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).

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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Sunday, November 18, 2018

Looming Crisis

This article contains information from the 3rd Scorecard Newsletter written on 30 Oct 2018 for my Moat Scorecard subscribers. However, do note that the future Scorecard Newsletter will be only created for the Moat Scorecard Subscribers.

This 3rd issue was released earlier than usual because I want to release this information earlier to the public because I felt they are important and I had to inform the readers. 

As of today, Straits Times Index is at 2966.45. The market had dropped 14.9% since the start of 2018.

It has not only happening to Singapore Market, but also in Hong Kong, China and Japan Market.

Hang Seng Index has fallen 19.4%, SSE Composite Index has fallen 23.3% and Nikkei Index has fallen 9.5% since the start of 2018.

On the other hand, USA Market seems like nothing has happened. Dow Jones Index has only fallen 3.05%, Nasdaq Composite has only fallen 1.1%, and S&P 500 Index has also only fallen 3.3% since the start of 2018.

Thus, if your portfolio is not in red for 2018, you are either heavy in cash, invested heavily in the USA Market or just a real damn good investor.

For me, I am no guru. This is because I am currently in the red zone too.

But why is this crisis occurring?

Many of you may think that this is due to Trade War or Fed Rate Hikes.

If you have been living in a well, then you probably wouldn’t know the stated issues.

Trade War

Trade War, as per Wikipedia, is about ongoing trade war between China and United State (US) as each country has introduced tariffs on goods traded with the other. US President Donald Trump had promised in his campaign to fix China's "longtime abuse of the broken international system and unfair practices". Starting in January 2018, it imposed a tariff on solar panel imports, most of which are manufactured in China. On July 6, US specifically targeted China by imposing 25% tariffs on $34 billion of imported Chinese goods as part of Trump's tariffs policy, which then led China to respond with similarly sized tariffs on US products. A tariff on an additional $16 billion of Chinese imports was added in mid-August, with China responding proportionately. A further tariff on $200 billion of Chinese goods went into effect on September 24, to which China responded with tariffs on $60 billion of US goods.

Fed Rate Hikes 

Federal Reserve System (Fed) has raised rate hikes for 3 times this year already. This has caused the low interest environment globally to rise significantly as well. For example, if your Singapore property mortgage has been on floating interest rate, you would have received the bank’s letter informing you that your mortgage interest rate has increased.

But should we be afraid?

In my opinion, we should look at the past to understand what has caused the 2008 crisis.

It is good to take note that 2008 was a global event.

You can read it all here.

From my perspective, I believe Collateralized Debt Obligation (CDO) that were sold globally was the main cause. In short, when gains become huge, it creates a bubble. When Lehman Brother collapsed and counter-parties to many CDOs are gone, Banks had to do write offs. When so many assets are being written off globally in various banks and companies, it escalates the crisis and many markets around the world collapse as well.

Then for a while, the world becomes quiet and business activity slows down till it almost stopped. If US didn’t proceed with the quantitative easing and pumped money into the economy. The global market will not have recovered so fast.

This brings me to the point of a topic I wrote last year – Money Supply . I believe money supply in the world is constant unless someone constantly print them or someone removes them from the world.

In the case of 2008 financial crisis, money was written off from each companies’ balance sheet around the world.

However, as of now, I do not foresee money is being written off companies’ balance sheet (Maybe only for companies’ doing ICO?). It has only been transferred. Thus, I do think that there will be no global crisis. It is more of a global transition period – from moving towards free trade to starting a trade war, and from a low interest rate environment to a slightly higher interest rate environment.

These are factors that can create major changes in the world, but once the world gets used to it, a new norm will be formed.

Nevertheless, prior to this new norm forming, the market will be uncertain and volatility will arise. Investors will probably need to be assured of their strategy and think long term.

On the other hand, I also realize there are potential global crisis factors forming around the world – and it is not related to US.

Yes, US started the trade wars, build walls and trying to keep everything to themselves. This will definitely create a short term strengthening of its economy. Thus, maybe that is why their index seems to be in a much better shape than other indexes around the world.

It is like the movie – Attack On Titan. Once you get too comfortable within the wall, bad things will then happen. Only time will tell.

Then what are the possible potential global crisis factors?

1. China’s debt and the shadow banking industry within the country.

China’s companies’ taking on increasing leverage is dangerous. As of a Bloomberg’s’ article, China has RMB 34 trillion debt. Just look at how HNA Group has been trying to reduce their debt!

However, the amount probably did not include the leverage within China's shadow banking industry. Companies in China lend among themselves. Overseas companies, even those from Singapore, lend to Companies in China too.

For Overseas companies that lend to companies in China, I do believe China companies that took these loans do not necessarily need to report them on its balance sheet. As for Overseas companies that lend to these China Companies, they reported interest earned. Thus, there is a gap between the asset earned and the liability declared. In the event, the China Companies’ defaulted on the loan, S-Chip kind of scandal will start to appear.

In spite of the above, let’s be less worried on this issue, as Xi has been encouraging reporting via The Three Board Listing, as well as cracking down shadow banking. In addition, China has also been cracking down on the P2P Industry.

2. Deutsche Bank

As per Wikipedia, Deutsche Bank AG (DB) is a German investment bank and financial services company headquartered in Frankfurt, Hesse, Germany. It is reported to have Euro 1.475 trillion in assets in 2017.

In 2016, there has been a report that stated DB is one of riskiest bank in the world.

As of today, you should have also read about the Euro Debt Crisis that start in 2009 and became very bad in 2012. Currently, there are many weak countries within the continent that has taken on the support from other countries or the European Union. All these happened because the big brother in Europe, Germany, gave them the support.

Therefore, it seems to me that, in the event Deutsche Bank falls, Germany that has a GDP of $3.677 trillion, will be in a bad shape. This could re-activate the “muted” Euro Crisis again.

Nevertheless, it has been good to know that DB understand this risk and has been cutting their leverage exposure.

But let’s hope it does not get sucked into the next topic.

3. Collateralized Loan Obligation (CLO)

As explained on Investopedia, “A collateralized loan obligation (CLO) is a security backed by a pool of debt, often low-rated corporate loans. Collateralized loan obligations are similar to collateralized mortgage obligations (CMO), except that the underlying loans are of a different type and character.”

So how is this different from CDO/CMO? I doubt so. Generally, I do not think people learn. Once the margins increase significantly, more financial companies will get on board.

Just read the following headlines and amount for the month of Oct 2018 (other than the last article):

Article 1 – “…market-leading forecast for 2018 CLO issuance to $130B”  – This is for 1 year only.

Article 2 – “…a pair of fixed-rate tranches in its new €412 million…”

Article 3 – “…second securitization of short-term mortgages…$597 million…”

Article 4 – “…weekly volumes…$1.7Bn…”

Article 5 – “7.4 billion euros of new issue priced from July to September”

Article 6 – “C.L.O., a cousin of the mortgage-related product that malfunctioned a decade ago, has become one of the hottest investments on Wall Street.”

Article 7 – “…$133.7 million will headline a commercial real estate collateralized loan obligation (CLO), wrapping $462 million in debt overall…”

Article 8 – “Singapore…”

OMG, I am speechless. The scariest fact is that this was not reported widely, especially towards the mass market.

In short, how should retail investors protect themselves?

In terms of strategy, you can re-read my post here.

Regardless, from my personal standpoint, I believe there is no need to go full cash as some investors did. But it is good to stay cautious and hold some cash to act as opportunities start to arise.

On the other hand, if you are looking to create a watchlist, I will suggest to look for a company that is (1) debt free, (2) high cash or high free cash flow, with (3) low liabilities and (4) HIGH MOAT.

I hope you had learnt something from this article.

Good Luck!

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, November 12, 2018

Fundamental Scorecard Is Already 1 Years Old!

Dear Readers,

It has been some time since I wrote something on my blog. I had a very busy 2 weeks.

Last Friday, Simple Investor and I had our FSC Exclusive Meet Up in celebration of Fundamental Scorecard being 1 year old!

Firstly, we like to thank everyone whom came, especially those that came on VERY SHORT NOTICES. THANK YOU VERY MUCH!

Secondly, this was a tab too late as Fundamental Scorecard had already been around since September last year. Nevertheless, we had a wonderful time and we hope everybody enjoyed as well. 

At the Exclusive Meet Up, we asked for feedback in order to service you better and be able to produce products that you want.

We had also announced our new Telegram Group to have a more intimate sharing of details with our subscribers and readers. In fact, anyone can join the Telegram Group. If you are interested to join, do click on this LINK.

We also wanted to conduct full day courses and asked for suggestions. Hopefully what we eventually came up for will be to our subscribers' and readers' liking.

Here are some pictures from the event:

Once again, Simple Investor and I had a great evening that day and hope everyone whom attended also had a great evening!

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.

Thursday, November 1, 2018

The Tech Powerhouse Face-off

This article contains information (except the companies' name) from the 2nd Scorecard Newsletter written on 29 Sep 2018 for my Moat Scorecard subscribers. 

For the 2nd issue of Scorecard Analysis, I like to bring you attention to 2 Tech Powerhouse listed in SGX – Company A (Coy A) and Company B (Coy B).

As taken from their website, this was how they describe their business:

Company A

“We are a precision engineering group which specializes in manufacturing high precision front-end semiconductor components and perform complex electromechanical assembly and final testing services. Included in our core business is the production of modular and integration systems for original semiconductor equipment manufacturers. Aside from semiconductor industry, we also cater to other industries including in electronic, machine tools, aerospace and oil & gas industries.”

Company B

“Coy B provides handling and test solutions to the most advanced manufacturers in the world.  We help our customers deliver many of the most successful products in the 5G economy including microprocessors, high speed communications, IOT devices, and solar cells.”

Despite having slightly different business, they are technically in the same industry – the semiconductor industry.

As we knew, the Semiconductor industry has been a very hot and popular industry for traders and investors in over the last 2 years.

However, their share price has been dropping drastically. WHY? 

Company A

Company B
One of the reasons could be semi-related to the trade war. Investors might be worried that the trade war could potentially affect the future revenue of the semiconductor giants in USA for the long term. Thus, these investors could have sold their shares in these semiconductor giants.

With that in mind, it is important to note that Coy A and Coy B  main customer is actually a major US listed corporation.

Coy A – Company C (Coy C)
Coy B – Company D (Coy D)

So, could it be that Coy A and Coy B share prices were affected by the share prices of their customers?

Coy A (Red) and Coy C (Blue) Share Price Graph
Coy B (Red) and Coy D (Blue) Share Price Graph
Do note that only 1-year graph has been taken in view that relationship between Coy B and Coy D has only been 1+ year only.

From the graph, we can see that the co-relation between Coy A and Coy C is higher than that of Coy B and Coy D as Coy B share price has risen too much. This could be due to investor’s insane expectation of Coy B relationship with Coy D in the past. 

Despite having a high co-relation between Coy A and Coy C, another blogger (unable to disclose link) had actually stated that revenue of Coy C does not really affect Coy A. 

This meant that Coy A share price is potentially more affected by NEWs of its major customer rather than actual facts! 

As for Coy B, the share price could have fallen due to previous high expectation. After all, the company has already announced that their relationship with Coy D in the following year will not be as strong as the past years.

With that, does this mean that we should buy on dip? 

If that is the case, let’s see which company is actually better. I will be using the different scorecards to conclude which company is probably a better investment at this point in time.

Nevertheless, do note that each scorecard method is based on a certain strategy and even if the company did not pass that scorecard, it does not necessarily mean the company is not a good investment.

Full Analysis Scorecard

Company A

Company B
The Full Analysis scorecard is focused on looking for growth. It also looks for causes of concerns that investor should look out for as well as if the current share price is close to its value.

Overall the scorecard seems to deem Coy B as a more growth-focused company. In addition, Coy A seem to have more causes of concern. 

Aside to the revenue, net profit and operating cash flow graphs, it also seems to suggest that Coy B as more growth oriented as compared to Coy A graphs which are more consistent and flatter.

Winner: Coy B!

Ultimate Scorecard 

Company A

Company B
The Ultimate Scorecard is looking for companies that are undervalued at that share price base on a series of criteria. It gives a score to each of the criteria. By summing up the score, if a company scores more than 8 points, it is undervalued. Do take note that this scorecard also has a focus on cash related criteria.

Based on the value stock score, it seems that Coy A is more undervalued than Coy B. However, as per asset value, both of them are still priced higher than their book value. 

On the other hand, Coy B also seem to generate more cash than Coy A in recent years. This also relate backs to the growth Coy B is generating in recent years.

Nevertheless, based on the criteria listed, Ultimate Scorecard will have preferred Coy A.

Winner: Coy A!

Moat Scorecard

Company A

Company B
The Moat Scorecard is the latest addition to the scorecards we created. It mainly focused on qualifying something qualitative into a quantitative number. This will provide users to understand if the company has a competitive advantage in its industry. Do note that this number is not plucked from the sky. It is a conclusion of calculation of numerous quantitative figures of the company.

In view of the pictures above, the scorecard seems to suggest that Coy A has more competitive advantage as compared to Coy B. One of the reasons that Coy A could have a better competitive edge was because it has a more consistent and longer history with Coy C. As stated above, Coy B started its relationship with Coy D only for about more than 1 year.

This can also interpret that the relationship between Coy B and Coy D is not as strong as Coy A and Coy C considering the number of years they are together. Sounds like some relationship advice!

Thus, the Moat Scorecard deem Coy A as having more competitive advantage.

Winner: Coy A!

In Short

As per the 3 scorecards’ theories above, Coy A is the more preferred company. The main reason will probably be that Coy A has a longer and consistent working relationship with its main client as compared to Coy B.

This also bring about another factor that Coy A performance, in terms of revenue and net profit, has been flatter as compared to Coy B. It could also be an indication to Coy B’s investors of how the revenue of Coy B may continue if it continues to work closely with Coy D only.

Nevertheless, we should not discount the possibility that either company could find other major clients and break out of the cycle of working closely with only 1 major company.

For these 2 companies, it is also very important that they continue to innovate with more research and development. If not, their moat will probably be eroded soon enough in this time and age, and their share price will suffer as a result.

With that, I bring this newsletter to a close and hope you like what was written.

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

Confused with Coy A, Coy B, Coy C and Coy D? Then Sign Up with our Moat Scorecard using InvestingNote now!

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

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