Bought Li Heng and Wilmar

Bought 25 lots Li Heng at 31c (9-12-08):



Bought 3 lots wilmar @ 2.89 (11-12-08):
Wilmar might be considered a 'China stock' because it sells a lost of palm oil in China.

Cambridge got Refinancing!

Refinance $390m for 3 years throught 3 banks: HSBC, NAB and Royal Bank of Scotland.

Note that: "A portion of the Loan is subject to syndication on normal market conditions". So we are not completely there yet.

My calculations for how this will affect DPU:

• Quarterly borrowing costs (from 3Q08 results) will rise from 3.1m (@3.1%pa) to 6.6m (@6.6%pa).
• Reducing their revenue by 10% to account for the recession, and following my previous calculations (here and here), I get a yield of 3c per share.

China textile industry consolidates

Interesting post from D.O.G abt consolidation in the China textile industry after years of growth.

According to this article from a PR firm (I cannot confirm the figures) on Li Heng:

• In 2007, China became worlds largest nylon producer... but is still a net nylon importer, relying on imports for high-grade nylon.
• The nylon produced by Li Heng is of a quality that borders on domestic and import grade (e.g.: undergarments, swimwear)
  
• Li Heng is a leading producer of high-end nylon in China with a 15% market share...and has one of the highest operating margins (34%) among textile players
• Polyamide, a by-product of oil, comprises over 90% of Li Heng’s cost of sales.
• Inventory management is important as nylon has a shelf life of only 5 months
• To address cost pressures, Li Heng is looking to produce its own polyamide by 3Q09

I have not looked at Li Heng closely - have not even looked through their financial results.

Bought Midas

Bought 14 lots at 57.5 cents on Wed (9-1-08).

It is one of the few stocks in an uptrend. Price/vol action does not look so good however, monitor to make sure the pullback is in lower volume.... Fridays action was a bit worrying.

Just trying to ride the trend. Techincals only, no fundamentals.

Moody's cuts rating for Frasers Centerpoint

(Dec 1st 09) Moodys has downgraded Frasers centerpoint to Baaa1 rating (medium grade), saying it does not have 'scale and diversity' and is unlikely to obtain it.

Picture of US market turning bullish

Shows the markets change in tone in the last 3 weeks.

• First week (21st-28th Nov): market is still in correction. We have clear price/vol divergence. 5 days in a row!
• Second week (1st-5th Dec): collapse on Monday, follow thru day on Tues. Rest of the week has up days on higher vol and down days on lower vol. Friday's employment report was shocking, but the market ignored it. This 'ignoring bad news' has switched me to bullish.
• Third week (8th-12th Dec): One distribution day on Thurs, not enough to derail the rally (The volume from Yahoo seems to be wrong - IBD registered it as having +4% higher vol than the previous day). For the second and third weeks, all the other days were up days on higher vol and down days on lower vol.

We await:

• Continuation of up days on higher vol and down days on lower vol. No more distrrinution days.
• How does the market react to bad news?
  
• Need to see Dow break thru 50MA:

I think theres a 60-70% change this is the start of a tradeable rally. Excpecting a 20-30% bear market rally - use trailing stop loss. Cut loss if it fails in the first place.

Barry Ritholtz: S&P oversold

Extracts from here (dated Dec 7th 08):

"Over the past 100 years, we’ve only seen the relative strength of the S&P 500 drop to this level five times, and each time, it has been a major buying opportunity, although not necessarily a major bottom. If you look at 1929, it was a low but it wasn’t the low, and there was a bounce. It was the same thing after Sept. 11 — from Sept. 21, you had a 40% bounce in the Nasdaq before you went down to make all-time lows."

"There is a significant rally, 20% or 30%, waiting to happen. But there’s also the possibility of a lower low, as we get deeper into the recession, if things take a terrible turn for the worse."

"The most important [rule] is that we always have a stop-loss...we use trailing stop-loss...When the market starts heading south, we get taken out."

Using IBD's 'follow through day'

How the FTD has fared in the recent volatile market.

Previously they said that 1 in 5 follow through days failed. But in recent week's choppy markets, it has failed more. From "The Big Picture" (12-2-2008):

"Lately, we've seen a higher failure rate. The S&P 500 has nabbed three follow-throughs in recent months: Sept. 25, Oct. 16 and Oct. 28. Each time, the benchmark index has failed to build on that gain, reversing and falling to lower lows. Follow-throughs in other indexes have also failed. " [Note: From memory, one of these FTDs were undercut the day immediately after with a savage 8% loss on high volume. The others were undercut in a matter of days.]

Calling a market rally or correction is an exercise in trend following. The FTD is just one of their tools to give an earlier signal. If there ever was an indicator designed to give false signals in a volatile market, the FTD - occuring on an daily increase on higher volume than the previous day - would be it. IBD has always stressed not just to jump in and buy just because of the FTD, but to take it as a signal to keep a watch on leading stocks to buy at the aporopriate breakout point.

A reminder that the FTD by itself is not enough to confirm a uptrend:

• it must also be conformed by the action of leading stocks (a form of market depth)
• and from recent experience, should also be confirmed by further price/volume action of the indexes ie: up days in higher volume, down days in lower volume.
  
• and may also be cofirmed by the markets reaction to news (ignoring bad news)

And always cut loss if it dosen't work out.

Praying its only a bear market rally

Citibank report on the severity of the bear market and recession. Yeah, and they of all people should know:

• the current US consumer-led recession is much worse than the 2001 tech bust
• The 2001 bust lead to a 91 week bear market in Singapore
• Current bear market only in 54th week
• "Bear markets typically do not hit the trough or end until the economy is past the worst phase of the recession. In the 1985/86 recession, the bear market ended at the tail end of the recession. In the 1997/98 Asian crisis and 2001/02 tech recessions, the bear market ended in the middle of the recession, during the quarter where contraction was most severe."

Chart showing the Dow's 5 straight previous days of recovery on declining volume.

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In case its not obvious, I'm really hoping for another leg down. Most of my money is on the sidelines.

Short notes on Diary Farm and RMG

Don't qualify as value investments yet, but interesting to watch out for:

Dairy Farm

A retailer, operating Shop-n-save, Guardian, Cold storage, 7-11 and F&B in Asia.

Growth: 07 EPS was 19.2c at 257m. 1H08 operating profits up a mssive 63% from 113m to 187m. Mostly to top line growth: revenue up 18%, gross margins unchanged at 30%, but operating margins up massively from 4 to 5.5%, as admin costs were unchanged.

Balance sheet: Expansion funded by borrowing: FY08 Long term borrowings up 12% to $449m to fund expansion. FY07 Balance sheet had 400m long term debt (approx 1.5 times earnings) with 395m cash (not sure how much of it needed for working capital). They were net cash in 2006.

Business model: Company in growth phase. Good story if they can keep opening stores, while keeping admin expenses low or fixed. Historically, they try opening stores in many formats in different countries, grow those that succeed, and shut down or sold those that fail (eg: Franklins in Aust 2002, recently ceased Guardian in Thailand).

Conclusion: Too expensive to buy as a value stock: even if FY08 earnings follow 1H08's 60% increase, their PE @$4 is still 12.5. Possible future growth stock, meeting many CANSLIM criteria, but don't buy in a falling market.

Wait for: See if the recession affects their sales first: mgt makes a monthly report in SGX announcements.


Raffles Medical Group

Owns/operates one hospital and largest chain of clinics in Singapore.

• (FY07) Hospital gave majority of revenue (58%) and profit (76%). Hospital business has much higher operating margin. This hospital business model is highly leveraged (due to high fixed costs).
• Clinics business is more stable.

Business model: Main costs are from staff, then from consumables, which both grow in line with revenue. Not broken down based on segment.

Cyclical: Cannot just fire all the specialised staff if there is a sudden slowdown in business, so this makes their model highly susceptible to any sudden slowdown in demand.

Growth (long term): NRA 31 Jul 08: "The current utilization at Raffles Hospital is maintained at circa 40%-60% at 200 operating beds. We expect capacity to peak in FY09 at 300 beds". The hospital has 380 beds. So adding another 1/3 to their revenue will increase profit by 1/3.

Balance sheet: Small amt net cash (4m)

Valuation: Earnings approx 5c a share. At a price of 60c, this gives a PE of 12. If we can factor in the expected 1/3 long term increase, gives PE of 8.They are paying abt 70% of their FCF as dividends (7.7 out of 10m) No capex.

Wait for: Everything depends on end demand for their services. Wait 1 Quarter (end Jan) and see if hospital is affected by the recession. If it is, earnings will drop, and at trough, I would expect it trade at a higher PE (like 12).

Or else, wait for a disease outbreak (like SARS), which would affect the both their businesses badly, and then buy.