Singapore Stock Market News

Was nudged by millionairemind to do a little investigation into the total returns of STI should year 2008 fall by 20%. Since I have not been checking STI absolute value (I did check the daily relative % drop/rise though), I was quite surprised that since the start of the year, we've dropped a cool 20%.

I did post a table with the values of all the CAGR for different years from investing in STI, in this post. I think this time, I better list down my assumptions for calculating the values:


1. Most importantly, the data is taken from Yahoo! finance website. The price is adjusted closing price.

2. The CAGR (compound annual growth rate) is calculated like this:

To find the CAGR from period A to period B:

CAGR = (price at 31-dec of period B / price at 1st-jan of period A)^(1/(B-A)) - 1

If market is not opened on 31st Dec or 1st Jan, the price of the market days closest to the dates will be taken instead.

3. The AVERAGE CAGR is calculated by taking a simple average of all the CAGR of the same period i.e. sum of all CAGR of the same period divided by the number of CAGR taken.

Below is the table calculated for the returns on STI for different periods, assuming that 2008 closed on 31st Dec at 2769, a 20% drop from 1st Jan 2008:



For comparison, here is my earlier table posted, without taking into account 2008:



Here's what can be observed:

1. Average CAGR dropped across most periods. 'Most' is the keyword. Average CAGR for 5-yr, 7-yr, 10-yr actually increased. I don't ascribe any significance to this fact, because of the way I computed the CAGR. I took 1st Jan and 31st Dec as the price for each period of calculation, so I'm very sure that if I changed the starting and ending period to take the price (say, using 1st June to 1st-June next year), the whole data will change.

2. Adding data for 2008 still doesn't change the fact that after investing for 14-yrs, there is not a single year of negative CAGR. This means that based on historical data, if one invests in any year in the past, for 14 years starting from 1st Jan and selling on 31st Dec of the 14th year, you will not make any losses. But the returns are a pathetic 3.1% per annum (on average) for a period of 14 yrs.

Again, this would most definitely change should I change the dates where I calculate my CAGR for different periods.

3. This much I can conclude: Investment period and Average CAGR seem to follow a U-shaped curve. There is a period of declining average CAGR from 1-st year till around the 10-14th year, beyond which, the average CAGR increases with period of years invested. However, the shorter the period of investments, the more volatile the the returns are. Conversely, the longer the period of investments, the less volatile the returns will be.

4. Here's a very interesting observation when I break down the percentage of getting positive CAGR for different investment periods.

------Years----total number of samples----number of +CAGR-----% of +CAGR
-------1 yr-----------------21---------------------12---------------------57%
-------3 yr-----------------19---------------------14---------------------74%
-------5 yr-----------------17----------------------12---------------------71%
-------7 yr-----------------15----------------------10---------------------67%
------10 yr----------------12-----------------------9----------------------75%
------12 yr----------------10-----------------------9----------------------90%
------13 yr-----------------9-----------------------8-----------------------89%
---14 yrs onwards---------------------------------------------------------100%

It's quite obvious that the longer the period of investments, the lesser the number of years in which one gets negative returns, no matter which year they started the investment. As mentioned, on the 14th year onwards, all the sample data gave positive CAGR.

But all these mean nothing if the percentage of losses in sample data is greater than percentage of gains in sample data. What I mean is that even though, based on past data, there are greater chances of getting +ve returns no matter what investment periods I choose, I can still lose money if the % of losses in losing years are greater than the % of gains in winning years.

Let's see this table:

------Years----Average gains of +ve years^----Average losses of -ve years#
-------1 yr-----------------28.1%---------------------16.2%
-------3 yr-----------------12.3%---------------------10.3%
-------5 yr-----------------9.8%-----------------------5.2%
-------7 yr-----------------7.6%-----------------------3.8%
------10 yr-----------------4.4%-----------------------1.7%
------12 yr-----------------3.2%-----------------------0.3%
------13 yr-----------------3.3%-----------------------0.8%
------14 yr-----------------3.1%
------15 yr-----------------3.6%
------16 yr-----------------4.6%
------17 yr-----------------5.0%
------18 yr-----------------5.5%
------19 yr-----------------5.6%
------20 yr-----------------6.3%

^ average gains of +ve years means the simple average of all the gains made for that particular years of investment
# average gains of -ve years means the simple average of all the losses made for that particular years of investment
* There are no average losses data for 14th year of investment periods and beyond, because there are no -ve years.

I am quite surprised by the results. Not only are there higher probability of getting positive years, the average gains for every data for different investment years yield the same results - the average gains of positive years is much more than losses incurred in negative years. But of course, average doesn't mean anything. On average, each family in country X has 2.2 children doesn't really mean they really have 2.2 children. The same logic applies here.

I watched Jack Neo's Money No Enough 2 today.



To summarise, I do not like it at all. The summation of the cheap feel of the CGI, predictable plot lines and the usual ranting of pet topics makes it not worth the premium ticket price to watch this movie on a weekend. Fortunately, I watched it at a discount movie theater, which showed the movie at only $7, so it's not too bad to whilst one's time away for 2 hours.

It's rather ironic to see the cinema pretty crowded. The cinema, because of the rather uncomfortable seats, acoustically challenged sound system and the occasional hiccups (damn, I encountered the hiccups today when I watched the show; for a cool 5 mins, there are not sound at all) means that there are usually not many people in the theatre. To see so many people watching a movie titled 'Money No Enough 2' shows that people do have money to watch such cheap thrills.

The movie did not disappoint. Characteristic of Jack Neo's movie, it is a sequence of little skits not dissimilar to his past Comedy nights, aired on Monday Channel 8, shown every Monday. Despite the crowd's laughter, I do not find the show funny at all. In fact, it's quite a sad movie for me.

The movie showed all the familiar situations where Singaporeans are trying to earn money. I was a little taken aback when I watched that spending a night in ICU at private hospitals will set one back by 8k a night. I wonder how I can afford such expensive 'hotels' with or without insurance (specifically, H&S). Ouch...spending 3 nights will erode one's net worth by $24,000...scary thought.

I think I've said enough for this film. If you can, try not to watch it. Another irritating thing about the movie - when is Jack Neo's movie not a happy ending?

China milk's 1Q results are out.

Only have time to browse through press release and power point slides. I'll do a more detailed analysis when I've the time.

To summarise:

1. EPS increased from 0.11 RMB in 1Q08 to 0.14 1Q09, a 27.3% growth

2. Revenue grown from 124.2 mil RMB to 158.4 mil RMB, 27.6% growth

3. NAV rose from 2.46 to current 2.61 in 1Q09

4. announced JV with a govt owned bureau and a third party (unnamed) to acquire like 200 pedigree bull sires. That's 140 mil RMB investment with 40% stake - all self funded

5. raw milk processing, OEM basis, will be out in 2Q towards end of year

6. Interim dividend declared, around SGD $5.60 per lot


Quick thoughts:

Not sure if they are going to give interim dividends for the next 3 quarters. If they do, that will give an annualised dividend yield of around 3% at last closing price. Great growth from EPS - what's good is that they are not as badly hit by rising material cost as other companies. In fact, they played the inflation game pretty well. Read that they had to buy more fertillisers as they do not have enough generated internally - will this be a long term running cost for the company? Have to read more.

The raw milk processing, having being delayed for some time, had been finalised to be 2Q towards end of this year. Let's hope no more delays now. The announced JV with Heilongjiang govt, with china milk taking a 40% stake, will see them acquire 200 pedigree bull sires. This will strengthen their monopolistic status on their sperm business...a very good sign to me.


Quick valuation

EPS at 1Q is 0.14 RMB. Annualising it gives us SGD 0.112. At last closing price of 0.695, that's a forward PE of 6.21x. Not sure if this is high or low, cos this must be the first time I'm analysing their results. Price is around 1.3x NAV value too. Considering their high current ratio and low gearing, this company will have no solvency issues in the near future.

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Thks to littlecupid, who pointed out that my PE calculation for china milk is wrong. It read as 16x initially but I've changed it to the correct 6.21x now.

Swiber released their 2Q results today. From the looks of it, it seems like they did very well, with net profit (mind you, not revenue) shooting up 258.1%. 2Q revenue is 82% of total revenue achieved in the whole of FY07 and 2Q’s earnings had already overshot the whole of FY07’s earnings. But I’ve learnt never to take press release so literally, so it’s best to pore over the results and ignore all the hype in the press release.

Let’s ignore the 2Q results and talk about the half year results straight. Why? This must be the first time I’m studying Swiber’s results though I’ve been holding this since 2007. Tsk tsk, so many things to do, so little time…

In USD’000,
-----------------------------------1H08------------------1H07
Revenue----------------------195,402-----------------44,676
Gross profit------------------50,638------------------12,767
PATMI------------------------31,119-------------------9,943

Gross margin-----------------25.9%------------------28.6%
Net margins-------------------15.9%------------------22.3%

Current assets----------------310,267----------------235,610
Total assets-------------------639,375----------------370,040
Current liabilities-------------218,711---------------109,730
Total liabilities----------------424,443---------------192,561
Equity (after MI)-------------212,857---------------176,872

Current ratio-------------------1.42---------------------2.15
Total debts to equity---------1.99----------------------1.09
ROE----------------------------14.6%-------------------5.62%
EPS (US cents)----------------7.33---------------------2.69
NAV (US cents)--------------50.16--------------------41.68

Net cash from operations---18,482-----------------2,938
Net cash in investing--------117,106---------------13,043
Net cash from financing-----52,591---------------13,682


My take:

A few things stand out from a simple comparison of 1H08 and 1H07 results. These are:

1. Revenue in 1H08 is over 4 times that of 1H07

From their foot notes, they mentioned their increase in revenue is the results of revenue derived from offshore construction projects. In 2Q08, Swiber executed 6 projects simultaneously over Brunei, M’sia, and Indonesia, compared to just 2 offshore construction projects in M’sia and Brunei in 2Q08. Two things to take from here – one is that Swiber’s capability and outreach is wider than a year ago with more operations in a wider area. The second is that the scope of their operations also widened over a span of a year.


2. Gross profit dropped a little while net margins dropped substantially

The gross and net margins dropped in 2Q, pulling down both in 1H too. I’ve no ready answer, since this is my first analysis of Swiber. Need to dig out more.


3. There is a big jump in liabilities, with total debts to equity ratio almost jumping by 2 times. Current ratio is weaker compared to a year ago. Their cash flow from operations seems to be better. A good part of their cash flow is used on purchase of new PPE. Bonds and new loans raised forms a big chunk of their cash flow.

I read that this is due to Swiber issuing MTN bonds and an increase in bank borrowings. This is to finance fleet expansion and working capital purpose. Indeed, their PPE had increased significantly. There are also 2 vessels under construction.


Outlook

As of 30th June, there is an order book of about USD 664 million compared to less than USD 220 million last year. Contract size is one thing, what are the margins and net profits for these contracts – that’s more important. I’ll be monitoring their margins issues in future results. As usual, no dividends are declared. With a annualized ROE of around 28%, I’d rather they keep the money and re-invest in their business.

Baring unforeseeable circumstances, Swiber is almost certain to have a bountiful year in FY08. I’m actually more interested in knowing what the margins and profit for their deep water drilling operations are, which should be ready by 2010? That will be more exciting and something to watch out for.


Value to price comparison

Based on 1H08 earnings of SGD 10.26 cts, we can annualize it to have a forecasted EPS of 20.5 cts. For a little perspective, the EPS for FY07 is SGD 17.6 only, so let’s put it at SGD 20 cts (that’s a 14% rise in earnings). Last close for Swiber is 1.510 per share, which gives a PE ratio of 7.6 times.

Historical PE

Year-------Price(low)----Price(high)----EPS(SGD)^-----PE(low)-------PE(high)
2006----------0.50-------------1.04------------0.0462---------10.8----------22.5
2007----------0.83-------------3.80-------------0.164----------5.1-----------23.2
2008----------1.51-------------3.60-------------0.200*---------7.5-----------18.0

* forecasted based on 1H08 earnings
^ EPS(SGD) based on Shares investment book, with 1 USD to 1.4 SGD exchange rate

Around $1 per share, Swiber would have a PE of around 5x, which is near to the historical low. That would be such a good margin of safety for a cheapskate like me.

NAV is around SGD 0.70 per share, so at current price, it’s trading at around 2.2x NAV. At $1 per share, that’s 1.5x NAV too.

2Q results

Income statement

1. There is a jump in revenue from 166 mil RMB in 2Q07 to 188 mil RMB in 2Q08, representing a jump of 13.3%. Net profit increased from 26.8 mil RMB to 27.9 mil RMB.

2. Gross profit margin increased from 41.6% to 45.2%. Net profit margins decreased from 16.1% to 14.8% quarter to quarter. I'm currently monitoring net profit margin situation.

3. Selling and distribution/admin expenses(SDA) to revenue (%) increased from 24.5% to 28.0%.

4. Net profit margin drops mostly due to share of losses of JV (580k RMB), finance cost (395k RMB) and a drop in 'other operating income'.

Here's a summary of quarterly ratios:

-------------------------1Q08-------------1Q07--------2Q08----------2Q07
Gross margin--------41.6%-------------39.4%---------45.2%----------41.6%
Net margin----------15.3%-------------16.8%---------14.8%----------16.1%
SDA to revenue------23.1%-------------19.7%---------28.0%----------24.5%


Half year results

No need to talk so much, a table of ratios will do the trick.

-------------------------1H08-------------1H07
Gross margin--------43.3%-------------40.5%
Net margin----------15.1%-------------16.5%
SDA to revenue------25.3%-------------22.0%

As mentioned, I'm a little worried over their net margins. It's to be expected while their new shops are opening and hence net margins continue to fall. As long as it stabilise around 15%, I'll be happy.

1H08 revenue is 412 mil RMB, while 1H07 revenue is 342 mil RMB. For a little perspective, the full FY07 revenue is 739 mil RMB, so the 1H08 revenue is already 56% of last FY's revenue. My full year FY08 revenue of around 890 to 1000 mil RMB is on track. Net earnings of 62 mil RMB for 1H08 also compares well with full year FY07's earnings of 110 mil RMB. Baring unforeseen circumstances, I'm sure Hongguo FY08 results will be better than last financial year.


Balance sheet

-----------------------------1H08------------1H07
Current ratio----------------3.6-------------2.8
Total debt to equity(%)------27.4------------37.1
ROE(%)-----------------------11.7------------11.4%

There's no long term liability. The notes payable to trade creditors are interest-free and secured on fixed deposits, amounting to 16.3 mil RMB in 1H08, compared to 37.8 mil RMB in 1H07. No big changes in balance sheet items for Hongguo. As usual.


Cash flow

Net cash from operating activities for 2Q08 dipped to -12.2 mil RMB, from 14.5 mil RMB 2Q07. Main culprit is the huge amount of notes payable. I think there's nothing alarming about one quarter of negative cash generated from operations, esp when it's used for paying down their notes payable. As mentioned in the balance sheet, the notes payable from their current liabilities dropped by more than 50%. Hongguo is using its cash flow generated from its operations to pay it off.

As for investing activities, there is no disposal of subsidiary for this 2Q, so there is a dip in the net cash from this part of cash flow. Again, nothing important worth mentioning here.


Others

EPS for Hongguo in 1H is $0.1563 RMB. My target for FY08 EPS is $0.32 RMB.

Here's the contribution to revenue and by its different brands

C.Banner --- 62.2%
E.Blan ---- 9.2%
Contract manufacturing --- 17.0%
JUC --- 6.9%
Naturalizer footwear --- 1.7%

Of note is that while all other business, there is an increase in new outlets for 2Q, there is actually a close of 6 retail outlets for Jiangsu Unity Corporation (JUC). This will be something to look out for in their annual report for FY08. Naturalizer footwear also started contributing to their revenue since 1Q08.

Production capacity dedicated to contract manufacturing segment was increased to 6 production lines. The management that they believed this current level of production is adequate in satisfying demand, hence there are no immediate plans to further expand production capacity in short term. This means there are no foreseeable big capex in the near term. Cash flow should further improve.


Value to price comparison

Annualised EPS for FY08 is SGD $0.06252. Last close is SGD $0.33 per share. This represents a PE ratio of 5.3x. This is around historical low PE of Hongguo, which is 5.5x (occurred in 2005 and 2006).

Dividend paid out in FY07 is SGD 1.418 cts per share. At last close of SGD $0.33 per share, it's around 4.3% dividend yield (based on FY07's dividend). Actual amount will vary as it's subjected to the exchange rates of USD because the dividends are actually paid in USD and posted in cheque, instead of the usual direct transfer to bank account. Not that it matters, actually.

Applying Graham's strict (current assets - total liabilties)/shares outstanding, we get SGD $0.192 per share. Using NAV [(total assets - total liabilites)/shares], we get SGD 0.267 per share.

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Hongguo's 1Q08 result analysis is here.