Portfolio
Stocks Commentary
Porfolio Review
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.
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.
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