Portfolio
Portfolio Update :July 2009
Every half a year, I will do a simple summary update on my companies; what have they been doing during this past six months and if possible what are they going to do for the imminent future. So to start off a simple recap on my current holdings are as follows
1) Capital Commercial Trust (CCT)
2) China Milk Products Group Limited
3) China Essence Group Ltd
4) First Shipping Least Trust (FSLT)
5) China Paper Ltd
Let's begin with..
Capital Commercial Trust (CCT) has a portfolio consists of 11 quality office buildings primarily situated in the prime location - Central Area - of Singapore. The properties are Capital Tower, Six Battery Road, One George Street, HSBC Building, Starhub Centre, Robinson Point, Raffles City Singapore (60% interest through RCS Trust), Bugis Village, Wilkie Edge, Golden Shoe Car Park and Market Street Car Park. In Malaysia, CCT holds 30% stake in Quill Capita Trust (QCT), a commercial REIT listed on the Bursa Malaysia Securities Berhad that owns commercial properties in Kuala Lumpur, Cyberjaya and Penang. CCT also has 7.4% stake in the Malaysia Commercial Development Fund. Going forward, CCT will unlikely be acquiring new assets/buildings due uncertainties of the future, until such that the latter proves otherwise, CCT will continue to expand seeking out good assets to enhance shareholder value according to Lynette leong CEO of the trust.
In addition, CCT has recently issue rights to pay down their current debts in doing so reducing their debt ratio from 40%+ to a low of 31%, the rights was issued in May-June period and was oversubscribed by 1.35times.
CCT’s latest quarter to quarter distribution per unit increase 29% from 2.58cents to 3.33cents after factoring in the rights unit. Which give an 8.2% annual yield using June 2009 share price of $0.81 and a 9.5% yield for my own holdings in the company which averages out to be $0.64 per share? This is because of improved operating margins, higher rental rates and good cost cutting measures.
Net asset value after rights issue is $1.54 which gives me a 140% margin of safety which in my view is substantial enough to continue to hold on to CCT.
In debt aspects, CCT has 8 assets to secure additional debts, strong balance sheet due to the rights issues and about $665million untapped balance from S$1.0 billion multicurrency medium term note programme. This is important to know, because it shows that CCT has at least defences against downward risks for the coming future. The ability to refinance is therefore in my opinion decent. About $900million of debts will expire in 2011.
A question was posted to the CEO of CCT during the Asian investment conference on the new supply of offices in Singapore, what is CCT going to do about this in light of new supplies that might push down rent rates and entice tenants to switch. Her reply was that the government have been reducing new supplies of A graded office spaces about 8million sq feet in total for the next 5 years and should the time to get new good valued office buildings comes, CCT will not let the chance go by.
On overseas acquisitions, CCT unlikely be buying foreign office buildings because of reasons such as “not in vision”, “the lack of influence and economics of scale”, “political issues” and “the lack of expertise”.
Comparing CCT with my requirements of holding is as follows
* The trust must focus on office rentals in Singapore
* The trust must have good debt management
* The trust has to actively enhance DPU
* The trust must build good relationship with tenants
* Share Price must be significantly below NAV
* Share Price must allow a yield of more than 8%
China Milk
The only company whose annual report is that of a glass of milk. :] A quick look at their finances
Total revenue for 2009 is 723million RMB, up 25.5% from 2008, net asset value per share up 0.5cents to 2.96 RMB which equates to $SG0.59so far so good ya, but as we look at other components net profit dropped by a whopping 20.4% and EPS from 65RMB cents drop to 52.0cents..Why arh? Upon closer inspection of the P/L account, the accounts "Change in fair value of derivative financial instruments" dropped from a positive 76.9million at a negative 12.6million RMB. Just to keep things simple, this account has something to do with repaying their zero coupon convertible bonds that are due 2012. , as stated in their notes to financial statements "The fair value loss resulting from change of the derivative component of convertible bonds...blahx3"
China Milk's Chairman 2009 message indicated the effects of the melamine scandal the on the company. The bad effects are poor public confidence in some local brands thus giving more opportunities for foreign brands to enter the market which they are perceived as safer. Stricter government controls have resulted in higher cost for the farmers, thus they who are clienteles of China Milk will scale down their herd size thereby reducing the demand for bull semen and cow embryos. The positive effects is that most small milk companies in China are either wiped out or having a hard time coping with the strict high cost requirements, therefore China Milk has a n increase opportunity to build their own brand "YinLuo" instead of relying on others for their milk processing business.
On another aspect, the balance sheet of China Milk at first got me worried, because their receivables increased substantially from 60.2million to 119.3million, management reviews that some of their customers were facing tighter cash flows...however the management stated that 2/3 of this balance has been subsequently received. Whatever that means, I will be subsequently reviewing this matter, the thing about S-shares is that once receivables start building up, something is really wrong...soo as an investor of the company must really take note of such figures. Operational cash flow remain healthy ,cash balance stays at 1.6billion rmb and once their convertible bonds mature in 2012, the convertible debts will amount to 1.4billion or less.
Comparing China Milk with my requirements of holding is as follow
*Company must maintain their profit margins
*Company must take care of their high debts with their also high cash holdings
*Company balance sheet must be healthy with receivables in check (looking into it)
*NAV must be increasing
*The usual must also be strong /Operational cash flow/EPS/ROE/Net margins.
China Essence
The business involves selling potato starch/protein and products related to that commodity.
The company is expanding very rapidly since the beginning of this year, the expansion is so rapid that a huge chunk of their cash reserves are gone and there have to take up extra loans and debt related instruments. A quick look at the latest balance sheet/cash flow highlights indicates the following
-Cash balances from FY 08: 484.3million drops to FY 09:168.3million
-Gearing shot up to 61.8% in FY 09 from 36.5% in FY 08
-Debtor Turnover up 77 days from 34 days
-Inventory turnover up 85 days from 53 days
-Operational cash flow drops from a positive 217.3million to a negative 62.5million
-Net decrease in cash flow 314.3million due to heavy investment inputs
Have to keep a vigilant eye on the coming quarters of China Essence, especially its trade receivables that have increased to about 150% from 104million to 269million. Yes no doubt it could be good for a commodity linked company (especially in China) such as essence to expand fast, but if they compromise their capital management because of their rapid expansion then it's not worth holding on to this stock as this might result in bad debts in turn casing troubles like banks demanding back their money, thereby draining the company's cash balances and it could be a going concern problem.
First Ship Lease Trust (FSLT)a.k.a (FSL)
FSL Trust owns and leases vessels to maritime companies (lessees) on a long-term bareboat charter basis (7 years at least), with a total of 23 vessels in their portfolio all of which the trust does not operate thus saving on operational cost and are diversified among different vessel types and of course different clients.
FSLT has the highest debt to equity ratio among the companies under my holdings, with 67% DER; $544 debts vs. $366millio in equities. Refinancing will be needed by 2012 $265million of expiring debts that is..In light of this situation the trust have already started reducing their distribution pay outs per unit (DPU) since 4th quarter of 2008. Previous policy was 100%, now it has been reduced to 75%, 15% of which will be used to repay debts. Total DPU for 2008 was $0.17 Singapore cents. Estimated DPU for 2009 will be $0.17*0.75=$0.12 holding other things constant like current exchange and DPU payouts for the 3 other quarters. OCBC mentioned that they believe the Trust will further reduce their DPU payouts to 50% in the near future, so my estimated DPU should be around 0.08-0.09 cents for this year. This ultimately gives me 17-19% yield for this year and 14-15% next. Well, some people might find the yield high but my previous expected yield was 34% when i bought it at $0.47 during sept 2008... lol. Kudos to those who bought below $1. Going forward, the trust will probably not acquire new ships, more reducing of DPU to be expected and hopes that the shipping industry will recover asap.
FIY, none of FSL clients have delayed payment or negotiated payment on rentals.
Comparing FSL with my requirements of holding is as follows
*Trust must still have diversified clients and rental of ships (Duh...)
*Trust must take measures with regards to its high debt levels
*Trust's policy of not incurring operating cost must still be implied
*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 payout for 2009 and 2010, activate sell.
*Any default by the clients, have to be taken noticed. Consider a sell; if there are two or more defaults in 2009.So far, clients have not created any problems.
I had at first difficulty completing this post, because there are so many annual reports and analyst report to read T_T. Imagine those people with 50 or 60 companies in their portfolio! How hard will it be for those people to keep in touch with their companies?
1) Capital Commercial Trust (CCT)
2) China Milk Products Group Limited
3) China Essence Group Ltd
4) First Shipping Least Trust (FSLT)
5) China Paper Ltd
Let's begin with..
Capital Commercial Trust (CCT) has a portfolio consists of 11 quality office buildings primarily situated in the prime location - Central Area - of Singapore. The properties are Capital Tower, Six Battery Road, One George Street, HSBC Building, Starhub Centre, Robinson Point, Raffles City Singapore (60% interest through RCS Trust), Bugis Village, Wilkie Edge, Golden Shoe Car Park and Market Street Car Park. In Malaysia, CCT holds 30% stake in Quill Capita Trust (QCT), a commercial REIT listed on the Bursa Malaysia Securities Berhad that owns commercial properties in Kuala Lumpur, Cyberjaya and Penang. CCT also has 7.4% stake in the Malaysia Commercial Development Fund. Going forward, CCT will unlikely be acquiring new assets/buildings due uncertainties of the future, until such that the latter proves otherwise, CCT will continue to expand seeking out good assets to enhance shareholder value according to Lynette leong CEO of the trust.
In addition, CCT has recently issue rights to pay down their current debts in doing so reducing their debt ratio from 40%+ to a low of 31%, the rights was issued in May-June period and was oversubscribed by 1.35times.
CCT’s latest quarter to quarter distribution per unit increase 29% from 2.58cents to 3.33cents after factoring in the rights unit. Which give an 8.2% annual yield using June 2009 share price of $0.81 and a 9.5% yield for my own holdings in the company which averages out to be $0.64 per share? This is because of improved operating margins, higher rental rates and good cost cutting measures.
Net asset value after rights issue is $1.54 which gives me a 140% margin of safety which in my view is substantial enough to continue to hold on to CCT.
In debt aspects, CCT has 8 assets to secure additional debts, strong balance sheet due to the rights issues and about $665million untapped balance from S$1.0 billion multicurrency medium term note programme. This is important to know, because it shows that CCT has at least defences against downward risks for the coming future. The ability to refinance is therefore in my opinion decent. About $900million of debts will expire in 2011.
A question was posted to the CEO of CCT during the Asian investment conference on the new supply of offices in Singapore, what is CCT going to do about this in light of new supplies that might push down rent rates and entice tenants to switch. Her reply was that the government have been reducing new supplies of A graded office spaces about 8million sq feet in total for the next 5 years and should the time to get new good valued office buildings comes, CCT will not let the chance go by.
On overseas acquisitions, CCT unlikely be buying foreign office buildings because of reasons such as “not in vision”, “the lack of influence and economics of scale”, “political issues” and “the lack of expertise”.
Comparing CCT with my requirements of holding is as follows
* The trust must focus on office rentals in Singapore
* The trust must have good debt management
* The trust has to actively enhance DPU
* The trust must build good relationship with tenants
* Share Price must be significantly below NAV
* Share Price must allow a yield of more than 8%
China Milk
The only company whose annual report is that of a glass of milk. :] A quick look at their finances
Total revenue for 2009 is 723million RMB, up 25.5% from 2008, net asset value per share up 0.5cents to 2.96 RMB which equates to $SG0.59so far so good ya, but as we look at other components net profit dropped by a whopping 20.4% and EPS from 65RMB cents drop to 52.0cents..Why arh? Upon closer inspection of the P/L account, the accounts "Change in fair value of derivative financial instruments" dropped from a positive 76.9million at a negative 12.6million RMB. Just to keep things simple, this account has something to do with repaying their zero coupon convertible bonds that are due 2012. , as stated in their notes to financial statements "The fair value loss resulting from change of the derivative component of convertible bonds...blahx3"
China Milk's Chairman 2009 message indicated the effects of the melamine scandal the on the company. The bad effects are poor public confidence in some local brands thus giving more opportunities for foreign brands to enter the market which they are perceived as safer. Stricter government controls have resulted in higher cost for the farmers, thus they who are clienteles of China Milk will scale down their herd size thereby reducing the demand for bull semen and cow embryos. The positive effects is that most small milk companies in China are either wiped out or having a hard time coping with the strict high cost requirements, therefore China Milk has a n increase opportunity to build their own brand "YinLuo" instead of relying on others for their milk processing business.
On another aspect, the balance sheet of China Milk at first got me worried, because their receivables increased substantially from 60.2million to 119.3million, management reviews that some of their customers were facing tighter cash flows...however the management stated that 2/3 of this balance has been subsequently received. Whatever that means, I will be subsequently reviewing this matter, the thing about S-shares is that once receivables start building up, something is really wrong...soo as an investor of the company must really take note of such figures. Operational cash flow remain healthy ,cash balance stays at 1.6billion rmb and once their convertible bonds mature in 2012, the convertible debts will amount to 1.4billion or less.
Comparing China Milk with my requirements of holding is as follow
*Company must maintain their profit margins
*Company must take care of their high debts with their also high cash holdings
*Company balance sheet must be healthy with receivables in check (looking into it)
*NAV must be increasing
*The usual must also be strong /Operational cash flow/EPS/ROE/Net margins.
China Essence
The business involves selling potato starch/protein and products related to that commodity.
The company is expanding very rapidly since the beginning of this year, the expansion is so rapid that a huge chunk of their cash reserves are gone and there have to take up extra loans and debt related instruments. A quick look at the latest balance sheet/cash flow highlights indicates the following
-Cash balances from FY 08: 484.3million drops to FY 09:168.3million
-Gearing shot up to 61.8% in FY 09 from 36.5% in FY 08
-Debtor Turnover up 77 days from 34 days
-Inventory turnover up 85 days from 53 days
-Operational cash flow drops from a positive 217.3million to a negative 62.5million
-Net decrease in cash flow 314.3million due to heavy investment inputs
Have to keep a vigilant eye on the coming quarters of China Essence, especially its trade receivables that have increased to about 150% from 104million to 269million. Yes no doubt it could be good for a commodity linked company (especially in China) such as essence to expand fast, but if they compromise their capital management because of their rapid expansion then it's not worth holding on to this stock as this might result in bad debts in turn casing troubles like banks demanding back their money, thereby draining the company's cash balances and it could be a going concern problem.
First Ship Lease Trust (FSLT)a.k.a (FSL)
FSL Trust owns and leases vessels to maritime companies (lessees) on a long-term bareboat charter basis (7 years at least), with a total of 23 vessels in their portfolio all of which the trust does not operate thus saving on operational cost and are diversified among different vessel types and of course different clients.
FSLT has the highest debt to equity ratio among the companies under my holdings, with 67% DER; $544 debts vs. $366millio in equities. Refinancing will be needed by 2012 $265million of expiring debts that is..In light of this situation the trust have already started reducing their distribution pay outs per unit (DPU) since 4th quarter of 2008. Previous policy was 100%, now it has been reduced to 75%, 15% of which will be used to repay debts. Total DPU for 2008 was $0.17 Singapore cents. Estimated DPU for 2009 will be $0.17*0.75=$0.12 holding other things constant like current exchange and DPU payouts for the 3 other quarters. OCBC mentioned that they believe the Trust will further reduce their DPU payouts to 50% in the near future, so my estimated DPU should be around 0.08-0.09 cents for this year. This ultimately gives me 17-19% yield for this year and 14-15% next. Well, some people might find the yield high but my previous expected yield was 34% when i bought it at $0.47 during sept 2008... lol. Kudos to those who bought below $1. Going forward, the trust will probably not acquire new ships, more reducing of DPU to be expected and hopes that the shipping industry will recover asap.
FIY, none of FSL clients have delayed payment or negotiated payment on rentals.
Comparing FSL with my requirements of holding is as follows
*Trust must still have diversified clients and rental of ships (Duh...)
*Trust must take measures with regards to its high debt levels
*Trust's policy of not incurring operating cost must still be implied
*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 payout for 2009 and 2010, activate sell.
*Any default by the clients, have to be taken noticed. Consider a sell; if there are two or more defaults in 2009.So far, clients have not created any problems.
I had at first difficulty completing this post, because there are so many annual reports and analyst report to read T_T. Imagine those people with 50 or 60 companies in their portfolio! How hard will it be for those people to keep in touch with their companies?
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