Saturday, August 24, 2013

Top 30 Singapore Stocks for 2nd Half of 2013

With the recent sell-down in STI, it is a good time for bargain hunters to shop for stocks with good fundamentals and growth. OSK-DMG has recently released its 2013 edition for institutional clients (and it's not for sale).This is the third compilation of their top 30 picks since 2011. The 2012 edition of our Small Cap Jewels made quite a splash. According to Terence Wong, head of Research, "Over 70% of the stocks we picked made money, with the biggest companies making the most." Hence readers can reference their picks for 2013. They include companies that have consistently done well over the past few years (OSIM and Ezion), turnaround plays (Midas Holdings and Eu Yan Sang), established players in their own fields but not covered by any analysts (Sinarmas Land), and yield plays (UMS Holdings).

In terms of sectors, oil and gas, construction, and consumer feature prominently, with five to six companies from each sector making the list. Overall, about half of the counters are new entries. OSK-DMG has no rating on five of the companies —Mencast Holdings, Pan-United Corp, Sinarmas Land, Tiong Woon Corp andYongnam Holdings. Ezion, which is on the list for the third year, is the biggest of the 30 by market value, at about $2.3 billion. BBR Holdings is at the opposite end, with a market cap of about $80 million.

OSIM, another repeat entry, should continue to shine even after a strong run-up in the last couple of years, according to Wong. “Some people say ‘Nobody goes to their shops. How can they make money?’ But OSIM has managed its expenses so well that as long as they sell one massage chair a day per store, they will make money, and these guys have been doing it.”

In particular, sales in the China market are expected to continue increasing, he adds. “[OSIM CEO] Ron Sim believes so much in brands. He is bringing TWG Tea to China. That’s why he set up a very posh outlet in IFC Mall [in Hong Kong], which is a springboard for OSIM to China. I think that’s going to yield dividends for the company.” OSIM owns 45% of TWG.

As for stocks with a recovery theme, Wong tips Eu Yan Sang as one to watch. A company in Australia it invested in two years ago ran into cash-flow problems and eventually came under receivership. Eu Yan Sang took it over but has lost more than $8 million trying to turn the business around. As part of efforts to get it back on its feet, the traditional Chinese medicine maker expects to run more outlets on its own in Australia than award franchises to third parties. Of its 82 stores Down Under, 51 are run by franchisees.

Eu Yan Sang’s chief financial officer Lam Chee Weng expects the Australian operation to break even in 2015. In the meantime, the group is looking to boost sales by introducing products with some elements of Western medicine. “The first wave of TCM products with an infusion of Western medicine will be introduced by early next year. At the same time, we will introduce some of the products we already have in Australia to markets in Singapore, Malaysia and Hong Kong,” Lam says.

Another recovery play OSK-DMG recommends is Midas Holdings. Its current share price is less than half of its 2010 peak of $1.16, plagued by poor global investor sentiment towards China’s rail sector as a result of fatal train collisions and corruption by senior government officials in recent years. Orders have started to pick up, though, and Midas CEO Patrick Chew is prepping up the company for new avenues of growth.

“We are still very much single-sector-focused, but we have formed a joint venture that manufactures aluminium alloy plates and sheets. We target to supply these products to Indonesia and to the whole transport spectrum, including aviation, automobile, railway and other engineering purposes,” says Chew.

Notably, prospects for the automotive market are promising, he adds. “Right now, cars in China are all made of steel. As part of the government’s initiatives to reduce emission, cars will change to aluminium bodies. This new plant is catered to the entire transportation segment. We do this to mitigate the risk of over-reliance on a single segment.”

Meanwhile, amid growing concerns about the health of China’s financial system, investors need not worry about how the country will fund its massive rail expansion, Chew adds. “We know investors are worried about funding. The former Ministry of Railways had debts of RMB2.8 trillion [$560 billion] on its books. It’s a big sum. We believe the Chinese government may take over all or part of the debt that is carried in the books of China Railway Corp so as to allow them to start from ground zero. CRC may also float its assets to raise funds from the market.” Previously part of the now-defunct Ministry of Railways, CRC is the country’s national railway operator.


Besides Ezion, another one of OSK-DMG’s favourite stocks in the oil and gas space is Nam Cheong, which builds offshore support vessels. “Before I hooked up with Nam Cheong, I had this really, really bad impression of the sector because what they do, to me, is speculative buying,” says Wong. “But after checking out the company, I realised that it’s actually something different. They know their clients so well that they’ve managed to preempt their orders.

“Half of Nam Cheong’s orders come from Petronas. When Petronas requires vessels, they will knock on their door asking if they have any and [Nam Cheong] will go ‘Of course, but I’ll just charge you a higher fee.’ This is what Nam Cheong has been doing and their margins are getting richer.”

Among the non-rated companies in the top- 30 list, Sinarmas Land could be worth watching, according to Wong. With a market value of about $2 billion, the company is the largest Singapore-listed property group that has no analyst coverage.

Sinarmas Land, formerly known as Asia Food & Properties, is a major property developer in Indonesia, which accounts for up to 90% of its revenue. Controlled by the Widjaya family, the company is involved in all segments of real estate — residential, townships, commercial, retail, industrial and hospitality, including golf resorts. The bulk of its assets in Indonesia are held by its 50%-owned Bumi Serpong Damai, which is listed in Jakarta, with a market value equivalent to about $3.5 billion.

Sinarmas Land also owns commercial, residential and hospitality properties in Singapore, Johor, Chengdu and Shenyang in China, as well as London. In Singapore, it owns about 21% of Orchard Towers, a strata-titled commercial building. It attempted to sell its stake in Orchard Towers early this year through a tender, but did not proceed as the bids did not meet its expectations.

“We will try to unlock value when the opportunity comes,” says Robin Ng, executive director at Sinarmas Land. “It’s almost 100% leased at the moment. We enjoy good rental income from Orchard Towers, so we are not in a rush to dispose of it.”

The group also intends to generate more recurring income and expand its presence outside Indonesia. “That means we will look at investment properties in international markets,” says Ng. Property development makes up 80% to 85% of overall revenue at present. The company plans to lower this to 75%, with the rest of its revenue coming from investment properties, he says.

“London isn’t the only location we are looking at. Countries that we think could offer opportunities include Australia and the US,” says Ng. “What’s important is that the property has to generate cash flows and offer a good yield. There must also be good liquidity in the market. That gives us an exit plan if we decide to rebalance our portfolio.” Sinarmas Land is in a net cash position, with $811 million in cash as at end-June.

This blog has also previously featured Sinarmas Land Warrants which could be another way to invest in Sinarmas Land.

Friday, August 9, 2013

The Art of Value Investing: How the World's Best Investors Beat the Market

Today we're reviewing the new book, The Art of Value Investing: How the World's Best Investors Beat the Market by John Heins and Whitney Tilson.  These two have aggregated an entire book full of quotes and anecdotes from top hedge fund managers over the years. 

The Art of Value Investing: Book Review

Investing is a continual education.While learning from your own mistakes is one way to improve your investment process, it can also save you a lot of aggravation and money to take the time to learn from others who are willing to share what they've learned as well, and that's exactly what this book does.

The Art of Value Investing makes you feel as if you're sitting at a giant table full of some of the best investors today.  A topic of investment process is opened for discussion and everyone chimes in with their thoughts, all while you sit there rapidly absorbing all that you can. 

Chapters of the book include wisdom from managers on topics such as: circle of competence, generating ideas, portfolio construction, guarding against risk, and more. Fund managers quoted in this book consist of the following:
Seth Klarman (Baupost Group)
Howard Marks (Oaktree Capital)
David Einhorn (Greenlight Capital) 
Jon Jacobson (Highfields Capital)
Lee Ainslie (Maverick Capital)
Julian Robertson (Tiger Management)
John Burbank (Passport Capital)
Mitch Julis (Canyon Capital)
Joel Greenblatt (Gotham Capital)
Jeff Ubben (ValueAct Capital)
James Crichton & Adam Weiss (Scout Capital)
Larry Robbins (Glenview Capital)
Ricky Sandler (Eminence Capital) 
Bruce Berkowitz (Fairholme Capital)
Thomas Gayner (Markel Corp) 
Prem Watsa (Fairfax Financial)

Quote from the Book

Excerpt from David Einhorn on page 107: 
"We take the traditional value investor’s process and just flip it around a little bit. If you’re looking for something that’s cheap, you’ll probably do a variety of screens—on price‐to‐sales, price‐toearnings, price‐to‐book, whatever—to identify stocks that appear to be inexpensive. Once you have that list, then you start to research if there are good reasons the stocks deserve to be cheap, or if maybe there’s an investment opportunity because they’re cheap without a good reason. We think that’s the way most value investors approach it.

We never do screens like that. We start by identifying situations in which there is a reason why something might be misunderstood, where it’s likely investors will not have correctly figured out what’s going on. Then we do the more traditional work to confirm whether, in fact, there’s an attractive investment to make. That’s as opposed to starting with something that’s just cheap and then trying to figure out why. We think our way is more efficient." 

High Praise From Other Hedge Fund Managers

This is a fantastic book for any investor, whether you're a beginner or a professional.  It has earned praise from many Hedge Fund Managers. Here's what Omega Advisors' Lee Cooperman had to say about The Art of Value Investing:

"They have provided in one publication invaluable insights from some of the most accomplished professionals in the investment business.  I would call this publication a must-read for any serious investor."

Highfields' Jon Jacobson called it a "must-read" and ValueAct Capital's Jeff Ubben said that, "The lessons are like scars and they are revealed here firsthand." 

To know about the top 10 must read books recommended by Superinvestors, click here
This blog also has publish other post on value investors:

Whitney Tilson Wisdom on Value Artist like Buffett and Klarman
Classic Pabrai - A 2011 Half Hour Interview With Monish Pabrai and Steve Forbes
Top 7 Stocks Owned by Value Investors Every Investor Should Know
What Warren Buffett Can Teach Us About Position Sizing

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