Lets set the stage.
With that out of the way,
My name is Philip.
it has been a while since I wrote. Due to certain complaints by investor friends and family, I have been asked to stop doing quarterly announcements on the progress of stocks, as they believe a yearly update letter would be far more useful and better for investor mental health rather than a quarterly letter. I do agree: stocks should be treated like business. There is no point in asking the agent to value your house every week, you are not planning to sell the house unless there is a fire or flood or someone builds a graveyard right in front of it.
Having said that, I will still maintain my trackable stock portfolio: the stocks that I buy are usually in the upper mid caps or large cap stocks (with exception of gkent, my margin buy), and you can monitor there. I do not have to worry like berkshire of being frontloaded, or buying at a high price, as I believe I am more rational than most and will usually manage to buy stocks at a lower price than many in the long run. You also do not have to worry about me doing a pump and dump, as the stocks I buy usually are to big for such actions, and the management team is usually of the most reliable kind, they are usually the majority shareholders and frown upon such activities.
My total investment holdings as at 28th February (friday) 2020 (inclusive shared friends, family and margin):
Shares owned/price Company Cost Market value
1,360,500 /8.16 QL RM1,265,892 RM11,101,680.00
2,043,800 /5.64 TOPGLOV RM1,340,796 RM11,527,680.00
1,575,400/7.15 YINSON RM6,507,976 RM11,264,110.00
2,820,000/0.82 GKENT RM2,815,714 RM2,312,400.00
3,413,200/5.4 PCHEM RM25,489,714 RM18,431,280.00
500,000/2.2 SERBADK RM1,173.651.50 RM1,100,000.00
200,000/39.89 STONECO:NYSE USD3,800,000.00 USD7,980,000.00
As of today we have utilized around RM10 million of the subscribed RM22 million of total margin offered by retail investment banks. Our margin purchases were in GKENT(2.8) and PCHEM(7.2). The majority of dividend yields and other income was spent in purchasing more stocks of PCHEM at lower prices.
QL Resouces Berhad has been a revelation. When I first introduced it into the I3 forum, and using my concept of companies that keep beating revenues, earnings and growth estimates will always have an ever increasing share prices, I was met with almost universal ridicule. When I told everyone that my purchase was done in 2009, and added quarterly as the business grew, I was told I was lucky. In January of 2019, the share price was RM6.7. Today it is RM8.16. a PE of 56 (based on latest 4Q earnings). A gain of 21.8% YoY. What happened to all the detractors? The simple fact was quantitative valuation versus qualitative valuation will always affect 2nd level thinking. AMEX salad crisis is a big example of it. Using past metrics, QL looks to have slowing growth, EPS and ROA. However, looking into the business, one knows that 200 branches of family mart does not pop up out of nowhere, doubling the egg production in vietnam and indonesia requires huge capital investment, and market demand takes time to build and match.
Moving forward a few key assumptions need to be made. The virus effects and reduction in performance will last throughout the year. For a high PE company like QL, any drop in performance will have a quadratic curve effect on share price. With that in view, I have sold a few stocks (850K @ 8.6) and invested the same amount in SERBADK and YINSON , searching for companies that is going to be more immune to COVID-19 and have fixed contracts.
However, I still have heavy faith in the future of QL as it goes regional. Malaysians eat 20 million eggs daily. Vietnamese eat 15 million eggs daily. Indonesia eats.... well I'll just let you look at my qualitative process, understanding trade journals.
"Currently, the group produces 5.7 million eggs per day across its operations in Malaysia, Indonesia and Vietnam."
"QL expects to double egg production in their Vietnam poultry layer unit from 850k to 1.85m eggs per day within 3 years and are positive that egg consumption will increase in the economic boom."
I have faith.
"Firm plans RM400m capex; FamilyMart has broken even"
The fastest expansion ever and well managed. The growth has been even more spectacular than Taiwan's growth of Family Mart. Initial expectations were for QL to hit 300 stores by FY22. Currently now it is at 200 stores in West Malaysia, and have already broken even despite breakneck expectations and is expected to hit their target of 300 stores by 2021 one year ahead of schedule.
And so I maintain the bulk of my investments in QL, and continue to monitor quarterly.
TOPGLOVE - Demand for surgical and protective gloves is definitely expected to surge in 2020 due to fears of the COVID throughout the world. The virus has entered 56 countries as of date, every one of which Topglov supplies to. Being a flu virus, mass paranoia and justified risk, gloves and face masks are already in short demand throughout the world. Topglove already has 25% of the world market, with its only weakness being the nitrile glove market. I had put a hold on purchasing more stocks in topglov due to the aspion disaster, and was hoping to begin my purchases when the capacity upgrades were complete.
However, the Covid-19 has tipped my hand and pushed the share prices far too fast on speculation. It has since dropped slightly while waiting for performance results, and I look forward to buying more quarterly soon.
Topglov will increase their capacity to 88.3 billion gloves per year by 2020, when their 40+ new production lines go online.
As far as being a no brainer, they have very few competitors (other than hartalega). Rubber gloves will continue to be a single use product that by its nature is not partial to recyclability or reuse. My only issue was branding and selection, as if topglove was able to spend R&D money to create patents (think 3M) its share price would be far far more. If they were able to invent antiseptic rubber gloves, or antiviral indestructible gloves, it would truly be a juggernaut (hartalega got there first). I have hope that Topglove management will one day see the light, and move from just a mega sweatshop for glove making, and move towards making gloves the world over will specifically say they want.
I continue to hold for the long term.
YINSON - With my initial expectations proven, wins at VERY good prices in Ghana, Brazil (40 billion in orderbook, or USD 10 billion over a 25 year contract), any problems with Malaysian currency to USD will only prove to be a boon to Yinson. Looking at the condition of malaysia now, in 10 years from now we are looking at a USD1 to 5 MYR conversion (I remember 1990s when USD myr was 2.5), in 20 years from now we would be staring at a USD 1 to 6 MYR. Sad but true. Yinson also has a perpetual bond which was covered 2 hours after launch.
Yes the details are true. 999 years to pay back that 950 million ringgit loan, at 6.8% interest per year (while their contracts are paid in USD). Yes, you have that right. AS long as Yinson pays 16 million per quarter in interest income, they do not ever need to pay back the bilion dollar principal.
So, cash in hand to build ships is covered as a super long term loan (essentially free loan from your dad that you do not have to pay back, as long as you bring him to lunch every weekend), FPSO projects during a time when many O&G companies are overextended or holding bad long term contracts (see armada and sapura), rising oil prices, and having an international norwegian project team with very good experience in building, managing, constructing and running FPSO.
I would say slow down yinson! But thinking about it, when the korean government created to chaebol concept, and gave free loans to companies that met and exceeded their KPI for production, profitability and market approach, you quickly had names like samsung and hyundai and LG.
What could Yinson do with free money? Another Ghana contract coming up for PECAN ? (again they are the only viable company with the financial capability to meet, past project reference, and criteria meeting needed to proceed)
I am a net buyer and as the contracts are 25 fixed, relatively immune to Covid-19. I have added 1 million shares at 6.38 during the speculative fear of covid (before everyone realized the orderbook had no bearing on viruses), and will be buying more after the LOI turns into a LOA and the specific terms are met.
GKENT - Gkent is of a more structurally risky nature, I doubt that not. With the change of government recently and the problems surrounding, I do worry about project cancellation and delays. However, I believe this will not be the case, as GKENT has been able to work with both the BN government and PH government in doing the massive 11 billion LRT3 project (43% completion and submission for claim expected in 2020). But looking at the scenarios available, and as this is my main margin play for the year of 2019, this is a work in progress that I am monitoring quarterly. There are cancellation penalties (if 43% completion as per progress, this must be paid out for works done and billed. hopefully quickly) I do not doubt GKENT will make a profit this year and many years after that, and I do not underestimate their revised partnership and technology transfer with Honeywell. However, this is a margin play, medium risk for high return play, and caution is to be advised. This is a very small part of my portfolio, but it is also one that I have bigger and bigger confidence in as quarterly results come up.
I am a net buyer. I have bought (on margin) an additional position of 1 million shares at 0.88 cents and continue to pile my dividends into buying back shares of GKENT. Interestingly enough, GKENT management also has the same opinion as I do. So far, they have spent RM25 million in buying back more than 6% of outstanding shares, given out 6% in dividends, and in every action they are doing they are telling me to KEEP CALM AND HOLD ON. The CEO of the company Mr Tan Kay Hock has also not sold a single share, and has actually increased his position, which gives me hope that the business will do well in the long term.
The best form of security is sometimes from the management and controlling shareholders. IF the CEO tells you that his entire networth is in the company, and if we win or lose toghether, ride the ups and downs together.
That is good enough for me. At these prices, I am willing to wait
PCHEM - So far my biggest loser, I am on record and will to state that me and my family are still net holders and buyers and have not sold a single share or cut losses in PCHEM. It was cheap when I bought it at 8.15. It was good value at 9. I am the first to say I bought 950K shares at 6.3 which I thought was a wonderful deal. It continues to be even cheaper this morning at 5.4 due to selling by individuals who owned PCHEM during IPO prices (BN nationals I supposed to fund the new efforts), and it has hit all time pre IPO prices.
I am a net buyer. My mistake was probably buying before the QR announcement (my mistake I know, as I usually buy after the QR, not before. But everyone makes mistakes of greed and ego once in a while). I could have saved almost 90 cents per share on my RM6 million purchase, or an additional 900k saved.
However, the fact remains. PCHEM is undervalued. Severely. Current earnings notwithstanding, the revenues are still the same as last year. The demand is still there, just the pricing and supply. They have 12 billion in cash to ride out years of oversupply. They have a new production facility in pangerang that will produce 3.3 mpta of olefins and other derivatives at a huge reduction in capacity costs ( saudi aramco the world lowest cost producer of oil has a joint refinery right next door), they own half of the joint business with pchem. What this means is that when PIC goes full production by 2021, many of the loss making petrochemicals would have reduced supply (lctitan has recently sold its holdings in louisana state for 33 million usd) the region, PCHEM will be right there to catch the load. It will be able to sell at the cheapest cost in the market, make the most profit (they have shown they can sell lower than its compeitors production costs and still make money).
This was my thesis when I bought the stock in 2019 at 8.15. And it continues to be the reason why I am holding the stock for the long term. There is no structural competitive disadvantage for PCHEM (revenue is holding steady). It is still profitable (albeight more than half reduction in earnings). It still declared a 7 cent dividend this year. I have already received 36 cents in dividends so far, and I remain confident that PCHEM will recover its earnings strength (as guided by management).
SERBADK - As this is a new holding for me and I am monitoring quarter by quarter, all I can do is my initial rough analysia on the long term prospects that I find for the company.
My qualitative view on adding Serba dinamik, their main business model is operations and maintenance, all items that require very little in purchasing big ticket items or storing warehouses of equipment. Mostly needed is just simple manpower and high level of expertise in servicing and maintaining equipment ( high engineering skill). They have 21 years of experience in this, their CEO karim is a technical man who knows a thing or two about engineering ( IR in mechanical engineering, same as me in requiring to get a certain level of points every year to keep the IR status and learning more everyday).
In terms of business prospects, Qatar is their biggest revenue and profit center. They are a unique country, very rich but supporting both Iran and USA ( terrorism and also the biggest US airbase this side of the world).
The interesting part has been that ever since the blockade and embargo ( but Saudi still says they will send aid to Qatar if needed), of Egypt, Bahrain, Saudi etc a lot of contractors and suppliers have dropped ( forced) to leave the country since 2014. Leaving the o&m space pretty much open to Serba dinamik to step in at high margins and huge demand. Going in at cheap prices, using technology transfers from cse global and India subsidiary ( https://www.thestar.com.my/business/business-news/2018/04/13/serba-din...), they are building up a localized price with cheap costs to take jobs from international companies.
O&M is an interesting beast, due to its nature you will find that manpower expenses are the biggest cost ( variable costs) which is easily managed compared to inventory. Therefore you will see 1.2 billion in receivables ( below 30 days payment no impairment due to if not payment entire plant stops production not an option to delay, as we know production and profits to owner). On the other hand payables are very low due to only stocking small spare parts and ordering big items only when overhaul needed ( which if maintenance is done right not often).
Serba is also interesting in that it is similar to yinson, where it started out internationally, getting international team together first, then expanding back to Malaysia and SEA.
Is it a good bet? So far it seems good as the results have shown increasing revenues and profits, and a good line of credit from sukuk to fund projects.
We shall monitor and see from the latest qr report coming up to decide what to do.
Here is my initial feel for it, and I have sold a portion of my QL holdings to invest in the company to do so at a good rate.
We shall monitor more going forward.
STONECO - I will just leave it to the CEO to explain further (as their reporting and earnings statements are far more advanced and monitored than in malaysia. Do download the QR report, the transcript of the earnings call and their presentation slide to understand more).
to understand how management think and how they respond.
1.88% comparable to previous quarters, with client lifetime upward revision taking actual take rate to 1.91%
All I can say is: WOW.
Being an investor in Stoneco is fast proving more profitable than I expected. It is beating and taking market share from the incumbent banking system, it has received approval to be a bank themselves, and their concentration on online bridge of works instead of brick and mortar banking stations is proving to be a huge boon.
They are increasing clients, revenues, earnings AND margins all at once.
How many companies in Bursa can claim such a thing?
I sincerely hope you learned something new from my postings. Not in a ego or proud way. But in a way that you have received new information that is useful to you in making rational relevant decisions.
The key to making money in the stock market is not intelligence or IQ or charts or notifications etc. You dont need to be able to play 3 dimensional chess to be able to make money in the stock market. The key to making money in the stock market is to make rational decisions. Buying profitable companies with long term market competitive advantages, not getting caught in speculative assumptions (like Sapura being worth rm3 in 3 years without any profits or quarter to quarter growths to prove the speculation), or NETX (assuming you will make 8 cents for a 10 year loss making company just because the government announced NFCP, without a contract to tie your belief or a yearly profitable earnings doing NFCP things ).
In essence, Koon yew yin was half right. A company that has increasing revenues and earnings will always go up in share price.
That is true in almost every case. But the other half is also true, a company with decreasing revenues and earnings will always go down in share price.
The trick is to predict not 2 quarters or 3 quarters, but to predict multiple years of earnings and revenue growth.
You would do far better if you spent time trying to understand how to predict that instead of just turning the blinders on and buying based on dividend yield, PE, cash flow, debt, ROE and alone.
Warren had a 54 year secret.
Buy WONDERFUL COMPANIES.
Created by Philip ( buy what you understand) | Dec 07, 2022
Created by Philip ( buy what you understand) | Jun 30, 2019