How to be a millionaire through Stock Investing in 2017

Dear Readers & Fellow Bloggers,

I am neither hallucinating nor suffering from permanent brain damage as I write this post. I have stumbled across a company on the SGX where you can indeed earn a million ( if you believe the management & auditors). Introducing China Sports International

About China Sports International

A China Company which sells Sports & Apparel products in China under the brand name "Yeli". The company's current market capitalization on the SGX is s$9.228 million. Its current auditor is RT LLP.

How To Make a Million

Before you guys get too excited , lets analyse its latest Balance Sheet:

China Sport's Balance Sheet as of 3QFY16

If you notice the company has RMB 133 mil cash & equivalent and a total liabilities of only RMB 66 Million. 

The Plan

Step 1: Go to any (dumb) bank, tell them you wish to takeover China Sports International and need a s$12 million loan to launch the takeover. Take the money and announce the s$12 million takeover (at a 30% premium).

Step 2; Takeover the company and use its cash to pay off all the liabilities; you will be left with cash of  RMB 67.41 Million (approx s$13.9 million). 

Step 3: Repay your s$12 million loan and you will  be left with s$1.9 million cash; what's more you get a  factory in China and an inventory loads of "Yeli" Shoes and Apparel.

Be a Millionaire!

Let me reiterate my disclaimer that I accept no liability whatsoever for any loss or damage of any kind arising out from the use of any or part of this post.

If you are gungho/naive to adjudge the numbers reported by the management as true, this is truly your chance to become a millionaire in 2017.

Portfolio Update and New update of Ellipsiz

Since the last update of my portfolio, I have made a few more purchases: 23,000 shares of silverlake shares at the price range of 52-52.5 cents and 10,000 shares of ARA at s$1.685.

The rationale for ARA is straightforward. The company is undergoing a takeover offer at 1.78. With the takeover targeting for completion by 1H2017, I am expecting a return of about 5% over the holding period of half a year. The downside is of course the failure of the takeover. However, ARA is a relatively strong company; given that it is dishing out annual divided of 4 cents and is in the business of a portfolio manager, I am inclined to continue holding the stock for its dividend.

Ellipsiz

I am more interested in my latest addition and that is Ellipsiz. To summarize, the company main's business is the production of probe card for the semiconductor and electronics manufacturing industry and distribution of service solutions for the electronics manufacturing chain.

Good Free Cash flow

This is one of the main thesis for investing into Ellipsiz.

Ellipsiz Operating Cashflow

From its cash flow statement for the past few years, Ellipsiz's has been generating an increasing operating cash flow before WC changes. Given that the semiconductor industry it is serving is still going strong due to the demand of electronic goods, my opinion its current cashflow generation will be constant. 

At current cash flow generation of about 13 mil, then deducting taxes, interest and its maintenance CAPEX of approx 2.7 mil, Ellipsiz free cash flow is about s$8.5 million.

At current share price of 0.375, Ellipsiz market capitalization is s$62.6mil. This means it is selling at a 13.5% FCF yield.

Strong Balance Sheet

At a debt ratio position of 19%, the company is relatively lowly geared. The company too has been paying down its bank borrowings which it had utilized due to the acquisition of a Japanese company in the past. Soon, the company will have negligible borrowings and that is definitely a positive sign.

With the recent disposal of an associate company, Kita, the company is in a net cash position of 78%.

<Vested 20,000 shares at 0.375>

When Reality does not Meet Expectations

Read a US news article which argued how dining expenses will increase if President Trump's policy were set in place. You can read it here.

What got pique my interest was this particular paragraph:

"A stark example of the need for immigrant labor was apparent in 2011, when the North Carolina Growers Association had 6,500 farm jobs available, all of them in or next to counties with unemployment rates greater than 10 %. Only 268 of the approximately 500,000 unemployed North Carolinians applied for a position. Ninety percent of them were hired, but only 163 showed up to work on the first day, and only seven workers — of the 6,500 required — completed the growing season"

This reminded me of Certis CISCO recruitment failure in Singapore where they were not able to obtain enough locals to fill its manpower vacancies and had to seek foreign manpower to fill this gap. Article can be read here.

What surprised me was that despite offering about $2,575 monthly salary to "O" level graduates after their training period (and a higher starting salary to those who join with a higher educational level), many of the local workforce are still not inclined to join. To get a sense of how much is a $2,575 starting salary; this starting pay is much higher than the average starting pay of any polytechnic graduate in MOE's survey

To add icing to the cake, Singapore's labour situation is not rosy at all - Our economy is experiencing a problem where there are more job seekers than job vacancies. As the situation narrated in the US article, it bears resemblance to what we are experiencing here. 

When Reality does not Meet Expectations

So why does such a disparity exist. Another paragraph from the US article will shed some light:

"Some may argue that these laborer positions could, and should, be filled by American workers. But the reality is that these positions are not considered desirable due to the physical demands and the need to work outside in inclement weather."

So as one may guess, the answer is because those job vacancies do not match what job seekers are expecting; in psychology, we learn that when one's expectations are not met, it leads to a drop in dopamine in the brain, resulting in the feeling of disappointment. Perhaps our local workforce are disappointed with these available jobs and are bidding their time to seek employment.

Singapore is going through an interesting period and therefore I am curious - Given the current scenario where reality is not matching the expectations of the workforce: will businesses here pack up due to the stringent labor compliance cost (eg. local to foreigner ratio/high cost of labor) or will the hunger of the people eventually succumb to the acceptance of jobs below their expectations.

This reminds me of another viewpoint article written by a local journalist. Is the lack of hunger something which will hinder our economy navigating through these tough times?