Sunday, September 8, 2019

Bought Wharf Reic (HK.1997)

Bought 2000 shares of this company last week, on news of the extradition bill being cancelled.  This action decreases the chance of bloodshed (Tiannamen 2.0) - there's a chance both sides can talk now.

Wharf REIC derives 2/3rds of its profits from Harbour City.  It's a massive shopping complex, with separate buildings for luxury, children, sportswear and dining.   They account for 10% of HK retail sales (excluding F&B).

Their numbers are excellent.  Gearing is below 20%.  Their property's lease is for 800 years.  Its a very simple business where the rental just flows through to the profits.  Its trading at a trailing PE of 7 to 8.  Thats at a payout ratio of 65% (its not a REIT).

This is a cyclical stock.  Leases are short: 1-2 years, which is good in a rising markets, but bad when things go south.  Management is projecting a "high single digit and even "double digit decrease" in retails sales in the second half, which may affect rents that are based on tenants' sales.  This stock can be taken as a proxy for Hong Kong tourism, and Mainland Chinese luxury goods spending.

Why is it so cheap?

  • The global slowdown, and slowdown in China specifically.
  • HK protests

I am buying this stock, hoping that, in one to two years time the protests are forgotten.  Tourism and shopping returns.  Maybe China will stimulate its economy more  stimulus (they have been surprisingly cautions so far), so that more people can travel and buy LVs.

The main risks to this story are:

  • The downturn continues and we get a recession, despite best efforts of the Chinese government.
  • Political risk.  Harbour city avoided a protest, but this may have made mainland Chinese angry.

This is not a buy-and-hold forever stock.  It only forms 2% of my portfolio, and thats as much as I'll buy.  Long term, HK is not a place to park my money.  Unless the government can improve the lives of its citizens (primarily by decreasing property prices), it will remain a powder keg.  And after 2047, the Chinese government does not have to honour any 800-year property lease.

I got this idea from Kyith at Investment Moats.

Saturday, September 7, 2019

My Macro View

I think of macro as a way to explain what can happen, not what will happen.  To see all the possibilities in the future, and make sure you will be OK either way.

The US economy is in a slowdown.  This may or may not turn into a recession.  Previous slowdowns in 2012 and 2015 and did not turn onto a recession and proved to be buying opportunities.

The cyclical downturn started before the trade war in both the US and China.  The trade war is not the cause, just the icing on the cake.  We can get a cyclical upturn without a resolution to the trade war.

Both the US and China will do everything possible to avoid a recession.  Trump to avoid losing the election.  And Xi to avoid a revolution.  Whether the Fed's cutting rates and China's stimulus (for the n-th time) is enough remains to be seen.

No resolution to the trade war.  The differences between China and the US are too big and cannot be negotiated.  This is a cold war.  Longer term, US companies will disengage from China, and there will be two parallel, seperate supply chains.

Long term:

  • I think China's economy will not implode, but will drift downwards as they restructure.  Whenever it looks like it is about to collapse, they will pause restructuring and stimulate.  Stop-start, stop-start.  A glide slope.
  • The Eurozone will a probably break up.  Countries so different should not have a common currency.
  • Theres a small chance of the USD shooting up due to their shortage.  Probably accompanied by emerging market crisis.
Things I think the market is not pricing in now:
  • Oil price recovery
  • For HK/China stocks, a cyclical upturn due to Chinese stimulus.
  • Bank stocks (both SG and US) are low, due to the expectations of low rates foreverrrr.....  If this changes, lets say 6-18 months out, like it did in 2016 after Trump's election, bank shares are worth a look.
  • A crash, due to the market being too high combined with political risk, maybe exacerbated by systematic traders.
In general, markets are high now, I would not buy into "the market" (the indexes).

I am looking at REITS and dividend stocks, but there's not much out there thats reasonably priced.

Stopped the Systematic Strategies

Last week I stopped following these strategies, both the momentum and The Acquirer's multiple.

Returns have been quite bad since starting in February:

  • 2% for the momentum strategy.  Its been a choppy market.
  • -28% for The Acquirers Multiple.  Value investing has done badly compared to momentum, since 2009 (1) (2).  I'm sure it will come back, I just don't know when.
On a daily basis, both strategies are high beta, and follow/magnify the movement of the Russel 3000 index.  If the index is up 1%, they're usually up 2-3%.  Same for down.  Holding 'value' - at least this kind of 'deep value' - meaning companies that are nearly dead - does not protect you.  On down days, they do worse than the market.

The reasons for stopping:

  • Its hard to stick with when it goes wrong for long periods.  When you manually analyse and select own value stocks one-by-one, if a stock goes down, you can try to see why.  Has something changed with the fundamentals, or the macro environment?  Or have perceptions changed?  Has the whole market dropped?  Did you make a mistake?  You can (at least) try to look at the stock with a level head and see if you should cut losses or hold.  With a portfolio of non-discretionary stocks, theres nothing to do except to have blind faith,
  • Manually analysing stocks takes more time and effort, but I can choose when to do it.  In most cases my long term investments won't be affected by missing a few weeks of work.  The exceptions are if results are unexpectedly bad, or for sudden crises (eg: HK protests) - though even these take weeks or months to play out.
  • It was a pain in the ass to stay up trading 9:30-10:30 Monday nights.  I found Interactive Brokers pretty hard to use, sometimes I sold the wrong amount and accidentally ended up short.  It was only one hour a week, but it was a chore, and I didn't like doing it at nights.
I think the main advantage of the non-discretionary strategies is that it keeps you in the market, so you avoid FOMO.  However they get whipsawed in a trendless market, and will not protect you agains a 1987 style crash.

In the end, I decided hold cash, while building up a dividend portfolio.  I think this suite my personality better, and I can measure progress by dividends collected, instead basing it on stock price fluctuations.

Right now I'm 2/3rds in cash.

Like a diet, the best investment strategy is one you can stick with.

Friday, July 19, 2019

Netlink Trust AGM

I attended the AGM today, there was some Q&A on 5G, the competitive landscape, and capex. 

Here are the points I took.  Things I am not sure, or did not hear well, have a question mark (?):

  • Revenue/profit review.  Monthly recurring revenue per-user for Residential is $13.80, and Business is $25 (?).  Installation and Diversions are the only non-recurring revenue streams.  Diversions is from having to divert underground cables due to construction work.
  • Netlink currently has an 88% share of the residential market.
  • Regulatory profit targets.  Their profit is regulated and reviewed every 5 years (next review in 3.5 years).  A 7% rate of return is targeted - the target profit number will also depend on other factors such as interest rates, debt and capex.  From the target profit/revenue, the regulator determines fees per user, as the number of uses is known.  In the long run, more capex means they will be allowed more profits.
  • They see a lot of potential in Smart Nation.  Have received requests from govt agencies to wire up cameras.  Most current cameras are on 4G platform, which affects picture quality.
  • Competition in Business Segment.  There were several questions on SP Telecom as a new competitor.  The answers: 1) SP Telecom only competes in the Business connection area.  2) SP Telecom is both their competitor and customer.  Netlink lays cables for them in some areas.  3) The business connection segment is already competitive, with the three telcos already competing with Netlink.  Netlink has around a 1/3rd market share, Singtel is slightly above that.  4) SP Telecom is a small player in this market  5) The telcos have fibre in some areas, but not others.  M1 does not have any fibre (?)
  • There were many questions on if the dividend was sustainable.  The answers: 1) Management took pains to state that dividends were only paid out of Cashflow from Operations, not from Capital.  2) In the 2018 results, the 221m dividends is for FY2018 (126m) as well as FY2019 (95m), that is why it is bigger than the FY2019 FCF (158m).  3) They have a 100% payout ratio, no plans to reduce it to 90%.
  • There were many questions on 5G.  They answered may times that 1) 5G requires micro base stations 2) These are expected to increase revenue for Netlink  3) Regarding specifically if the last-mile connection can be serviced by a single access point (servicing 5-6 homes with wireless), thus cannibalising Netlink's Residential revenue, they answered they do not forsee this, as they expect home data usage to keep increasing - so it would make no sense to serve the home with (lower/shared) bandwidth connections.
  • Capex.  1) Capex was 212m in FY2018, 71m in FY2019.  Expect FY2020 to be more than FY2019.   2) Generally, most of their capex is for expansion.  Sustaining capex is for their central offices' maintenance and equipment (eg: chillers, vehicles); this varies so they can't give a percentage.
  • One question on why Trustee fees are paid in cash, not units like other REITS.  Netlink trust owns the trustee.  The money paid is mostly directors fees.   The trustee does not generate a profit, unlike other REITS.
  • A throwaway comment that struck me is that Singtel actually has the technical capacity to service Residential, but they do not do so (or not allowed to do do?)
Non-investment things:
  • Most questions and answers were worthwhile, for a beginner to understand the business and competitive landscape.  There were only a few stupid questions ("What is the purpose of this meeting?")
  • Only tea and coffee after the meeting, no food.
I found it worthwhile to attend, may attend next year.

Tuesday, July 9, 2019


Kyith at investmentmoats has already covered this IPO's buildings and basic metrics.  No need to repeat it here.  They seem decent, except for the leverage.

But he thought they may need to raise money for expansion after listing.  I want to look further at their growth potential.

Growth Potential

Their leverage upon listing will be 37%, limiting their ability to borrow more money.

Is there scope to grow by increasing occupancy?  Not much.  In their 2020 projections that the 7.4% yield (@ 100% payout) are based on, they already assume a high occupancy rate:

Is there scope for rent increases?  Summarising the Property Market Report (Section F) of the prospectus:

Not much here either.  Note that this 3% increase is in gross rent, the percent increase in Net Property Income may be different.  In absolute terms, either all of most of the gross rent increase will be passed through to NPI.  In percentage terms, NPI may increase by more or less than 3%.

Are their buildings' markets expected to improve long term?  From the Property Market Report, we can derive an estimate for how vacancy rates will change in each building's submarket.  We only have the projected change for all of A/B/C class buildings, they did not give the projected change for A-class alone.

Some submarkets are projected to have higher vacancies (bad - red), some lower (good - blue).  The two largest buildings (by value) are red.  It's a little disappointing that the building with the longest lease is in the bluest market. On average, there is a slight increase in vacancy, more so if you weight by the buildings' values.  So generally OK, with a slight negative bias.

My take on these 5 year projections is that future supply is well known, but future demand is pure guesswork.


Its decent, but I can't see much scope for Prime REIT to grow beyond its average 2.1% rental escalations.

I'd like to compare it with Manulife US REIT next.

Sunday, June 30, 2019

Dividend stocks: My first big bet

I bought a lot of Netlink Trust and a little Manulife US REIT in the last few weeks.  Enough to give me around SGD 6K of dividends a year.

Now I've got 70,000 shares of Netlink Trust at an average of 85.4c, and 26,800 shares of Manulife at an average USD 0.861c.

Why did I pick these stocks?

  • Netlink Trust is a defensive counter, one of the few whose earnings would be unaffected by a recession. And still (barely) trading at a reasonable yield.  Long term, its residential revenue should follow the growth in Singapore household formation.  Its Non-Building Access Point's (NBAPs) should grow with internet-of-things/smart-city coming now, and 5G coming later.  I can't see any disrupting technology on the horizon, though I need to remind myself to keep a lookout.
  • Manulife US Reit is developing a good track record after listing on SGX.  It is trading at a decent 6% yield with freehold buildings, unlike local REITs trading at a sub 5% yield with leasehold properties.  The risks are a recession (affects all stocks/REITs), and tax law changes (affecting any US-property REIT listed overseas).

Why did I buy now?

           Scared of missing out.

           Netlink Trust shot up on the day I placed my largest order, and I missed it.  Strong enough that my broker said it would unlikely come down that day.  After thinking about it: I am buying the income stream.  I'll still be happy if I buy at a higher price, and it comes down later, as long as I collect my dividend.  I'll be unhappy if I miss it now, and it never comes down again.  Which is unlikely, but possible - look at Vicom.  There's very few stocks giving a 5+ % yield that would also be unaffected by a recession.  The market was still offering me the chance, so I bought it.  Never regret.

The market narrative now is all sunshine and rainbows, especially for dividend stocks.  The Fed is expected to cut rates.  Worst case - for someone like me shopping for dividend stocks - is that this narrative goes on for another year.  Until the either the economy starts expanding, goosed by low rates, or we do finally get a real recession.

I am now 60% invested.  I don't feel the need to buy anything else this year, but can do so if the market drops.  December showed how quickly the narrative can change.  I am waiting.

Monday, May 20, 2019

Frasers Logistics and Industrial Trust (FLT)

The Properties

FLIT has 60 industrial properties.  By value:
  • 2/3rds are in Australia.   2/3rds of those are in Sydney & Melbourne.  Minimal exposure to Perth (1 property, or about 7% of the Australian properties' value).
  • 1/3 are in Germany and the Netherlands
The Australian buildings seem to be mostly small, generic light industrial buildings, with a few large warehouses (5-6 buildings).
The European buildings are large Logistics or Industrial buildings.
None of the buildings seem highly specialised.

70% of the properties by value are freehold, and another 21% have a lease of over 80 years.

The Australian Property Cycle

Varies by city and within parts of a city.
  • A 2019 Moodys Report expects Western Sydney Industrial property prices to rise, due to online shopping and new infrastructure.
  • A Centuria Industrial REIT (ASX:CIP) presentation shows available space declined up to Oct 2018.
To know about the cycles, you really have to be an expert on the land supply in different parts of the cities.  And predicting future demand is just guesswork.

Tenant Quality

Generally good.

FLIT lists all their tenants (how many REITs do this?).  I categorised each tenant, trying to guess their ability to pay rent in a recession:
  • Reliable: Is either part of an oligopoly (eg: Coles, Woolworths), government (eg: Australian Post), or listed (showing profits for the last 2 years and reasonable debt).  In essence, no way that they would not pay rent.
  • Unknown: Private companies (eg: BAM Wine LogisticsCapriceBroetje Automation).  Even though some of them sound interesting, there's no way of knowing how profitable they are.  Most companies in the world are going to be here.
  • Dodgy: Currently loss making.  So when times go bad, we can expect the company to go under.
Each category, by gross revenue (Sept 2018):

Overall, this is a pretty high level of 'reliable' companies.  If you pick a random street or industrial park to walk through, you are not going to see such a high proportion of 'reliable' companies.

The two dodgy companies are CEVA Logistics: a merger of two loss making companies which is still loss making, and Constellium: an aluminium product manufacturer with borderline profits/losses and large debt.

CEVA is a worry: they are one of FLIT's top 10 clients.  They are renting a massive warehouse in the middle of nowhere - this may be difficult to lease out again, and buildings like this are valued by their lease ( lease, no value).

But overall, tenant quality seems quite high.

Management Quality

Sponsor Holdings: Frasers Property, holds 20% of the trust.  I haven't looked at enough REITs to see how this compares.

Management Fees (p146): 0.4% of property value as base fee, plus 5% of distributable income.
Seems reasonable.  Would be better if the fee was based on DPU.

Most management fees are paid in units: at least 85% in 2018 (note 5) and 91% in 1H19 (p10).

Trust expenses were very high in 2017, but lower in 2018 (p158).  They were 8.6% and 1% of distributable income, respectively.  I found no explanation on what these expenses were.

Pipeline: ROFR for 17 Australian properties and 29 European properties.

Past Acquisitions have been OK:

The numbers

Gearing Ratio is now at 35.1%.   No perpetual bonds.

Debt Expiry: They have a large chunk of debt due in 2021:

They did mention their intention to refinance the (grey) European debt (currently at 2% interest) with a lower rate later.  But I think they should space out their debt a bit more.

79% of their loans are fixed rate (p5), or protected by swaps for the lifetime of the loan.

Unencumbered buildings: (In Sept 2018 AR, footnote 10) The secured bank loans are secured over investment properties with a total carrying amount of A$969,554,000 (2017: A$Nil).  So out of AUD 3bn worth of property, 2bn is unencumbered.

They have always had 100% dividend payout ratio.


Other Risks:
  • Kyith Ng highlighted that many of their Australian rents were above market rate during hte IPO (June 2016).  I am factoring in a AUD 3-4m income to be lost because of this.
  • AUD has dropped a lot recently, I am factoring in a rate of 1 SGD to 0.9 AUD.  Same as the global financial crisis.  Assume no change in EUR/SGD exchange rate.
For a target 6% yield, I would value the stock at SGD 1.10.

Saturday, May 18, 2019

Dividend Portfolio

Inspired by posts like this and this, I've decided to slowly start a dividend portfolio.  I'm looking for stocks with a 6% yield -  the hard part is to judge if its sustainable.

I aim to buy SGD 8K worth of stocks per month for the next 3 years.  Plus a little more when I get my bonus.   This should give me a 300K portfolio in 3 years, with an income of 18K per year.  I expect a serious downturn in the next few years, which would make me buy faster.

I've started with:

  • Cromwell Reit (10,000 shares) - not great, but had an 8% yield which is probably sustainable.
  • Netlink Trust (12,000 shares) - low yield, under 6%, but very stable.  I can't see any threat from 5G, and NBAP revenue may grow from IOT.
  • Manulife REIT (6,800 shares) - 6% yield, US economy still looks strong, the main risk is taxation (resolved for now, but always in the background).  Impressive Management.  [Update 21st May: Bought another 7000 shares]
Should give me enough dividends for kopi everyday.

Some REITS I've looked at but haven't bought:
  • IREIT Global main tenant seems to be in long term downsizing.  Too bad, its good otherwise.
  • CapitalMalls Malaysia Trust has reasonable 7% yield, as the Malaysian Retail market is currently oversupplied - could I buy for a cyclical upswing?  I decided not to as 1) The only players that seem to maintain their advantage are the 5 premier malls with 1m+ square feet.  Although CMMT's Penang's Gurney Plaza is good, it is not unbeatable.  2) Small, mixed use malls and individual strata malls are disadvantaged.  So why did CMMT buy Tropicana (mixed use) and Sungei Wang (strata)?  As mall operators they should know these problems, especially as they've seen it play out in SG before.  Why such stupid acquisitions?
  • Singapore Industrial REITS have high yields, but are paying out 100% of their distributable income, even as they have short leases.  So you need to deduct 1 to 3 percent from the yield to get the 'true' long term yield.

I'll look at Frasers Logistics and Industrial Trust next.  Maybe Malaysia later - there may be some lower priced REITS there, as their industrial, office and retail property sectors are in a property glut.

Tuesday, May 14, 2019

Systematic Trading: Week 11

Momentum (Clenow)

On Monday night:
  • Sold INSM at 27.7, GRA at 73.43, EOLS at 22.39, PYX at 16.79 and CPRX at 3.08.
  • Bought EIDX (Eidos Therapeutics Inc): 132 shares at 24.78, ADVM (Adverum Biotechnologies): 504 shares at 6.59, BOOM (Dmc Global Inc): 48 shares at 69.15, TGTX (TG Therapeutics Inc): 455 shares at 7.39, and LSCC (Lattics semicondictor Corp): 256 shares at 13.19

Tuesday, May 7, 2019

Systematic Trading: Week 10

Momentum (Clenow)

On Monday night:
  • Sold EHTH at 59..89.
  • Bought CVNA (Carvana Co): 54 shares at 69.6)

Wednesday, May 1, 2019

Systematic Trading: Week 9

Momentum (Clenow)

On Monday night:
  • Sold MRTX, XPER, LRN and CMG.
  • Bought CNST (Constellation Pharma: 317 shares at 12.41), YETI (Yeti Holdings: 112 shares at 34.41), VYGR (Voyager Therapeutics: 183 shares at 21.69),  and CPRX (Catalyst Pharma: 690 shares at 5.76), 

Saturday, April 27, 2019

Systematic Trading: Week 8

Although the market is up, my momentum portfolio is now down 1% from starting.  The TAM portfolio is down 5%.

Value (The Acquirer's Multiple)

No change.  Waiting to rebalance late next month.

Momentum (Clenow)

Sold LCI and NVCR.
Bought DBD (Diebold Nixdorf: 271 shares at 13.25) and TLRA (Telaria: 494 shares at 7.23).

Wednesday, April 17, 2019

Notes on Cromwell Reit

The European Industrial Property Market

Where are we in the property cycle?

We are late in the cycle.  The European Industrial and Logistics market has been recovering since 2013, and yields have been driven down by investment:

                Source: Cromwell 4Q18 Results Presentation, 27 Feb 2019

This doesn't mean we are at the top.  That will probably only happen now if there's a slowdown or recession.  This is the same risk for buying any stock.  Personally, I'm dealing with that risk by remaining half in cash.

The Properties

miscellaneous collection of light-industrial and office properties across Europe, with no underlying theme.

              Source: Cromwell Rights Issue Presentation, Oct 18.

Most properties are freehold, less than 10% leasehold:

               Source: Cromwell Rights Issue Presentation, Oct 18.

Most of their buildings are generic industrial, warehouse or office buildings:

Only 2 buildings, or less than 1% of their portfolio, are customised for the tenant.  Both are leased to the Italian Police.

The largest tenant is the Italian State Property Office (Agenzia Del Demanio), who manage real estate assets for the Italian Government, at 16% of revenue:

Since their property is freehold, it has redevelopment potential.  They mention Parc des Dock St Ouen in Paris (p16), with an estimated Euro 1bn (0.45 per share) redevelopment potential over 10-15 years.

Tenant Quality

Hard to tell, most buildings are multi-let.

I'm worried about their largest tenant - the Italian State Property Office - cutting their budget, as Italy's budget deficit is too high for its slow growth.

Management Quality

Hard to say, as they've only been listed for a year.  During that time they made a rights offering to acquire more properties.  This was accretive for those who subscriber, but dilutive for those that did not.

Kyith Ng from Investment Moats makes the point that the managers are the same people from the parent, and they previously did a bad job of timing their purchases, especially with Valad Property Group.

So neutral to slightly negative on Management Quality.  The stock might be re-rated if they can prove themselves over a few years.

[Edit May 2019: Cromwell Property Group owns 35% of the REIT, which aligns their interest somewhat.]

The Numbers


Gearing ratio is around 33.9% to 37% (p41).   No perpetual bonds.  Their preferred range is 35-38% (p205).

Debt expires in 2020/2021.  A bit lumpy for my liking, but they said they want to refinance to 2020 debt now:

Most debt is floating rate, or only hedged short term:
  • 18% of it is floating rate
  • 40% is hedged for 1 year or less
  • 15% for 2-3 years
  • 14% for 4 years or more.
  • 13% is fixed rate

Unencumbered Buildings: Around 20%, or 19 out of 92 buildings are unencumbered:
  • 14 out of 60 light industrial buildings (in either France, Germany or the Netherlands) are unencumbered.  We do not know which.  
  • Out of the 32 "Office & Other" buildings:
    • The Ivrea, Barea and Genova properties in Italy are unencumbered (p207).  These have a valuation of 121m.
    • 2 other of these buildings are encumbered, we do not know which.


WALE is 4.7 years, quite long for industrial property.
Lease expiry is around 10% per year until 2022:
I am guessing that they will not have more than 20% lease expiry an any single year from 2022 onwards.

Quality of Distributable Income

Income Support: No sign of income support in the Income or Cashflow statements.

Management fee is 4.9% of Distributable Income (p7).  Trust expenses are 6.1% - these seem to be recurring (eg: annual listing fees, legal/valuation/audit/accounting fees).  I have not looked at enough REITS to tell if these fees are high or low.

100% of management fees are paid as newly issued units.


The trailing yield at a share price of Euro 0.51 is 7.5%.  This should increase next year as the newly acquired properties contribute.  Maybe 8%.

100% of distributable income is payed out as dividends (I would prefer 90%).
[Edit June 2019: This is only until "end of the 2019 financial year. Thereafter, CEREIT will distribute at least 90% of its annual distributable income for each financial year." p10 ]


Risks are:
  • European slowdown or recession.  
  • Property market cycle: oversupply caused by low or negative interest rates
  • EU breakup.  Their properties and loans may end up being in different currencies.
  • Rising rates would cause problems, unless they hedge more.
  • They will have to issue more units if they want to expand.  Like they did previously.
  • Budget cuts from their largest tenant - the Italian Government
I think this is REIT is OK at the current price, the risks are priced in.  And I think the yield is sustainable.

I bought 10,000 shares at Euro 0.495.

Friday, April 5, 2019

Systematic Trading: Week 7

US market went up slowly but steadily this week on trade deal news.  I bought 2 stocks in each portfolio on Monday (6th Apr) - now both are fully invested with 25 stocks each.

My Acquirers Multiple portfolio is down around 2%.  My Momentum portfolio is up around 1%.

Value (The Acquirer's Multiple)

Bought the next 2 stocks from The Acquirer's Multiple All Investable Stock Screener.  I will now wait for quarterly rebalancing.

Momentum (Clenow)

Bought 2 stocks:
  • GH (Guardant Health), bought 50 shares @ $77.53
  • TNDM  (Magenta Therapeutics Inc), bought 232 shares @ $16.66

My Portfolio

Is around 50% cash, 30% systematic and 20% discretionary.  

I'm sitting on the fence.  I want to be in the market because it can go up - I don't think we've had the final burst of euphoria that marks the end of a cycle.  Its like we're in 1998.  But we're also nearer to the end of the cycle than the beginning - and its hard to find stocks I want to buy-and-hold at these prices.  The systematic strategies help me participate in a rising market, but limit downside if the market drops like in 2008.

Saturday, March 30, 2019

Systematic Trading: Week 6

The market has not been doing well, and its starting to look like a false breakout.

Nevertheless, RUA is still above its 200 MA, so I've been buying.  Bought the below on Monday night (25th Mar).

Value (The Acquirer's Multiple)

Bought the next top 5 stocks from The Acquirer's Multiple All Investable Stock Screener.

Momentum (Clenow)

Sold 1 stock:
  • Sold LIVX at avg price of 5.465.  Loss of $330.
This is what the losing trade looks like:

Bought 6 stocks:
  • FSCT (ForeScout Technologies), bought 91 shares @ $43.61
  • TNDM  (Tandem Diabetes Care Inc), bought 57 shares @ $68.65
  • EOLS (Pyxus International Inc), bought 169 shares @ $23.59
  • PYX (W. R. Grace & Co), bought 140 shares @ $28.15
  • AVLR (Avalara Inc), bought 72 shares @ $54.31
  • NVCR (Novocure Inc), bought 83 shares @ $47.82

Tuesday, March 19, 2019

DKSH (Malaysia)

DKSH Holdings (Malaysia) is a distributor which handles consumer goods, pharmaceuticals, and chemicals.  They handle the stocking, transport and billing of their customers' products over region-wide points-of-sale.

Companies use them to distribute and market goods into Asia.  They handle the logistics and provide a single point of contact/payment.  The goods they distribute are varied: instant coffee,  lego,  snacks,  CT Scannersprescription drugsspecialty chemicals.

The company operates throughout Asia, but did not break down revenues by different countries in their 2017 annual report.

Competitive Advantage

Does DKSH have sustainable competitive advantage?  Looking at its market share:

Even though it is among the top 3 players, the competitive landscape means it will be a price taker.  So no sustainable competitive advantage.  I see this as buying a reasonable company for a cheap price, not a Buffet-like investment that will compound for years and years.


Revenue and profits have grown, in line with the economy:

Why did profits drop in 2014 and 2015?  They attributed it to:
  • 2014: Due to investments in Healthcare distribution centre, costs from relocation of distribution centre, and new rental costs from the group's offices which they no longer own.
  • 2015: "difficult market conditions", with some infrastructure and one-off costs.
Distributors earn a tiny cut of profit when moving their customers' inventories.  DKSH has very small margins - between 0.7% and 1.5% in the last ten years.  They rely on high turnover.  So they have tremendous working capital requirements - in any particular year, Cashflow from Operations (CFO) is unpredictable, due to the change in working capital.  In most 'normal' years - years showing healthy growth - CFO is below income, due to new working capital requirements for continually expanding revenue/income.  In bad years, CFO spikes up:

Because of unpredictable WC, we cannot use cashflows to check the quality-of-earnings for a distributor.  But we can try to estimate if they are sustainable.

Long term I estimate CFO to average 50% of income in a normal year of healthy growth (averaged from 2011 to 2018).  This includes some exceptionally good years where CFO was negative.  It excludes bad years like 2008-09, when profit drops and CFO shoots up.

The Balance Sheet is normal for a distributor: low fixed assets, low long term debt.  

In summary, in 2018 they had:
  • Profits of RM 32m.  Profits are leveraged to the economy.
  • LT debt of RM 32m.  ST debt of 29m.  Total: 61m  Interest payments were 8.2m, already included in CFO.
  • Dividend payments were 16m, not part of CFO.
I estimate long-term CFO roughly at 16m (50% of profits) when things are going well. CFO increases sharply when the economy goes down.

Auric Acquisition

DKSH announced they are buying Singapore's Auric for RM 490m (SGD 157m).    Might be a good price, as Auric was previously privatised at SGD 207m.

From what I can make out:

  • They are paying 18X earnings for it.  Auric's annual profit is estimated around RM 20m.
  • Lets say they take a (SGD) loan at 7%, that would give additional interest payments of 34m.  Assuming those earnings are backed by cashflow, we have an additional 14m/year left to pay off.
  • They can still pay this out from their CFO.  Though theres a chance they have to cut dividends.


Main risk is cyclical - if a recession occurs, revenue decreases and profits drop like a rock.

The longer term risk for its consumer goods distribution is e-commerce.  DKSH says that they currently sell to or partner with leading online retailers, such as Tmall,, Qoo10 and Lazada.  They have invested in 2 e-commerce companies: eSweets (a China online seller of sweets) and aCommerce (a Thai eCommerce service provider).


A price of MYR 2.50 would give it a trailing PE of 9.1.

Why is it so cheap?
  • Falling profits in 2014 and 2015
  • Market may be wary of the expensive Auric acquisition announced in December.
  • The stock was removed from the Sharia Compliant List in Nov 2018, forcing Islamic funds to sell.
I think most of the risks are priced in.  The main risk remaining is a recession - that could see the stock drop 50%.  If I buy, I'd probably sell at a PE of 15 - which is a 50% upside.

Bought 16000 shares at average price of MYR 2.483.  Total cost SGD 13385

Monday, March 18, 2019

Systematic Trading: Week 5

Last week SPX closed above the much-watched 2800-2815 resistance area.  Its not convincing yet - this week we'll see if its a false breakout.

Following my system, I'm buying stocks, as the Russel 3000 index has been above its 200 MA.

Value (The Acquirer's Multiple)

Bought the next top 6 stocks from The Acquirer's Multiple All Investable Stock Screener.

Momentum (Clenow)

Bought 6 stocks:

  • FSLR (First Solar), bought 73 shares @ $54.27
  • CMG  (Chipotle Mexican Grill), bought 6 shares @ $648.90
  • CDNS (Cadence Design System), bought 65 shares @ $61.37
  • GRA (W. R. Grace & Co), bought 52 shares @ $77.40
  • MSCI (MSCI Inc - not the MSCI index - the company that provides indexes), bought 21 shares @ $190.17
  • PCAR (Paccar Inc), bought 59 shares @ $67.70

Monday, March 11, 2019

Systematic Trading: Week 4

The Russel 3000 index hovered above and below its 200 MA this week.  No buy or sell for either strategy.

This has been a losing week.  Its hard watching individual stocks that I bought go down 5-7% a day.  Don't think there is anything wrong with the strategies - both of them concentrate on small caps, which have had a rough time.

On a day to day basis, most stocks follow the index.  Both strategies seem to pick high beta stocks - if the index goes up or down by 1 or 2%, the stocks each go up or down 2 to 7%.  Just magnifying the index result.

Tuesday, March 5, 2019

Systematic Trading: Week 3

The Russel 3000 index remained above its 200 MA this week, I'm now holding 12 stocks.

Market Breadth looks strong - though its not used in my trading strategy.

Value (The Acquirer's Multiple)

Bought the next top 5 stocks from The Acquirer's Multiple All Investable Stock Screener.

Momentum (Clenow)

Bought 5 stocks last night:
  • FLNT (Fluent Inc), bought 728 shares @ $5.39
  • IIPR  (Innovative Industrial Properties), bought 50 shares @ $78.45
  • INSM (Insmed Incorporated), bought 127 shares @ $31.05
  • VCYT (Veracyte Inc), bought 196 shares @ $20.06
  • OKTA (Okta Inc), bought 48 shares @ $81.72

Most of my positions are underwater.  I need to remind myself that the Momentum strategy is highly volatile.  Months with + or - 15% are common.

Tuesday, February 26, 2019

Systematic Trading: Week 2

The Russel 3000 index remained above its 200 MA this week.  I'm now holding 7 stocks.

Value (The Acquirer's Multiple)

Bought the next top 4 stocks from The Acquirer's Multiple All Investable Stock Screener.

Momentum (Clenow)

Bought 4 stocks yesterday:
  • MRTX (Mirati Therapeautics Inc), bought 51 shares @ $77.70
  • XPER  (Xperi Corp), bought 165 shares @ $24.04
  • DOMO (Domo Inc), bought 117 shares @ $34.95
  • LRN (K12 Inc), bought 120 shares @ $32.85

Tuesday, February 19, 2019

Systematic Trading: Week 1

This weekend the Russel 3000 index has been above its 200 MA for 3 days.

Who knows if it will continue?  It could be a false breakout.  Or it could be like 1998: a correction before a final 18 month melt-up.  I will trade the system regardless.

Value (The Acquirer's Multiple)

Yesterday, bought the top 3 stocks from The Acquirer's Multiple All Investable Stock Screener.

I will continue to buy and sell as the number of days the index is above the moving average. (N) changes.

After each stock has been held for 1 quarter, I'll rebalance.  i.e.: replace it with another stock if it is no longer within the top N rated stocks.

Momentum (Clenow)

Bought 3 stocks yesterday:
  • LIVX (Livexlive media Inc), bought 673 shares @ $5.95
  • LCI  (Lannet Company Inc), bought 389 shares @ $10.28
  • EHTH (EHealth Inc), bought 64 shares @ $62.66