[Eye Candy]: An in depth look into GSS Energy

Hello all! Today I will be doing a deeper analysis of GSS Energy. I am personally vested in this company hence, I would advise readers to exercise their own discretion when reading this post. Recently, GSS’s stock price have been going on a rollercoaster ride and many people including myself were thinking of cutting loss. But I held on because the prospects of the company are bright and the business fundamentals are sound. In the coming paragraphs I will bring you through GSS’s business and the outlook.

GSS logo

GSS Energy mainly operates in two business segments. 1) The precision engineering business and 2) the Oil and Gas segment. To let you understand a fuller picture I did a timeline of GSS transformation from 2013.

GSS timeline 1.png

GSS timeline 2.png

If you realised I never really talked about their PE business in the timeline above because during the period of 2013 to 2017, GSS took a huge plunge by venturing into the O&G sector which caused the main bulk of the movement in share prices. But since you got a fuller picture of what happened within this critical time span for the company, I will now analyse the respective business segments and their prospects.

1) Precision Engineering

GSS’s core business has always been precision engineering. In fact, they were a pure play PE firm before the new management decided to bring them into the O&G sector. Many people don’t realise that GSS Energy have a functional and profitable PE business. Come on the company’s name itself is misleading enough haha! So let’s take a look at how the PE business have done so far since 2014.

PE business.png

Both revenue and gross profit have been growing. That’s a good sign. Also, in 2017 they are shifting to a larger facility in China which will allow them to accept larger and more sophisticated orders as they capitalise on the chance to improve the new facility.

And for 1Q 2017, their PE business continued to grow at about 28% Q over Q.

1Q2017

That is kinda impressive. With so many competitors in the PE industry, it is sometimes hard to grow one’s business. However GSS PE business have been able to consistently grow their PE’s business revenue and gross profit for the past 3 years. This shows that the management are able to position the company’s services such that it attracts larger sales order from existing customers or obtain new customers to the company and at the same time reduce cost of production.

The thriving semiconductor industry in 2017 have become a favourable tailwind to GSS’s PE business. With a strong record of building up the PE business, and demand for electronics set to grow this year, this could be a record year for the PE business for GSS. In fact, the CEO have also considered plans to further grow the PE business through strategic acquisitions or collaboration, spinning off the PE business have also been considered by the CEO. That shows the confidence he have in the PE business.

2) Oil and Gas exploration

I think this is the main segment that is important to many investors. Since this business is new to GSS and there have been a case of their failure in this new business segment. The CEO’s concept in the O&G is not ordinary. He wants to ensure that there are certainty of oil in the ground and that it must be low cost so that they will not be badly affected by changing oil prices.

CEO Sydney’s way to achieve those objectives was to acquire old abandoned wells in Indonesia and drill them. The rationale for that is simple. Back in the old days, the colonialists have created many oil wells for their own needs. But in WW2, the colonialists destroy these oil wells so that the Japanese could not get access to these resources. So by acquiring these old oil wells, the cost of production of drilling for oil in that area becomes low. (About US $12 per barrel estimated)

Of course, not every old oil well contains oil reserves. Extensive studies have been done by GSS before committing to any sites. The current one that they are working on the Trembul Operation Area is in the same basin as the one Exxon Mobil use to draw oil, so certainty of obtaining oil seems to be quite high. And if the Trembul Operation is a success, the CEO have in mind to expand around the area in order to grow their O&G business to be a full fledge player in the industry.

Also, the type of agreement that GSS signed with PT Pertamina, Indonesia national oil company is different from the one they signed in the 2014 debacle. For this arrangement, money earned in the sale of oil is first used to pay off the cost of production of the oil before profit sharing is done. And since, the oil is bought by the government there are some forms of certainty in the buyer.

Risks

Yup the risks of not obtaining oil, execution risk and low oil prices are definitely there. But in my opinion, these scheme of arrangement with Pertamina puts GSS in a better position to reap profits from the venture. Unless oil price falls below US$20 per barrel which is rather unlikely, this remains profitable for GSS. Also, as a show of confidence, CEO have been buying shares in Jan 2017.

 3) Fundamentals

Balance sheet

GSS balance sheet looks fine. I am more concern about debt since O&G companies around the world have been going bust because of debt issues.

balance sheet.png

Debt free company! And the group have a rather strong cash reserves of about $11 million.

Cash Flow

gss cash flow.png

Cash flow is improving. Free cash flow have been rising ever since 2014. That is definitely a good sign. Haha credits to Investingnote for doing the calculations! 🙂

Insider ownership

The CEO holds 17.99% stake in the company and a non-independent, non-executive director Glenn Fung holds a 13.44% stake in the company.

stakeholders.png

That’s a combine 31.43% stake in the company from 2 members of the board in GSS. The management definitely have their interests aligned with the shareholders. Furthermore, the CEO have been buying up shares in 2017 as well.

4) Outlook

I feel GSS have more legs to run. Backed by a profitable PE business and with the oil business coming online in 2017, this could be a good year to watch for GSS. I think some of us are concern because FY 2016’s results are backed mainly by a once off income gain by the government.

once off income.png

If you realise without the once off income, they would only have about $3 million in profit for FY 2016. That translate to about PE 28x at current price. To see if the current price is considered undervalued after factoring some future catalysts, I shall try to do a conservative estimation based off some assumptions.

  1. No growth in PE business
  2. Company manage to retrieve oil from the ground
  3. Price of oil remains in USD$40 to USD$50 per barrel

Assuming there is no growth in the PE business, we are looking at a revenue of $70 million and an EPS of SGD 0.6 cents.

Now according to a QPR by GSS, there is said to be 24 million stock tank barrel of oil reserves in the Trembul area up to 800m deep. GSS subsidiary PT SGT a 49:51 JV is entitled to about 23% of the oil reserves there. So GSS is entitled to 49% of the 23% of total oil there are.

gss QPR trembul.png

GSS’s contract with Pertamina is for 15 years, that would entitle GSS to have

49% of the 23% of 24 million barrel of oil = 2.70 million barrel of oil

Assuming a more conservative figure — GSS are entitled to only 2.16 million barrel of oil

So 1 year = 144 000 barrels of oil

Assuming GSS cost price per barrel is USD $20 (actual estimated is USD $12) and price of oil ranges from USD$40-50 (Let’s take USD $40 to calculate)

Net profit for GSS oil business per year = USD 2.88 million = SGD 3.75 million (USD/SGD of 1.3) = EPS of SGD 0.755 cents

Total EPS when O&G comes online = 0.755 + 0.6 = 1.355 cents

Which translate to a PE ratio of 13 at share price of $0.175 (the price which CEO last bought his shares from the open market). This is could be why CEO’s Sydney emphasize that GSS is undervalued.

The above is taking into consideration that there is no growth in the PE business and that oil prices ranges from USD$40 to USD$50 per barrel.

In conclusion,

one should monitor FY2017 closely to see the rate of change of pure earnings Q over Q. Supported by positive tailwinds from the semiconductor boom and with oil prices stabilising out, it is definitely a growth company at an inflection point. FY 2017 result may not be higher than FY2016 but one should always look at the real growth rate of earnings to determine if there is growth potential in the company. With that, I shall end my analysis, rmb to DYODD!

[Building Blocks]: Understanding your FIRST step to financial freedom!

Hi all!! It’s been a while since I did a [Building Blocks] post. Haha if you were an avid reader of my blog, you will realise that I have been posting quite a bit in [Eye Candy], the segment where I do some analysis on stocks I am researching. Yup I have been rather busy digging through the stock market for gems that I could put my money into. As you can see from the title of the blog post, today I will be trying to help you understand your FIRST step to financial freedom. This FIRST step is essential as it lays a foundation for you to work your money. In other words, in order to INVEST your money you need to embark on this FIRST step.

So what is this FIRST step that is soooo important??

The answer is: SAVING!!

SAVING image

All of you might go “Duh” but how many of us are actually able to really save up your salary or money? We often have the goal to save up this amount but most of the time we give in to certain pleasures and decide to spend almost all our salary away. I know this because I myself is guilty as charged haha!

When I entered the army, its the first time whereby I was drawing a constant stream of income (unlike those adhoc jobs I did last time). With sudden inflow of money every month, I did not have a concrete saving plan and hence my expenses were very high at the start. In some months, I may be broke without the month coming to an end. I also know of friends who are like that too! I only started taking charge of my savings when I started investing as I  realise how meagre my savings are.

So I started reading up and created a system to force me to save, but before that let’s look at

1) The importance of saving

Saving is an important first step to your financial freedom because without savings, you will not be able to use that money to work for you. Imagine yourself spending every dime of your monthly salary, how will you be able to put any money into investing in stocks, property and so on. So if we ourselves do not understand the importance of saving it’s hard for us to grasp the power of investing and compounding!

2) Saving can be automatic!

Yes it can be. Nowadays with the advent of technology, most of us definitely have an ibanking account with any of the banks in Singapore. And it’s super easy to automate the entire process of saving. Let me show you how.

First, you will first need to set up 2 bank accounts

Bank accounts pic

Yes, create 2 separate bank accounts, one for purely savings, the other for expenses only.

Secondly, credit your salary into your savings account. After doing that, calculate a rough percentage of your monthly expenses. For me, I save about 75% of my salary and spend the other 25%.

Finally, set up an automatic transfer between the two accounts. Transfer the percentage for your expenses from your savings account to your expenses account.

Automate saving

Yes the end result should look something like the flow chart above.

3) Don’t touch your nest egg for fun!

Yes! You read it right! Don’t touch your nest egg (savings) for fun (entertainment). Put it another way, don’t spend your savings!! For me, I practise that by not bringing out the ATM card that belongs to my savings account. That way I will not be tempted to dip my hands into my savings.

Of course with that said, what if its an emergency and you need the money? If it’s an emergency, then I guess there will be no choice but to tap on your savings. However, if possible try to reduce your expenses in the subsequent months to repay the amount you took from your savings.

One point to note is that you should always ensure you plan a right amount to be set for your expenses. I tried to save 90% of my salary before, but it’s just too tight on me and I tend to keep tapping onto my savings because I ran out of money. So plan the amount carefully so that it does not give you ANY temptations to tap into your savings!!

In conclusion,

you might say that as a young person, saving is very insignificant to you since you probably can only save a few hundred a month. But take that few hundred and multiply it by 12 or 24 months you are looking at a few thousands already. Think BIG! And that’s not all, use your nest egg to work for you through INVESTING! Slowly but surely, this small amount will grow and compound.

saving final image.jpg

I really like the picture above. In the very first picture I showed you a hand dropping coins into a jar which signifies saving. And with your savings, it forms the soil and fertiliser to grow your money just like the above picture. Savings is a cliche topic and whatever I shared above may be shared by many others too. But, what I think is most important to you is TAKING ACTION to really start your saving plan because saving is the FIRST step to your financial freedom!

** Haha side note before I end. I have been toying with the idea of helping people who are keen to get into investing. I am still working out how should I deliver it. So do stay tuned for more update on this! 🙂 **

 

[Eye Candy]: An update on Addvalue Tech

Hi all, I have decided to do an update on Addvalue Tech since a lot had happened since my last post on Addvalue. For those who may not know what I am referring to. You can check out my 2 posts on Addvalue below.

1. Addvalue Tech, a turnaround play? 

2. Addvalue Tech’s 3Q results 

1) What happened?

— New Investors —

A few things happened since my last post. Addvalue declared 2 trading halts in a span of a few weeks.

Addvalue news.png

Firstly, news were released about AT raising money to prepare for the commercialisation of the IDRS. If you are thinking that raising money = debt = even more financial trouble at AT, then these news will be slightly different. Money were raised in 3 forms, one is through the issue of new ordinary shares, convertible loan notes and lastly an exchangeable bond worth $2 million.

Why I would say this will be slightly different is because majority of those who gave their money to AT are affluent investors. They include investment firms and some accredited investors. The placement shares were priced $0.039 per share.

placement subscribers

As for the convertible loan note, its a 5% per annum with a choice to convert it into shares of the company at $0.055.

loan note subcriber.png

Once again, most of the subscribers of the placement shares are also subscribers of the loan note.

Also a venture investment firm known to be Cap Vista, the investment arm of DSTA invested $2 million in the form of exchangeable bonds for 5 years. It is a 5% per annum payable in full on maturity, however in the event that AT spin off Addvalue Solutions (AVS) a subsidiary of AT, these shall be exchange for shares in the company. FYI, AVS is the arm in AT that is focusing on the development of the IDRS, hence the investment.

These shows that there is a form of quiet optimism that AT’s IDRS will succeed. That’s the reason for the slight difference.

— Uptick in sales —

AT uptick in sales

It’s current product the Wideye iFleetONE terminal have earned an initial trial order of about US$1.0 million. It is also in discussion with potential customers for an additional order of about US$3.5 million.

3q2017

I am not sure if the initial trial order amount of 1m is going to be recorded in Q4. But let’s assume it is. This would mean a revenue of more than US$10 million for FY 2017, as Q4 usually records 2-3 million in revenue. That would be much higher than the 9 million revenue recorded in 2016. Using a bold estimate, we could see AT returning to the black, as AT have been trying to cut cost in recent Qs. Currently, 9M2017 is a loss of US$1.2 million. Of course the above is my personal estimation, we shall see if its true in the coming FY announcement.

2) Risk remain

The recent spate of events have ticked some of the catalysts that I have laid out in my first post on AT. However, risk like their cash flow still remain in this business.

— Cash Flow —

Having sales is of no use if the company cannot bring in cold hard cash to finance the company’s operations. As for now, it could be a race against time to see if they can fully commercialise the IDRS before their money eventually run out. I am still hoping that they could finally reach a deal to sell away AVC one of their subsidiary in order to spice up their balance sheet. I will be watching its cash flow closely in the coming earnings report.

In conclusion,

AT new chart.png

The recent events have caused the stock to run up from $0.044 to $0.062. I have a tiny portion at $0.04 just 0.1 cent higher than the placement share. For now, I am holding out since I am already in the money. I am looking to add to my position when the stock consolidate or after the upcoming earnings results. Personally, I feel quite confident of the IDRS project, now the ball is in AT’s court to translate what they have into an earnings generating monster!

 

 

 

 

 

[Eye Candy]: Tiong Seng, a sleeping giant?

Recently, I have been trying to look at sectors that have been through a rough patch to see if I can find any hidden gems within this depressed sectors. One sector that pops up is the construction industry. Property prices have been stuck on the ground for some time now. As property developers grapple with the cooling measures imposed by the government, this means lesser construction demand by property developers which affects the construction industry as a whole. I feel it is in times like this we are able to look for promising companies that are strong enough to weather this storm and thrive when the sectors eventually recovers. One such company that came across is Tiong Seng Holdings Ltd.

tiong-seng-1

A little bit about Tiong Seng. Tiong Seng is a homegrown construction and civil engineering company with  58 years of track record. JTC@Tuas, Mediapolis@One North the new home of MediaCorp, SIM Campus were just some of the projects that Tiong Seng have undertaken. They are also into property development in China, mainly with projects in the second and third-tier cities like Suzhou and Yangzhou.

1) Fundamentals

– Debt level –

Tiong Seng’s debt is a bit on the high side. It have a 92m dollars cash & cash equivalent but debt of about 175m dollars (ST+ LT).

TS BS1.png

TSBS2.png

That’s about 2 times its cash & cash equivalents. As the construction industry is a very competitive industry that require high upfront costs, I wanted to see if this figures are considered over-leverage. Hence, I decided to do a comparison across some of the big construction companies listed in the SGX. I chose 4 companies with comparable market cap to Tiong Seng and did a comparison of their debt levels.

TS compare debt

Hence, in my opinion, Tiong Seng debts/CCE of about 2 times seem to be acceptable for a construction company.

– Cash Flow –

Managing cash flow in a construction company is rather challenging. There’s always a risk when any business take on a huge capital to finance a project. Furthermore, earnings in the construction industry are usually lumpy in nature as they receive their earnings in phases. This could lead them into a huge debt spiral if they borrow huge amounts and are unable to repay them in time due to unsuccessful project tenders, costs overrun etc.

TS Cash Flow.png

It has recorded positive cash flow from operations for 4 out of 5 years. Net change in cash is positive for 2 out of 5 years. It’s cash flow is still considered decent in my opinion.

– Management –

Tiong Seng was founded by the current CEO’s father, Pek Ah Tuan. Peck Tiong Choon which is a company founded by the current CEO’s father and his brothers. Peck Tiong Choon have a 59.8% stake in Tiong Seng. One of the non-executive director, Lee It Hoe also deemed to have about a 63.1% stake in the company.

Ownership2.png

What I think it means is that members in the board like Mr Lee It Hoe have Tiong Seng’s shares through Tiong Seng Shareholdings. Furthermore, the current CEO being the son of Mr Pek Ah Tuan should have a vested interest to advance the business started out by his father. Of course, that is hard to say. Family business can be prone to infighting and can fail as well. But I have to say I have been rather happy with the management’s decisions so far. I will share with you why below.

2) Prospects

– Technology focused –

The adoption of technology in the construction industry have been a long drawn process. In an environment where competition to offer the best tender is strong, it is hard to see these companies adopting technology to aid productivity. However, Tiong Seng have a different approach in this. For instance, Tiong Seng invested in the very first Precast Automation Hub in Singapore where they have experienced a significant 70.0% reduction in manpower while raising output and maintaining consistency. They also use computer software programs to ensure that their buildings are well designed before starting actual construction reducing wastage. Tiong Seng also employ the use of PPVC and PBC where a portion of the building are fabricated off-site. Building Construction Authority (BCA) have also been encouraging the use of such approach.

TS tech

TS tech 1

In my opinion, Tiong Seng’s innovation to the construction industry will put it in good stead to provide not just quality but also efficiency. Being one of the few construction firms in Singapore to focus so heavily on technology, I think this factor should play out well in favour of Tiong Seng in the future.

– Construction industry to be boosted by public sector demand in 2017 –

Given the current property outlook, private demand for construction remains soft. However, the government have announced more public construction work in 2017, valued to be around $24 billion. Tiong Seng have the highest A1 grade from BCA for both civil engineering and general building which allows it to undertake public sector projects with unlimited value. To illustrate how prestigious that is, take a look below.

BCA A1.png

BCA grades the construction sector in two categories, General Building and Civil Engineering. To be able to obtain A1 for both categories is certainly not an easy feat. Most companies only have 1. Hence, with public sector demand rising, Tiong Seng should be in a nice position to grab a share of the pie given its strong track record. Besides, it is becoming a common practice for the government to award contracts to companies that may not be the lowest bidder in tender exercises.

 

3) Risks

– China Property Bubble –

Property prices in China have been running sky high. In the short term, that could definitely be a boost to Tiong Seng’s revenue. However, like every bubble, there will be a correction coming. China’s government have put in place many cooling measures like tighter loan restrictions to simmer down the property market.

china house price

As we can see a top has formed, and a correction will definitely not be good for Tiong Seng’s property developments business in China. Revenue will definitely be affected. However, in my opinion, the main issue with China property prices, is speculation. Prices can raced up about 23% in a year.

An article in Business Insider also explains that the Chinese government is looking for healthy developments of the real estate market.

business insider.png

Hence, I believe that although Tiong Seng’s China venture will be impacted when the property bubble burst. Their strategy to only develops in 2nd and 3rd tier cities will help them in the long run as China embraces the OBOR initiatives to connect more of their cities together through building infrastructure. Furthermore, by developing in the 2nd and 3rd tier cities, it can translate to lower costs compared to a 1st tier city. We shall see how their China venture pans out, hopefully they have learn their lesson from their overseas venture debacle in 2014.

– Execution risk –

And like all construction companies, execution risks remain the most probable. Having to deal with rising labour costs, material costs, safety etc etc. It is important that a construction companies do not run into a Stop Work Order, which will be no good to the company. However, given Tiong Seng’s track record, that risk should be relatively smaller compared to other construction firms.

 

In conclusion,

Tiong Seng’s PE stands at 7.7 as of today with a price of $0.260 per share. Tiong Seng’s PE don’t really tell much as most construction firms are undervalued at the moment. Also, the construction industry being a lumpy in nature, we may experienced very wild fluctuations in their earnings and hence their PE ratio. A better indicator would be their Net Asset Value (NAV), it stands at $0.594 with $0.164 cash in hand per share.

Tiong Seng chart.png

Also, based on the chart, it has been consolidating at a rather low price for some time now, which provides a favourable entry point. If Tiong Seng can achieve more contracts in 2017, there will be a strong reason to believe an upward break out in price can be achieved. Currently, I am not vested yet as I am still observing the price movement of the stock. Do always remember to DYODD! Cheers! 🙂

[My Story]: My Investing Strategy

Hi all, apologies for not posting for a while now. Peak period of outfields week in week out made me procrastinate for quite a bit haha. I realised it’s been about 1 year since I started investing. A lot had happen and I am thankful for the many lessons I have learnt over the course of the year. All that happened, made me stronger and allow me to continuously revise my own investing strategy. Today, I shall share about my own investing strategy. How I identify potential investment targets, what I use to time my entry into a stock and when to sell.

1) Investment Objectives

Previously, I shared the importance to know your own investment objectives before being able to craft out your own investment plan.

my-investment-objective

Your own investment strategies are the actions you are going to take in your investment plan. Just a recap, for now my investment objective remains to grow my capital. From a measly sum of $300 at the very start of my investment journey, I am targeting to grow it to at least $10k before I enter the university. (Of course along the way, I added more money into my investment.) As of now I have about $6k vested in the stock market and sitting on a 20% realised return so far. Below is my investment strategy I am using to reach my objectives.

2) How I pick my investment targets

Personally, I like to look for companies with low Price to Earnings (PE) ratio with huge growth catalysts ahead. Companies that are of such qualities fill up about 60% of my portfolio. The reason why I adore such a company is because it is both undervalued and have ample of growth characteristics. (Killing 2 birds with 1 stone!)

Of course, sometimes it’s hard to find such a company. But all you need is that 1 or 2 opportunities to give you astronomical gains. Examples are companies like AEM which was previously PE of 8-9 (undervalued) and had a innovative product (growth). When the market comes to realise the company’s potential, the share price will readjust upwards.

After finding that few value-growth companies, I like to diversify across themes. By that, I like to research their growth areas and see if it fits any major trends happening in the world or in Singapore. For instance, now the One Belt One Road is quite a big thing, companies (construction, railway builder etc) that are undervalued and have operations in this area will potentially stand to gain from the growth opportunities available. Here’s another example, I may want to look at a more defensive theme. Companies that are undervalued and are in the industry that provides services to consumers, governments etc are all plausible candidates.

Of course, after shortlisting the few that make the cut. Checking their fundamentals is next and even better if there has been insider buying. (Here’s how I evaluate a fundamentally sound company)

3) Timing my entry

After all that filtering process, you should probably be left with a list of less than 4 companies. Timing my entry to buy into the stock is next. How should I buy at the correct timing. For me, some technical indicators and the chart have helped me quite a bit.

I like to enter my first position after a period of consolidation (where the price have been around the same level for a few weeks) and with low volume.

AT chart

I use the weekly chart for a better long term view since I usually hold my position for a few months at least. The red rectangle is the period of consolidation where prices close in very tight range. And if you look at the blue circle, the volume is below average for those few weeks. This represents a rather good opportunity to enter. I like to see consolidation period as a spring board to propel you upwards. But, how do we tell if price will go up after consolidation and not down?

AT chart1.png

I use the MACD indicator to see if there’s a possible uptrend coming. (I am not going to go too in depth into indicators) When the blue line cross the red line as shown in the circles, it is a possible indication of an uptrend. For me, I only use indicators as an additional reference after I spot a consolidation zone.

4) When to sell?

Haha to be honest, this question always baffles me. I myself am also not a good seller. There are a few times a stock raced upwards after I sold away all my position. Sometimes, I get to emotionally attached to a stock and tend to sell too late. Hence, this portion is something I am constantly still learning. However I do have a few ground rules to follow.

  1. Sell when the undervalued stocks become overvalued.
  2. Sell at your stop loss.
  3. Sell when the business is no longer attractive or fundamentally sound.

I don’t really use technical indicators to predict when to sell, because I believe that as long as the business’s value and growth aspects remain intact, a downtrend should be temporary.

In conclusion,

planning your own investment strategies to achieve your own objectives is important.  You need to know what stocks you are looking into, when to enter and when to sell. Only then will it translate into gains in your portfolio. Hopefully for those who started investing, you will be empowered to write out your own investment strategies after reading my own strategies. Writing it out is really effective, as it makes sure you do not get flustered when anything happens in the market.

[Building Blocks]: 3 useful online resources to help with your investing journey

Living in a world connected by the internet means information are widely available just a few clicks away. No doubt, I myself have benefited immensely from the information I found online. Today, I want to share with you some of the useful online resources that will definitely be of help to your investing journey.

1) Investopedia

investopedia.png

Investopedia was the very first website that I visited to understand more about investing. It is like a huge encyclopedia on anything related to finance. I would say that it is easily one of the top few investing websites that are easy to understand and well organised. Not only are there information on investing, there are information on current affairs, insurance and many more. The only down side of this is that it mainly focuses on the US markets. However I would recommend this website for beginners wanting to invest because their beginners’ tutorials are very comprehensive and easy to understand.

investopedia 2

You can find tons of tutorials about investing at this website.

And if you are still clueless where to start from, I have compounded a list of tutorials from Investopedia that you should start with. Click on the link below for you to be teleported there haha.

  1. Investing Basics 101: A tutorial for beginner investors 
  2. Stock Basics Tutorial
  3. Bonds Basics Tutorial
  4. Mutual Funds Tutorial
  5. Introduction to Fundamental Analysis
  6. Basics of Technical Analysis

Here you go. Starting out with these few tutorials should allow you to understand investing clearer. If in doubt you can always drop a comment below and I will answer to them 🙂

2) InvestingNote

investingnote

Think of InvestingNote like a Facebook for investors. It boast a huge collection of users ranging from beginner investors to the very experienced ones. Interestingly, this platform is set up by Singaporeans and was only launched recently. The community in InvestingNote is fantastic as many are willing to share about their strategies and styles of investing. What’s more? You can also find out more about the stocks you are interested in, like the information of the company, what other investors are talking about that stock etc etc.

Investingnote 1

For instance, if you are trying to find out more about Japfa, you can get a summarised information on Japfa’s price actions, fundamentals and financials on the left and the chart of Japfa on the right. Personally, I find InvestingNote’s charting platform to be one of the best. It allows you to plot your own lines, overlay them with a myriad of indicators and you can even save your drawings on the chart.

investingnote 2

Scrolling down further, you can see what are some of the things other users are talking about and the upcoming events the company may have. It currently have information on companies in the SG, US and HK markets. But many of the users of InvestingNote mainly talk about SG stocks which are good for new investors looking to go into the local market.

What’s more important is that you can get these amazing features for FREE. All you have to do is to sign up with them. It seems like I am doing an advertisement for them haha. Rest assured I am not paid to do this. For me, this platform have really accelerated my learning on investing and hence I thought of promoting it to you guys.

3) Investment Blogs

Many investors do have their own blogs where they document their own investment experiences. Some of them are so influential that some investors buy whatever they preach. Personally, some of the blogs that I have came about have helped me in terms of understanding how different investors analyse a company, their investment strategies etc.

I think what’s really beneficial about learning from investment blogs is learning the way others analyse a company. By reading their investment thesis on certain companies, you can understand the way they think which you can apply when you are analysing the company you are planning to invest.

Here’s an article on 55 SG Financial Blogs that are useful.

For me I am a regular reader of TTI, thelittlesnowball, my15hourworkweek and TUBinvesting.

Do give them a visit! 🙂

In conclusion,

good resources are everywhere on the internet. Use it to propel your investment knowledge as much as possible. You will realise that you may not have to even pay a dime to attend courses which teach you about the basics of investing. Also, the best way to learn is from each other. Hence, I believe InvestingNote and reading of other investors’ blogs are two good ways to deepen your understanding of investing. Do note that everyone have their unique styles of investing, different upfront capital and different investment objectives. Thus, completely copying someone else’s method may not suit you. I would suggest adopting good practices and incorporate it into your own method of investing. Hopefully this post can help you realise some of the good investing resources online that will be beneficial to your investing journey!

[My Story]: How I managed to regain all my losses with one solid stock

Hi everyone, it’s been about 3 weeks since I last posted. Was away for a military exercise in Thailand. A lot have happened while I was in Thailand, the weather was crazily hot, GID outbreak in camp and I also sold one of my stock holding that gave me a 100 percent return on investment. The profits made from that investment was able to cover out all my losses incurred when I just started out investing. Today, I will be sharing more about the characteristics of that stock and the things I have learnt from this episode.

1) 100% return in just 3 months?!

Yup I was equally surprised! Some of you may have noticed that in most of my recent posts, I have been using AEM Holdings as an example. Yup this is the company that have became my very first multibagger (a stock that returns more than 100%). It all started out when I was screening for low PE stocks in the SGX. (Value approach). This company popped out in the screener which caught my eye. It has innovated a cutting edge product that no one in the world has been able to and back then its PE was less than 10 (relatively undervalued). The company have also just returned to making profits and are planning to ramp up the production of this product which means that further earnings growth is guaranteed.

Since it fulfills the basic principles I set out for a fundamentally sound company and I read an interesting piece of analysis by the guys over at thelittlesnowball.com which reaffirmed my beliefs, I vested into the company at $0.885 per share.

AEM stock chart.png

From the chart, I entered AEM at $0.885 per share, added more shares at $1.055, before selling them at $2. If you were wondering why did I decide to sell it instead of holding onto it longer, it was because this stock was about 60% of my portfolio. I have about $2000 invested in it. As this stock catches the attention of more people, it will become more volatile as big players come into the fray. Since I am just a small fish in this, I decided to take the money off the table and only enter again when there is a dip in prices.

Not all company can be like AEM, which gives a 100% return in just 3 months but there are certain characteristics that the company possessed.

  1. Growing earnings
  2. No debt
  3. Frequent share buybacks
  4. Undervalued

and most importantly it has major catalysts (in the form of their cutting edge products) coming its way.

2) Lesson learnt from this episode

I think the most important lesson I learnt from this episode is to be consistent in your approach. A lot of times, young investors like us tend to be swayed by our emotions. For instance, chasing the next hot stock etc etc. When we are swayed by our emotions, we tend to forget all the framework that we set in place for ourselves. Hence being consistent in our approach and calm minded are very important when we are investing.

This episode also shows that you do not need to be in many trades to profit from investing. Sometimes, all you need is that 1 stock to do the magic. Hence, when you are disappointed because you had to be force to exit a stock due to the stop loss in placed, remember that 1 win can easily make up for many small losses if you exit them early. Personally, I was down about $600 since I started investing and this was still when I didn’t learn to cut loss. In that $600 includes the 70% lost incurred from my Noble’s debacle. I am glad that my revised approach, have led me to recover from my losses and rake in a small profit.

In conclusion,

I would like to say that not all stocks can be like AEM. However, many stocks do have some resemblance to it. With enough due diligence, and a small leap of faith you may just stumble upon the next AEM. Most importantly, do not forget the framework you built for yourself while investing. Personally that has been the most important rule that led me to find this undervalued gem!

 

[Eye Candy]: Addvalue Tech’s 3Q results

It’s been some time since Addvalue Tech (AT) have announced their 3Q 2017 results. I thought its about right to do an analysis on AT’s 3Q results to see if they are on track for a turnaround as mentioned in my thesis.

Income Statement

3Q2017.png

Revenue was down in 3Q17, however 9M17 showed a 66.6% increase in revenue helped by the increase in revenue registered in 1H2017. I tried searching up 3Q results for the past 2 FYs which did not show any relations with 3Q being their weaker Q of their FY. Hence, I do not believe that their weaker showing in 3Q is due to seasonality factor. From the looks of it, AT is still not recording enough sales of their products and the effects of some of its catalysts have not kicked in yet.

The management has promised in several of their earnings statements that they are focusing on cutting costs which can be seen in the recent Q. In the blue box, it shows that the management is committed to what they said with regards to cutting down on expenses.

Net profit for the 3Q period was a loss of about 1m, while 9M17 is better compared to 9M16 despite still being in a loss.

 

 

Balance Sheet

3Q17 Assets.png

Not much has improved in their assets, cash and cash equivalents drop by about 50% which shows that AT’s business continues to burn cash. Trade receivables and inventories are lower as well which could be an indication that subsequent 4Q’s results may not be good as well.

AT3Qliabilites.png

We can see a substantial reduction of their debt as of 31 Dec 2017. As announced by the company, they used the money raised from the rights issue to pay off their debt.

Overall, balance sheet has not improved much since my previous analysis. Fundamentally, the company is not doing well.

 

Cash Flow Statement

3qcashfrmops

The business continue to register negative cash flow from operations, which means that cash is not coming into the company from the product they sell. Even after accounting for depreciation and amortization, AT still recorded a loss. This shows the inherent business is not doing well. Sales of their products cannot overcome the costs involved.

3Qcashfrminv&fin.pngFrom the cash flow from financing activities, we can see that AT took a 512k loan, which was reflected in the balance sheet above. 9M 2017’s liabilities reflected a 523k in borrowings, which showed that the bulk of the money was borrowed in 3Q17. Furthermore with borrowings > cash & cash equivalents, it reinforces the notion that money continues to be borrowed to finance the company’s operations. This could be a slippery slope, if AT do not record enough cash flow from operations in time to come, as more borrowings will be required to sustain the company. If this gloomy prediction is true, we could see it’s debts balloon up again and calling for another rights issue could be imminent.

Overall, their cash flow remains a huge concern for them.

 

SWOT Analysis

Strengths

The company’s strength still lies in them being an industry leader in satellite communications terminal. Their R&D ability is strong given the example of the IDRS. Their partnerships with various big satellite players like Inmarsat and Thuraya is one advantage to their business.

Weakness

The company’s financial health remain to be a headache for investors. Weak balance sheet, escalating borrowings, coupled with poor cash flow will pull down the company if things do not start to change.

Opportunities

As I mentioned in my previous post on AT, the company have many potential catalysts in place. Their stronger foothold in China through the One Belt, One Road initiative, the development of the new IDRS product which will clock them airtime revenue and the possible disposal of their subsidiary AVC. I wouldn’t put my money on the disposal as it has been delayed for 3 years now. What I see potential in is the venture into China’s market and the new IDRS product. China’s One Belt One Road initiative would see construction of massive infrastructure around the globe and some of these places like deserts have poor communication networks. This is where AT could play a pivotal role in providing their products. Given the massive scale of the project, I believe the venture into China would be a massive lift in their revenue in time to come. The new IDRS product being the first in the world which allows operators of LEO satellites to constantly keep in contact with their satellites can give them an early advantage into the market. In some of their announcements, it was mentioned that airtime revenues will be given to AT which will provide recurring revenue in time to come.

Threats

While all the potential catalysts paint a rosy picture on the company’s outlook, the inherent weak financial health will constantly threaten the company. Many of their catalysts have not been in effect yet as shown by their dismal 3Q showing. But the main problem will be if they are able to capitalise on them. AT have all along been a strong R&D company, however, their inconsistent earnings showed that they have not been able to fully capitalise on their innovations. Weak revenue figures only emphasise that although AT’s products are amazing, it has not been able to either market it well or it has not address the customers’ needs.

In conclusion,

if anyone were to enter a position into AT now, it would be a punt for good developments within the company or a deliberate play by BBs as the company stock prices are around the lowest ever it has recorded. For long term investors, it would be good to enter into AT after some of their catalysts have come into place which should give them a stronger earnings record. Personally, I love company that have new cutting edge products as this would mean market monopoly and strong earnings but for AT we will still need to observe closely before taking any concrete actions. This should be my last post for a while, as I am going to Thailand for a military exercise. Won’t be posting for some time. Till then, good bye! 🙂

 

[Building Blocks]: Dissecting the Annual Report (Part 2)

Hi all, today I will be continuing with Part 2 of Dissecting the Annual Report. In part 1, I shared about some ways to dissect the annual report in order to find the information that you need. For those who missed it, you can read Part 1 here. Today, I will be going more in depth into the financial statements portion of the annual report. The financial statements in the annual report is an important piece of document that shed light on how the company is doing and challenges that the company may face.

financial-statement-post-pic

The financial statements in the annual report always consist of 1) the Balance Sheet, 2) the Income Statement, 3) the Cash Flow statement and 4) the Statement of Equity. We will focus on the first 3 as the statement of equity is used less frequently.

My Strategy

Whenever I look into the financial statements of any company, I do it for 2 reasons. It’s either to identify if the company is fundamentally sound to invest or to evaluate the financial health of a company after every earnings report season that I am already vested in.

When deciding if a company is fundamentally sound, I would look for stability of earnings, debts level and their cash flow which I wrote about here. After, confirming that the company is a fundamentally sound company, I will scrutinise their financial statements further for any abnormal figures. This can come in the form sudden increase when compared to previous year’s figures or extremely high figures. As for companies that I am already vested, I always try to look out for abnormal figures when compared to the previous year.

By doing so, I am able to detect any drastic change that may happen to a company. This is because any abnormal figures usually have a huge impact on the company. For instance, when the company suddenly register a 50% decrease in Cash & Cash Equivalents in their balance sheet, you must find out what did the company spent the money on. Is it for expansion or paying down debts? Will this affect their operations etc etc. Hence it is important to always find out about abnormal figures that may puzzle you when you read their financial statements.

Alright, with that aside, we shall dive deeper into the financial statements. I will share with you the important things to look at and some basic calculations you can make to better understand the financial health of the company.

1) Income Statement

Let’s start with the income statement. The income statement is basically a summary of profit and loss for the company. It documents the revenue and expenses for the specific accounting period.

aem-3q-result

The above is an example of the income statement of a company.

Things to know:

  • Revenue – a gauge of the amount of sales (look for stable or increasing revenue)
  • Gross Profit  – this is obtained after subtracting costs of goods from their revenue.
  • Gross Profit Margin – this is obtained from dividing the gross profit by the revenue (High GPM shows that the company have some form of competitive advantage over their rivals)
  • Operating Expenses – which consists of all expenditures that are not directly associated with the production of the good or services. Expenses like R&D costs, depreciation, amortization etc (Companies with durable competitive advantage have consistent operating expenses)
  • Earnings Per Share — EPS is based on net profit attributable to shareholders after deducting any provision for preference dividends and then divided by total shares outstanding. (An increasing or consistent EPS is always preferred)

 

The income statement is important in telling me if the company’s business have a form of moat around it and also if the company have been able to keep costs low.

 

2) Balance Sheet

The balance sheet documents the assets, liabilities and the shareholders’ equity of a business at a particular point of time.

aem-balance-sheet

Things to note in a balance sheet:

  1. total assets = total liabilities + total equity
  2. Current assets refer to assets that can be liquidated into cash within a year
  3. Current liabilities refer to the money to be paid in less than a year
  4. Non-current assets refer to assets that takes more than a year to be converted to cash. For eg, property, factory buildings etc
  5. Non-current liabilities refer to the money payable after 1 year.
  6. Shareholders’ equity refer to the net worth of the company
  7. Current Ratio calculates the company’s abilities to meet their short term obligations. (Current Ratio = Current assets divided by Current Liabilities)

 

Important values:

  • Cash & Cash Equivalents > Total Debts – I always try to ensure that the company have enough cash on hand to pay off their total debts. An over-leveraged company is a troublesome company.
  • Current Ratio > 1.5

 

For me, the balance sheet is important in telling me if the company will have a problem of paying their dues.

3) Cash Flow Statement

The cash flow statement records the cash inflow and outflow of a business. The cash flow statement shows how changes in the balance sheet and the income statement affects the cash and cash equivalents.

aem-cash-flow

It consists of 3 parts. 1) Cash flow from Operating Activities which records the net cash into or out of the business from their main operations. 2) Cash flow from investing activities which records the cash movement from the company’s investment. For instance, purchase or sale of a property, subsidiary etc. 3) Cash flow from financing activities records the cash movement of financing activities in the company.

Cash Flow from Operating Activities

A positive cash flow from operating activities means that cash is flowing into the company from their business. This means that net of all the expenses, the company is receiving cash from the products they sell. This is important as you want a company to take in cash from the products they sell. A company with consistent negative cash flow from operating activities is burning through cash fast and may need to take on debt in the future to finance their expenses. Hence, we would want a company to have positive cash flow from operating activities.

Cash Flow from Investing Activities

Purchase of assets, company investing their money in the market etc. These are all counted as cash outflow from investing activities. Sale of an asset etc will be register as an inflow. This section can tell you if the company is spending money to expand their current infrastructure or expanding capacity through higher capital expenditures.

Cash Flow from Financing Activities

Financing activities include payment of dividends to shareholders, paying off debts, money used in share buyback etc. In this section, you will be able to find out what the cash is used for in their financial activities. For instance, a negative cash flow from financing activities can mean that the company is paying off its debt. A positive cash flow from financing activities could mean that the company is raising money through selling new shares in the market etc.

The sum of all three sections above will give the net change in cash and cash equivalents which will be added to the amount of cash they have at the beginning of the year. By understanding the functions of the different sections of the cash flow statement we can better understand what the company is doing with their cash.

Disclaimer

Not all companies’ financial statements follow to the template I describe above. A lot of them have to be evaluated in the context of their business. For instance, although I emphasised a lot on positive cash flow from operating activities,.property developers would register most of their cash flow in the investing portion than operating activities when they sell a completed property project. Hence, the financial statement should be read in context with the industry the company is in.

In conclusion,

the financial statement is a powerful tool to better understand a company. In fact, I am also still in the process of further deepening my understanding of the financial statements. The management may coat investors with nice narratives about the brilliance of the company but you can always cross check what the company is saying with their financial statements to gauge their reliability. Understanding the financial statements will definitely level up your investing many folds! 🙂

 

[Eye Candy]: Nordic Group riding on O&G recovery?

Nordic Group have long been in my eye candy list for some time now. Not only does it have a good fundamentals, it has been able to withstand the chaos in the O&G sector while posing earnings growth during this period of time. A company that can withstand headwinds in the industry are certainly poised to do well when the sector recovers.

nordic-group-limited

Nordic Group is a global systems integration solutions provider serving mainly the marine, offshore and oil & gas industries. Their business segments include 1) system integration, 2) maintenance, repair, overhaul and trading, 3) precision engineering, 4) scaffolding services 5) Insulation services. Most of their businesses are in the O&G sector but they also do serve the aerospace and medical industries. (But to a small portion)

Fundamentals

1) Strong earnings record

As I mentioned earlier, Nordic have managed to grow their earnings rather significantly over the past few years. Even when many O&G companies (their customers) are cutting budget and hence spending, this company have punched above its weight. Here’s a snapshot of its financial highlights.

nordic financial highlights.png

Various indicators of earnings are all pointing upwards, which shows the strong earnings momentum the company has. Also 2016 being the year where O&G sector faced many unpredictable headwinds, like falling oil prices. Nordic have still managed to grow its revenue.

nordic-q4-result

Despite challenges, revenue for FY 2016 increase 2%, profit net of tax increased 21%. If Nordic can weather the storm in the industry, it should present a good growth opportunity when eventually the industry recovers and O&G companies start to spend again.

2) Strong balance sheet and cash flow

Current ratio of 1.74, with cash and cash equivalents covering its debts. Nordic have also been registering positive cash flow from operations for the past few years.

Fundamentals.png

3) Insider ownership

nordic-insider

All 3 executive directors of the company are part of the 20 largest shareholders in their own company. Furthermore, company have been doing regular share buybacks. Latest one being at $0.24 a share.

Catalysts

Going forward there are a few catalysts that could propel the stock further.

1) More contract wins and possible acquisitions

With oil prices stabilising around $50 per barrel, compared to the atrocious $30 per barrel at the start of 2016. A recovering 0&G sector can be beneficial for Nordic as more of their customers start spending more to upgrade or improve their facilities. This should lead to more contract wins for Nordic given the strong reputation it has in the industry. With Nordic low debt, they could also possibly look to acquire companies in similar industry to boost their source of revenue, just like the acquisition of Austin Energy in 2015.

2) Going into pharmaceutical industry

In the AR of 2015, the Chairman also mentioned going into the pharmaceutical industry. This should open up new form of revenue stream and allow Nordic to grow their business out of the O&G sector.

austin-energy

Technical

Based on the chart, this gem have already been discovered by many investors.

Nordic chart.png

Clear and nice uptrend. Currently, Nordic have reach upper channel line and I am hoping the pull back will hit the support at $0.270. This will present a rather lucrative price to enter given the upside potential.

In conclusion,

this is a rather straight forward company to analyse. Strong fundamentals and possible tailwinds to promote growth should the O&G sector improves. $0.270 will be a great price to enter!