Latest holdings of My Portfolio ~ 31 March 2008

Latest Holdings as at 31 March 2008

Cash

Cacola Furniture
Changtian
China Energy
Courage Marine
Lizhong Wheel
ChinaXLX
Jiutian Chemical
Sihuan
Sinotechfibre
Swiber

CPF

Asia Enterprise
Midas
Raffles Education

Performance of Virtual Fund ~ March 2008

Performance of Virtual Fund as at end March 2008

China Fish -S$11,200
China Hongxing - S$68,721.09
Raffles Education - S$15,000
Sin0 Techfibre - S$34,850
STX Pan Ocean - S$41,990
Total unrealised loss = -S$171,761.09 = -34.35%
Sum invested = $606,511.09
Cash holding = $4,830
Realised profit = $111,341.09 = 22.27%

Raffles Education buys college for RMB208.5m

Raffles Education Corp plans to buy Hefei Wanbo Education Management Co, which runs a college in China's Anhui province for RMB208.5million (S$41.1m).

http://info.sgx.com/webcoranncatth.nsf/VwAttachments/Att_93A79D433247A6CD48257419005EE779/$file/WanboAcquisition.pdf?openelement

Transaction of Own Portfolio

Bought Swiber at $2.64 today.

China Energy Update

The following note is reproduced from CIMB:

Review of overpayment of acquisition

China Energy announced on Friday that its Audit Committee had engaged Pricewaterhouse Coopers on 19 Mar 08 to conduct an independent review of anadditional payment of Rmb190m related to the acquisition of Jiutai Energy (Guangzhou) Co., Ltd. Back in 25 Aug 07, China Energy announced its acquisition of Jiutai Guangzhou for Rmb197.8m, based on an NAV valuation by an independent valuer in China. This acquisition amount was in line with the estimated Rmb200m stated in the prospectus dated 13 Dec 06. However, it was recently brought to the attention of the Audit Committee that subsequent to the completion of the acquisition, a further sum of Rmb190m was paid by China Energy (as at 31 Dec 07) to settle Jiutai Guangzhou’s liabilities.

The Audit Committee has engaged PwC to review:

1) the nature and circumstances related to all payments made by China Energy to Jiutai Guangzhou;

2) the financialpositions of Jiutai Guangzhou as at Nov 06, Aug 07 and Dec 07; and

3) the due diligence process and appropriate disclosure in China Energy’s prospectus.

Comments Concerns over accountability.

The key concern raised is the actual payment of about Rmb390m to Jiutai Guangzhou, when the net asset valuation and prospectus disclosure only valued the company at about Rmb200m. In our phone calls with management, management explained that the Rmb190m in question was paid to contractors post-acquisition for outstanding amounts related to the construction of Jiutai Guangzhou (corresponding to “Other payables” in Figure 1). This brings China Energy’s total investment to Rmb390m, fairly in line with Jiutai Guangzhou’s property, plant and equipment balance at the date of acquisition (Rmb380m). Management further explained that the Rmb190m was paid using internal cash flow, while the acquisition of the 100% stake in Jiutai Guangzhou at Rmb198m was fully compliant with disclosures in the prospectus. Figure 1: Fair value of Jiutai Guangzhou during acquisition Jiutai Guangzhou Net assets acquired Rmb mProperty, plant and equipment 375.7 Intangible assets 76.3 Other receivables 34.4 Prepayments 8.2 Inventories 13.0 Deferred expenditure 0.4 Trade payables (10.7) Other payables (199.3) Long term loan (100.0)197.9 Source: Company FY07 financial statements [ 2 ] No financial impact, but unable to assess until review is completed. There shouldnot be any impact on China Energy’s operations and expansion. However, the share price is down 42% in the past two weeks, and we expect volatility to continue until the completion of PwC’s review. We will be monitoring developments, but at this juncture, we are dropping our Outperform rating in favour of a not-rated view.

Total despair? Time to buy?

I find the following forum opinion written by Dyna interesting and I tend to agree with it:

Why have I been staying full cash since the last rally in 2007? Simply to maximise my profits when I decide to use my cash. This is what I learnt after going through more than 20 years in the market. Yes, you need to know the fundamentals. You need to know the technicals. But just the bare minimum will do. Fundamentals because you need to know what is happening around you so you know when the turning point is round the corner. Technicals because you need to know you are not buying at the high, not buying while it is going down. You need to identify the trough. You need to identify the drying up of volume. Look out for the sign of total despair. Look around you. Have most of the people gave up on the market? Are they still buying? Make sure most have no more money to buy. Make sure they gave up on their stocks. You should start hearing things like "This stock I take it as throw away already." It means that even when there is a rebound, they can't even bother to throw, because they are already stuck too deep to care. Also look at the trough. Not false one. Does the period of trough correspond with dried-up volume? These are signs of total despair. I look for total despair. Only when there is total despair Only then can the stockmarket have a chance to recover. And this is the time when people with money who will come in and mope up the dirt cheap stocks - and good quality dirt cheap stocks I mean.

Transactions of My Own Portfolio

Bought Changtian Plastic today at S$0.17. I feel that the stock has fallen to a very attractive level with very decent dividend yield of more than 5%. Downside risk should be limited as it has fallen from IPO price of S$0.47.

The Great China Sales

(Courtesy of CIMB)

China Energy Limited
(S$0.615, OUTPERFORM, CEGY SP)

Concerns with mismatch in methanol and DME expansion. Clients were generally concerned about China Energy’s increasing exposure to volatile methanol (key raw material) prices over the next two years, due to a mismatch in its DME and methanol expansion. While methanol prices have declined in recent months, translating to a more favourable DME-methanol margin spread, some clients were less comfortable with the lower margin visibility. Questions also centred on the company’s cost structure and competitive positioning amid potential new competition following the official take-off of DME in China.

Methanol self-sufficiency target of 50-70%. Its 500,000-tonne p.a. methanol plant expansion in Shandong is on track for completion in 3Q08. Post-completion, China Energy would be about 33% self-sufficient in its methanol requirements in FY09. Management reaffirms plans to increase its methanol plant capacity and self sufficiency to 50-70% by 2010.

DME fuel market looks increasingly promising. The official DME standard in China has been released by the National Development and Reform Commission and effective from 1 Jan 08, DME would be recognised as a legitimate alternative fuel in China. Following the successful completion of its pilot DME bus project in Shanghai, management is hopeful that DME could star as one of the alternative fuel choices to reduce air pollution during the Shanghai Expo 2010.

China Fishery Group
(S$1.70, OUTPERFORM, CFG SP)

Rationale for diversification into fishmeal operations. Clients questioned CFG’s rationale for diversifying into fishmeal operations given the paltry 3.3% net margins compared with the 29.2% for trawling operations. Management explained that its entry into fishmeal was a long-term strategic decision, as a presence in Peru would give the company access to the world’s largest wildcatch fish resource, with the potential for price appreciation if Peruvian anchovies could be used for human consumption instead of fishmeal. It has also allowed the company to establish a logistical presence in the South Pacific to support Chilean Jack mackerel trawling scheduled to resume in 2Q08. In addition, the company is striving to improve the efficiency of its fishmeal operations and aims to lift net margins to around 10% over the next 2-3 years.

Prepayment of fourth VOA. Negotiations on the prepayment of the fourth vessel operating contract are likely to be completed in 1H08, with prices and the effective period expected to be similar to those of the third VOA (prepaid US$150m, period 18 years). The company plans to prepay its fourth VOA with staggered payments from internal cash flow, plus a bank loan of about US$50m. The prepayment will lift trawling margins as the amortisation of the prepayment is significantly lower than the total daily charter of US$72,000 for the six supertrawlers under the agreement.

Sino Techfibre Ltd
(S$0.565, OUTPERFORM, SINOT SP)

Main PMP machinery has arrived. Investors asked whether there would be another delay to the start-up of the pattern moulding paper (PMP) facility. Management replied that the key piece of machinery responsible for the delay has arrived at its plant. It is currently installing the equipment and should begin trial production shortly. Its previous guidance of trial production in 2Q and commercial production from 2H08 remains unchanged. An early commencement of commercial production would be a bonus. Guidance of 40-50% utilisation in 2H08 remains valid. This would equate to PMP revenue of Rmb160m-200m in 2008, or about 10% of our full-year group revenue forecast.

Expect utilisation to edge towards 60% for leather products. There are also no major issues with its existing products. Management guides that it is able to handle raw material price movements as it focuses on high-margin products. Management highlighted that China’s military budget had increased by 17.8% in 2007 and the military had been a key pillar of support for its products, especially after the uniform upgrading exercise last year. An example is the belt used by the military. In the past, only high-ranking officers used genuine leather belts but after the upgrade, all soldiers have been given microfibre leather belts. Management expects the proportion of army-related sales in 2008 to grow slightly from the 14.4% in 2007.

No major capex in 2008, despite new product TPU. Sino Techfibre also clarified that the bulk of its capex had been spent in 2007. Total capex of Rmb675m was 66% driven by PMP expansion, 30% by PU and microfibre capacity addition and the rest by new products such as TPU. Capex planned for 2008 is only Rmb250m. This consists mainly of the remaining payment for two more PMP lines that the company had prebooked in advance.

For the benefit of other followers of my blog who have been asking me similar questions in general:

hello Kit,

Any news update on Jiutian? The share price is keep on drop until 0.155 as I write to you. Are you still holding it? Would it be a long term investment? would you optimist to this company future? How do you think about this Company basis fundemental? Would be grateful you could let us know when you are free to find out.

Thank & Regards,

Roden

Kit said...

Hi Roden,

If you are looking to buy and hold short term, I suggest that you stay away from the current market. In my view, I think the bottom is still a long way to go. I personally expect the STI to drop to 2,000 and Dow 8,000. As a rule of thumb, have a good margin of safety. You may want to set the entry level at 50% lower from current levels and add 20% to every 20% drop in price from there onwards, assuming the fundamentals of the company is still sound by then. Remember averaging down is only useful if the investment is sound.

Jiutian's lower than expected FY07 results and the plant shut down plus slower start of the new plant make it a perfect target for kateks to short. Personally, I made more than 50% from Jiutian before the share splits. The current shareholdings I have are just a fraction of the realised profit. Therefore I have little to lose in this sense. I will only be seriously adding more shares if it goes below 10 cents. In the longer term, the production expansion plan is still intact and industrial demand will continue to be strong amid the strong China economy. It is also encouraging to know that the insiders have been buying of late as a vote of confidence.

On a separate note, I feel that the previous accountant is really smart. If he does return after his long holiday "break", then things should be looking up for Jiutian.

Transaction of My Own Portfolio

Bought Courage Marine at S$0.355 today.


-Courage Steers 2007 Net Profit to US$60.4M on Record Freight Rates
-Buoyant demand for coal, iron ore and basic building materials from China and rest of Asia drive rates up
-FY07 tax free dividend of 3.115 cts/share on 0.55x payout ratio
-Firm demand from Asia, longer voyages and port congestion will continue to underpin high freight rates

Investing Ideas - Cacola Furniture

(The following article is reproduced from OCBC Research)

Cacola Furniture International Ltd turned in an impressive set of 4Q07 results. Sales grew 16.8% YoY to RMB148.5m while net profit surged 42.8% to RMB28.5m. Cacola enjoyed broad-based sales growth, coupled with improved gross margins, across all its products segments. Same store sales recorded double-digit growth, reflecting sturdy organic growth. These attest to the strong demand for furniture in the PRC.

Going forward, Cacola’s prospects remain rosy, supported by China’s strong consumption growth and housing boom, which will lead to firm demand for furniture. Its enlarged capacity (which will bump up its Sofa and Mattress segments’ capacities by 84% and 105%, respectively) will be a key growth engine in 2008, and we expect to see positive revenue contribution from the enlarged facilities by 2Q08.

The Group has declared a HK$0.10 dividend for its shareholders, implying a dividend yield of 4.1%. Cacola offers a high ROE of 40%, yet it trades at an undemanding 3.7x FY08 PER. We retain our BUY rating and fair value estimate of S$0.75.

Impressive 4Q07 results. Cacola Furniture International Ltd turned in an impressive set of 4Q07 results, where the numbers were largely in line with our estimates. Sales grew 16.8% YoY to RMB148.5m while net profit surged 42.8% to RMB28.5m. PBT declined by 1.5% due to a surge in listing-related expenses, despite getting a RMB1.7m write-back of impairment loss. Nevertheless, its bottomline soared thanks to tax exemptions. In terms of its full year results, Cacola’s FY07 sales grew 23.8% to RMB564.2m, while net profit surged 64.0% to RMB123.3m.

Cacola has declared a HK$0.10 dividend for its shareholders, implying a dividend yield of 4.1%.Backed by robust sales and improved margins. The topline improvement was backed by broad-based sales growth across all product segments. The Panel Furniture, Sofa and Mattress segments reported sales improvements of 29.8%, 14.5% and 19.4%, respectively. Same store sales at its mega store and specialty stores grew by 13.8% and 21.7%, respectively in FY07, reflecting sturdy organic growth.

Furthermore, gross margins across all its product segments improved, thanks to Cacola’s push towards premium products. The Group recorded gross and net margins of 33.8% and 21.9%, respectively, in FY07, vs. 32% and 16.5% in FY06. Expanded production capacity to kick in this year. A key growth engine for Cacola in 2008 is the completion of its capacity expansion. By 2Q08, its Sofa segment will see a 84% increase in capacity, while its Mattress segment will be able to increase its output by 105%. Management is confident that the new facilities will be operational by March-April 08. We expect these expansions to have a significant impact on Cacola’s revenue by 2Q08.

China consumption still strong. OCBC continues to favour Cacola over its SGX-listed peers for having the highest sales exposure (>80%) to the PRC market. While fellow furniture maker Koda Ltd has recently felt the heat from a weakening US housing market, Cacola has no such concerns. China, contrary to the US, is still enjoying a housing boom. Its rosy macro environment bodes well for Cacola, and OCBC expects furniture demand to remain firm as more young couples set up new homes, and as more properties exchange hands. A gem indeed. Cacola offers a high ROE of 40%, yet it trades at an attractively low PER of 3.7x FY08F earnings. In the midst of ongoing economic uncertainty, Cacola is indeed a gem that offers solid fundamentals and strong growth prospects. OCBC retains its FY08 estimates and BUY rating. Their fair value estimate remains at S$0.75.

Performance of Virtual Fund ~ Feb 2008

Performance of Virtual Fund as at end Feb 2008

China Fish -S$2,800
China Hongxing - S$61,721.09
Raffles Education - S$6,150
Sini Techfibre - S$32,150
STX Pan Ocean - S$23,590

Total unrealised loss = -S$126,411.09 = -25.28%
Sum invested = $606,511.09
Cash holding = $4,830
Realised profit = $111,341.09 = 22.27%

Latest holdings of My Portfolio ~ 29 February 2008

Latest Holdings as at 29 February 2008

Cash

Cacola Furniture
China Energy
Lizhong Wheel
ChinaXLX
Jiutian Chemical
Sihuan
Sinotechfibre

CPF

Asia Enterprise
Midas
Raffles Education