share price drop, so that the dividend yield will eventually be much higher. When its share price rises and Big Idea 10 contributes too much to the portfolio, sell some.

To me, investing in Big Idea 10 is like putting money in a fixed deposit with high interest rate. It is also the only REIT I invest in currently.

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!

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