Keong Hong FY17 Result Review

Finally Keong Hong released their FY17 full year result. I was expecting that FY2017 full year result won't be good, as most of their projects are still at construction stage which won't generate huge profits except construction revenue. However, FY2017 net profit contributed to shareholders increased 84.7% yoy.

The company recorded a 50 million re-measurement gain of investment to fair value upon ceasing equity accounting. This is an one-off gain and is a non-cash transaction. Without the gain the company's net profit down from 33 million in FY2016 to 13.6 million in FY2017. However, when doing comparison of Keong Hong's result, we have to know that it involved in property development business, and the profit will be recorded at the end of the project under share of results of joint ventures / associates. The company recorded a 15 million profit under share of results of joint venture in FY2016, which was mainly contributed to share of profit from TOP of Skypark Residences in August 2016.  In FY2017, the company recorded a share of loss of joint ventures and associates, as all the projects are not completed yet. Therefore we need to adjust the results when doing comparison. Revenue and gross profit from construction activities in FY2017 is similar to FY2016, which indicates that the flow of construction activities are pretty stable. As mentioned in the press release, construction order book stood at S$344.0 million, providing the Group with a sustainable flow of activities through the end of financial year 2019. Currently the company is constructing two properties which will generate profit when they TOP.

The balance sheet looks quite healthy too. Cash and equivalent increased from 58 million to 77 million. The group also refinanced their non-current liability by issuing 85 million medium term notes with a 5.75% interest rate. The interest rate is slightly lower than their previous medium term notes. The company fully redeemed their series 1 medium term notes and repaid partial of the bank borrowings. Net asset value increased from 59.50 cents to 83.43 cents, which means that current share price is trading at big discount!

The board of directors declares a 1.75 cents of final dividend, so full year dividend is 2 cents, which is lower than previous years. However, I believed that the management is saving funds for further business expansion. As mentioned in the press release, "With the successful collective sales of 17 private residential estates year to date and the redevelopment of these en bloc projects, the supply of private homes will more than double over the next one to two years . We look forward to capitalising on this increased construction demand for private residential homes." The company should be able to benefit from these activities.

I am looking forward to Keong Hong's annual report, which will show more details of its operation. I am also interested in the details of their 're-measurement'. I don't expect Maldives hotel will generate any profit in short term, as building reputation is a long term process. For now, I think that property construction and development will remain the major income source for the company in short to mid term.

Currently I am still holding 35,500 shares. Previously I sold 19,400 shares at 0.57 as I was planning to apply for RE&S IPO. Very sad thing is I got 0 shares and wasted 2 dollars. The IPO performed very good on first trading day. I bought back 16,500 shares at 0.555 last week. Heng, lucky I bought back part of the shares. I was planning to accumulate more after the result released, as I didn't expect a good result this year. That day I saw very few people selling the shares so I decided to buy some of the shares back as 0.555 is still a discount from its NAV.

After earning adjustment, I believed that Keong Hong is still trading at low price. I will accumulate more shares when the time and price is right. But I have no idea am I able to buy more at my average price anymore.

Thanks for reading. DYODD

Cheers.

ComfortDelgro - Recent Action Taken

Recently I have increased my holdings of ComfortDelgro. I bought 2,400 shares at 2.03 SGD to average down my cost per share. 

The reason of this is I found that it might be hard to purchase it below 2 SGD, and current price to book value ratio is only slightly above 1. My plan of average down is as follows: I will add 5,000 SGD if the price drops another 30%. I have no idea where the price is going but I think the fundamental should be stable for years. Therefore I will slowly average down.

I sold 19,400 shares of Keong Hong at 0.57 few days ago. I sold it is not due to any fundamental changes. I planned to use the proceeds and all the cash in my trading account to apply for RE&S IPO. Sad thing is I got nothing and wasted 2 dollars and the price jump more than 60% from IPO price! Now I need to see when to get back to Keong Hong again. Currently I am still holding 19,000 shares of Keong Hong.

Recently PEC and Straits Trading are not doing good, and I am planning to average down PEC. Sad thing is I cannot average down Straits Trading as it already took a large position in my portfolio. I shouldn't buy too much of any shares at any price in the future so I will be more flexible to control my portfolio.

If you can read chinese I want to recommend you to check out this blog. 

https://parisvalueinvesting.blogspot.it/ 

It is written by a HK blogger who strongly believe that value investing is the best way to make money from the market. I found that many of his articles are interesting! 

Thanks for reading! Please DYODD as market is always hard to predict. That's why I have a progressing average down plan (:

Keong Hong Annual Report (FY2011 - FY2016) Analysis

Keong Hong

I found Keong Hong is an interesting stock with huge potential. I studied the annual reports from 2011 to 2016 as well as its IPO prospectus which was published in 2011. Please take note that I already bought the shares with an average cost of 0.47, where the current price is 0.56 at the time of writing. So please DYODD if you want to chase the stock. 

Keong Hong listed on SGX since 2011. The IPO price was 0.24 and the all new issued shares were issued by placement. The group is a provider of broad range of building construction services to both private and public sectors for residential, commercial, industrial and institutional projects. The group possess more than 20 years of experience as a building contractor in the local construction industry. According to the latest list of contractors with demerit points provided by the Ministry of Manpower on 7 November 2017, none of the joint venture or associate or subsidiary can be found on the list. After OKP’s incident, I found that checking this list is very important for risk evaluation.   

The group’s business strategies and future plans stated in their IPO prospectus are stated as follows, I found that the strategies and plans are still relevant today:

1. Expansion of business operations in Singapore and overseas;

2. To enter into property development sector in Singapore;

3. Focus on projects with high complexity and value-add for construction business.

After 6 years of listing on SGX, let us review its performance. 

The company went into property development sector by incorporate joint ventures with other bigger property development. The group mentioned in their FY2016 annual report that they are the main contractors in all their joint venture residential projects. The group expanded their business operations into hotel industry, and they have 20% effective interest in two hotel investments in Singapore. The group also expended its business operations in Maldives, Vietnam and Japan. The group has 49% effective interest in Maldives hotel projects. They also incorporated a joint venture with 15% interest in Vietnam to develop residential project. The group acquired a freehold land and a commercial building in Japan for recurring income in 2016. The group mentioned in their various annual reports that they are interested in the Australia market too, but until the time of writing the group haven’t incorporate any joint ventures of associates in Australia to develop any projects. The group stated in their FY2016 annual reports that they recognised the limited upside on their growth if they remained only in building and construction, so they are planning to expand their business operations into projects that will generate recurring income. The group mentioned it is aiming to boost the property and hotel investment portfolio such that the contribution from these will form half of the net income in three to five years, to smooth out the cyclical nature of the building and construction business. I checked that both hotels in Singapore got very good rating on booking.com.

Keong Hong’s earnings increased substantially since IPO, as the graph shows below (I used post bonus share issued less treasury shares as the total number of shares):

The group’s NAV is also growing at a fast rate since IPO, as you can see from the graph below (I used post bonus share issued less treasury shares as the total number of shares):

I also noticed that the group is able to record a gain from disposal of the property, plant and equipment almost every year, and they never recorded any loss on disposal since IPO. They only recorded write down to value less selling costs once in the annual report. I noted that the group recorded the value of PPE at original cost less depreciation, and never revalue them. The depreciation rate is charged on the following bases, which I found might slightly overstated the depreciation charge, which will decrease the NAV, therefore I believed that the NAV is underestimated:

Building – 10 years

Office Equipment – 2 years

Furniture and Fittings – 5 years

Motor Vehicles – 5 years

Plant and Machinery – 3 to 5 years

I also noted that even though the group always has a high value of receivable in the financial statements, the bad debts are very low even though some receivables were past due more than 1 months. I noted that the group is able to charge the sub-contractors when they didn’t make the payment on time, and this ‘late charges charged to subcontractors’ are growing every year and is recorded under the other income. I found that if the group is able to charge sub-contractors with late payment, and most of them will eventually pay the debts off, the high value of receivable should not be a big issue. As mentioned in the IPO prospectus, some sub-contractors are appointed by the customers, so I assumed that they should have a better reputation and good credit. 

Keong Hong distributes dividend since 2012, so I calculated the total return if we reinvest the dividend back into the share every year. I extract the dividend paid from the annual report from 2012 to 2016. I assumed that the dividend collected during the year was reinvested at the closing price of the year. There was a 1 for 2 bonus issued in 2014, so I assumed that we reinvest the dividend collected in 2014 before the bonus issued. The reinvested quantity of share rounded down to the nearest ’00, and the transaction costs were ignored. I created the table below, which shows that if we invest 10,000 SGD since IPO, we will end up with 85,350 shares today, and the value of the shares is around 47,796 SGD (1 share = 0.56 SGD)! This is more than 477% return in 7 years! 

	2011	2012	2013	2014	2014 (Bonus)	2015	2016	2017
Qty of Shares (b/d)	41,000	41,000	42,500	44,900	47,100	70,650	73,150	80,750
Interim Dividend	NA	0.005	0.005	0.02	NA	0.005	0.005	0.0025
Final Dividend	NA	0.014	0.03	0.01	NA	0.0125	0.04	0.03
Bonus	NA	NA	NA	NA	1 for 2	NA	NA	NA
Reinvested Qty	NA	1,500	2,400	2,200	23,550	2,500	7,600	4,600
Qty of Shares (c/f)	41,000	42,500	44,900	47,100	70,650	73,150	80,750	85,350

Even though the shares value increased a lot compared to IPO price, the NAV per share is still above the share price at the time of writing! And we can see that the earnings increased with the NAV too. 

Keong Hong’s cash reserve in FY2016 annual report stood at 58 million, which is equivalent to 25.58 cents per share. The company also got high receivables from its associates and joint ventures. I believed that once the projects are completed the funds will flow back to the group. 

I believed that Mr Leo Ting Ping contributed a lot to produce the sets of good results. As he mentioned in an interview with zaobao.sg, he believed that number two’s position is the best position to develop and improve ourselves and companies. Therefore, when the group decided to participate in property develop industry, the group did not bid for the projects by itself. They incorporated joint ventures with those ‘number one’ companies with strong reputation and experiences. The group is able to develop more experiences as a property developer from the incorporation of the joint venture, and it is able to be the main contractor of the joint venture to earn more revenue! I found this strategy is very good and sustainable. It lowers the risk that the group must deal with, and learn from those big brothers will lead the group to future success! As stated in the IPO prospectus (even though the group recognised it as a risk), the group’s business is dependent on the services of the sub-contractors, and sometimes the sub-contractors are selected by the customers. The sub-contractors appointed by the big boys might be more reliable and might have a longer working relationship with the big boys, and they should know what are the big boys standards. 

After talking so much about the things I like, now I would like to mention some things that I found weird about the group. 

The group recorded 56 million of cash and cash equivalents in FY2012 annual report, and during that financial year the group raised 6.96 million by issuing ordinary share (IPO). Beside getting a listed company status, I found it is sort of pointless to IPO the group as it is not raising a lot of funds. The group purchased financial assets (held to maturity) in FY2012 and disposed them in FY2014. The total consideration was 2,839,000 SGD which can be divided into two categories: 1,250,000 SGD of unquoted debt securities with a coupon rates range from 3.15% 4.25% per annum, and 1,589,000 SGD of structured deposits which can the group may be entitled less than the principle amount if withdrawn before maturity date. 500,000 SGD of structured deposits matured on 15 January 2018 and 1,089,000 SGD matured on 2 July 2015. The structured deposits got fixed interest returns range from 0.65% to 2.50%, and the group is entitled for the variable interest returns at the maturity date which are determined by reference to the change in market prices of certain underlying quoted securities on SGX, and the variable interest rate ranges from 0.00% to 6.00%. The group withdrawn all financial assets (held to maturity) when 1,089,000 SGD or structured deposit actually got less than one year to maturity date, and the group suffered a 57,814 SGD of loss on disposal of financial assets held to maturity! The group still got more than 38 million SGD as stated in FY2012 report, I don’t understand why the group decided to withdraw the deposits which might generate more interest income when there’s enough cash in the bank. The group also issued 50 million medium term notes in FY2015, with a coupon rate of 6%. This non-current liability will generate 3 million interest cost for the group every year! According the FY2015 annual report, the interest rate of the term loans was 2% plus bank cost of borrowings, and the group disclosed that the exposure of the group’s borrowings to interest rate range from 2.86% to 3.11% only. I don’t understand that why the group doesn’t continue to borrow from the bank and issue a 50 million SGD medium term note instead. Doesn’t the issuance of note will generate significant finance cost? 

Overall, I found that the group’s performance is quite good, and I believed that the managements know what they have to do to survive and grow. FY2017 final result will be announced in this month, and I hope that management can disclose more information about their new business plans. One of the Maldives hotel are already operating, and I hope that it can build a good reputation quickly, and attract more visitors. I also believed that Mr Leo Ting Ping’s strategy of staying in number two position can bring the group further. 

However, the share price chart doesn’t look very good recently, as the share price just broke into its two years high region, the RSI is very high and when I look back into the three years chart, the share price always goes down after the RSI broke into 70% and above region. I will accumulate more shares and Keong Hong will be one of the big portion in my portfolio when the share price went into correction. I am looking forward for its FY2017 final result. 

Please take note that I already invested in Keong Hong’s shares with an average price of 0.47+! 

Always DYODD huh.

Thanks for reading. 

Cheers.  

Straits Trading 3Q17 Result Review

You all know that I invested heavily into Straits Trading. When I saw the headline "Straits Trading's 3Q earnings fall 29% to 12mil on higher expenses" on TheEdgeSingapore, my heart actually stopped for a second. These days 80% listed companies gave superior result, so any soso result will be considered underperformed. So I quickly open the SGX website to check the result.

I like the company's report format as they always gave quite clear explanation on details of the major changes on their financial performance statement and financial position statement. It gave me more information while analysing the report. I saw that the company recorded a 29.4% decrease of profit attributed to shareholders yoy for 3Q17, and 7.9% decrease of profit attributed to shareholders for 9 months result. It doesn't looks good huh. But take note that we also need to the other comprehensive income statement to get the final conclusion. I noted that the group recorded a gain of the fair value of the equity securities compare to last year loss. The total comprehensive income for 3Q17 that attributed to the owners was 15,421,000 compared with last year 15,668,000, and the total comprehensive income for 9 months 2017 attributed to the owners was 73,591,000 compares with last year 60,693,000. So the group actually is making more profit for us.

The revenue from Tin mining and smelting increased 19.1% in 3Q, but the cost of tin mining and smelting increased 21.2% during the same period. I checked the Tin price over last 5 years, the price was bottomed few years ago. I hope that the company will disclose the reason of the increasing cost of mining and smelting. I don't expect that the tin price will surge to sky high price, so the only way of making more profit is cost control, or expand operation. Good news is the increase of the revenue in 3Q17 is a result of both higher selling volume and higher tin price.

The dividend income in 3Q17 was much lower compared with last year result, and its due to the redemption of units in SRE Asian Asset Income Fund. According the the cash flow statement the company already received the funds from redemption. Hope that the company can find a similar return investment.

The company issued 150 million notes with 3.73% fixed rate. I checked the MAS website, the average prime lending rate in 2017 was 5.28%. So I think the note issue will save more finance cost. The gearing ratio is still at a very safe level after including this fixed rate note.

In 3Q17, the company recorded a huge cash outflow on investment activities. The company spent around 140 million on investing in an associate and a JV. The investment value is close to the note issued recently. I hope that the company can at least generate 3.73% return from this investment (:

Overall, I think the company is still performing quite well. The NAV is now at 3.46 SGD, so the share is trading at PB 0.7. After including the 6 cents dividend paid out few months ago, the group's NAV increased from 3.34 to 3.52 within 9 months, a 5.38% gain. I think it is a satisfied performance. The cash and cash equivalents increased from 265 millions to 350 millions yoy.

With a healthy balance sheet, I hope that the company can perform better. I saw that China recently approved its first REIT and it is going to be listed on SSE. I hope that the group can participate in China's property securitilise and benefit from it.

Thanks for reading. Finally finish all the reports that I have to check today.

Cheers!

PEC 2017Q1 Result Review

PEC released its result on 10 November. Lets take a closer look at the report.

To be honest, the result is much worse than 2015Q1 result, as the company recorded a 4 million total comprehensive income attributed to shareholders in that report. However, I found that the result is still better than 2016Q1 report.

The total comprehensive income attributed to the owners increased 94% yoy from 439,000 to 850,000 in 2017Q1. When we compare 2017Q1 balance sheet and 2016Q1 balance sheet they actually look similar, where cash increased from 107 millions to 111 millions. The company recorded operating cash inflow and also the net cash inflow in 2017Q1, even though the operating cash inflow is much less than previous year.

The thing I am more worried about is the order book. The company's order book stood at 315 million in 2015Q1, excluding maintenance contracts, and the order book decreased to 139.7 million in 2016Q1 and decreased further to 65.2 million in the latest report. I guess that the company is having more maintenance contracts, as the company's revenue in 2017Q1 only drop 2% yoy when their order book's value drops more than 50%. I hope that the company can collect their trade receivable faster as the value of the trade receivable is more than 107 million in 2017Q1. The company should be able to use these funds to invest and generate more returns for the shareholders.

Good news is that the profit margin of the maintenance contracts are higher, so the gross profit margin increased from 20.4% to 24.1% yoy.

The NAV increased from 89 cents to 89.4 cents, so the share is currently trading at PB0.76. I realised that most of my successful investments got two common characteristics - low PE and PB. I will talk more about it when I do my yearly portfolio review.

Thanks for reading. Take note that the company's dividend ex date is on 13 Nov according to the information found on investingnote. (sorry but im just kinda lazy to check the company announcement lol)

Still got no internet at home and sitting in a coffee bar forever to check the results of my investments.

Thank you and have a nice day.

Cheers!

ComfortDelgro 2017Q3 Result Review

Finally ComfortDelgro released its Q3 result. Lets take a look at it.

Group 3rd quarter revenue drops 2.4% yoy, and its total operating costs drop 0.9% only. 3rd quarter net profit drops 11.1% yoy. Seems quite bad huh? But when I look closer into the result, 3rd quarter profit attributed to shareholders only drop 8.2%, and 9 months profit attributed to shareholders only drop 1.6%! If you include other income from the comprehensive income statement, 9 months profit attributed to shareholders increased from 231.7 millions to 239.9 millions!

This result is actually much better than my estimation. I expected that the profit from taxi segment will drop 10% yoy, and other segment's profit might be hard to cover it. Which will result a high PE. However, I don't really understand that why the management still spent 116.6 millions on purchases of vehicles, premises and equipment! Are they still buying more taxi? The report didn't explain this point. If the management can give a better estimation about the demand of their taxi rental, and sell away those extra one, the company can get back the cash and decrease future depreciation cost.

Recently the company invested in a taxi company in Perth, Australia, but that company only owns 100+ taxi.. So I guess that investment won't generate any significant profit for the company.

To be honest, I think the current share price already reflected the bad performance of the taxi segment, however I guess there are many investors still not aware that ComfortDelgro is not about taxi only. I expect that the share price should drop again in short term, as the result looks bad on the first look, and I guess many people will throw their holdings away. I am thinking to increase my holdings if the price drops below 1.8 or even 1.6!

Thanks for reading.

Cheers.

SIA Transaction Update

I can't remember when did I buy SIA.. should be around October last year.

I bought 800 SIA shares at around 10.70 (that time I haven't develop the habit to record down my transactions), and sold all of them at 10.83 this morning. This investment should generate 100+ capital gain and 160 dividend (0.09 per share received last year and 0.11 per share received in August). Around 3% profit without consider the transaction commission. Slightly better than bank fixed term deposit, but if compare with STI it is not a good investment.

I cannot remember the exact reason why I buy SIA, probably due to previous year high dividend. I have to admit that I didn't study the company carefully and the 'investment' is more like gamble.

I think the bad return rate might due to the following qualitative and quantitative factors:

1. High PE rate

2. High PB rate

3. Tough industry environment

Even though the report announced yesterday was quite good, I am quite worried about its future performance. The oil price should slowly going up, and USD might goes up against SGD which will result in a much higher fuel cost. I also noted that the passenger yield is getting lower every year. Personally I bought Turkish Airways this time from SIN to FCO, because SQ charges a very high price for my return ticket in January.. Well compare the service and the quality of the economy class of both airways, I still find that SQ is a better choice.

Did anyone noticed that their booking app is now functioning much faster than before? It took me forever to use the booking app the check the award ticket before, but few months back when I use it to book award ticket from Phuket to Sin to Shanghai, it actually response quite fast. Oh year personally I think their award system is quite user friendly, and hope that they can create a family link account in the future. I got Etihad membership and found the whole system very hard to use. Under comparison I think SQ is still a good quality airways..

I will look back into SIA shares in the future when it is trading at a lower PE or PB rate. And hope I can experience their new business cabin in the future (((:

Thanks for reading.

Cheers.