Sunday 25 September 2022

Sea Group has a further downside to $30+ unless....

For the past 2 weeks, Sea Group has made headlines by retrenching and closing down operations. The press release/letters by the CEO is the goal of "self sufficiency".

Weirdly, based on information, it seems Sea is not cutting or downsizing at the right places to be self sufficient. In fact, without doing this, it is likely shareholders will face a further 50% losses.

The Main Problem to Self Sufficiency

Shopee Brazil is the problem. Without it, Sea Group will be self sufficient. This is derived from CIMB's report

                                                                 Shopee Results

To clarify the terminology of EBITDA (Earnings Before Interest, Tax, Depreciation and Amortisation), EBITDA is one of the closest guage of cashflow generation. A positive EBITDA means a company is generating cash and self sufficient. An important point is that a positive EBITDA may mean the company is reporting accounting losses. So a positive EBITDA is a bare minimum to being self suffiicient and what Sea Group CEO, Forrest Li, is alluding to.

For year 2021 and 2022, the biggest cash burner (excluding HQ) is Shopee Brazil at about US$1 billion per year. Without Shopee Brazil, it is definite Sea Group on a whole can be self suffiicent by 2023, generating positive cash. 

The 2025 Time Bomb

Sea Group has US$7.8 billion in cash and short term investments currently. By 2025, it has about US$2-3 billion in maturing covnertible bonds, without a share price of US$90, it is definite bond holders will ask for cash instead of shares.

With about a cash needs of US$1-2 billion to sustain its main 3 segments, the continous burning of cash by Shopee Brazil from there to now of US$3 billion is putting Sea Group on a whole in danger of having to raise cash in 2025 to save itself. 


Without closing Shopee Brazil, Sea Group is going to find it difficult to achieve self sufficiency by 2025 and investors will be in a world of pain. I expect a collapse of share price until $30+ as long as Shopee Brazil remains in operations.

The closure of Shopee Brazil will save at least $1 billion in cash each year and enable Sea Group's survivial from 2023 onwards.

Sunday 18 September 2022

Putting Deposits with Singapore Banks will Make You Relatively Poorer

Recently, there were 2 hour long queues to place fixed deposits with Singapore banks. To me, it is not financially wise as there are two Singapore Financial Products available to all Singaporeans and are providing higher rates - (i) Singapore Savings Bonds (SSB) and (ii) 6-month Treasury T bills issued by Singapore.

Both are yielding more than 2.6%. In short, if you are placing Fixed Deposits (FD) with banks, you are becoming relatively poorer to others who put in SSB and T bills.

Higher Rate better Credit Rating than Singapore Banks

Below are the current rates for SSB and T-bills.

SSB- 2.6% for first year and eventually rises to 2.99%. Can be applied at any ATM as long as you have a CDP. 

T-bills: Shorter duration than SSB or FDs (about 6 months). Current rate is about 3.3% per annum, which is the highest. Only downside is that you will need to hold to maturity about 6 months to a year. Individuals can approach a bank manager to enquire on how to apply. My advice will be to select the non competitive tranche to get allocation. T-bills are subject to institutional investors bidding and given the high interest rate environment, they are bidding around 3% for Singapore T-bills.

What's even better is that SSB and T-bills are issued and backed by the Singapore government that has higher credit rating than our banks. A higher interest rate, better credit rating, short duration or no locking you up- what better way there is than to invest in our government's SSB and T-bills

Do not be Tricked by Bank Staff

Unfortunately in Singapore, most bank staff are sales driven and will peddle you products that are not in your best interest. Forget about their talks of saving investment products. While they are higher rates (in the T-bills interest range), they lock you up for a longer duration than T-bills and early redemption results in penalties. SSB has no penalty for early redemption and T-bills while they lock you up, are at most a 1-year duration.

If you want higher rates, go for Singapore T-bills they are as good as investment products and lock you up for less than 1 year. The products being marketed by banks lock you up for a longer period and have financial penalties for early redemption.

Right now as interest rates rises likely to 4-5% level, you do not want to to be locked at such low rates. SSB and T bills offered by the Singapore government is currently one of the best ways to grow your wealth at close to risk free, as opposed to the Singapore banks.

This article is not a sponsored post from the Government of Singapore, but to remind individuals that investing in Singapore banks are making you relatively poorer. The author believes in writing neutral articles with no financial motives. 

Friday 9 September 2022

Portfolio Update Sep 2022

As mentioned in my older posts, I have planned to sell my SOE & other investments and shift the proceeds to Yangzijiang Financial Holdings (YZJFH). I have completed this.

This is because with the clarity of its debt investments provided by YZJFH, it indicates a deep discount which will make the investment worthwhile. The company has followed up on their thoughts that the market is undervaluing their business by doing large share buybacks. You can read my thoughts of YZJFH fair value here.

I have also bought a few Alibaba shares due to the recent sell down. 

The current portfolio composition is as follows:

I don't foresee any more significant portfolio changes unless such a deep discount situation re-occur.

Saturday 3 September 2022

Yangzijiang Financial: High Returns and Clarity on its Investments

Yangzijiang Financial (YZJFH) had released an announcement clarifying its assets and its composition. Below are the key points:

1. Investment Portfolio: 57% in Debt Investments, 14% in PRC equity, 11% in Singapore as Cash, approx. 12% in China in cash after receiving proceeds from short-term investments (see Question 25), approx. 6% in microfinancing

2. Clarity on its Debt Investments: YZJFH lends it to companies via a close loop system and it is secured against the joint venture's assets and land which are about twice the amount of the loan it gives out (see Question 3) and PowerPoint on its collateral held. 

Valuation of YZJFH

Using a Sum of Parts valuation, we will ascribe a discounting factor for each portion of YZJFH portfolio.

For cash, we can set it as 100% because this is cash held in bank. For debts, given that YZJFH has clarified they are collateralized with a high amount of security such that a default by its loanees will not result in large impairments, a 90% factoring is sound.

For equity, to be safe, it will be set at 50% of its value. This is similar to the book value of Hotung Investments and TIH which are listed on SGX.

This means a fair value of YZJFH is $0.890.

Reported Assets$4,450,000,000
Discount FactorValue
Implicit Value:0.84
Implied Asset Value$3,751,350,000
Value to Shareholders$3,469,884,000
Outstanding Shares after share buyback3,850,000,000
Value per share$0.890


Given the company has clarified on the components of its investments, been aggressively doing share buybacks for two weeks and clarified on its 40% dividend policy, YZJFH is undervalued and has a potential to provide a 130% return at the current price of 0.38. The company is a 6% dividend yielder.

To me, this is a strong buy and I will start re allocating my China Investments in Tencent Music and various SOEs to YZJFH. This is because I want to cap my allocation to China. It is good to know YZJFH provides the same dividend rates as my current China stock holdings but with added knowledge that I am investing in a company with a Singapore presence.