Singapore Stock Market News

A few hundred years ago, humans were not capable of calculating the speed and acceleration of apples falling from trees, the movement of heavenly bodies and predicting simple things like whether a 2kg ball and 1kg ball will roll down a slope faster. Btw the answer is both balls will roll down the slope at the same speed.

Then came along a guy called Newton who sat down in a park some day and an apple fell on his head. (I'm guessing this guy is a nerd and has no dates!) And as they say the rest is history. Well no offense, Newton was a great guy and I admire him as much as the next value investor reading this blog.

Anyways, the analogy here is that would there be a day when humans can fully predict the prices of stocks and all other investments? And all securities would be priced fairly all the time and there would be no room for speculation and the market becomes truly, madly, deeply EFFICIENT.

Of course, even a genius like Newton failed at winning the stock market (he speculated in the stock market in England during the South Sea Bubble and lost a lot of money) so it may really take a long long time for some achievements on this front. And some may argue that this would not happen bcos stocks move on emotions and no one can predict human emotions. Esp the emotions of the woman whom you decided to spend the rest of your life with.

Well... that's true... but we have also achieved a lot of impossible feats, like going to the moon, heart transplant, calculating a 2 to power of 10mn digit prime no. etc. So let's just for argument sake postulate that some day, all securities are priced efficiently all the time.

What's gonna happen is that capital would be allocated efficiently all the time, all investors will earn the same rate of return and there will be no Greater Fool Games, no bubbles and no crashes.

The stock prices of companies will be step functions corresponding to the growth of the companies. There would be no technical analysis since it's all straight lines now. Any new developments will be instantly reflected in the stock price so you see the prices move vertically up or down. Hence the step functions.

There would be an army of arbitrageurs who would bring the stock price back to its intrinsic value if any punter tries to even move the stock price by 1/256 from its intrinsic value. Btw this value will be calculated accurately to the 10th decimal place all the time and changes accurately to a new value with new pieces of information.

Brokers would still be around but their sole purpose would be to faciliate any trades. They will earn their fair share of commission, probably at 0.0001% of the trade or whatever. There would be no need for analysts or economists babbling nonsense since everyone can simply use bloomberg to find out the intrinsic value of any securities.

Fund managers exist solely to mix and match different securities to create suitable portofolios for their clients who are too lazy to do it themselves. No investor will ever lose unnecessary money except for the case of company bankruptcies. But even so, his portfolio will be protected by insurance. How perfect!

Well, that's a dream. It may happen someday, but most probably not in my lifetime.

What an interesting forum!

Someone launching attack on FA people on huatopedia. Basically, millionairemind is trying to question an assumption held by some- that there is a PE where the stock will not go any lower. The thread is about busting common investing myths - excellent discussion going on there :)

He argued that,

"If a stock you are looking at has a PE ratio of 6 and growing at a reasonable 10-15% a year, with low debts, would you buy it??? Sure, most FA will say... Remember, the value of a company is what the market prices it at...

If you have bought it at a PE ratio of 6 around 50cts... you would have lost 60% OF YOURE INVESTMENTS BY NOW!!! Would you buy more at say 50cts?? How about 40cts?? 30cts??? It is now 20cts and change. It has a PE ratio of around 3 now. And the SAD news is that this is NOT A MONEY LOSING COMPANY!

The 9months earnings so far is up about 25% YOY. The earnings is of course decelerating but not the company is not making a loss... that is what I mean by the market always knows better and without institutional support, the stock will not move."

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Well...let me try to piece up a feeble defence. I have no presumption that I know anything. But firstly, I don't buy just based on PE. In fact, PE is just one of the way I used to calculate the rough range in which the stock will trade. It will never be a valid reason to buy just based entirely on PE. To me, it's a little over-rated. Secondly, it just got IPO-ed on 8th August 2007, meaning that it's just slightly short of 1 year. I personally won't buy IPO stocks (because no matter how much I tikam, I always didn't get any lots!) because the results could be adjusted to 'prepare' for the IPO. I prefer to have it for 5 years at least to have a feel of the company's business before even entering it.

I tried to search for China Hongcheng results - they only have from FY06 to FY07, and 1st to 3rd quarter FY08. Let me ignore quarterly results for now.



I hate doing companies with very short history. Since FY06 is pre-IPO, we mustn't treat it too seriously - this means only one year worth of data.

At first glance, seems like this company's business is doing well. With a gross margin of around 29% and a net margin of 16-17%, it seems rather profitable. ROE of 50%, that's very very high. Let's break down ROE of into 3 components:

1. Financial leverage : Total assets/Total equities

2. Asset turnover: Total revenue/Total assets

3. Net margin: Net profit/Total revenue

ROE = Financial leverage x asset turnover x net margins

Yr---------Financial leverage-------Asset turnover-------Net margins---------ROE
FY07------------4.56--------------------0.70---------------16.7%------------53.3%
FY06------------6.78--------------------0.64---------------12.8%------------55.4%

Seems like the reason for their high ROE is from their leveraged structure. Indeed, looking at the current and quick ratio suggest a rather low figure. Total debts to equity paints an even worse picture. If I'm interested in the company, I would do a comp study on other similar companies. Take note that the below comp table is lifted from their presentation slides, dated Oct, 2007. I wonder what the PE of the comparable companies will be like now. Perhaps it will show that Hongcheng at PE of 6x or even current PE of 3x isn't that fantastic.



We can see that the ROE of china hongcheng is one of the highest. But we must break up the ROE to see if the ROE is boosted by high borrowings or not.

Below is the price to EPS (SGD) for China hongcheng,

Year------price(high)----price(lowest)----EPS---------PE(high)-------PE(low)
2008-------0.35-----------0.185--
2007-------0.58-----------0.33----------$0.066---------8.8------------5.0

* note that highest and lowest price is the closing price, not the intraday high or low
** EPS is in SGD

Data of historical PE is too little to be of much use - that's one of the reason why I won't buy IPO stocks with less than 5 years of history behind them.

One thing that screams loudly as I was browsing through is the fact that around 70% of their revenue comes from overseas in FY07 and of that amount, 42.4% comes from US. That's like 30% of their revenues from from US. I'm wondering if their business will be affected adversely should US suffers a slowdown or recession in their economy. Hmm, food for thought.

Of their business, their should start to increase selling more bed linens. My goodness, those have a gross margin of 41%, but takes up only 8.3% of revenue. Most of the product revenue comes from selling grey and dyed cotton fabrics (53.8% of revenue), which earns a gross margin of 21%. Didn't know bed linens can earn so much :)

I guess that's my feeble defense. I don't even think it's a defense, haha, I'm just thinking out loud on this company. I anyhow anyhow did some valuation, using 10 yrs with no terminal value, discount rate of 8% and EPS growth of just 10% (it's around 20%) - I get around $0.80 per share. Seems like good value at current price of $0.20 - I'll likely get like 15% returns in 10 yrs. But this company is too young to be sure. As long as the EPS grows up by than 10%, I think roughly roughly lah.

Don't hurt me too badly, millionairemind :)

This weekend had been a fun one for me :)

For the first time in my life, I ate durians! I even sent a mass email to my best buddies, asking them if they wanted to see me eat durians for the first time. My maiden voyage, so to speak. Well, don't ask me why I didn't eat durians before. I seriously don't mind the smell (it's quite nice-smelling) but I just didn't eat it before today.

Perhaps I've been passing by some durian stalls on my way to work. Perhaps it's the durian seasons. Perhaps I've seen those pictures of these spiky crowns of the king of fruits posted on huatopedia that got me interested in trying.

No, not this 'durian':



It's this one:




I've also tried eating mangosteens for the first time in my life! Swa-ku hor? I find durians manageable. I don't like it and don't mind eat it. But after eating a total of 5 seeds for the past 2 days, I think I've got enough durian poisoning in me to last me 1 full year! Someone suggested to me durian puffs, which is nicer and not so strong compared to durians. Perhaps next time?




Mangosteens, on the other hand, taste much nicer. A little like oranges, with a sour-ry after taste. I love it! My gf even taught me how to 'open' a mangosteen :) Eating the king of fruits and the queen of fruits together makes the king a little easier to manage :)

This year marks many firsts for me:

1. First time I tracked my personal income and expenses in detail

2. First time I switched my diet to mainly vegetarian

3. First time I'm the only one requesting for vegetarian course for wedding dinner. My portions will be served separately - it's really cool, everyone should try it once!

4. First time I ate durians

5. First time I ate mangosteens

6. First time I read so many books!!

When is the last time you did something for the first time?

Seems like earnings seasons are coming, this means that I have a lot more to do analysing and musing over their results. I'm looking for signs of a general global slowdown due to the subprime fallout (if any). So I'll be looking briefly at results of companies which are of interest to me.

1. Osim announced their 2Q08 results.

My take:

Still losing money but compared to 1Q08, they improved noticeably, with the EPS going from -2.4 cts in 1Q to -1.1 cts in 2Q. To be fair their operating profit margins improved quarter to quarter, from 2.2% in 1Q to 5.3% in 2Q - still too low for my comfort level. Hello, you are selling luxury products, if your margins so low, how to sustain it when the going gets tough? Too many competitors in the industry all taking a chunk of your profits? Don't bullshit me about population getting older so need more health massage chairs - when there is no money to eat, the last thing anyone will buy is a massage chair.

They also mentioned that for brookstone, their ill-fated investment in US, had their closest competitor exiting the business. Must be damn bad, that's my first thoughts. Overall revenue is marginally better, improving from SGD115.6 million in 1Q to SGD115.9 million in 2Q. Brush up your act, Osim, show us a good turnaround story that will get investor rooting for you!

2. SMRT 1Q results

My take:

Revenue increased by 11.2% comparing 1Q08 to 1Q09. Must be the stupid gantries improving their business, I guess. However, total operating expense increased 13.1% too. This must be due to the combined forces of higher energy cost and higher number of train rides. They increased their peak hour train rides to satisfy their customers, after years of ignoring their pleas for more trains. As a result, their profit after tax increased 6.2% - bad at all.

Segment wise, I think their MRT business is still doing pretty well, despite the higher operating cost. They mentioned that if oil prices persist at high levels, their bus business (the old TIBS renamed as SMRT buses) will be affected. I agree. Buses are more affected by energy cost than trains, but trains have initially higher capex cost.

Interesting company...something that we as investors can always feel the pulse of the business since it's so directly affecting us. Very good cash flows. Total debt to equity of around 1.05, but current ratio of 1.7 - given their strong cash flows and stable, recession proof business, it's very okay. Want to beat the fare hikes? Buy their shares and get cash rebates off the dividends given.