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Keppel Corp..... Update 2.0

 It is not easy to have an opportunity to acquire a great company at below intrinsic value. It's almost non existence during normal times, will be over rated due to market efficiency. Demands for great investment ideas exceeding what the market can supply. Only when the crisis come, the opportunity to buy great company at cheap valuation will appear. This COVID-19 had created that windows of opportunity now, so what are you waiting for? 



Today, I would like to provide an update on Keppel Corp which listed in Singapore Stock Exchange. Back in Oct 2019 last year, I have given my view on this stock why it is a good company to own, you can refer to the link below. Similar to my Facebook holding, I intended to hold this stock for longer horizon. However, I did changed my plan and sold it in Jan 2020 this year due to unfavorable world events unfolding. 

 Keppel. Bought at $5.84 lowest, sold at $6.80. (Recap from my Jan 2020 posting)



Previous posting links on Keppel:




Latest Results
Keppel reported a net profit of S$160 million for the first three months of 2020, 21% below the S$203 million for 1Q 2019, mainly due to an absence of gain from the divestment from a year ago. The revenue of S$1,857 million for 1Q 2020, which was 21% higher than that of 1Q 2019, due mainly to higher revenues from offshore & marine projects, property trading projects in Singapore, the power and gas business, and with the consolidation of M1. The latest result wasn't that great and the business transformation is still on-going. 



Temasek Support
On Oct-21, Temasek announced to buy 30% of Keppel at $7.35. The deal will boost Temasek’s stake in Keppel from 20.45% to 51% which also imply a premium of approximately 21.6% over lasted traded price $6.04 on last Friday May-8. The offer is still  valid pending acquisition approval from other countries. Temasek have to complete this deal within a year from announcement and it's only left 5 months from now to do so. I believe Temasek will make the offer announcement as soon as next month based on the strong stock price movements recently. The share price will continue go higher and higher in anticipation of good news release. 



COVID-19 crisis update
As the COVID-19 virus spread to more countries in March, Keppel share price fallen from $6.86 in Jan-13 to lowest $4.83 on March-24. Who would refuse for such a good deal from Mr. Market and taking advantage of it? I took this crisis as an opportunity to acquire a great company at great price and Keppel had become my target. I make a total of 6 buy transactions on Keppel Corp as the stock start to rebound from march low. With the lowest buying price at $4.83 and highest most recent bought at $5.91. It had become one of my biggest SG stock holding in my portfolio now with 7% in total. 



My trading Plan
Dig in and relax. I believe the "Armageddon" case for this company already over. Now with the COVID-19 crisis at the peak and oil price at the lowest, what could be worst than this scenario? With the annual dividends and imminent Temasek's offer in the horizon, I just have to keep it in the "safe box" and enjoy the sunrise. As no one can predict the top and the bottom of any share movement, I could only guess that the share might be trading between $6.40 to $6.80 post offering. This is just my own opinions and I'm not encouraging you to buy at this price today.   
    
  
My thought
This crisis is a "once-a-decade" opportunity to acquire great companies at cheap valuation and we shouldn't let this go to waste! We shouldn't wait until the crisis resolved or the vaccine is ready before start investing. I know it is not easy to invest during crisis when everyone is panic selling. You may have doubt whether you doing the right thing when others going for the opposite. There is nothing wrong to be contrarian in investing. I had been contrarian in trading for last 5 years and I can tell you it had produced some the best returns in my entire investing career. 



-WILLIAM CHENG

Disclaimer: All investment come with great risk and should proceed with cautious. This is not an advice to buy or sell any stock. It is important to do your own research and analysis before making any investments.



FACEBOOK - COVID-19 Playbook 2020

What was the first Apps that you watched on your phone when you woke up in the morning? What was the last thing you did on your phone before you went to bed at night? Is it reading messages on WhatsApps, watching video on Facebook or checking out the latest photo of your favorite celebrities on Instagram? Or maybe doing all these at the same time everyday? That is the magic of social networking which Facebook pioneered and it's still the King of the Jungle today! 



I have wrote several articles about Facebook why it should be in everyone's investment playbook. I will not repeat that again here today. If you interested to know, you can refer to those articles using the link below:



Today, I would like to provide an update on the latest developments happening at FB and how much it actually worth (valuation) in my opinion if all the initiatives become fruitful.       

1. Libra

Libra is a Facebook's block chain digital currency which managed and entrusted by Libra Association partnerships with multiple organizations and companies. Although the actual launched date is unknown at this moment due to some of the high profile members like Visa had left the group and objections from world's authorities, Facebook is remain committed to this projects. I expect it to launch by end of this year. Taking Ant financial as reference, the valuations of this project should worth at least $100 billions and more.  



2. Marketplace

FB make a big push into online shopping space in direct competition with Amazon, Taobao, Carousell and Ebay. Recent pandemic which forcing many to stay at home and shop online could helps Marketplace to gains popularity. It should help create new stream of advertising revenue for FB and as a launching pad for its most anticipated digital payments. With 2 Billions users under its ecosystem, the adoption rate will be swift. Maybe a little too crowded for the Marketplace!  


3. Jio Platform

Facebook's $5.7 Billions investment in India's biggest telecom platform Jio marked a major push to monetize its WhatsApp's platform which has more than 400 millions users in India. Combined with Jio's network, FB will certainly move into digital economy which include digital payments. Unlike China's digital payment platform where it dominated by duopoly AliPay and WePay, the rest of the world still very fragmented with no clear leadership. Facebook will soon launch its digital payment through WhatsApp's leveraging Jia platform, the adoption rate will be explosive. 



The Valuation.....

Putting a price tags to a business is not so simple as it depend of future perceptions on its business growth. There is no fixed formula but this is how I value the business in my own opinion. According to Yahoo Finance, the current net profit (TTM) is about $22 billions. Giving a conservative PE of 25 for growth stock, the current valuations of FB+WhatAps+Instagram is about $550 billions without factoring discounted cash flow and profit growth rate. What is the price tag for all the other new initiatives? So, if you add Ant Financial+Ebay+Zoom+Jio into its valuation book, what would the numbers be? I would put Facebook the same league as Microsoft and Apple. The share price target would be ranging from $300-$350 per share with 2.8 billions outstanding shares. Not convinced? Well, It will be up to you to imagine.   



The Playbook.....2020

Fast forward to this year 2020, I have another opportunity to trade Facebook stock. My initial objective is to invest for long term. However the COVID-19 had force me to liquidate my position in FB, turning an investment into a short trade. Placing my chips at average cost of $190 per share in November 2019. I have much bigger conviction in this company this time compare to previous trade, so I double down on the amount. Dig deep into the sand dunes, I'm prepare for long hold for 1-2 years with a target price of at least $280 in mind.



Unfortunately, as the world events unfold, I start to doubt my game plan. The COVID-19 lockdown in Wuhan was a final blow to my confidents in the market. So, I decided to dump all my holding for FB at $215 per share in early Feb 2020. Far from my target of $280 but a net profit of $14,856 was a small consolation to me.



Personal Notes.....

Making a good investment required a lot of discipline and self conviction. And even if the Sun and moon aligned with your lucky star, you thought you have a perfect playbook, there are many events that not within our control will jeopardized it.

With half of the world populations under COVID-19 lock-down, this crisis situations provide a great opportunity to rethink your investment strategy. This type of "crisis opportunity" only come once a decade and we should really take advantage of it to the fullness. But I could see that this window of opportunity is closing fast especially if you missed taking positions during the March corrections this year.



Since then, US index had recovered most of the steep 36% dropped but STI index still remain low from the base of correction. If you have cash on hands, this is the best time to take some positions in some Singapore blue chips and REITs. Holding it for longer horizons, you will be richly rewarded when the economy recovered in 1-2 years time. The risk of major corrections had passed as  Governments step in with huge stimulus spending, the risk of another major corrections is unlikely. Now is the time to put your long term investments strategy in motions. But remember the window is closing fast, so don't hesitate for too long.

Thanks for reading my blog posting. Ciao!



YOUR FIRST MILLION $ making it in STOCK

"Your First Million $ making it in stocks" book by Dr. Michael Leong. This book is one of my favorite reads for this year. I do agreed with some of his thoughts and strategies shared in this book which I'm currently practicing for my investments. I extracted some of his key investment strategy and I would strongly recommend you to get a copy of this book to have in depth understanding of the author's investment secret. 



Background:

Dr. Michael Leong is a medical doctor by profession, started his IT career with IBM in 1991. He founded ShareInvestor in 1999. ShareInvestor is a regional financial internet portal that provide online investor relations to listed companies in Singapore. He sold ShareInvestor to Singapore Press Holdings in 2008. This book provided a glimpse how he view the market and how he decide when to buy or sell a stock.  

Summary of key investment strategy: 
  1. Preserve capital. Similar to Warren Buffett rule no.1 "Never lose your capital". 
  2. Focus on only a few stocks. Do not over diversified. 
  3. Identify a tipping point for each stock. 
  4. Buy slowly into any stock. Time the market bottom is difficult to do. 
  5. Invest for long term. Use the money that you can afford to leave under the pillows for years.
 Selection criteria for stocks:
  1. NTA (net tangible assets) are at significant discount to current market price. 
  2. Potential to be a multi-bagger. (stock that appreciates in value many folds)
  3. Strong cashflow with conservative accounting. 
  4. Belong to growth industry and has good competitive advantage.
  5. Its products with strong brand name and not commodity. 
  6. Strong recurring income.
  7. Has credible management team. 

Managing emotion when investing, quote from this book:

"Over the years, I have learnt not to be emotional over any stock, or for that matter, over the market. Some days, you may feel an urge to exit all your positions as the market is toppish, hoping to re-enter later at lower price. If you are right and there truly is a correction, you stand to make quite a bit of money."

"If you are wrong, you stand to be left out of the market. As the days go by and the market bull charges ahead, you will feel a greater urge to re-enter the market at a much higher level than you exited." 

 "For me, I have learnt that the Mr Market always seems to be smarter than I. Whenever, I try to outsmart Mr Market, it easily outsmarts me instead. This is why I do not try to second-guess the market. After all, any correction is usually just a blip and will be overcome if the megatrend is intact." 



Stay safe and trade smartly....... Ciao

-WILLIAM CHENG

Please click the links below for more interesting reads:


ALIBABA.....My best investment 2020 Update

Previously, I was recommending Alibaba as good stock to invest. It has potential to move up at least 50% in short term in my view. I have accumulated a huge positions before the HK IPO in anticipation of demand surge after the US-China trade war ended.



Below was the recap for what I had posted in Dec 2019. 

The IPO (Investment Profit Overdrive)



Alibaba Group announced to raise US$12.9 billion from its landmark Hong Kong listing and is set to price its shares at HK$176 (S$30.62) each, start trading on 26 Nov 2019. Shares of Chinese e-commerce giant Alibaba saw a strong debut in Hong Kong surged more than 6% at debut, intraday high of HKD189.50.

Since the HK IPO listing, BABA share surge almost daily hitting it 52 week high within 2 weeks. The cooker's lit had finally popped open, letting the steam out. The truce reached in the China-US trade war back in Dec-14 had bring back much needed boost for this Chinese stock. Turning a "flight to safety" trade, avoid all "Chinese stock" event into "risk on" overdrive. 


Alibaba currently trading at USD215 after 1 month since IPO. Up > 20% since my last bought.  Hey, I'm not popping my champagne yet and not selling my stake. I think the surge is not over yet, there are few more events may add more "boost" to the share price. I'm looking at next 2 major events that will be significantly impact the valuation of the stock price. 


  1. Inclusion into Shanghai Stock Connect - this inclusion will open a floodgate of 100 millions investors in China eligible to invest in this HK biggest IPO stock. This will help boost the share price valuation. 
  2. Inclusion into the major world Index -  Due to its capitalization size, it will be include into major index such as Hang Seng Index and MSCI China etc. This will drive up the buy side demands from index fund managers' portfolio that require mirroring the index performance. 

Click Link below for the full article on this: 


My Trade update Feb 2020



The stock price peaked at $230 on Jan-13. I started to take some profit and sold out by Feb-2020 due to the COVID-19 situation in Wuhan, China. My initial plan was to hold this investment for long term. However, I felt that the world economy was overheated and this COVID-19 pandemic could triggered a market correction and even world recession. So I decided to cut my stock holding along with others counters.



In all, my investment return for Alibaba was about 25% gains over 3 months holding period which provide me a handsome profit of $33,148 with average selling price of $220 per share.



This would be among the best investment decisions I ever make and best ROI in the record for 2020. Since 2018, this counter had been my favorite and I never regret looting this "Treasure Cave" over again and again.  

-WILLIAM CHENG

Please click the links below for more interesting reads:



Eagle Hospitality REIT..... Ignoring Red Flags are deadly

Many of us think that REITs are very safe investments. We treat it like a Government Saving Bonds which pay regular dividends with a stable price valuations. This is only true if the REIT doesn't involved debt financing and the rental tenure never expired. Eagle Hospitality REIT (EHT) is a good example of why we should value REIT similar to any regular companies when come to risk analysis.

EHT went for IPO last year with the offering price at US$0.78 per share. The share price had never raise above the IPO ever since. It continued to slide until its last trade at US$0.137 before its suspended trading on Mar-24 this year. It had lost about approx. 80% of its share value since IPO just less than a year.



EHT had been plagued with many issues since listings. I will not discussed in details on what goes wrong with EHT as it was well researched by the media. You can easily find those analysis articles online. The biggest news you can find about EHT is regarding their trophy asset, the "Queen Mary Cruise".



The stock currently on trading suspension. EHT was served with notice of default on loan amount US$341mil. The dividend payments to shareholders also suspended. I would like to highlights some of the red flags as sign of distress during its listings. If you have spotted those red flags early, it could have prevented many from making terrible decision investing in REITs like EHT.


Red Flag #1: Co-founders and Cornerstone Investors Paring Down Stakes
Since IPO, Temasek had sold down its stake from 10% to 2.93%. I'm not sure if Temasek still holdings anymore share now. The owners of the Urban Commons (UC) also reducing their stakes. Making the matters worst, all the major shareholders had sold down their holdings including Claydon Hill from 16.3% to 2%. Why are they selling if they think this REIT is worth investing? Are they losing confident in the company's future prospects?

Red Flag #2: Complicated Financial Structure and Asset Ownership
The financial structure of this company is so complicated. I'm not sure who has the actual ownership of all the properties. If the REIT had full ownership of the properties, why EHT does not collect all the revenue generated from its properties directly rather than through master lease agreements with single entity, UC? It is high risk when the leasing agreements with single entity defaulted on the payments. The financial structures is so complicate and the asset ownership is unclear. Currently, they had defaulted the loans due to the Master Lessees (UC) unable to paid them rent obligations.

Red Flag #3: Directors and Executives Resigned
Good management team is essential in leading company to the next phase of growth. There were multiple announcement of resignations from directors and executives doesn't really paint a good picture of the company's future. The final nail strikes when the CFO, Fred Chee resigned for personal reason shortly after joining the company for 8 months. Why there are so many resignations within a short period of time? There could be some on-going concerns with the company which only the insiders like the executives knows. Something that we should take note when come to investing.
     
My trade went wrong
I invested in EHT when it dropped 30% from its IPO price. I bought it at 54 cents which I thought was a good bargain given its forecasted yield was good. Ignoring all the red flags and inaction from my parts was my grievous mistake. In total, I had invested US$5,400 for 10 lots which I'm prepared to write off as total losses from my portfolio.


 Key factors to consider when selecting a REIT to buy:

1. Having good sponsor as substantial shareholder.
2. Having good management team that stay with the company.
3. Having clear ownership structure and diversified master leasing agreements
4. High interest coverage to ensure sustainable debt interest payments.
5. Diversified tenants with long WALE.      

 When economy is in healthy state, every business is thriving. REITs becomes very attractive investments among "yield hunters" as they are  structurally obligated to pay out 100% of the profits they make every year. However, this has a "double edged sword" effects when come to the risk management. When the crisis hit, REITs may not have enough cash to buffer for debt payments as rentals yield dropped. They don’t have the capacity to buyback shares and make attractive acquisitions during crisis unlike other major corporations.

All investments come with certain level of risks. Never assume asset backed investments like REITs are risk free.

Personal Notes:
Past weeks of furious selling in the market had leave a mark in the history book as the fastest bear market. Have we reach the bottom of the bear market? I don't have the answer to that yet. But this extreme fear in the market had open up a window of opportunity to position ourselves for the next bull market cycle.



I had been waiting for this moment for 11 years and I'm glad that the wait is finally over. Is it the right time to buy stocks now? Well, the opportunity will favor those who willing to take risk and the doors will open for those who knocks.

-WILLIAM CHENG

Please click the links below for more interesting reads:

Links MANULIFE US REIT....... COVID-19 Crisis

Links  FORMULA for successful stock picking

Links Investment Psychology....Investor's worst enemy

Links ALIBABA HK IPO..... (Investment Profit Overdrive)

Links Boom and Bust in 2019 revealed

Links CAPITALAND....... Land of Capital Growth


Keppel Corp..... Update 2.0

  It is not easy to have an opportunity to acquire a great company at below intrinsic value. It's almost non existence during normal ti...