Chlorophyll Inc

On China Milk

Regarding Profit/Loss account

China Milk’s Business Prospects remain strong, despite their tough industrial environment. This can be seen through their sustainable sales figure and net profit growth. Revenue up 25.11% and Net profit up 8.7% based on 2nd Quarter, 6mths Ended revenue and net profit up 26% and 15.2% respectively.

Regarding Promised Growth

As promised, the company has increased in herd size from 16,000+ to 21,000+, raw milk production has began, reduce the reliance of selling cow semen, as raw milk takes a bigger pie of revenue structure.

With regards to the new raw milk process venture, two main important things will be happening,
1) New plant in Daqing, Heilongjiang will process between 50 to 80 tones of raw milk per day.

2) Yinluo is the new brand name from China Milk. Its product range will initially include flavored milk, yogurt drinks and eventually ice cream. Marketing of their products will begin in other Northeastern provinces of Liaoning and Jilin, and the major cities of Beijing and Shanghai thereafter.

Regarding Balance Sheet

Balance sheet remains very healthy, with cash/cash equivalent excluding assets, exceeding total liabilities by 0.7billion RMB.

Regarding Finncial Ratios

NAV per share increased to $SGD 0.54 from 07’s $SGD 0.492 with no changes in shareholdings.(Using exchange rate of $1 to 5RMB)

Financial Ratios like ROE (28%), PBV (0.8 times), PE (3.1times) remains excellent for bargain hunting at a price of $0.395-0.41

Regarding Risks

Matters involving why the company is still holding on to soo much cash? A accounting fraud? as mentioned by JP Morgan. Risks involving a substantial holdings by a family/one person and of course those unseen risks like disease, famine, demand for milk etc.

Recommandation

Milk industry in China, because of the milk scandal, the demand for milk in China has indeed fallen, yet despite this grim fact. If you were to think and reason, eventually this abstinence to milk will be over, just like previous food related disease like Bird flu, Mad Cow etc etc. Milk will then return back to its original demand-this time: safer and much more regulated. In my opinion, China Milk will be able to benefit more from this crisis as opposed to many common believes, though i must also point out the fact that the management is aware and curiously optimistic about their company's future.

This is because many of its milk producing competitor are more or less wiped out. Regardless whether or not it's future milk process sector were to grow or not, their intrinsic value remains at $1.10 if China Milk were to remain its EPS of 0.13 (2008) 0% growth for the next ten years.

Recommends buying more at $0.395


On FSL Trust
Although i don't own this stock yet, i recommend a curious buy for this gem. A lot of monitoring need to be done for company as i'm new to this new investment structure which is like a REITs but involves only renting out ships and not buildings or office spaces etc. Yet because of much uncertainty that this crisis has invoked to the shipping industry, i would never have bought this gem at $1 plus or recommend it. But since it has fallen to $0.45 per share, bringing forth a 50% discount to its NAV, i guess its a good buy. Here are the reasons why i will be buying:

-Very high dividend payout of at least 15cents per year. But expects DPU to ease moderately.
(Yield might not be sustainable, despite this fact, its still attractive at 0.45)

-NAV per share is $SGD1.10

-Intrinsic Value $0.70 or $1.10 based either on Dividend Discount or NAV your choice.

-Therefore at a price of 0.43-45 per share, significant discount is present.

-Estimated Contract value per share is $1.78

-Diversified Ships and clients, ships are young and have substantial value to them.

-Likewise, clients are so far not giving any problems and have not default.

-Do not take up operational costs of the ships, un likes other shipping trusts

-Strong Cash flows.

-FSL Trust was the only Trust which employed a full time risk assessment officer to assess the credit-worthiness of potential lessees on an ongoing basis

Risks to monitor FSL
And here are the reasons why this gem needs to be monitored more closely. This is what i wrote to myself on Microsoft word

"-Whether or not the company is even able to sustain this dividend payout has yet to be tested in this strong bear market. However, setting a limit of tolerance, of 7 cents, if company dividend should go below that, escpially for payouts in 2009 and 2010, activate sell.

Take note that NAV per share. This is because if the company NAV per share keeps dropping per quarter, this will result many refinancing problems/dividend zero payout/Loan to market convent , setting a limit of NAV $SG 0.70 per share.

Company takes up too much debt to finance, their expansion. Take not, if too much debt taken upon DER reaching above 2 times be careful and get ready to sell.

Intrinsic value hit about $1.20 or higher, with no improvements in fundamental. Sell.

Any default by the clients. Consider a sell, if there are two or more defaults in 2009.

Likewise, take note of receivables and all those Red flags, annual report to come out in March 2009."

On China Essence

Update on China Essence as of Dec 28 2008
Regarding Profit/Loss account
Share price has seen fallen to a low of 0.23-0.25 cents.
Just like China Milk, China Essence remains strong amidst uncertain and bearish times. This can be seen again through its 3mth’s revenue up 29%, whereas NPAT drop slightly at (7%), this was due to a 200%+ increase in administrative costs, and a 100% increase in financial related cost. Reasons are as follows

Administrative cost explained

(i) The increase in costs incurred by the operation of the new production facility in Inner Mongolia, amounting to RMB3.9 million; (one time cost unless they expand some more.)
(ii) The provision for directors’ fees and performance bonuses of RMB4.0 million for the six months ended 30 September 2008;

Financial related cost explained
(i) Finance costs on bank borrowings increased by RMB7.8 million from RMB0.9 million for the six months ended 30 September 2007 to RMB8.7 million for the six months ended 30 September 2008,
(ii) Mainly due to an increase in bank borrowings by RMB347.8 million for the six months ended 30 September 2008.
Despite increase in these costs, overall 6mths ending at 30Sept 2008, total revenue is up 39% and NPAT up 9%.

Regarding Balance Sheet
Total liabilities at 713.3million RMB
Total assets at 1.6billion RMB
Current assets minus off current liabilities have an extra of 200k RMB
With ever increasing reserves of 749million RMB, the company’s balance sheet is more or less healthy.

Regarding promised growth
The Group have incurred capital expenditure of RMB407.0 million during the six months ended 30
September 2008 and these related mainly to the cost of land acquisitions, construction of new plants and the acquisition of machinery and equipment. This mainly comprised of new production plants for potato starch with production capacities of 80,000 tones per annum
(“t.p.a”) in Nenjiang, Heilongjiang province and in Zhalantun, Inner Mongolia, and potato protein (8,000 t.p.a) and potato fiber (80,000 t.p.a) in Daqing, Heilongjiang province, and in
Ahlihe, Inner Mongolia.
The Group has conducted further testing of the production facility during this harvest season and has commenced large scale production in late September 2008. The Group intends to sell protein suitable for the animal feed market to local and international distributors. They anticipate this to be one of the Group’s key performance drivers in the second half of FY2009.

After this year’s harvest season, the Group will conduct further testing of the production facility and commence large-scale production in December 2008. Potato fiber is used as a high-grade animal feed. The Group intends to sell potato fiber to local animal feed manufacturers

The Group will continue to expand its distribution network to penetrate regions in the PRC where it currently does not have a presence, and enhance its presence in existing markets.

With the addition of the planned capacities, the Group believes it will maintain its position as one of the leading potato processing producers in China.


Regarding Financial Ratio
Nav per share has increase to $SGD0.483 from 0.45
PE ratio at 2.3times
ROE remain amazingly high
PTB roughly at 0.7-0.8times
Price at $0.23-0.25

Regarding Risks/Short falls
A few orange flags have been noted, under their balance sheet, inventories and receivables remain high, even though the latter account have been reduce slightly. Take note of these two accounts Inventory at 144,032k RMB and Receivables at 100,776k RMB
Take note also of its 6mth ended operational Cash Flow, if Operational Cash flow remains negative (11,770k), find out why?
Lastly take note of revenue, figures in the coming years 09 and 10, since they spend so much on expanding operations, their sales have to increase just as much.

Today's article will be on government securities, the reason why i got interested into this part of the investment spectrum (i usually go for equities) is because i suddenly found myself holding a lots of cash. Cash that are rotting away in my saving bank account like adolescent teenagers gathering around computer game shops, wasting their time away playing online games.

Then the question strikes me... what am i to do with this sum of money that i was soo blessed with? I couldn't just leave it idling around my account and let inflation eat it's value away, year after year, day after day. Plus, i needed the money to pay off the upcoming loans and university fees for the next few years to come, liquidity therefore has to be given top priority here.

So, how can one earn better returns without being exposure to any big or even systemic risks and yet have the privileged to use the cash at any given time ?

For the general public out there, many people will assume such an investment exist only in forms of Fixed Deposits offered by our local banks. However, in my opinion, Fixed deposits instrument do not offer very good interest rates (returns) at all! In fact if you take a quick look at the facts below, (to keep with consistency, we shall only look at 1 year rates, capping it at 50k)

Visit http://singaporesearchsite.com/singapore-tips/fixed-deposit-interest-rate/ for full chart

you will find that no yearly Fixed deposit rate reach above 1%, the most is offered by RHB at 0.935% with a 50k deposit. Now this fact alone, proves one point. That Fixed deposits gives out F***ing disgusting returns, and it makes me want to throw my shoes at them.

So is there a better alternative? One that is as safe, if not safer then a fixed deposit that gives better returns ?

Like choosing between Gold and Copper, the Singapore government securities also known as (SGS) is definitely a better alternative as compared to a FD and not many people know because the banks in this country keep so silent about.

So lets start with the basics, what is SGS?

SGS are marketable debt instruments issued by the Government of Singapore through the Monetary Authority of Singapore (MAS). These debt instruments can be in the form of either Treasury bills or bonds. The Singapore Government is obliged to pay the holder of the Treasury bill or bond a fixed sum of money on the maturity date of the security. Thus, when you buy SGS, you are lending your money to the Singapore Government. Although SGS cannot be cashed in before their maturity dates, investors can always sell them in the SGS market. SGS primary dealers are prepared to buy and sell SGS at any time.

So the next question is why does the government issue these instruments?

They do so because of the following reasons
1)Provide a liquid investment alternative with little or no risk of default for individual and
institutional investors;

2)Establish a liquid government bond market, which serves as a benchmark for the
corporate debt securities market; and (simply means, other companies uses this rates as a comparison to give out their own loans and bonds, wonder why banks don't follow suit?)

3)Encourage the development of skills relating to fixed income financial services
Available in Singapore.

SGS's investments are for?

People who have lots of spare cash, either waiting to invest (but still don;t know what to invest) or need to use the money in the near future. Earn extra interest given the amount of short time.

People who do not want to be exposed to systemic/market risks, people who want to invest in very very very safe investments.

People who likes the feeling of the government owing them money.

People who wants to diversify their portfolio, instead of holding cash or putting in FD , this is a better alternative.

Types of instruments offered by SGS

T-bills: They are short-term securities that mature in one year or less from their issue date. T-bills are bought and sold at a price less than their face (par) value, and when they mature, the Government will pay the holder of the T-bill an amount of S$ equivalent to the face value of the bond. Therefore, the interest earned on the T-bill is the difference between the purchase price of the security and its face (par) value. The Singapore Government issues 3-month and 12-month T-bills. For example

Issue code: BQ08150N 3mth T-bills is sold at $0.98 per unit. You bought 1000 units, therefore you spent $980. After three mths, the government will return you a full $1000, this $1000 is known as the "par value" and is 100% guaranteed by the government. Thus your profit is $20. So if you want to calculate the yields (how much you got back as a percentage) $20/$980*100%=2%

Bonds:They are debt securities that pay a fixed rate of interest (called the coupon), usually every six months, for the life of the securities and then their face (par) values on redemption on maturity. In Singapore, SGS bonds are issued with maturities of 2, 5, 7, 10 and 15 years. And if you are wondering what is the meaning of securities, simply go look up the dictionary.

Visit http://www.sgs.gov.sg/pub_guide/faqs/publ_faqindinvestors.html#4 for more examples

Is SGS T-bills better then short term Fixed Deposits?

Just to keep things simple, looking at only 3 mths FD vs 3mths T-bills rates. On average FD 3mths rate is 0.35% vs 3mths T-bills rates of 0.56%-0.675%. Then some of you might wonder the difference between the current rate of T-bills and FD is not much, only 0.34% difference. Consider this , a difference of 0.34% of $1000 is $3.40, if you have $100,000 the difference is $340, likewise $1million is $3400 for every 3 mths. Plus rates in T-bills last year was a whooping 2.1% for a 3mth deposit.

What determines the yield rate?

The yield rate is determined by a few factors, factors like the SIBOR/
Domestic Interbank Rates/ the amount you bid, the outcome of the bidding/ and many other factors that are interlinked between the world's markets.

HUH? Got bidding arh?
Yes, that whats makes investing in SGS fun. The bidding will involve competing for the amount of yield (returns) you want to get. Say for example, you want a return of 1.25%, then in your application, you state that you want to bid at 1.25%. However, the higher your bid, the chances of you getting the bill is lower, because other people might bid at 1.1% or 0.90% and in this case, they will get the bill first (priority is given to the lowest bidder). Take note also that if your bid is above the "cut off bid" say at 1.09% (lol) you get nothing.

Then again, you can try bidding again for another T-bill issue, (the government issues T-bills on a weekly basis). There are soo many T-bill issues, that one might wonder which one to pick, but according to my interview with the SGS lady on the phone, she says it will depend on your holding preferred period like how long you want to hold for say 3mths or 6mths or 1 year, the yield will then depend on your luck and the outcome. And if your not comfortable bidding and finding it too troublesome, apply for non-competitive bid which will give you the best outcome of the bids provided the T-bill has a uniform pricing function.

So how to apply?

Simple! Go to any of your local bank like DBS/UOB* , walk towards the "can i help you?" table and talk to the lady. Tell her you want to apply for Government T-bills. The lady will kindly usher you to a relationship manager , that's where you have to be careful, because many banks do not encourage this type of investment, they will probably suggest you to buy their structured products for better returns. Note also that they wouldn't be able to or not willing to answer your questions regarding SGS products because its not under their bank's products. So if you survive their persuasions to buy their products, they have no choice but to issue you a form, thats where your IC comes into play. Have also you bank account no. ready, the process of creating your very own SGS account is at hand.

(Takes about 5 working days). Once your account is done up by them, they will issue you another form, which is the bid form, where you indicate which type of T-bills or bond you want to invest in? What yield you want to bid? Which Issue code? Competitive or non-competitive? Etc. So before you apply for the bid form, make sure you know what type of Bills or bonds you want, how long you want it to be, and what kind of returns you expect from etc.

Any trouble like don't know, what the hell I'm talking about, feel free to call up the nice SGS lady at Tel: (65) 6229-9150 or email them at sgddiv@mas.gov.sg.

Another alternative is to open an account with POEMs visit http://singapore-fixed-deposits.blogspot.com/2008/03/treasury-bills-your-alternative-to.html for more information.

What other people say about SGS

"Under the current market turmoil, there are still some safe havens for your investment monies. Besides Singapore Treasury Bills, Singapore Government Bonds are also one way to invest in relatively safe assets. The MAS’s recent auction for its 5 year Singapore Government bonds yields 2.65% per annum which is higher than even the highest fixed deposits promotions by the banks. This is one area for consideration for those risk adverse investors. Definitely safer than Structured Products such as Lehman Minibonds or DBS High Notes 5 series.
T-bills are short-term securities that mature in one year or less from their issue date. T-bills are bought and sold at a price less than their face (par) value, and when they mature, the Government will pay the holder of the T-bill an amount of S$ equivalent to the face value of the bond. Therefore, the interest earned on the T-bill is the difference between the purchase price of the security and its face (par) value. The Singapore Government issues 3-month and 12-month T-bills"- blogger

"Because many people do not know about such instruments, their ignorance has caused them to lose out the ability to maximize their returns even under very safe investments"-Financial planner

"Most clients, come in every 3mths to renew la. So if you ask me , whether this product can lose $, i don't think so. Why would clients keep coming back to renew their application if they are losing money?"-Karren Tan Relationship Banker

Deal to huge amount of time and research required to analyst more investment gems, i have to take a break and spend more time doing what i do best (looking for gems and analysing them).
Upcoming articles to look out for are as follows

1)Singapore Government T-bills and why you need to invest in them

2)Suntech RIETS, an oversold gem? Smart money seem to be pouring in

3)FSL Trust an update on Risks.

4)Saizen RIETS*

5)Porfolio update, no window dressing, purely updating and finding more risks related to China Milk/China Essence and Sino Tech.

Enjoy your holidays and have a good year ahead :)