Sunday 21 November 2021

Are China Banks Undervalued?

 If one observes the valuation metrics of China largest state banks, they are bordering on very cheap valuations- dividend yields of 7.5% to 8.5%, PB ratio <0.5, PE ratio <5.

If they were to be revalued to that of Singapore banks, one is looking at a 100% upside to current prices. 

So why are China Banks Cheap?

Two reasons, one as I have previously alluded here, people are skeptical of the Chinese Bank's financial reports and that they are fake (frauds). After months of observations, I don't see much evidence that their results are fake. In fact, it follows quite closely to the PBOC reported growth and loan levels, so if the China State Banks are indeed fraudulent, it means the country and the Chinese Communist Party are faking the results of an entire industry. This I find it is too far fetched for such a government to be generating fraud results. If this is true, then the communist party reputation will be in ruins.  

Of course, I am open to views from the online community if they can point out China is faking their financial results.

The second reason is the real estate fallout led by China Evergrande. An oversupply of housing units built, a declining population, new regulations to restrict speculative housing and an anti immigration policy, China is struggling to maintain property prices at its high prices. Developers have been relying on new sales generated in order to recycle repaying debts. Now that sales has slowed down, working capital is tight and property developers lack the cash to repay their debts on time. Empty housing units are at double digit highs.

This is resulting in loan provisions. I think the problem is real and the government have to handle this carefully. If real estate prices plunge, individual China property owners will be hit with the need to service their housing loans for a generation or locals will lose their cash savings in financial notes issued by property developers because of asset impairments by companies. China has too many apartment units now for its 1.4 billion population.

In my view, the communist party will speed up the movement of rural people to the cities as there is spare capacity, the PBOC will lower financing rates and property companies will be forced to deleverage at the expense of their own owner's wealth. This is China we are talking about and President Xi will force the chairmen to be 'personal guarantors' to their company's local issued debts even though it is corporately not possible or legal. This will avert a banking crisis.

My View

I think the issue of China State Bank's financial results being fake has been taken out of the equation and I am confident in building up to 10% in portfolio on them. Besides ICBC and CCB, BOC and ABC are entities I am looking at. BOC has a larger segment in the international markets as compared to the other 3.

I am banking that the China Communist Party are not frauds.

Sunday 14 November 2021

Reply by SGX on Best World and my View on the Company Value

As a neutral and unvested individual, I had written to SGX Regco on the unfairness faced by Best World Shareholders.

SGX Regco has replied and updated Best World is evaluating a off market share buyback scheme or complete takeover of minority stake to delist. This is good news.

What is a Fair Price?

Looking at its comparable, these are the P/E Range

To me, Best World should be buying out at a 10 to 15 times P/E range. Assuming an eventual full year EPS of 23 cents, its fair for the majority owners to offer $2.30 to $3.45 per share. Anything less is a signal that they are making use of SGX regulations to make an inequitable offer and is something SGX has to voice out because it is their actions which partly led minority shareholders to be in this predicament.

My Views

At $2.30, this means the company's market cap will be $1.26 billion and the majority shareholders will have to finance a $620 million takeover for stakes they do not own. Best World has cash reserves of $386 million. It is quite easy to seek another $300 million from financial institutions with a business who is generating an average free cash flow of $100 million 

Let's see whether fairness is present in Singapore's market.

Sunday 31 October 2021

Letter to SGX regco for Best World Shareholders

 Understand within the investing community, there has been angst due to unfriendly investor action by Best World international where it had increased remuneration to the CEO and executive directors, stopped dividends to shareholders and yet the company is recording record profits. And sgx action of suspending the company due to its doubtful business model has rendered minority shareholders unable to realise value.

Minority shareholders are currently organising their online petition to regulators

Below is a letter that is sent to the regulator to review their action:


To SGX Regco,

I would like to flag one company by the name of Best World International. I am not a shareholder but am writing in the interest of investor protection/rights and urge SGX regco to take action.

The company has been suspended by SGX as SGX did not feel comfortable with its business model in China. While the company made efforts to pay its shareholders during its first few years of suspension, Best World has since stopped paying dividends to its shareholders. This despite the company recording record net profits and growing amount of cash generated. On the contrary, over the past 2 years, remuneration to its executive directors has been generous. For example co-chairman, Group Ceo, Dora Hoan has received an increase in remuneration from $4.75million (AR 2018) to $12.25 million.(AR 2020)

Best World audited results shows business is cash flow generative and they do not have an urgent need for cash because the Tuas plant is fully built with minimal CAPEX outlay and a net cash position of $390 Million with no debt as of 1HFY2021.

I understand it was SGX who suspended the company, however, the company has used this opportunity to increase remuneration to executive directors and not pay dividends to shareholders.

Existing shareholders are not able to realise the value of their shares of this profitable company due to no dividends received; while at the same time, the executive directors are increasing their remuneration through increased bonuses.

With the licenses of direct selling in China being unlikely to be granted to Best World International within these 2 years (thus allowing them to be unsuspended), I urge SGX regulators to consider two approaches to help public minority shareholders: (i) Direct the executive directors who are majority shareholders to offer a fair takeover price for the remaining shares or (ii) SGX regco allows the company to be unsuspended this year.

For (i), Best World is highly profitable and it is definitely possible to do a leveraged buyout. Best World net profits are $134 million with cash flow generated of $125 million (accounting for working capital changes and cash outflow due to investing activities/taxes). With the directors holding a majority stake of 50%, it is inconceivable that no banks/funds will lend them s$500 million to buy off the remaining public float stake; unless the audited results are fraudulent. The company can even tap on its cash reserves of s$390 million to buy off the remaining 50% stake in a leveraged buyout situation.

I look forward to SGX Regco actions towards this company. Thank you.


Sunday 8 August 2021

How Singapore's Reopening to Foreign Workers will Benefit Companies

On Friday, the government made an announcement of re-opening borders to vaccinated foreign workers from most countries.

This is an important moment for many companies here because they are reliant on foreign manpower which in turn reduces their cost. Furthermore with India case counts falling and is being vaccinated with COVIDshield (developed by AstraZeneca), further relaxation of border measures for vaccinated travelers may happen soon.

Key Beneficiary

Construction companies like KSH holdings, Hock lian seng, TTJ holdings are bound to benefit from this. For example KSH holdings has a larger orderbook in the private sector market (which means many of their projects are not considered critical infrastructure which were exempted from border measures); with the lifting of borders, they will be able to tap on more sources of foreign workers for their projects. A lower manpower cost will improve profit margins.

Due to the recent border measures, companies like KSH had impaired for expected cost increases in its current projects and recognised them as losses beforehand. However, the reopening of borders may mean that such impairment will not occur and becomes a gain.

All in all, I am re-evaluating the construction industry. The recent measures is going to result in earnings expansion and with the government needing to prime pump the economy, more projects will come in. The increase in revenue and improvement in profit margins may just be what makes it ripe for construction companies to experience a share price re-rating.

<Not vested in any of the mentioned counters yet>

Wednesday 4 August 2021

Selling of Global Invacom and searching for other turnaround companies

<A short post update due to G Invacom recent update on 4 Aug>

Due to the latest profit warning which shows that 1H 2021 is not doing well, I have sold off G Invacom at a price of 11.7 cents.

This is due to my previous investing thesis not being met where I expected a turnaround in earnings which didn't happen and the company is trying to restructure in order to reduce cost.

Searching for other Turnarounds

With the markets now at their highs and COVID situation has started to improve (except for SEA), it is time to source for other companies who have a potential turnaround in earnings.

Monday 2 August 2021

Wei Yuan Holdings- Potential Turnaround in Profits

While listed in the Hong Kong Exchange (Stock Code:1343), Wei Yuan is a Singapore business who operates in the cable installations for power grid and telecommunication companies in Singapore. They also have a minor business segment in road surfacing. Their geographical business is in Singapore and are in the civil engineering industry.

The company is a mid tier in the civil engineering segment of Singapore holding a 5.7% market share based on its IPO prospectus. 

Observations on Profits

Looking through the company's FY20 profits, it can be seen how Singapore's covid measures have affected its profitability and operations.

During the first half of 2020, Singapore issued a stop work order in a bid to stem the covid spread among foreign workers, as a result, Wei Yuan registered a loss of $4.5million on the back of $23 million revenue. However, as Singapore re-opened in the second half of 2020, they registered a profit of $1.2million on the back of $34 million in revenue.

What do I expect for 2021

First off we have to explain what happened in Singapore for 2021. For the first 4 months, thing went as per normal. However in May 2021, Singapore severely restricted the travel movement of countries which we were relied on for foreign labor. Hence, I expect the company to report the same profit of $1.2 million for the first half

As Wei Yuan projects run roughly 2 years in duration, I expect the company to be hit by labor cost over run for the remaining of FY21 and FY 22. After this, the company should start turning profitable again. 

Track Record of Company Tender

Based on its IPO prospectus, the company has been able to sustain a good profit from its contracts. This shows the tendering team has placed in adequate buffer in case of cost overrun. This is a good sign as there are some civil engineering companies in Singapore (think Yongnam) whose projects have always been loss making over the past years, likely due to poor projections by the tendering team. The companies with good tendering track record, I have encountered thus far is TTJ holdings and perhaps Wei Yuan (if they maintain their record)


In my view, the company is likely to register a $1.2million profit for 1HFY2021. This is because it enjoyed 4 months of unrestricted access to labor as well as a good domestic situation of COVID handling. Furthermore, the construction industry grew during the 1Q of 2021. For the remaining half, it is likely to be loss making, but Wei Yuan should still be able to turn in a small profit due to its good track record in tendering. Hence for FY2021, I expect the company to fully turnaround in profits with a $1.0 million profit.

Post 2022, profits should return to pre-COVID levels of $5 - $8 million. The closest comparable to Wei Yuan is TTJ holdings (though they do different civil engineering types). TTJ is trading at 14-18 times P/E on forward earnings. Wei Yuan holdings is of a similar size company to TTJ and has a slightly higher revenue base; hence I have estimated Wei Yuan to be in the value of forward 16 times P/E.

Hence, Wei Yuan will then be priced as a $80-$110 million company on the HK Exchange (TTJ market cap is s$63 million). At current SGD/HKD exchange rate, the market cap of Wei Yuan should be HK$460-HK$632 million.

Monday 26 July 2021

Will Singapore follow China's method of lowering child-rearing cost?

Over the weekend, the investment community will have heard and felt the impact on China's drastic policy in banning weekend enrichment classes and control over the education industry advertising. 

This brought fear and destroyed the market value of many listed China Education companies. While many have covered on the totalitarian implementation of the policy by the Chinese government, the undercurrent is due to China's aim of increasing the low TFR it faces now. It saw that rising education cost and stress in the education rat race was affecting TFR and hence nipped the root cause in its bud.

Will Singapore do the Same?

Singapore faces a similar issue in which education cost has been rising as parents compete in this education race. This has given rise to a large number of enrichment centers popping out and because of the fees they can command on parents, they are able to afford and moved to centralized locations in transport nexus such as retail malls in recent years.

Since the start of 2016, one will notice shop directories of malls having enrichment centers listed. This particular segment starting to rent retail spaces have helped to mitigate the rise of e commerce and ensure retail/commercial properties maintained their valuation on the balance sheet. Enrichment centers has been filling the void left behind by brick and mortar retail outlets, ensuring that the retail vacancy has been hovering at the 8-9% level.

It will be interesting to see if Singapore decides to follow the footsteps of China's policy direction of reining tight on enrichment centers. Due to the unique structure of Singapore economy where the property sector dominates, such a move will affect the valuation of retail/commercial properties. If the government does indeed move in the direction, I will be less sanguine on the local REITs market.

Sunday 25 July 2021

A turnaround in Earnings: Global Invacom

The company is in the business of selling satellite communication equipment. My investing premise is on a turnaround in the company's profits from potential cost savings in manufacturing efficiencies.


In 1HFY20, the company recorded only a US$300k net profit. However for the full FY20, it had a US$2.6mil profit. 

Revenue wise, 1HFY20 was $52 mil vs 2HFY20 of $50 mil

Gross profit, 1HFY20 was $12.3 mil vs 2HFY20 of $13.3 mil

This means its margins improved in 2HFy20 and its partly due to the relocation of its manufacturing operations, which was completed in the first half of FY20.

Expectation of FY21

With the Covid recovery, I expect revenue for Global Invacom to improve. At USD$104 million revenue level, it can be expected to clock a full year net profit of US$4.4 million, assuming 2HFY20 margins. The current market capitalization is SGD$36 million (USD $26.6 million). Therefore, purchasing this company at a current P/E of 6 times is a worthwhile investment.

There is some room for revenue to grow because in FY20, G Invacom saw a decline of revenue to $104 million from US$134 million. Assuming a 20% growth in revenue (its 5 year revenue average), I expect future profits to be at US$5.4 million

Cashflow Quality

The company has been generating free cashflow over the years (including during Covid periods). Free cash flow yield is in the 20% region as compared to market capitalization. Usually companies only trade at a low free cash flow yield of 10% and below.

As the company is trading at a low price earning ration and high free cashflow yield (above 20%), I have invested in it. Unfortunately, I was not lucky enough to spot it early on and had bought it at 11.7 cents when it had a run up in prices last week. I am projecting the company to be worth SGD $60 million (USD$44 million) at 10 time P/E to FY21 profits. Forecasted FY21 profits should be US$4.4 million with further profit growth as revenue recovers. 

Sunday 4 July 2021

2 Palm Oil Companies that may benefit from the Palm Oil Rally

The world is on a commodities rally where prices of raw materials have increased by double digits over a 1-year period. This is largely due to the economic recovery post COVID as well as monetary accommodative environment.

Besides the oil rally, there is another produce that is abundant in South East Asia which has rallied. On a one year basis, the price of palm oil has grown by at least 40%. Hence I took a view of searching for SG-listed companies in the palm oil planation business; two businesses appeared - Golden Agri Resources (GAR) and Bumitama Agri (BA). Their business is simple, grow palm fruits, extract the oil and sell them.

Both companies have seen profit growths and I expect with the higher CPO prices, the revenue recorded will remain elevated which in turn means higher profits.

P/E Ratio- In terms of P/E, GAR is selling a high P/E due to its tax expense last year. However, this year's Q1 profits is already higher than the entire FY reported earnings, hence i suspect the tax expense is also a one-off line item. Hence, GAR is likely trading at a forward single Digit P/E. BA on the other hand, has consistently been trading at a single digit P/E over the past year. This is something interesting as I thought markets would price in future earnings given the rising CPO prices.

Plantation Age- Both companies have a relatively large proportion of mature palm oil plantation with GAR having a slightly older plantation age. However given that many of their plantation are in the peak oil yield stage; I am not sure why the market is ascribing such a low valuation.


Forward Sales (hedging)- It seems BA has done quite badly in hedging because it hedged some of its future palm oil at a low price and had to be pay the difference for the recent hike in Indonesia export levy. This could explain why profits are not growing as fast as GAR.

Indonesia Export Levy- Indonesia has increased its export levy. A risk is another higher than proportion hike especially when the government needs money to rebuild post COVID

CPO prices fall- It's the end of the commodities cycle and CPO prices falls back.


All in all, I think the commodities rally will still continue and am interested in investing in at least one otherwise both of these companies. Current CPO prices are at US$3500 per ton and I expect levels to be maintained. This will ensure FY21 profits will be higher than FY20's profits when CPO prices were at US$2500/ton.

I am not invested in any of them but will be taking a further look at weighing their plantation age vs their forward sales (hedging) strategy

Sunday 27 June 2021

Letter asking about Sembcorp Marine's pricing of rights- to SIAS

Reflecting on Sembcorp Marine's recent price action, I have sent a letter to SIAS as they are the only authority to help retail investors. 

Below is my letter to SIAS, for Sembcorp Marine Shareholders, please feel free to send it to SIAS as a form of collective action against Sembcorp Marine's Corporate Action

I will like to request your assistance to raise a query to Sembcorp Marine due to its recent Corporate Action.


Sembcorp Marine has announced a rights issue of 3 rights for every 2 shares at 8 cents. I find this share issue unfair to minority shareholders and would request your team to raise it.


Firstly, while we understand Sembcorp Marine is raising money for its business, I question the huge discount required for 2021’s right issue. In this round of rights, the discount to TERP for the last day (35.7%) and 5- day VWAP (36.2%) is much higher than 2020’s; in 2020, it was 35.1% and 21% respectively. This does not make sense because SembCorp Marine is (i) now in a stronger financial position than its pre-2020 rights issue, (ii) the industry has become better and (iii) Sembcorp Marine has a higher net cash balance. All these points to the fact that TERP could have been done at a 20+% discount value.


Secondly, while Sembcorp Marine may argue that 2021 rights issues had to be priced lower due to investor’s fatigue in the company’s frequent rights, it points to the question of the need to raise $1.5 billion. The cash burn rate for SCM in FY 2020 was not high (about $850 million) during a disastrous COVID year. With SCM, recently raising $500 mil in green bonds for its projects and a cash balance of $770 million, it is definitely plausible SCM could have raised $850 million and be able to last to end 2022. SCM could have staggered the cash raising to smaller tranches on an annual basis. This would allow minority shareholders (who do not have the financial backing of a country’s past reserve) to participate in SCM’s rehabilitation.


Based on these two pointers, I hope SIAS could flag them as a query to SembCorp Marine about (i) how its has priced the discount to TERP and (ii) on the amount raised.


Thank you.

Thursday 24 June 2021

Semb Marine Latest Rights- Bitter For Shareholders but Sweet Money Making Opportunity for Temasek

 Today, SCM announced an unexpected 3 rights for every 2 shares at the price of $0.08.

In my view, this rights exercise is an unnecessary corporate action and a maneuver by Temasek Holdings to profit off minority shareholders.

Why is it unnecessary

Sembcorp Marine has a strong balance sheet since its previous rounds of rights raising since balance sheet is not massively over levered and has a cash pile of hundreds of million.

Rights Exercise

Existing Shareholders are going to be fatigued by the amount of rights and be constrained by their own financial resources.

In 2020, SCM did a shares issue of 5 new shares at $0.20 for every one share held. In 2021, it is now proposing 3 new shares for every two shares held at $0.08. Let's break it down with an example. Assuming in April 2020, you bought 10,000 shares at $0.70 at a cash outlay of $7,000. After the first rights issue, you would have 60,000 shares and have to fork out an additional $10,000. 

With the upcoming round of rights, the 60,000 shares results in 90,000 more shares to be subscribed at the cost of $7,200. Therefore, for just a $7,000 initial outlay, you have to put an additional $17,200. That is throwing another 250% more cash into your initial SCM investment. It is very difficult for investors to fork out so much cash in just one year.

2021 rights issue is priced at a higher discount than 2020 Rights Issue which dilutes Shareholders

In this round of rights, the discount to TERP for the last day (35.7%) and 5- day VWAP (36.2%) is much higher than 2020’s; in 2020, it was 35.1% and 21% respectively. This does not make sense because SembCorp Marine is (i) now in a stronger financial position than its pre-2020 rights issue, (ii) the industry has become better and (iii) Sembcorp Marine has a higher net cash balance. All these points to the fact that TERP could have been done at a 20+% discount value.

 Many Ordinary Investors wont be able to keep putting in money unless you are....

Temasek. No doubt SCM is issuing new shares at a discount to the tangible book value; however, I don't think many small time investors will be able to benefit from it due to the limited cash they have

It will only benefit Temasek who has deep pockets and the reserves of Singapore. Temasek has the opportunity to subscribe to the excess cheap shares, up to 67.0% which tells you how willing they are to buy additional SCM shares on the cheap.

All in all, this is a bad rights exercise where SCM is doing it from a position of strength. It is totally unnecessary. The latest corporate actions benefits Temasek tremendously and I will definitely vote against it.

Saturday 5 June 2021

Avarga, a Potential Gem?

One company that got me interested is Avarga (U09 stock code). The company has three business segments in (i) Building Construction in Canada/US, (ii) Paper Mill business in Malaysia and (iii) Power plant business in Myanmar. 

(ii) and (iii) are stable business which have seen little growth and a fall in profits during the last COVID hit year. 

Taiga Building Products- a 69% owned subsidiary listed on Canadian Exchange

This segment interests me. Due to the bumper year in Canada and US housing starts, Taiga's profit grew tremendously and the company is trading at 3 time PE on the stock exchange. Analysts in Canada are predicting that Taiga Building products profit was only a one-off event. In the past, Taiga traded at a band of 6-8 times Price Earnings in the Canada Exchange. Its current market cap is valued at C$313 million.

However, I think Taiga is due for a re-rating soon because the housing market in Canada and USA is still booming and Taiga's latest quarter results showed no sign of slowing down with profits higher than the corresponding quarter of last year. This might mean that Taiga's elevated profits will remain for a period of time.

Avarga Share buyback

In the month of May 2021, Avarga had conducted share buybacks at s$0.305-0.315 in the open market. This is a signal that the company thinks its shares are cheap. This has been ongoing since the start of this year and despite the share price having doubled over the year.

In addition, Avarga's dividends has increased as well and it now stands at 1.9 cents based on the past 4 quarters of dividends. At a share price of 30.5 cents, this gives a dividend yield of 6.2%. While Avarga has a sustainable dividend policy where it pays only 40% of its earnings as dividends, it shows that earnings is a function of the dividend yield. Avarga had increased its dividends a lot due to the growth in earnings at Taiga Building.


I am bullish on Taiga's Building Products due to the housing boom in the US and Canada. I did not invest directly because I do not have access to the Canadian Market; hence my interest in Avarga. With Avarga's dividend policy and frequent share buybacks this year, it is a sign that the company is undervalued.

I have not invested in it but am likely to start investing capital due to its high dividend yield and share buybacks.

It is difficult to ascribe a valuation to Avarga because it depends on the North America housing market which has just started to expand. But assuming the housing market is as hot as it is now, this means Taiga can be re-rated to 6-7x PE, a doubling in share price. To avarga, it means an addition of SGD$220 million in value. This represents a 77% upside to Avarga's current market cap of SGD$285 million.

Wednesday 2 June 2021

Are China Banks that Cheap?

One industry that intrigues me is China's Banking Sector. China banks are currently priced at dividend yields of above 6% with price earnings ratio of less than 8 times. In comparison, the Singapore banks, are priced at dividend yields of 3-4% and price earnings ratio of 14-17 times.  

Based on these metrics, if China banks are to be of the same valuation as Singapore banks, their share price has to double.

Reasons why China Banks have such low valuations

A quick review online shows many analysts are skeptical about China banks' assets and their "earnings". They point to the lending bubble in China with claims that the Chinese banks are financially engineering their loan portfolio to report a low "non performing loans (NPL)" ratio of 1+%; this ratio is similar to what Singapore banks report. This allows China banks not to report a large credit provisions which will affect their P&L annually.

Online sources claim that the NPL of China loans are in the region of 10%, as opposed to the 1+% reported.

The skepticism of China's banks financial reports are the main reason why these banks valuations are that low.

Do I believe the online sources? Financial Ratios vs Credibility

This is something I have to think: whether to trust China banks' financial reports while weighing against the attractive valuations of these banks at annual dividends of 6 to 8% (Bank of China is providing 8% yield, while the rest are giving 6% yields). In addition, I notice that the Chinese banks earnings are stable with slight growth in earnings year on year. My evaluation is that there is a 50% upside when more individuals start to believe the financials of the banks or are attracted to these bank stocks.

Therefore, I plan to position a maximum of 2% of my overall portfolio in the Chinese banking sector. Above this, it might be too much of a risk.

I have started investing in the largest two banks in China - ICBC and CCB from today. Currently I have about 0.5% of my portfolio in the Chinese Banking sector. It will serve as my dividend stocks with some upside to be gained.

Sunday 30 May 2021

How much is this Fast Growing Company Boustead Singapore Worth?

This is a thought exercise to determine the value of Boustead Singapore. The company is a conglomerate with operations in the 4 areas of: (i) Real Estate/Construction, (ii) Engineering in water treatment and offshore gas, (iii) Distribution in Geospatial Technology Solutions and (iv) Healthcare. Over time, the company has experienced profit growth due to the trend of increasing technology use and a booming Singapore Property Market. 

Boustead Singapore's FY 21 Results

I will try to determine the value of each business segment and then adding them.

Real Estate/Construction

Boustead singapore owns through its 53% stake in the listed subsidiary of Boustead Projects (BP). BP has captured investors attention recently because it injected some assets into an industrial fund which potentially means a future REIT. BP has a large number of properties such as Razer HQ, ALICE@mediapolis it owns and can be injected into the fund. All these properties amount to a billion dollar valuation and can be injected into the newly formed industrial fund to monetize. For its construction arm, despite a COVID year, the construction segment was still profitable; hence one can expect BP to be consistently profitable.

The company is now sitting on a net cash of 86% of its current market cap and with a billion dollar portfolio of properties to inject into the fund and strong construction order book due to Singapore's property demand, I personally expect BP to be worth $1.60 per share. This is because the RNAV of its remaining assets which it can sell to its fund is in the $2 range.

Hence BP is worth $542 million, and proportioning to Boustead Singapore's 53% stake, that is $288 million.


Boustead provides engineering services to refineries as well as has water treatment plants worldwide. The company has been experiencing high revenue and profit growth over the years with the latest FY seeing an increase of 37% revenue growth ($198 mil vs $144.5mil) and its profits before income tax has tripled. Engineering segment profits is now $28 million, as compared to FY20's of $7.9 million

Annual Report for FY 20's Engineering Results

While this segment has lumpy revenue due to it being a book order based, the revenue and profit growth is still commendable. Based on a price earning ratio of 10 times at current profits of $28mil.  Its market value is $280 million.


The geospatial segment has been seeing constant growth and Boustead is the sole distributor of ESRI software in this region. There has been a mass uptake in the ESRI software Boustead is selling. Revenue has been growing year on year. For FY 21, revenue was $170 million with net profits before income tax of $40 million. This means since FY16, the CAGR for revenue and profits are 11% and 14%.

It is also the key profit contributor to Boustead Singapore in FY20 (contributed 45%) and this segment has been growing rapidly due to the move towards the increasing use of technology in this region. It has set another record revenue and profits for FY21.

                                                 Annual Report for FY 20's Geospatial Results

Its clients in the region are governments and MNCs; hence it is stable. With its continuing high digit growth in profits due to operating leverage, one can reasonably ascribe a 15 times price earning to account for this segment's continuous high profit growth. At 15x PE of $40 million PBIT, this segment is worth $600 million.


The healthcare is a new segment which is still making losses. It is difficult to value it now. For simplicity, I will consider its assets as zero value

                                                Annual Report for FY 20's Healthcare Results

Sum of Part Valuation

Adding (288+280+600) million, I expect the company to be worth $1.16 billion. Its current market cap is $568 million at a share price of $1.17. 

Based on the SOTP valuation, Boustead is worth $2.39 per share. It represents an upside of 100%.

<Author is invested in Boustead Singapore> 

Wednesday 26 May 2021

Portfolio Addition (May 2021): Alibaba and Ascendas India Trust

 For the month of May, I have decided to venture into the Hong Kong to pick up Alibaba.

The investment thesis was less of a quantitative approach but of a qualitative reasons. Firstly, Alibaba's cloud provider segment has started to EBITDA positive and with operating leverage, this segment can be a billion dollar profit sector through revenue growth. Amazon Web Services, Amazon's cloud provider sector has been profitable and is now generating annual profits of $13 billion. Personally, I think China and its companies will choose Alibaba or other China Cloud Providers. However, it will be enough for Alibaba to have a billion dollar profit in this pie. This points to a potential 10% growth from current earnings.

Secondly, China's middle class disposable income is growing and this means a larger e-commerce market. This also means higher earnings. With that, I have taken some position in Alibaba through the Hong Kong Exchange.

Second Addition: Ascendas India Trust (AIT)

Without getting the ire of the local online community, I personally feel Ascendas India business park's business will continue to grow especially due to the growth of India's e-commerce segment and IT support industry. AIT's holds a few good assets in India's IT hub and has the space and financial capability to build more buildings to expand these business parks.

Once India has recovered from it current COVID situation, I expect the dividends per share to stabilize and be slightly higher than FY 20's (8.8 cents). I am expecting 9 cents dividends. At current share price of $1.38, the REIT is a 6.3% yield which is pretty good in the Singapore REIT's sector. While AIT is an industrial REIT, its current yield is higher relative to smaller and higher levered peers such as Sabana (about 6%) and ESR (6.1%). In my view, the assets held by AIT (while in India) are of better quality than Sabana's and AIT's tenants are of quality MNCs. 

It is probably due to the COVID situation in India that resulted in the beat down price. Otherwise, in my view, AIT is a 5% yield industrial REIT.

Friday 16 April 2021

Portfolio Addition: Bought Boustead Singapore and Borr Drilling

 Just a simple post, recent additions to my Portfoilo: Boustead Singapore and Borr Drilling in NYSE

Boustead Singapore was an investment because of their strong operating cashflow as well as news of gains in disposal of investment properties in Boustead subsidiary. I am expecting a growth in dividends that will justify a permanent 5-6% dividend yield at current prices. 

The company is the sole distributor of the ESRI software in Singapore which is the main geo-spatial technology everyone uses here. Essentially Boustead holds a monopoly in the local geo-spatial software system. The company currently distributes 3 cents dividends at a payout ratio of about 40%. With higher earnings as a future REIT manager, increased usage of geo spatial software and water usage in singapore, it is possible boustead earnings will increase and along with it higher dividends.

The next purchase is Borr Drilling. They are listed in NYSE and own a fleet of new oil rigs. However, only 50% of their current oil rig fleet have contracts while the rest are idle laying in yards across the world including Singapore. My prediction is that with oil demand increasing, the utilisation of Borr's rig will increase and losses will turn to profits.

That's all I have, simple theory to my investing thesis!

Tuesday 23 February 2021

Sembcorp Marine- Current NAV of 29.2 cents and losses of 4.6 cents LPS

Sembcorp Marine (SCM) has released its full year results, with a loss of 4.6 cents per share (after factoring the enlarged share base). The current net asset value per share is now 29.2 cents per share. This is shown in page 8 of its financial results.

What does the Future Hold?

I am maintaining my prediction that SCM will make 1.1 cent per share loss for 2021. This is because SCM has a few contracts left and does not seem to be fully utilising its yards (However i will re-evaluate the losses post 1HFY results to gauge the company's value).

Investors can expect SCM to deliver the last 2 Transocean Drillships this year because one of them has secured a contract to start operations in the fourth quarter of 2021 with Chevron. Cost of the 2 drillships stated in Transocean report is US$1.93 billion (S$2.56 billion). With delivery in FY21, a significant portion will be recognized as revenue, which I estimate is around SGD $1 billion. With other projects and ship repairs, SCM FY21's revenue will be at least on par or better than FY20.


Assuming a full workforce rate, SCM's orderbook will last until end 2022 based on extrapolation. It is likely SCM will cut its workforce to let its orderbook last longer. 

With the offshore drilling industry now recovering and more rigs put into work, it is likely SCM will get new rig orders secured in 2022. With the market leader, Keppel O&M's exiting, SCM will be able to command good margins for future contracts especially deep water rigs where it is now unrivalled.

Energy demand is increasing quickly now due to the consumption by crypto mining/transactions and growth in data centers. While some banks are predicting a commodity upcycle, similar to the $100 oil seen in 2011-2013, I am less sanguine and expect oil to be at only $80. However, this will result in increased drilling which will support the need to order more oil rigs. 

SCM too will win orders in windfarm installation and that will be another plus point. All in all, an increase in revenue will mean lower losses and eventual profitability for SCM. 


At the current reported NAV of 29.2 cents and expected further losses of 1.1 cents (2021) with profitability from 2022, I expect SCM to have a NAV of 28.0 cents before turning its business around. Applying a 30% discount to FY22 forecasted NAV to factor for uncertainty of more losses, the fair value is 19.6 cents, or 25% higher than the current share price of 15.2 cents.

SCM also holds valuable land in Singapore in the form of the new Tuas Yard where Singapore plans to consolidate its trading activities at. The consolidation of port operations at Tuas means SCM ship repair segment will be getting the business of maintaining and repairing ships; after all Keppel Corp is also exiting this segment as well.

Should SCM turn profitable at a quicker pace, this will be a catalyst for the company to be valued at 28 cents as the certainty of continued losses is reduced.

Monday 15 February 2021

Purchase of Multi-Chem

Following from my penchant of hunting for unknown gem companies. I have chanced upon a company called Multi-Chem and had bought its stock today.

Business Profile

Contrary to its name, the company is not involved in the chemicals industry and is distributing IT security solutions products such as RSA and trend micro and training people on them. While it has a small business in mechanical drilling, this contributes to only 1% of its revenue; hence it should be focused as an IT and network solutions provider.

Being in the IT security solutions company, the company has very little CAPEX. Furthermore due to the trend of working from home, the company has seen a growth in its business. The market capitalization of the company is $124.3 million based on its closing share price today

Growth in Cash Flow

In page 6 of its latest financial results ending in 2020, the company experienced a growth in operating cashflow generated by 60% from $20 million to $32 million. Multi-chem's business in the IT security solutions has grown from $127 million in 2009 to $453 million in 2020.

With a small annual CAPEX outlay due to its model, the company generated approximately $28 million in free cashflow before working capital changes for FY20. This means its current business has the potential to yield a free cashflow yield of 22.5% based on current market cap.

With the gradual return to physical working at the office, I do not forsee that Multi-Chem will continue to grow its business but hover at around an operating free cash generation capability of $20 million. This itself is still a good free cash yield of 16%.

Strong Balance Sheet

In 2020, the company has paid off almost all of its bank borrowings (decrease from $25 million to $4.7 million debt). Its current cash reserves is $67.6 mil, and therefore has a net cash of $62.9 million which forms 50% of its market cap.

Possible Privatization Candidate

The controlling shareholders who is the CEO, owns 68% of the business. With its large cash reserves and a business capable of generating $20 million a year, it is possible a buyout may occur for the remaining 32% stake. 

Assuming a free cashflow yield of 10% and $20 million generated in free cash annually, the company can be valued at $200 million or about $2.22 per share. If investors are gung ho and think that Multi-Chem's strong growth in FY20 can be maintained due to the digital workplace trend; at FY20's free cash flow of $28 million, the business is worth $280 million or about $3.10 per share. With little debts on its balance sheet, the free cash generated by Multi-Chem's business can be sued for dividends. Hence free cash equals to potential dividends.

Multi-Chem's FY 20EPS is 19 cents, and is now trading at low P/E ratio of 7.2x. 

Monday 18 January 2021

Divesting ISDN and using the proceeds

 With the run up of ISDN, I have moved it to purchasing stocks in Ho Bee Land and SIIC Environment.

Ho Bee Purchase

The decision to purchase Ho Bee is more of a defensive position as the company has a strong recurring cashflow rental of about $190 million to support its expected annual 10 cents yield. At the price of $2.42, the dividend yield is about 4+% which is decent.

Market analysts are alluding to a possible monetization of REIT by Ho Bee of its Singapore, UK and Australia Office properties. While the unlocking of properties into a REIT will indeed free up a lot of cash, I don't think the upside is a lot. CapitaLand REITs are yielding at 4+% and it is likely Ho Bee, if it lists a REIT, will be pricing it at about 5% yield. This is similar to the current yield of the parent company. Readers will comment on the REIT being able to use leverage to amplify its dividends, but Ho Bee itself is highly geared at a 45% ratio in its current state; hence it has to pass a large amount of its debts to the REIT. This means it is difficult for Ho Bee to use the magic of leverage to juice up its assets value. Hence the upside is limited. 

The upside is Ho Bee becoming a REIT manager.

Assuming a $2.9 billion asset monetization into a REIT, applying a 2% AUM fee as revenue and a potential sale of its Singapore biomedical office property into the REIT in future, we are looking at a REIT manager with decent profits (similar to ARA). Majority of Ho Bee's commercial assets are in Singapore (e.g. Metropolis which forms $2 billion out of $2.9 billion of its significant real estate). In a property craze country like Singapore where the government has done little to curb the property appreciation, the effects of a downwards valuation risk to Ho Bee's assets is minimal. Hence Ho Bee will act as a defensive part of my portfolio earning a 4% yield, while one can wait for the unlocking of value in its Singapore properties. 

SIIC Environment Purchase

Bought this company shares because it offers 5+% as yield. While it is highly geared, it is a utility company in waste water treatment and power generation; companies in this industry such as Sembcorp Industries are highly geared. On the contrary, SIIC is less leveraged than SCI and is offering a higher dividend yield. 

On a apple to apple comparison, SIIC environment offers better value than Sembcorp Industries.

Saturday 9 January 2021

First REIT- How much is it worth Post rights and Post Covid

First REIT is restructuring and the management has been proactively persuading shareholders to accept the restructuring. First REIT has consolidated all the important information in this PowerPoint proposal which I will be relying on.

Post Renewal of Master Lease and Rights

The Reit has proposed for a rights exercise at $0.20 per share. In addition, the new master lease has the following terms (page 7 of the slides):

What stands out is how the new terms for rental is an "either/or" option for its base and variable rent; unlike the previous arrangement which was an addition of the two. Furthermore, the base rent has been drastically reduced and my sensing is that the 8.0% of preceding financial year revenue is the higher of the two.

The new terms will take effect in FY 21 if it is voted through. This means the lessee will be basing its payout to First REIT on FY 20's performance, which is when COVID happened! This means unitholders are going to suffer a drastic drop of revenue/ distribution.

How bad is it?

First REIT manager did an excellent presentation in which they showed many of the good stuff upfront but placed all the bad stuff in the annexes (at the tail end of the slides where less people read). The new arrangements is detrimental to current unitholders as seen in the below slides. Below is the effects for unitholders if First REIT were to transit to the new lease arrangement:


1HFY20 (During COVID and placed as an Annex)

Annualizing 1HFY20 results, it means First REIT's revenue will be $52.2 million against FY19's revenue of $115.3 million. This is a 54% drop. DPU has fallen to only 0.55 cents for the first six months. 

How much is First REIT worth now?

Based on FY20 results, the expected DPU for unitholders post rights and new lease arrangement is about 1.1 cents. Moving to FY21 and FY22, I think unitholders can expect only about 1+ cents of annual dividends as Indonesia has been slow in improving its COVID situation.

First REIT too has shown if it was during FY19 (when times were good), one can expect DPU of approximately 2.6 cents. However, it is unlikely the business environment in Indonesia will improve so quickly to 2019's level.

Based on the bad reputation Lippo companies have achieved during this crisis, I will expect an 8-10% yield for the risk of investing with them. If one is pessimistic enough, they can assume a 1.1 cents annual DPU for a few years with an incremental growth in DPU while expecting a 10% yield on First REIT, this will mean the shares is worth about 12-15 cents at present. Assuming (a) Lippo pays First REIT the base rental (as the higher of the two), (b) the rupiah depreciates against SGD 2% annually and (c) investors expect an 8% yield, one can expect First REIT's fair value to be in the region of 17 cents.