Boustead Part 1

How could I have been so mistaken as to have trusted the experts?

-John F.Kennedy after the Bay of Pigs fiasco

The past 2 weeks have been hectic as I had to get use to my new summer schedule. Apart from getting used to my summer internship, I have to plan for my exchange program and also finish up some reading. Currently, the market is reversing from the bullish trend due to weak investor sentiments as a result of the Euro-debt crisis. Coupled with the additional funds from selling Adampak’s shares, I decided to focus on analysing new potential buys instead of providing a detailed analysis of my holdings. One of the companies that are currently on my watch-list is Boustead and I will be covering the financial statements here. In subsequent parts, I will cover detailed segment analysis and also Boustead's prospects in the future.

From FY 2007 to FY 2011, CAGR is about 13% and one anomaly that dragged CAGR down is FY 2010 where revenue was -15.4%. This was mainly due to the global economic recession where financial markets crashed a second time in March 2009. However, Boustead was fast to recover from the dip and they recorded record revenue of S$560.6 million in the subsequent year. Net profit for FY 2011 was S$52.2 million even after setting aside provisions for Libya Civil War. Other newsworthy events such as Europe debt crisis, and the severe earthquake, tsunami, and nuclear problems that hit Japan did not manage to affect Boustead as much. Gross margin remains high at ~31% in FY2011 supporting Boustead’s cost-conscious strategy.

Looking at its balance sheet, Boustead has a large cash hoard of about 200 million which translates to about 41c per share. This large cash hoard will allow Boustead to finance its acquisition and investments. More will be elaborated in part 3 with regards to their acquisition strategy thus far. At a market price less net cash per share of 44.5c, Boustead is a value buy at ex cash PER of 4.3 implying that you can make back your investment in just 4.3 years at its current profitability and cash flow. Current ratio is at a high of 1.96 and the all-important metric –Return on equity- stands at 22.8%. It is much less as compared to its high of ~30% in FY08 & FY09 but nevertheless still respectable.

Looking at its cash flow statements, Boustead always had strong operational cash flows. Boustead still managed to record a positive net cash flow even during 2009 which was a difficult year for most businesses. In FY 2011, net cash flow was negative but this was due to significant purchase amount on held for trade securities and acquisitions. Dividends also form the bulk of financing activities which is seen in previous years also. Dividends pay-out has been around 5-8% per annum for the past 5 years and Boustead is able to consistently maintain its dividend pay-out even during difficult years such as 2009. I have confidence that Boustead will be able to maintain its strong cash position in the foreseeable future as Boustead’s management has been proven to be capable in this aspect.

This wraps up my analysis for the key numbers and ratios for the P/L, BS and cash flow statements for the past 5 years. Part 2 will cover segmental analysis on Boustead’s divisions and subsidiaries, and part 3 will cover Boustead’s industry outlook.

Disclaimer: Buy and sell at your own risk. Please feel free to correct any error in my post. I am not liable for anything. Do your own research.

The tulip-bulb craze, the dot com bubble, and my folly

October. This is one of the peculiarly dangerous months to speculate in stocks. The others are July, January, September, April, November, May, March, June, December, August and February.

   – Mark Twain

In the movie 'Wall street: Money never sleeps', the tulip mania is referenced where Gordon Gecko tells Jake the story of the first measured market bubble. At the peak of the tulip mania, people would barter off their assets such as land and jewels to obtain bulbs which they believe would make them even wealthier. A rare Violetten Admirael van Enkhuizen bulb was sold for 5,200 guilders which was more than the annual income of a wealthy merchant.An option market for tulip speculators emerge where traders can leverage on their investments to increase the potential rewards as well as the risks. As expected, the tulip market crashed utterly. Bulbs, that were priced at 5000 guilders a few weeks ago were worth only 1/100 that amount. Eventually, most bulbs became worthless and were sold for no more than the price of a common onion.


In the early 2000s, the internet bubble burst. Between 1998 to 2000, price-earning multiples of stocks in the NASDAQ index that had earnings soared to over 100. For no particular reason but the market's insanity, a mere name change of companies to include dot-com or dot-net will allow their stock price to increase by 125 percent greater than that of their peers. When the bubble popped, over $8 trillion of market value vanished into think air. It was as if a year's output of major economies such as Germany, England and Russia had completely disappeared. Blue chip companies such as Amazon saw a 98.7% decline in their stock price from a high of 75.25 in 2000 to a low of 5.51 between 2001-2002.


The two above mentioned events are but only 2 of the many bubbles that happened across history. My point is not only to show how prevalent bubbles are across history, but how humans nature hardly change. I myself, have previously fallen prey to the greater fool theory - a belief that when I buy something, its not because its worth the price but because I will be able to sell it at a higher price to a 'greater fool' based on market optimism and market momentum. 


In December 2011, I thought I had realized a trend in the market which I could capitalize on. From almost all of my past observations of patterns and trends, it seems that HSI would always follow the trend of DJIA. It reflects the sentiments of investors. If they see that DJIA is doing well the previous day, they would be confident about the market and would put their money into the HSI market. With that, I came up with a strategy to purchase the HSI call warrants the moment Hang Seng market opens should DJIA do well the previous day. With a 10% appreciation, I would sell it off immediately with some gains. And if I were to repeat the process, I could make quite a lot. On 12 Dec 2011, I bought 9 lots of HS18600MBC120130 based on DJIA's spectacular gains on the previous Friday. But I was proven wrong at the end of the day, where I went into the reds. Instead of divesting it on the day itself, I decided to go against the rule I set for myself and held it overnight. The situation did not improve and I sold it at a 50% loss on 30 Dec before it will eventually become worthless should it expire out of the money. The story did not end there because 2 days before it expired, the market rebounded and I could have break even if I had sold it then. But who would have known, just like how I wouldn't have known what would happened the next day. 


I learnt a lot from this particular incident. Not only do I have to be disciplined, but I also figured that my investment methodology was wrong. I became a staunch believer in fundamental analysis and I believe that I should only buy into a company because it is undervalued. The other school of thought is technical analysis which determines a buying decision by looking at charts and past buying trends in stock prices and volumes. But from my experience, I simply do not see how last week's price change or yesterday's price change and bear much relationship the the price changes this week, and so forth. The fact is, we won't know if we might end up as the greatest fool instead. We cannot foresee if we are going to be the buyer of the most expensive tulip bulb in the world and only to sell it for the price of an onion.

Currently, my portfolio contains 3 companies. Adampak, Kingsmen and First Reit. All three have been chosen based on detailed fundamental analysis which include looking at its financial reports and researching about its business model. I do not expect myself to get rich quick by investing in this manner. But this approach assure you that your risks is minimized. This is not a sure win approach, but out of the 10 times, I might be wrong 2-3 times compared to the higher chance of making a mistake via technical analysis. As I get better and improve my skills, I will further reduce the chance of making a terrible mistake in my analysis. Patience is key, because it might take 2-3 years or even more before the market realizes the value of the company and start correcting the price. 


In my next post, I will include an analysis of Adampak. Currently, a private equity firm is acquiring its shares to delist it. As of yesterday, I have submitted the necessary documents to divest it off my holdings. My next post will also cover the reasons as to why I decide to divest it.

Double dose of goodness

2nd May 2012. The last paper is over, and this marks the beginning of summer and the launch of my new blog. Without going into details of my summer plans, I shall instead focus on the purpose of this post which will highlight the drivers behind the launch of this blog and what this blog aims to achieve.

One year ago in May, I embarked on my journey and ventured into the world of securities and the unknown. It started with a clear goal to get rich but that goal has slowly evolved into a passion of analyzing securities and testing my analysis against the market. It definitely has not been a smooth journey, filled with many ups and downs. Mistakes made along the way have resulted in the loss of a significant portion of my initial capital. For example, I lost $2k from trading structured warrants in an attempt to get rich fast. I also made the mistake of chasing after 'bad money' which eventually cost me around $2k of losses when I finally divested the counter. However, as cliche as it may sound, every mistake made is a step forward. I still have much room for improvement, but my skills have improved and my investor psyche has been further refined over this period.

Throughout this period, there is always this yearning to share and discuss my understanding of the market and companies with other like-minded people. I have met a few people who vary in their beliefs of how market function and the strategies that should be employed. However, more often than not, most people my age have the taboo that investing in the market is akin to gambling, or it is too risky. No doubt, I agree that the market is indeed full of risks, but with hard work in reading and researching, the risks can be minimized. Therefore, this part of my journey gives rise to the purpose that this blog seeks to achieve.

1) To track my journey in this world fraught with challenges and uncertainty
2) To serve as a platform for other passionate people to share and discuss their views on investing
3) To provide guidance for others who are interested in investing, where they can learn from my mistakes and learn from the discussions.


My next post would cover an introduction to my portfolio. I will also reflect on the mistakes which I have made.