Friday, November 30, 2007

STI up another 1.24%

Dow was still up last night and the party goes on. STI went up another 43 pts (1.24%) to close at 3521 with a volume of almost 2 billion. All the biggies moved up - SGX, DBS, Cosco...could it be that funds are buying up now to window dress their portfolio for the next year? Possibility is there.

A lot of funny stuff happened towards market close. Sudden whack up and whack down to change the closing price - almost as if the BBs are trying to making the candlestick nice, haha! I saw that happening to singpost, cosco, swiber at least. Very interesting :)

Some news to share:

1. Pac andes secretaries resigned. I don't think that's very important to shareholders - it's not as if the CFO resigned. A matter of formality I suppose.

2. Popular is going to release 2H FY08 on 10th Dec. Going to be interesting as I'm doing an FA on it right now. I'm around 50% done so I'll probably post early part of next week, so stay tuned!

3. Lian beng is going to do a share placement of 35 million shares at 0.68. These days, construction companies did a lot of shares placement, possibly to fund their projects these few years. Tsk tsk, don't like it. Lian beng is going to face some selling pressure at 0.68.

Dow is strong, up 147 pts (1.11%) now. Haha, don't be so happy, take this rally as a chance to off load. Don't buy impulsively!

Portfolio loss: -$860

Singpost at $1.090 is so so tempting!!

Thursday, November 29, 2007

STI up 3.22%

STI did a superb move upwards today, after a very good showing by Dow last night. Dow was up 331 pts (2.55%), and today STI followed it to close up 108.5 pts (3.22%) at 3478 with a volume of 1.78 billion. I've not seen STI rallied up so fiercely for some time already - but it's true that STI is getting more and more volatile nowadays, almost mirroring the crazy HSI volatility.

All it takes is the 2nd in command from FED to say a sentence - that FED should be more nimble and not let the economy suffer in order to punish the speculators. That's enough to push Dow up so much and consequently the rest of the bourses.

Technically, I don't like the many gaps that form as we move up and down. Gaps just show how impulsive buyers are, can't wait to enter and ride the momentum. With today's rally, STI broke ema200 days resistance at around 3420. What I hope to see is that this resistance becomes the new found support level for STI while waiting to clear the next resistance at ema 20 days - 3480 thereabout. The testing of support is important - we could be in turning up already from the fresh selling last few weeks.

On weekly charts, STI tested ema 50w, a very important support level for STI, considering that it always rebound up from it. This important support level had been tested 3 times since 2005 - once in Oct 05, another in June 06 and lastly in August 07. We're now at this level - can it serve as a support again? I'll say highly likely. Ah, but the question is how high will we go this time?

Yongnam rose up 11% today, the rights was up 43%. Construction was suddenly up. This was followed by Lian Beng's trading halt. Construction contracts coming? Let's see if they will announce more details tmr.

My internet is too shaky for me to blog more. Better post it up first.

Wednesday, November 28, 2007

Volatility of STI

I was haunted by the image of a picture in market uncle's blog. Not it wasn't particularly scary, but the image sort of got stuck in my mind's eye and I seriously need to exorcise it out. Research shows that if one is feeling down or happy, one just have to work on some maths or logical problems - it'll bring the level of serotonin to neutral level so that one does not feel happier nor sad. I've tried it before, it works very well. Try Sudoko next time you're feeling unhappy.

For me, I need to work out some maths as I couldn't quite resist lure of the data tempting me to find out more about them. Market uncle did a pretty good collection of the data which enabled me to compute a little bit more stuff about them. The data collect are the percentage daily closing of STI from April 1985 to October 2007 - pretty nasty bit.

As the data are classed, I need to find the class mark to be able to estimate the sample mean and sample variance. For the daily % change of the extreme ends, "above 20%" and "below -20%", I take the class mark conservatively as 20 and -20 respectively. I do not know the extreme upper and lower limit of the daily % change but I figured that it is immaterial as the frequency of those 2 classes are very small, so it shouldn't skew the mean too much. Here's my table:

I computed the summation of x, summation of x² and total frequency of data collected. Since the sample size is huge (5719, mind you), it's very safe to assume that central limit theorem holds. As such, I would take it that the daily % change of STI follows a normal distribution. Let's find the sample mean and variance, and ultimately the standard deviation for this distribution.

Getting interesting huh? The daily % change of STI follows a normal distribution with mean of 0.039% and with a standard deviation of 1.379%. What does that mean? It means that statistically, STI have a mean volatility of about 0.04%, with an 'spread' of about ± 1.38%. To be more precise, we can find out the confidence interval of finding the mean, given a probability of locating the mean.

I'll give a few confidence interval to illustrate:

1. There is a 99% probability of the mean daily % change of STI lying between -0.01% and 0.09%
2. There is a 90% probability of the mean daily % change of STI lying between 0.01% and 0.07%
3. There is a 80% probability of the mean daily % change of STI lying between 0.02% and 0.06%

This is all well and good until one realise that the spread of ± 1.4% basically means that knowing the mean doesn't mean a thing (haha!) because the standard deviation (measures the spread or uncertainty) is so high.

Perhaps it will be even more interesting to find out if periods of high volatility, as predicted by daily % change, will cluster together. According to autoregressive conditional heteroskedasticity (ARCH for short) model by Engle (1982), the volatility is a function of previous volatility and the mean volatility.

Future volatility = f (past volatility, mean volatility)

This models predicts that volatility tends to occur in clusters and they tend to mean revert. Mean reversion means that the property will go back to the mean value. This coincides with my own market experience. I remember that last year, the volatility of STI is very quite low, if we see a rise or drop of 20 pts it's a big hoo-ha already. This low volatility period lasts for quite a while until this year, where I see big swings of ±1 to 2%. HSI is even more volatile, swinging wildly ± 1000 pts. And boy do these periods of high volatility cluster together.

If you know bollinger band, one of the technical indicators, it basically set up a trading rule based on the transitional moment between clusters of high and low volatility. 'Bollinger squeeze' is where the two bands tighten (volatility drops) around the price range. At the critical point, the price breaks out of the band, resulting in a huge change in price (up or down, we have to look at other indicators for the direction) and subsequently huge increase in volatility. We can also make use of the idea that volatility tends to mean-revert to trade based on bollinger band. If it hits the top band, price tend to mean revert and correct, thus moving down. If it hits the lower band, price will mean-revert and move up - creating an overbought/oversold kind of signal.

Haha, enough crap for now :) I explored a few concepts today :)

STI was pretty flat; it closed down 3 pts at 3369 with a volume of 1.5 billion. Pretty quiet day, nothing much happened.

Just a news to share:

1. Tiong woon was awarded service contract for shell houdini project to provide project cargoes trucking, heavy haulage, storage and marine transportation services. They didn't state the contract value. This stock is heavily beaten down, so will this provide the catalyst for it to move?

Dow futures up +70.

Tuesday, November 27, 2007

STI down after Dow 237 pt drop

STI was down 46 pts to close at 3372 with a volume of 1.75 billion. If you take a look at the intraday chart of STI, we see that throughout the morning, STI was down by around 2%. A sudden spike around 11 am causes a huge buying spree (intraday high of 3400) before it retraced and consolidate around 3370 region. What causes the spike up? Probably the news that citibank managed to sell its capital to Abu Dhabi group for 7.5 billion USD.

Dow futures is now at +45.

Sold off GK goh today at a loss. Wanted to trim my portfolio for some time already, so today somehow reached a point where I put my decision to action. I felt relieved immediately, sort of, haha :)

As discussed with fishman, we will be doing a fundamental analysis on Popular. I have a biased opinion on this already - heard two person saying this is a bad buy - but nevertheless I will try to find out for myself why this is such a bad deal. Dateline for homework is set at next week, 4th December. Anyone who wished to join us just leave a comment. I'll try to figure out how to discuss the finer points of our analysis :) hee hee, the best way to learn is to have an opinion and debate about it!

STI to test resistance at 3400 again? :) Let's just hope it won't fall to below 3300.

Yongnam rights issue

I got my OIS for yongnam rights issue recently, so spent some time reading through the thick 100 page report about the rights issue.

A few key dates for my own reference:

Last day of trading of nil-paid rights : 30 Nov (this fri)
Last date and time for acceptance and payment of warrants: 6th Dec (next thurs) 9:30 pm for ATM
Expected date of issuance for warrants: 17th December
Expected date of trading for warrants: 21st December

So far, the rights issue is well received. It hovers around 0.035/0.040 range while yongnam mother share hovers around 0.270 to 0.280 most of the time. Since I have 10 lots of yongnam before XR, I'm provisionally allocated 3 lots of warrants which I have to subscribe to. Am I going to subscribe for excess rights? Probably not. I'll just pay my due of $90 (0.03 x 3000) and be done with it.

I believe that construction still has a little more to go. The price shouldn't drop too far from the present, having dropped from their peak in Aug (or even the Oct peak) to now. However, I do not want to hold construction companies for the long term because they are so cyclical in nature, so who is to say that they will be around in another 5 years? I'll try to reduce or remove my entire stake of construction companies to free my capital, hopefully by this year end, pending a year end rally :)

For my own records, here's the address of the warrant agent in case I want to exercise my warrants to change it to shares:

Tricor Barbinder Share Registration Services
8 Cross Street
#11-00 PWC Building
Singapore 048424

I haven't read the part about exercising warrants. I'll read it though, even though I have no intention to keep it to realise the value. It's more for knowledge about how this whole exercise works. Having been through one rights exercise for Pac andes, I dare say I'm in a much clearer picture of what is happening and I'm not so blur. Haha, just take a look at those in the cna forum, I guess I'm like them for my Pac andes rights exercise.

Just sold off my GK Goh at 1.100 today. I figured out that even if the market rebounds, this stock will not reached my buy price at 1.22 anytime soon. Might as well put it in my MMF and get a 2% returns or put it in other stocks. I'll realise a loss of 10.8%, equivalent of $660 absolute loss. Enough is enough :)

Waiting patiently for HSBC to hit HKD 120 :)

Monday, November 26, 2007

Good to juggle my portfolio?

What a roaring start to a bluesy Monday :) STI was up 93 pts (2.8%) to close at 3418 with a volume of 1.68 billion. By powering up so much, it now faces the ema200 days resistance at around 3430. Should it break through the resistance, we could be seeing another road block at ema20 days at 3500. It's important to remember that the lowest we got to in this selldown is around 3300. It's highly significant if STI fell lower than 3300. A very good scenario is if we break free of ema200 days resistance then retrace before powering up to 3500. Too much to hope for? haha :)

Today we see renewed interest in Singpost, with intraday high of 1.17. Flocking to defensive stock? There's a few strategy I might employ to make my portfolio better:

1. This is the most important - Get rid of GK Goh, CSC and Yongnam when the opportunity arise. I'm more worried about GK Goh than the other two. This would free up quite a bit of my capital.

2. I might want to sell off Singpost around 1.20 (to cover commission). Why the sudden U-turn? I want to free up capital to move it towards HSBC. When ncy told me that Goldman Sachs is downgrading HSBC to HKD119 (from the present HKD133.50, I was quite overjoyed actually. Hmm, strange feeling because I remembered clearly in the past that I'll be pissed off as this kind of downgrading of target price might trigger a selloff.

Haha, different mentality this time. If HSBC hits HKD 120, I'll be queuing for sure. HH told me that last time, JP morgan is always downgrading HSBC and it will really trigger a selloff. She'll always collect when that happens, haha :) With HSBC, I can opt for script dividend so the money will be reinvested into the stock instead of taking out and removing the magic of compounding. That's the most impt reason for me to switch from Singpost to HSBC. Another reason is that since it's a foreign stock, it's harder for me to check the live prices from my watchlist daily - this is IMPORTANT as it prevents me from doing stupid things like trading it. Haha :)

I think with these 2 major changes to my portfolio, I'll be reduced to my core holdings with no speculative stocks anymore. I'll be more confident to hold it through the testing period of my portfolio - bear market. A little scared because I've never experienced one before. I've gone through 2006 where any stocks you buy will just jump so much within contra period. I've gone through the craze in IPO stocks where everyone will just jump in and sell off, making a handsome profit.

Let's see how the bear looks like. Coming to your nearest theater in summer 2008 :)

Friday, November 23, 2007

STI went up 13 pts - 3325

STI went up 13 pts to close at 3325 with a volume of 1.42 billion. Quite low, so the significance of the rebound isn't high. Dow wasn't opened for business last night so I guess it eased a lot of selling pressure off Asian bourses. In fact, Asian bourses had a little rally after HK's Warren buffet - Lee Ka Shing used 2 billion to buy shares and announced loudly to the whole world.

Nothing much to say, perhaps can share an announcement:

1. Swissco signs S$3.9 million worth of charter contracts. Not very interesting I suppose, haha :)

Dow futures now at +82, and US opens for half day, should stop around 2pm? Anyway, could see a slight rebound and might affect STI's opening next monday. Hope to see a stronger technical rebound - around the range of 3400-3500 to wrap up the year with a good note. That would be an excellent time for me to trim my portfolio. I still need to cut 3 counters - GK Goh, CSC and Yongnam and I'll be set for the bear to come.

Oh well, as it is, my portfolio is -2.8k. I don't include my HK shares - that's for long term, might as well don't see the returns weekly or even monthly. Just hold for a good 5 years and see what turns out :)

FA of dating a rich man

Copied and paste from cna forum. Haha, damn funny!


Title: What should I do to marry a rich guy?

I’m going to be honest of what I’m going to say here. I’m 25 this year. I’m very pretty, have style and good taste. I wish to marry a guy with $500k annual salary or above. You might say that I’m greedy, but an annual salary of $1M is considered only as middle class in New York. My requirement is not high. Is there anyone in this forum who has an income of $500k annual salary? Are you all married? I wanted to ask: what should I do to marry rich persons like you? Among those I’ve dated, the richest is $250k annual income, and it seems that this is my upper limit. If someone is going to move into high cost residential area on the west of New York City Garden (?), $250k annual income is not enough.
I’m here humbly to ask a few questions:
1) Where do most rich bachelors hang out? (Please list down the names and addresses of bars, restaurant, gym)
2) Which age group should I target?
3) Why most wives of the riches is only average-looking? I’ve met a few girls who doesn’t have looks and are not interesting, but they are able to marry rich guys
4) How do you decide who can be your wife, and who can only be your girlfriend? (my target now is to get married)

Ms. Pretty Embarassed

Here’s a reply from a Wall Street Financial guy:

Dear Ms. Pretty,

I have read your post with great interest. Guess there are lots of girls out there who have similar questions like yours. Please allow me to analyze your situation as a professional investor. My annual income is more than $500k, which meets your requirement, so I hope everyone believes that I’m not wasting time here.

From the standpoint of a business person, it is a bad decision to marry you. The answer is very simple, so let m e explain. Put the details aside, what you’re trying to do is an exchange of “beauty” and “money”: Person A provides beauty, and Person B pays for it, fair and square. However, there’s a deadly problem here, your beauty will fade, but my money will not be gone without any good reason. The fact is, my income might increase from year to year, but you can’t be prettier year after year. Hence from the viewpoint of economics, I am an appreciation asset, and you are a depreciation asset. It’s not just normal depreciation, but exponential depreciation. If that is your only asset, your value will be much worried 10 years later

By the terms we use in Wall Street, every trading has a position, dating with you is also a “trading position”. I f the trade value dropped we will sell it and it is not a good idea to keep it for long term – same goes with the marriage that you wanted. It might be cruel to say this, but in order to make a wiser decision any assets with great depreciation value will be sold or “leased”. Anyone with over $500k annual income is not a fool; we would only date you, but will not marry you. I would advice that you forget looking for any clues to marry a rich guy. And by the way, you could make yourself to become a rich person with $500k annual income. This has better chance than finding a rich fool.

Hope this reply helps. If you are interested in “leasing” services, do contact me
signed, J.P. Morgan Twisted Evil Twisted Evil Twisted Evil

Thursday, November 22, 2007

Another down day for STI, 1% drop

STI dropped another 1% more to close at 3312, with volume of 1.8 billion transacted. I think another 100 points like that to go before we hit rock bottom. Cannot be falling one straight line without rebound right? Possible support at 3300, then 3250, I think at most will fall to 3150.

Most stocks are already trading at/below Jan price - meaning that the whole year worth of gains is wiped off. Serious huh? Well, nobody said that stock market is easy to earn money from.

Here's some announcements from yongnam:

1. They successfully raised $100 million in the warrants issue. This capital raised will be partly used to purchase steel struts to meet the rising demand from the construction boom. Nil-paid rights will cease trading on 30th Nov, so I need to pay up 0.03 for each warrant by then.

I was just fiddling around with HSBC charts, trying to figure how when the selling will stop. I used the max charts available from yahoo! that shows the chart from 2000 to now. HSBC hit slightly above 120 in 2001 before crashing down throughout the whole year in 2001 to 2002. The price consolidates inside an symmetrical triangle for almost 2 years before breaking out in mid 2003, rising throughout 2003 until early 2004. Price is consolidating in the form of a channel trend, going slightly upwards though at a gentler pace (unlike end of 2003 where the price jumps up so much).

As of today, the price broke below the lower trendline down to 130. A possible support level (and good entry point is 120 - high of 2001).

Can u see the pattern? Go down, consolidate in pattern, breakout in uptrend - exponential increase in price, consolidate in pattern, breakout in downtrend - exponential decrease, consolidate and repeat again. Whole cycle takes 5-6 years thereabouts.

Very interesting :)

My first foray into fundamental analysis: Aztech



Aztech systems ltd is a manufacturing firm that provides OEM/ODM design and manufacturing services, contract manufacturing and retail distribution. Their products include data communication devices (like modems, routers, wireless products), voice communication products (IP telephony, skype products), homeplugs, TV receivers and even RC helicopters for hobbyist.

Shiro Corporation is a subsidiary of Aztech. It’s a brand that sells mp3/mp4 players, skype phones, wireless modems. Basically, I think it’s just a product arm of Aztech (not sure about that). Incidentally, I used to own a cordless Shino phone. ‘Dieded’ after a few months and since then, have a bad impression of Shino phone products.

Aztech has its own manufacturing plant at Dong Guan, China, with close proximity to airports (HK, Shenzhen, Macau and Guangzhou) and sea ports (Yantian and HK).

I’m not really a techie, but from the awards Aztech won in 2007 for its wireless router, it seems they are at least coming out with the right products that people wants. Whether that translates into profits, we shall examine it in detail.

This year, Aztech won the SIAS investor choice award for being the most transparent company and silver award for best investor relations. While it’s hard to forget that Sembcorp marine also won some award from SIAS before its downfall in fx losses, I do agree that Aztech investor PR is a notch above the other companies I’ve seen. Their website is well updated, information is presented clearly. I never had such an easy time digging out information from any company. Their accounts is so transparent and written so clearly that it really spoils me! This wine smells good before I even tasted it.

While analyzing, I notice that I do not have a framework to scrutinize a company. I need to find out from books how to dissect a company in bits to analyse. I’ll work on it. In the meantime, I’ll do an analysis of the company itself for the past 5 years. A good analysis should also include comparing Aztech across its peers but this would be another day, another fight.

While compiling the information from the past 5 years of annual reports from their website, I noticed that I have to grapple with different numbers even though the items are the same. An example is that the administrative expenses in the 2005 annual report is different from the same item in the 2004 annual report. Quite often I have to cross reference 2 sets of annual reports and do some detective work before I can discover what is the new thing that they included inside the same item. There’s a lot more such examples. When in doubt and the figures do not match up despite my sleuthing, I always take the latest figure.

I can’t emphasize it enough. In the course of just compiling data from the past 5 years of annual report, I learnt a lot of things. I wanted to find out the R&D expenditure of the company and the problem is that they do not state it explicitly. Even much sleuthing, I managed to deduce that the R&D expenditure can be found from the cash flow statements, under deferred expenditure (from 2003 to 2005) and intangible assets (from 2006 onwards). A sense of satisfaction envelops me :)

If it was hardwork compiling the data, it was harder digesting the data and the various ratios that are supposed to help to feel the company. Here's my compilation and some ratios:

The data above is compiled using the annual reports available from its website. I doubt the above is of any use to anyone, cos it's too messy. I'll do a better job next time. Here are a few pointers worth mentioning:


It’s a remarkable feat to see the net profit growing steadily from 2003 to 2006. Net profit margin is increasing from 2.4% in 2003 to 8.4% in 2006. 2007 might have some problem maintaining the growth momentum (I annualized the net profit, turns out to be $16.8 million, a far cry from $20 million in 2006). Their 4Q is traditionally stronger so it should be able to push the net profit up to at least match 2006 net profit. There's quite a couple of factors that would push up 4Q earnings too, which I'll touch on later.

Their newly opened manufacturing plant in Dong Guan, supposed to multiply their capabilities and steamline their cost, does seems to work. We see an immediate jump in operating profit margin from 5.7% in 2005 to 9.5% in 2006. I think it’s important to see how this figure goes as when we look at the full year results in 2007. So far, the rising wages and appreciating renminbi is causing them some trouble in 3QFY07.

What I do suspect is that 2006 is a very strong year for them; hence the results might be hard to beat this year.

With increasing wage and rising reminbi, I think it’s a good choice that the management is transforming their manufacturing plant towards automation with less dependence on manual work. Moving forward, China will no longer be a cheap place to situate their manufacturing plant. Aztech will have to find ways to grapple with rising labor and overheads in China, together with rising renminbi. In 3Q 07, they are already reporting higher turnover but lower net profits. Can see this happening in their administrative expenses and the cost of goods solds, both reporting a rise of 12.1% and 24% respectively.

It’s important to keep a lookout for their operating margins as a result of this, looks like it’s going to drop from 9.5% to around 7-8% this FY07, a cause of worry.

R&D expenditure

R&D expenditure is increasing in dollars, but R&D spending per revenue seems to have reached a peak in 2003. But the management promised to spend more on R&D in 2005, which I think is paying off in the form of new products that is well received by the market, judging from the good vibes generated in industry magazines. I think for their products, there are so many brands all with similar specifications, so it’s important to know what makes it sellable. What truly differentiates their product could be positive reviews in magazines. I’m speaking from my own point of view – I won’t buy tech gadgets without first browsing through reviews.

Their R&D% increased steadily since 2004, but question: is the expenditure too low? I have no idea without comparing this figure to its peers. With 4 R&D centres found in Singapore, HK, Shenzhen and Dong Guan (china), the expenditure on R&D is only less than 2% of net sales? Hmm… In order to maintain the innovation and strong R&D presence in Aztech that they keep saying they are, I think coming up with new innovative products is a must for it to maintain a good lead among its competitors. I would love to see greater increase in R&D expenditure in 2007 (so far for 3Q, it’s spending with respect to net sales is quite good at 1.9%).

While their strength is traditionally in data and voice communication, in 2005, they ventured into multimedia like MP3 players, multimedia speakers and power conversion products. This is after they identified in 2005 that the multimedia sector has the potential for growth (I agree – even handphones with mp3 are the norm nowadays).

I wonder what’s the margin like for selling each individual product. No way they are going to put it in their report for fear of competitors… but I would very much like to find out from people in the business.

Segment growth

They did very well in M’sia and Singapore, which happens to be the place where they get the most awards and accolades. Aztech did very well in M’sia in the wireless networking and products area. Can see that they are trying to increase their market share in Europe and other parts of Asia pacific by taking part in trade fairs to showcase their products.

I tried to manually calculate their turnover by business segment but the figure I got was a little off. It didn’t help that in 2004 to 2005, they reclassified their business segment to form the present 3 segments – retail distribution, contract manufacturing and ODM/OEM sales AND further reclassified some of the 2005 turnover for ODM/OEM sales to retail distribution. I’m left puzzled and confused. My rule still holds – use the latest figures when in doubt (it is more conservative in the analysis too). Due to these changes, I’m unable to come out with similar turnover by business segments for FY2003 and FY2004.

There’s a slowdown in contract manufacturing because of slowdown in orders for a complex high end product from key customer in Asia Pacific. I wonder if it’s serious.

I did it for turnover by geographical segments for all the years though. Interesting trends can be observed. Aztec is increasing its turnover in other regions (I think they are referring to Egypt, South Africa and Australia specifically), while turnover in Europe is dropping. Did the trade fair they attended in United states contribute to the great increase in turnover in America for 2007 (judging by 3Q turnover)? I saw their 2H07 report saying that they are venturing into new markets in South America and eastern Europe. Do hope to see more contracts wins in those two areas – hopefully a rise in turnover in America and Europe.


Okay, I admit, I’m not good at analyzing this but I’ll work on it. Aztech EPS increases year on year, that’s all I can comment now.


Aztech had a history of holding inventory for long – 70 plus days. I need to see comparative figures for other company in the same business before I can comment. 2 months plus of inventory in their warehouses, is that risky? They are dealing with tech products so my impression is that tech products have very short lifespan and becomes obsolete fast. Good sign is that the inventory to current assets is actually decreasing over the years, so maybe it isn’t a worrying trend.

In 3QFY07, their inventory rose up a lot. Possibly a result of delay in the key customers. It is confirmed when they breakdown the inventory and it showed more than half of the inventory comes from the contract manufacturing projects. They mentioned this increase in inventory level was due to the purchase of major components for the confirmed order of 1.5 million units of ADSL 2/2+ broadband modem from a key customer in North America. Hmm, I thought their 3Q07 presentation said the delay in orders is from Asia pacific region? Another customer? Interesting.

Anyway, the keyword here is confirmed order. So, it shouldn’t be a problem. I took notice of an inventory provision of $1.03 million made for obsolete items – so it’s true that the inventory do gets outdated.


Gearing goes from 24.6% in 2003 to a peak of 67.4% in 2005. Wow, isn’t that pretty high? I guess it’s their manufacturing plant built in 2005 that requires them to borrow. However, they did a sale and leaseback agreement on Aztech building in Ubi for $23 million with a lease of 7 years in 2006. This move improved their cash flow in 2006 and improved their gearing to 24.8%, a more acceptable figure.

The good part is that they should have enough cash flow to repay their interest. Cash flow is steadily increasing yoy. Their cash conversion cycle ties down closely to their inventory turnover, which is near 2 months plus. This means that they have little trouble collecting debts from customers. This company pays steady and increasing dividend, so that should show something about its strong cash position. Not too worried about Aztech, since it had survived from 1994 till now, going though the tough times and good times.


A hasty conclusion, yes. There’s so much more things to find out, so much more things to sleuth that I could go on writing on and on. Any longer I feared I’ll be doing a thesis on Aztech already – so pardon my hasty stop. I found out that I would have to specialize in certain fields or sectors to be good in these as there is absolutely no way to plow through the fields of information that floods me daily. And I haven’t even done the comps (comparative studies of peers). No wonder analyst no need to sleep, everyday run model run until die man…

Aztech looks good on its balance sheet. It shows a healthy growth in its net profit margins and have the cash flow and steadily increasing dividends to boast. On accounts of its financial statements, I’m pretty satisfied in the way they run their business. A few pointers:

1. Is their inventory levels too high? How is their inventory supply compared to industry average? An investor needs to know this as tech products become obsolete very fast, maybe once every 3 months? An inventory supply of 70 odd days is worrying to me from my amateurish views.

2. What is the competitive advantage of Aztech? I know they won multiple awards for their wireless technology in M’sia prestigious magazines. Is it their strong R&D research? Are they spending enough on research compared to their peers? To me it seems a little strange to know that they have 4 R&D centres but their relative expenditure on it compared to net sales is only 1-2%. In the cutthroat world of tech products, one needs to be on the move both in design and function in order to beat the many competitors that will come to take one’s market share. I have problems seeing what is so good about their products – what’s their economic moat that prevents future competitors from stealing their profits? Can they raise their prices when they want to increase their margins – I doubt so because the competition in their product range is fierce.

3. Their manufacturing plant in Dong guan, China, is facing higher costs and appreciating renminbi that is threatening to lower down their margins. I don’t think renminbi would be going down anytime soon, and I read that they are mitigating this risk by hedging a fixed amount of US dollar against SGD and China Yuan. Is that safe? They already suffered from an exchange loss of SGD 0.44 million due to depreciation of US dollar against SGD. I’ll love to see their transformation to automation that relys less on manual labor.

4. On a closer note, it’s exciting to see if their 4Q can push up their lackluster 3Q performance. From research reports I’ve read, it seems that the delay in their contract manufacturing will be resumed in 4Q, so all seems to be well. Their long awaited product will also be launched in 4Q, possibly coinciding with the traditionally stronger 4Q for tech sales. This might be factors that could at least be on par with FY06 earnings. They stated the order book as of 24th October secured to date hits SGD 270 million, compared to a total of SGD 239 million in FY06. A good sign and reward for their continued expansion into new regions.

Based on FY06, their EPS is 4.9 cts. At the current price of 30.5 cts, Aztech is just trading at 6x FY06 earnings. I'll work on the dividend discount model one gosh, so many things to do.

adjusted the PER after protonoid advised me - see comments

5. To me their gearing is a bit on the high side – but I could be wrong since this is the first time I’m doing this. I’m comfortable with their ability to pay off their debts from their strong cash flow, just a little worried in bad times. Their products isn’t exactly necessity products, so earnings might drop when times are lean. Can they repay their interest when recession hits?

Their quick ratio is always near 1 (lower side of 1), which is a good figure I believe. As long as earnings generate cash, not a problem.

That’s all I can say. I know it raises more question than it answers, but hey, I just started ok? Haha :)

PLS PLS post comments about anything on this hardwork I've done! I spent 2 days plus one looonnggg night sleep now

Wednesday, November 21, 2007

Commission for HK shares through POEMS

This is more for charlesming and HH, whom I promised to share about the transaction costs of purchasing HK shares through POEMS. A lot of things are hidden, apparently my broker cannot tell me for sure what the details are as he had not encountered before. Nevertheless, from my calculations, here goes:

Don't ask me why my commission rate is 0.478120%. That's what I worked out from the total brokerage they passed to me and calculated backwards. Can help me work out yours using the same rate and see if you get the same total cost paid? Probably not, haha :)

Oh well...doesn't matter much if one doesn't trade often, I guess.

Tuesday, November 20, 2007

Key dates and events of Yongnam rights exercise

STI was down on accounts of Dow dropping 218 pts yesterday night. It went down to -100 over points before closing up 26 pts at 3438 with a volume of 2.26 billion. The remarkable recovery is due to an announcement after lunchtime that FED is holding an emergency meeting tonight at 2pm to discuss the possibility of a rate cut this month. A rally ensured in Nikkei and when HSI opened, it also pulled STI up from -ve ground to +ve grounds.

That was the excitement that lifted the gloominess enveloping the market today. It was quite boring, so I spent most of my time away from the market.

Yongnam removed the XR remark today. They announced the following:

1. Issue price of warrants is 0.03, with each warrant carrying the right to subscribe for 1 mother share at an exercise price of 0.25 each.

2. OIS will be despatched on 22 Nov

3. Commencement of trading nil-paid rights is 22 Nov on market open

4. Last day of trading nil-paid rights is 30 Nov on market close

5. Last date and time for acceptance and payment is 6 Dec at 4:45pm for post, 9:30pm for ATM

Dow futures stand at +70. Tonight investors would be scrutinizing the minutes released in the FED meeting for clues of possible rate cut. What else could they say? Presidential election coming, inflation poses risk, economic recession also poses a risk - at best a wishy washy have don't have kind of statement. Quite stupid huh, deciphering the tea leaves of the Gods, haha :)

Monday, November 19, 2007

Another down day

STI dropped 29 pts to close at 3411 with a volume of 1.645 billion. It's a quiet day at the markets, but the slaughter is still there.

Market didn't perform well these few days. This comes from a week Dow performance. With all the reporting season gone, investors should look at more impact of the subprime and the rate cut possibility more closely. Dow should be as volatile as ever, but I really hope it'll stabilise.

Some news to share:

1. JP morgan chase sold down their stake in Yongnam. I would expect the price of yongnam to move towards the warrant issue price of 0.30, so that the underwriter CIMB-GK do not have to take in all the shares themselves. Until after the rights issue is over, I don't expect Yongnam to have an momentum to move up.

2. Swiber incorporated a new subsidiary company - Kreuz offshore marine pte ltd - for the purpose of engaging in offshor marine support business. Nothing much of interest actually.

Been busy towards the evening compiling key data to do my first financial analysis of Aztec. I do not have vested interest in it but is doing to compare notes with noob. It's better not to do FA on companies you have vested interest first - this is to have objectivity and reduce bias-ness. Learnt a lot by doing a lot of detective work and cross-referencing between 5 years worth of annual reports. Wah, I can't make it already, need to carry on next time. So far, so good, as my calculated ratios tally with the official figures.

Will probably take at most 2 more days to finish up, then I can blog my first ever FA of a company. It's pure hardwork but the satisfaction is immense - I can only imagine the kind of confidence it will give to hold the stock after a thorough run through financially. I only hope it'll take less time next time - I already spent like 4-5 hours on it and still not finished yet.

Oh well, Dow don't look too good. As of now, it's down 72 pts, dangerously close to support level of 13,000.

Sunday, November 18, 2007

True spirit of Amelie Poulain

Come this Christmas eve, someone will be having a little surprise.

Let me enlighten. Me and my gf are watching a movie at Cathay Handy Road (we're watching Beowulf - don't like it...too CG-ish). She wanted to draw some cash from the nearby ATM machine, so I tagged along. While she's doing her stuff, I saw a slip of receipt that is on top of the machine. Picking it up, I remarked to my gf that this person is quite a poor thing. After withdrawing $20 from his/her account, he/she is left with only $3.35.

My gf suggested transferring $10 to this poor soul to tide him/her over :) I thought about it for a while and thought why not. When I went home, I transferred $10 to that person and typed "Merry Xmas", with the amount to be transferred over on the eve of Christmas this year.

In the true spirit of Amelie Poulain, we spread a little happiness to another person. I've never done this before. Maybe you should too :) Pay it forward, literally, haha

Haha, interestingly, I did a little fun survey about what kind of mythological creature I am. Turns out I'm a centaur :) At least I'm not chimera or medusa, haha

You Are a Centaur

In general, you are a very cautious and reserved person.
However, you are also warm hearted, and you enjoy helping others in practical ways.
You are a great teacher, and you are really good at helping people get their lives in order.
You are very intuitive, and you go with your gut. You make good decisions easily.

Friday, November 16, 2007

Bought HSBC - my first bluechip

STI dropped 36 pts (1.05%) to close at 3440 with a volume of 1.82 billion transacted. Candlestick shows a reversal pattern, coupled with the low volume and sitting on EMA200, we should be heading for another rebound at least on Monday. Of course, this depends on how well Dow behaves.

I entered HSBC listed at HKSE, 1 lot at HKD 137. Their 1 lot is equivalent to 400 shares. I'm not so sure about the charges involved besides the contract value, so I need to ask my broker to enlighten me on this issue. At a little more than SGD10,000, it's the most expensive buy ever to date. Expensive is very subjective - one must question expensive to what?

Price vs value, it's easy to look at price but impossible to look at value. At most, we can estimate the value of a stock whereas the market price can be seen from quotes. I admit I'm not a pro at FA but by just looking at certain key ratios like PE, yield and EPS, HSBC seems to be a steal at SGD25 per share. The other comparable local bank is DBS, but it's still worlds apart. I'll do a more detailed analysis when I'm ready. Buying it is just a start.

Quite a lot of unanswered questions:

1. What is the transaction cost of buying HK shares? I understand besides usual clearing fee etc, there's also a charge for storing the scriptless shares under Poems (I'm using that) per month. Blah blah...

2. What's the transaction cost of getting the dividend in cash and in script? HSBC practice giving out dividend in the form of cash, new shares script and a combination. Still not sure what the procedure is like.

3. What is the exchange rate they used to convert the HKD transactions to SGD?

I'll ask my broker to give me some detailed answers.

Singpost hit my target of 1.10 and rebounded. Very strange buying/selling taking place over at singpost. There's still no announcement to why the trading volume suddenly doubles these few days. Strange indeed.

Still hope to get rid of 3 holdings: CSC, Yongnam and GK Goh, then I'll be set for the bear anytime. It'll free up a lot of my capital that I can use to purchase more HSBC or keep as cash. Should I take the 2k losses? I'll think about it over the weekend.

Dow futures at +43 now. One big event that can catalyst the new year rally - that China finalised the date for the thru-train buying of HK shares by their citizens. Will open up a flood of liquidity that will enter HK markets. STI will follow and lead us to 4300 :) haha, my wishful thinking.

Have a great weekend!

Capital structure of companies

Time to do something about my accountings again.

Learnt more and subsequently got a bit confused over credit/debit - the details behind accountings. I guess I do not have to know that since my job is not to be an accountant but just to know enough to comment on the ratios and the main jargon surrounding accountings.

But it's interesting that the monthly statement that we get from banks for our savings account is actually based with reference to the bank, not us. What I mean is our view of credit and debit is totally different from the view of the banks, and this apparent paradox arises because we're simply on different sides of the balance sheets :) One person's account payables is another person's account receivables, one's cash is another's fixed asset, one's interest payment is another's interest received and so on. After going through the whole thick book on accountings, I think this idea is very important - the ability to think through your expense and revenue in terms of balance sheet. Opened up another aspect of my viewpoint :)

So today is going to be simple concepts - going to explore about the difference between the capital structure of a company. I used the word 'explore' because I do not know is going to be like. I'm basically thinking of hypothetical scenario and trying to fit into the financial statements. If they don't balance, something is wrong. If it does (and I have people ;P to help me proof read), most likely it's correct.


Let's take a look at the different capital structure of the hypothetical company - Bully the bear sausages.

The first is a pure private company - meaning that the owner cough out the money and use it for his own purposes. The accounts of such are normally not important to anyone except IRA :) The whole business belongs to the owner.

The second one I think can be called public company. Need some explaining to do. Suppose that the owner of a business needs $1000 to start up a business. He needs the money to buy his equipments, some cash for change, stockup his inventory, pay rent, salary and so on. The problem is that he don't have this amount of cash and does not want to beg/borrow/steal from his frens and relatives. He decided to take his company to public - so that shareholders can own a piece of the company (let's assume in this fairytale world that you don't need a track record in order to publicly list your companies, not a far off assumption considering a lot of such things happened in the IPO craze of the era).

He wants to make this is a penny stock (<$1) so that a lot more people are willing to buy ownership of his business. He decided to split up his $1000 into 10,000 shares, each having a par value of $0.10 ($1000/10,000 shares). Even if he buy 2000 shares (say) costing $200, this would have nothing to do with the company because as far as things are concerned, the business and the owner are separate entities. One cannot mix personal accounts into company accounts.

Compare this with another structure - where the owner cough up 200, then divided $800 ($1000 - $200) into 8,000 shares each having a par value of $0.10 ($800/8000 shares). The total outstanding shares is 8000. This would have a balance sheet looking like this:

Basically the company with the above structure will have a smaller float, it's a little more volatile (all things being equal) than another with a larger float. A good example is THEBV - Thai Beverage. This company has such a huge float that the price is very hard to move (either up or down). Just look at the charts, it's as stable as it can get.

The third kind is a combination of own money, stocks and long term borrowings from banks. The good thing about borrowing from banks is that the highly leverage (or highly geared) company can raise money fast and enter into opportunities fast. The downside is that in recession, the interest payment of the loan will reduce the cash holdings of the company and may raise cash flow problems as well as reduced retained earnings and profits. In this case, assuming , the par value of the stock is $0.10 each ($400/4,000 shares), with total outstanding shares as 4000.

What's important about the capital structure of the business?

1. If it's heavy in debts - it means ownership of the business belongs mainly to the banks. In the case of liquidation (or unwinding of business), the company would hold a 'fire sale' selling everything from investment holdings, accounts receivable (also called factoring), raw materials, finished goods, office equipment, patent, brand names etc, in order of most to least liquid. The amount raised together with the cash holdings would be used to pay debtors first.

So the pile of cash would be given in order of priority:

a. Debtors - banks, suppliers
b. Preferred stock holders
c. Common stock holders

Banks always get paid first. So bloody smart.

Basically, highly geared companies better have enough earnings to pay off the interests generated by the loan, otherwise in recession, these companies would be the first to face liquidity crunch. If they can't pay the bank, they would rupture the bank aka bankrupt.

2. If the company keeps issuing new shares to raise funds, then the new shares would be added to the shares outstanding of the company. This would be bad for shareholders are it would 'dilute' the value of the company of they hold the same amount of stock. Not to mention reduce the attractiveness of key ratios like Earnings per share. That's why in financial reports, sometimes there are diluted and non-diluted information - diluted ones just means the shares take into account of future dilution in the shares outstanding.

Miss out any points?

One important thing: Does the stocks under the equities in the balance sheet change in value according to the market price? NO - it doesn't change. Once IPO-ed, the stock would remain the same value unless there are other exercises which increase or dilute the stocks. The company already sold you the stocks during their IPO, so the subsequent rise in value (or fall) of the stocks have nothing to do with the balance sheet anymore.

Phew, what an adventure :) Enough for today. I think I have enough of accountings. Think next time I'll talk about key ratios. Woah, a lot more to learn :)

What's wrong with M1?

Quite disgusted with M1.

Had changed a phone set with a accompanying plan recently, so they handed me the 4D/TOTO and Bye Bye Ring tone subscription (2 useless nonsense that I never even used) for 1 month. I had such freebies before and had been an M1 customer since I first had my phone in 1999/2000.

The angry thing is that after 1 month, I assumed that the free services would be cut off like they always do in the past. Guess what, they continued charging me for 2 months. Okay, first month is my own fault - for being too busy with my work to pay attention to the billing details. 2nd month (which is now), I just happened to see my billing details and saw this $6 subscription for services that I did not even use and had been billed for 2 months. Guess what, it wasn't even written in my subscription summary (which was written clearly in the first few lines of the bill).

Such tactics to earn $12 ($6 x 2 months) shows a shift in their customer services. They used to be good in their customer services though their plans are a bit expensive and not much value-added. Why? Market share eaten by starhub and have to resort to such tactics to get some extra revenue? It just disgusts me.

Luckily, I was saved by this customer service guy when I called 1627. He happened to be at the wrong place at the wrong time, so I gave him a good lecture about such underhand tactics. Of course it's not his fault - he's just doing his job right? But bo pian, have to complain about it to him (I didn't verbally abuse him, in case anyone is wondering...I'm just assertive about my rights).

Why was I saved? He waved off a $20 admin fee that is usually charged when I changed bill plans (changed from GSM prime to Suntalk plus 100 for the free incoming + free weekend mobile calls + 500 sms). I didn't know customer service officer have the powers to bestow random blessings to alleviate the sufferings of their customers. I talked to 3 such officers before - each one gave me a different ans when I talked to them about the charges/penalties for changing bill plans. Probably their responses are catered to the angriness detected in their customers.

Interesting isn't it?

A few lessons to learn here:

1. Do not ASSUME too much - it's makes an ASS out of U and ME!

2. M1 changed from being open, transparent in their billings to this - what's the underlying reasons for this change? Think about it if you're an investor.

3. A good customer service officer can help defuse an angry customer. All good companies should invest in good training for their front-line staff - instead of hiring teenagers (supposedly for their cheap labour) and subsequently lining them up for the firing squad. This problem about inadequately trained front line staff is getting more and more prevalent - just look at all the fast food chains.

Thursday, November 15, 2007

STI beaten down again

STI was down 1.34% to close at 3477 pts, with a volume of 1.95 billion. That's rather low volume, compared to previous few days of 2.2-2.5 billion.

I heard a friend saying that DHL is going into the basic mail and postal services that is currently monopolised by Singpost. The postal service is worth about S$1 billion in revenue in 2004, with the total mail volume growing since the 1990s with an average growth rate of about 2% per year. IDA wishes to liberalise the postal service though, citing greater competition will benefit users through more service innovation and price competition. I'm rather sceptical - all the controlled competition ends up with the govt saying that competition is (in the end) not worth it for consumers as it wastes resources. E.g. U channel vs Channel 8, NEL vs SMRT.

I wonder if this will turn out to be the same too. This is after all, not confirmed yet. But any competitors would erode the monopoly and hence revenue earned by singpost. This is something fundamentally important to the stock, and so have to be monitored closely. I wonder if the recent selloff have anything to do with this news - though it's rather old news.

Recently I have a more pressing stock to buy, so will put a hold on my buy on singpost at 1.10. It's a HK stock, HSBC which is currently trading at 138.8 per share in HKD. I would like to buy 1 lot (400 shares) at a price close to 137 as possible. Let's see if tmr would provide me with the opportunity to collect near to 137.

Hmm, I found out that using dbsvickers is good to monitor HK stocks, as they give up to date stock price for the stocks (just have to refresh) unlike POEMS which gives delay of at least 15 mins. They even have the intraday, historical charts. Oh, it reminds me of the good old day trading warrants :)

For HSBC, looks like a rebound is due, with support at 137.5 and near term resistance at 142. There is a huge gap around 142 to 145, so that would serve as a possible gap resistance. It might attempt to cover gap around that region, so it depends on the outcome. Seriously, buying at 137 or 139 for 1 lot (400 shares) isn't going to make much difference, esp when I'm holding forever? Here's the breakdown:

At 137, it's HKD 54,969 = SGD 10,250
At 138, it's HKD 55,371 = SGD 10,325
At 139, it's HKD 55,772 = SGD 10,399
At 140, it's HKD 56,173 = SGD 10,474

This might be the best decision I've been to buy the beaten down bank stocks. Though it's only 1 lot, let's start there :) Let's see if tmr I can get it near 137 :)

Dow now at -57.15.

Wednesday, November 14, 2007

Swiber and pac andes fabulous results :)

STI was up 49 pts to close at 3524 with a volume of 2.28 billion. A technical rebound was expected and today we have it. Does it mean that everything is fine from now? Hard to say. Should be looking at how we fall after this rebound. If STI lower than the previous low, then the downtrend is still intact. If it falls higher than the previous low, an uptrend could be in stall but have to be further confirmed with a higher high.

Quite a lot of exciting news to share:

1. Pac andes released results today. Revenue increased by 111.1% while net proft after tax increased by 32.4%. This is after Pac andes acquired a big stake on China fish, so the excellent results on China fishery contributed quite a heavy percentage to its earnings this quarter. It's frozen fish supply chain business also grew healthily and accounted for 57% of its 1HFY08 turnover.

Still dunno how to digest the accounts, so I'll just leave it like this.

2. Swiber had excellent results. Revenue was up by 55.3% and net profit up by 250%. I noted a higher FX loss of US$511 k, which is like 1.1% of total revenue, so I guess it's not significance at all. I see a greater debt for swiber to acquire all the new assets, so that's something to worry about if new contracts do not follow through.

I like their new strategies - which is to focus their offshore business in India, Brunei and Vietnam. They estimated a total bid to be submitted this year to be about US$800 million for jobs targetted for FY 08 and 09. That's good!

As they announced earlier, their new direction is on deepwater oil and gas industry which will be their new growth engine through to 2012. They also released an announcement shortly after their quarterly report that Swiber had clinced a LOI for US$31 million project in offshore Indonesia. The contract is to install platform in the waters of the archipelago for a major international oil conglomerate in Indonesia.

Now I understand why HH keeps saying HSBC should keep the price constant so that she'll have the funds to buy it. Haha, Swiber dropped 0.200 and I'm not anxious :) It really feels safe when you get the company you like at a good margin of safety. I'll look at musicwhiz's blog to see his insights for Swiber.

Dow up 13 points now. Tmr STI still on rebound? haha, hard to say.

Tuesday, November 13, 2007

Swiber clinched US$25 million contract

Haha, finally got a chance to post something this week :) Was too busy helping out in a friend's wedding to post anything yesterday :)

Thought that market will do a rebound today after dropping consecutively for so many days. All support broken, haha :) Might see a technical rebound tmr, a good chance to unload some counters if possible. Just an advice, do not load up during the rebound (if any) unless a clear uptrend is established. How to know if an uptrend is established? The simplest rule - higher highs and higher lows.

STI was down 1.02%, closing at 3475 with a volume of 2.2 billion. Bargain hunting, anymore? Though not exactly that cheap :) I see quite a number of green counters today already, so still not too bad, haha

A few news to share:

1. GK Goh Chief financial officer kept buying up GK Goh. A sign of confidence in the company he's working as?

2. Yongnam is proceeding with the rights issue as planned. The underwriter is CIMB GK (which is GK Goh, haha). The Offer informational statement (OIS) should be delivered these few days. Looks like have to get the warrants already, unless from now till they go XR there's a rebound for me to sell off.

3. Most exciting news of all: Swiber clinched maiden contract in the gulf of thailand worth US$25 million. What's more is that this contract is won by the newly incorporated deepwater drilling unit, Swiber offshore drilling pte ltd, a testament to the confidence in Swiber group. Though the drilling is shallow water, this is a good step forward and shows that all the key personnel and assets acquired to follow their vision is showing some results in the form of contracts.

They cannot choose a more excellent time to release this piece of goodnews. Tmr happens to be the release of their quarterly results (at lunchtime). I'll be looking closely for any major fx losses because of the falling US dollars.

Oh, they also incorporated a new subsidiary company - Black gold drilling pte ltd - to carry out deepwater drilling business.

Just happened to see the charts for Straits asia - looks very nice! Ascending triangle with low vol too :)

Friday, November 09, 2007

Market outlook today

STI was down 2% (73 points), closing at 3599 with a volume of 2.3 billion.

A few surprise - Swiber top gainer is this lousy market, rising up 0.320 to close at 3.660. Interesting, no news or anything too. Maybe it's the good results to come. I think they're reporting in 1 or 2 weeks time, can't remember.

Market is just bad lah. STI broke support, possibly next support near 3570. Judging from Dow, isn't going to get let off on Monday too.

A few news to share:

1. CSC had excellent results to show. Net profit was up 292%. A happier thing for me to see is that their gross profit margin increased from 15.4% to 21.6%, which shows they are doing something right to handle complicated projects. This is impt because with the same contract but higher margins, they can earn more.

Somemore got dividend one, to use up their S44A tax credit. They are going to give a special cash dividend of net 0.231 cents per share. Not much, but still not bad lah. Haha, less than 1 tick difference, so shouldn't expect the price to fall after XD.

Didn't waste my capital on this stock :)

2. GK Goh revealed ok results. Revenue was down 17%. Not surprising, cos the last quarter had such a bull run. Profit down by 79% due to the inclusion of a negative goodwill sum of $22.3 million arising from the acquisition of Eastern and oriental Berhad. Excluding this one off item, net profit rose 121%. NAV stands at $1.2475 (increased somewhat), which means that GK Goh is undervalued based on NAV.

Still holding :)

All the 'agri' stocks still rising like mad, paying no heed to the general market conditions. Dow now down by 1%, -134 points.

My portfolio now stands at $4.77 k, after a good showing by Swiber.

My adventure into accountings

Phew, nearly 'dieded' trying to put all the accountings I've learnt today into practice.

I went to the library to borrow this book, "Accounting demystified - a self-teaching guide". I long wanted to pick up accountings so that I can understand financial statements better, so what better time than now? :) I tried to read up on the financial ratios but doesn't make sense to me, cos I think I do not know what those entries in the statements mean, and what is the relationship between balance sheet, statement of cash flow and income statements.

I want to break out of the accounting jargons (like I did for TA), so I went to read up about it. I guess I don't need a very detailed knowledge, just a very fundamental knowledge of the principle of accountings should suffice. I came home inspired and ready to do my first balance sheet.

Balance shit! Can't balance...then after trying for nearly 2 hrs, I think I got the hang of it. Now I really understand what is meant by the double-entry system and the accrual method of accounting. Hmm, damn interesting :) Finally made sense to me.

Here's what I did (WARNING: This is going to be long)

I opened a stall called Bully the bear (BTB) to sell some sausages. I think it'll make a great snack at a nearby traffic junction (it's illegal, i know, but this is fictional yah?). This shall be my first step to my first million :)

I only have $1000, which is my seed money to start the whole business. So initially, my statements look like this:

Not very impressive, yes. To start my business, I need $500 to buy 250 sausages, and another $200 on a fryer, pan and other fixed assets. Those high grade sausage are oil free, so I just need a fryer and pan to start cooking them. Other fixed assets include perhaps a signboard, some gloves (I'm a illegal BUT hygienic hawker) perhaps.

Now my statements look like that above. I paid $700 (500 + 200) in cash to get my sausages and fixed assets, so immediately in my cashflow, I subtract $700. At the same time, I converted the $700 into $500 worth of inventory (that's my sausages) and $200 worth of fixed assets (that's my fryer,pan,signboard etc). The link between cashflow statements and balance sheet is that the cash at the end of the period becomes cash at the left side (asset side) of the balance sheet. Did I put in double entries? Yes, that's the point. Oh btw, I capitalise my fryer/pan/sausages instead of expensing it. More of that later.

Now I'm ready to do some business. First I must decide the price to sell my sausages so as to make a profit. I will get a profit as long as I sell each sausage above the cost used to produce the sausage. This cost can be divided into 2 types - direct cost and indirect cost. Direct cost are cost that goes directly to produce the sausage (duh) - like the raw sausages itself. Indirect cost are cost that are used to pay for the things that will generate the business - like my fryer, pan, signboard (debatable issue - is fryer/pan indirect? I put it as indirect because one day I plan to expand my business to sell not only sausage. So if I sell other things like chicken wings, the same fryer and pan can be used, hence the fryer/pan isn't used to exclusively make the sausage, so it's indirect).

Each sausage cost $2 (500/250 = 2). The indirect cost I calculate my capitalising it, instead of expensing it. These are just 2 ways of depreciating assets. I'll skip expensing it till next time. I'll just capitalise my fryer/pan/signboard. You know, after frying my sausages, my fryer and pan starts to break down. The signboard also like want to spoil don't want to spoil already. This means that the fixed assets loses its value, so I must find some way to devalue it - or depreciate it over time. For me, I just use the $200 indirect cost, divided by number of sausages, which gives me $0.80 per sausage.

In summary,
my direct cost - or cost of goods sold (COGS) - is $2
my indirect cost - or operating expense - is $0.80

Let's sell something! Since my total cost is $2.80, I just agar agar sell at $3.50, sure make my first million like that.

First day of business, I sold 100 sausage at $3.50. I do not accept credit, so customers pay me on the spot when they get their delicious sausages. For that,

I collected $350 in cash (3.50 x 100 = 350) with
COGS as $200 (2 x 100 = 200) and
operating expenses (indirect cost) as $80 (0.80 x 100 = 80).

All the above can be found in the income statement, which just records the sales i did, regardless of whether I actually received the payment in cash or credit. More of that later.

Here's how my statement look like now:

Haha, balance sheet balances on both sides, with net income in the income statement reflected in the retained earnings on the equities side of the balance sheet, and ending cash on the cash flow statements reflected in the cash on the assets side of the balance sheet.

2nd day as I wasn't caught yet, I went on selling. This time, I did better as word spread around, I sold a total of 100 sausages and received it in cash, then another 50 sausages but received in credit. They no money to pay but promised to pay me the next day, so I anything lah.

I get $350 in cash (3.50 x 100) and $175 (3.50 x 50) in accounts receivable.
COGS is $300 (2 x 150 sausages), so the final COGS is the initial 200+300=500 reflected.
My fixed assets I take it as depreciated fully (strange, i know, cos fixed assets are called fixed if they depreciate after more than 1 yr, i should have expensed it instead of capitalising it).

Here's how it looks:

Still balanced.

I'll continue the story of BTB sausage next time. I learnt everything once I put those transactions into the statements. Next time I'll explore expensing items, and perhaps explore a little about how I actually started with my $1000 seed money (did I borrow it from bank or sell my stake in the business?)

Thks for protonoid for pointing out that the $1000 initial seed money should be placed in capital stock or a separate capital accounts, not placed under retained earnings. Retained earnings is used for money earned from the last accounting period.

Thks so much for pointing out the mistakes, I'll remember it!

Thursday, November 08, 2007

Feels like sat -'s a public holiday

I just finished reading "The mind of wall street" by Leon Levy. A rather interesting and easy read. I like the way he finds insights in the various interests that he had, besides the stock market. He can derive new insight by travelling, archaeological findings and economics - and he expresses the importance of creativity in such pursuits.

This entry is not about the book review though. I finished this book in a day and a half (it's just too engaging not to finish it) and had a snapshot for US economy and the market since 1950s to early 2000s. A few ideas persists after reading:

1. Risk never disappears, it's just transferred or sold to another person. Somehow, I just find this line too important not to blog it now. I know not why.

2. Long term capital management (LTCM), which is a fund set up by nobel prize winners and academics is an interesting case study of treating the market too seriously. By that, I mean to see the market as a highly efficient system where all the participants are rational people. They can't be more wrong. At most the market is pretty efficient (and at certain times only), at the worst, it's just a cauldron of irrational people tossed with spices like greed and fear. This story about LTCM is worth pursuing further. I'll probably write more about this :)

3. Market psychology plays a part, besides fundamentals. Warren buffet, I suspect, is a robot with no emotions. I do not think I can ever be like him (i can try!), unless something drastic like cutting off my hypothalamus. Even then, that's just me. Can someone invests without emotions? Would that make the choices rational? Is rationality and emotions mutually exclusive? Hmm, interesting questions to ponder about.

4. This one I agree fully and I'm guilty of doing - "if you want to follow a stock, the best way is to take a small position; practitioners always outperform professors. You must put yourself on the line".

How I agree! It's interesting that just a blog entry before, I was criticizing myself for doing research AFTER I buy it. Here's a few examples:

a. I went into warrants one fine day last year when I saw Dow dropped 400 over points I went to read up about HSI warrants (how to read the labels, difference between call and puts) and went in. I learn on the go after I started. I was interested to know when to sell, so I went to read up about charts. Charts didn't tell me any story, so I went to find out about technical analysis, especially indicators (esp esp stochastics which I honed well during my warrant trading days).

b. Went straight into stocks even knowing how many shares there are in 1 lot. Kena suan by the dbs broker for being such a noob. Haha, I initially wanted to buy 20 shares :) Learnt a lot on the go - still learning now.

c. Went ahead with a big insurance plans without knowing the difference between term and whole, what the hell is Investment linked policies (ILP). So to find out more about my choices, I started to open an account with dbs vickers. My prime aim is to learn how to read charts and how to see stocks, NOT to buy! But heck, I did all that I set out to do and more.

d. The most recent ones - to buy singpost before doing my due diligence. I started finding out more after I buy, haha :) To the death of warren, I think :)

What to do? I'm just not programmed to do that, though I tried. Somehow, I feel that I do not have a stake in whatever I was doing if I didn't participate in it. I always feel that the best way to learn is to jump right into it - if I didn't drown, I'll learn how to swim :) Yes, by all means, learn what you can from other people's mistakes, by the lessons I learnt by reading and observing wouldn't be as close to me as the mistakes I made myself. Born to have hardlife I think, haha

KEYWORD here is to take a small position. Nobody ask you to risk it all.

Now I'm sufficiently prep myself to read those thick FA notes that I gathered since May. Time to jump into it.

Quite a number of people asked me why I blogged everyday. I usually have so much things to say that I need more than 1 postings to say it all out. It had been a routine to me already - looking at data, doing homework, looking at trends, analyzing - that it didn't feel like work to me.

The encouragement and the general response to my blog helped a lot too. I hoped everyone benefits from having a place to voice out his/her opinions. I certainly need someplace to write out my thoughts.

Have a great deepavali!

Wednesday, November 07, 2007

Entered Singpost

STI didn't do too well despite Dow closing up 117 points yesterday. Today it was down by 10 pts to close at 3673 points, with a volume of 2.17 billion, despite a wonderful morning showing.

Oil and gold is hitting record high. Gold is a safe haven for investors if they wanted another place to park their cash instead of the stock market. Oil prices at record high should spell good news for alternative energy stocks (look at indoagri, golden agri and wilmar today). Difficult times ahead it seems.

Had a wonderful discussion with HH and Charlesming over at the chatbox today. This is one of the most fruitful discussion I had and I learnt a couple of things that i would like to share here:

1. There are a lot of ways to make your money grow. I learnt from charlesming that besides the usual savings account (which pays a miserable 0.25% per annum) and fixed deposit (a little higher but still miserable at 1.8% per annum), there is also another way to deposit your money. It's actually fixed deposit but using another currency. I verified that some of currency pays interest rate ranging from 3% to 7%, so just compare this with SGD Fixed Deposit! Those currencies which pays a greater interest are australian dollars and new zealand dollars. But of course, the risk is that the currecny pair might devaluate more than the interest rate you earn. That's why I think for short tenure of 1 to 3 mths (even 6 mths) I think it's perfectly fine. Currency don't change that much unless something drastic happens.

2. Learnt from HH that defensive plays that pay good dividends can provide a good investment returns. A run through the stock selection at poems gave me a few stocks that have dividend yields of 5 to 15%. But of course, for such income play, the stock must ideally be less volatile, even illiquid :) If the dividend payment is consistent and increasing over a period of say 5 years, that's even better. Reits could be another such income stocks that I totally ignored out of ignorance (and fear).

3. Mutual funds is another thing that my friend LS introduced to me. I recently went through fund supermart to take a look at some of the offers that have and was suitably impressed. There are a wide variety of asset classes that the fund can represent - bonds, commodities, equities (in different region as well), so this could be another area I might be looking at. One thing for sure - don't buy funds from banks - it's a con job! My gf's relative got sweet-talked into buying a bond fund that is correct losing money (lost 2k out of 20k - 10% losses!). That is the catalyst that made me want to find out more about such funds. I want to help them.

4. ILP - this one i already know. I never liked ILP. Interestingly, my catalyst to find out and enter the stock market came AFTER I bought a life plan from my agent. He wanted to sell me an ILP but last minute, I dropped out. This set me thinking if my choice is good or not. At the same time, I wanted to really invest for myself instead of relying on other professionals. I wanted to make informed choices about stocks which I knew nothing about back then. I want to learn, not pass the learning over to them using my money. I never looked back since despite my 2 big losses - 18k losses last year and 30k losses this year (which thankfully I had recovered)

Oh my, received news that Jiutian had a 12.1% drop in profits because earnings dropped. Hmm...Fri have show to see.

I bought 5 lots of singpost at 1.18 today. There are 2 such chances to enter at this price when it experienced huge selldown by 2 angmoh houses - Merrill Lynch and Morgan stanley. At certain times of the day, they are throwing out huge lots (250 lots) in intervals to press down the market. But singpost isn't called defensive play for nothing - the price went back promptly up despite the huge selldown (twice as heavy volume averaged over 50 days).

Merrill lynch (ML) sold quite a lot of counters today. I saw from other threads in cna forum that they are dumping china fishery too, but buying up all the 'agri' stocks - golden agri, indo agri and wilmar. Their selling might have nothing to do with anything but fighting the fire in their own backyard due to the subprime losses. Not sure about that.

Singpost is resting at support level of 1.18, though in practice I think the support level is more like 1.190, judging the fierce fighting in over that price. If it fails to support the price, it'll drop, probably finding relieve at 1.14 or a stronger one at 1.10. It's quite unlikely to me, from other indicators. The next time I would add is near 1.10.

After I bought, I went to read up more (haha, I always do action first and thinking later, tsk tsk) about its dividend policy. They are committed to paying a dividend of at least 5 cts per share and their policy is to give a total annual net dividend of 80 to 90% of its net profit, whichever is higher. The payment is made on a quartely basis and a special dividend on the 4th quarter (if any). Works out to be 1.25 cts per quarter to make up at least 5 cts per share per annum.

Dividend history:
FY 02/03 - 4.2%
FY 03/04 - 4.2%
FY 04/05 - 5.0%
FY 05/06 - 5.5%
FY 06/07 - 6.25%

They have been showing consistent growth over the past 4 years, just take a look at this link to sgx stocks.

Hmm, impressive :)

Europe all red...Dow shouldn't be much better. Tmr STI on holiday, maybe can skip some blooshed then Fri cheong? Haha, my wishful thinking :P

Tuesday, November 06, 2007

Yongnam won S$90 million contract

Dow dropped around 50 points last night, not too bad in my opinion. I was half expecting a bigger correction after citigroup report of more losses due to subprime AND the delay of the investment plans by China in HK. STI today went up 12 points to close at 3683 with a volume of 2.2 billion.

STI twice tested intraday support at around 3660 but it didn't gave way. It was somewhat helped by HK sudden reversal from negative region to +500 points. Ali baba is the major company, haha! Its warrants that debut today went from 0.320 to 0.775, representing a gain of nearly 200% in a day. Scary huh? That's the world of warrants for you - where the whole life cycle of a stock can be experienced in a single day.

Some news to share:

1. Long awaited contract wins came along - this time it's for Yongnam. Yongnam won S$90 million contracts for Marina IR, formula 1 and orchard turn projects. As far as I know, orchard turn project (ion orchard) is not new. Even walking past the site I can see Yongnam supplying the steel struts for its structural works. It's just strange that they choose to announce it now, unlike other companies which are normally more forward looking. Conservative nature of its management?

Maybe they purposely plan to put the contract wins near their XR so as to encourage more people to take up their warrants. Hmm...that would be smart indeed.

Here's the project timeline:

a. For the IR, Yongnam finish the hotel tower by 2nd half 2009 and then the northern podium by 1st quarter 2008.

b. For the F1, they are tasked to construct a 3 storey complex at republic boulevard, expected to be completed way before 28 Sept 2008 (that's the date for the F1 race in singapore)

c. Orchard turn project will be completed by 2nd quarter 2008

Some things to think about: why is the contract value for the 3 projects so low? 90 million isn't exactly that big you know. Hmm...can't help but to compare with CSC contract of 280 over million. Interesting...wonder who's margin is higher?

2. Swiber had a new direction - exciting! Firstly, they incorporated a new subsidiary company - swiber offshore drilling pte ltd. This company carries out deepwater drilling business.

Secondly, Swiber targets deepwater drilling business as their new engine of growth. They ateamed up with offshore oil and gas veteran to incorporate Swiber offshore drilling to spearhead the group's deepwater drilling business.

Swiber's main revenue and earning drivers is currently offshore EPCIC providers. This business is primarly in the shallow water. They wanted to focus into deepwater drilling business as their new engine of growth over the next few years. Their reason is that as energy demand grows and most of the easy oil (which are found in shallow waters) had been found, logically the next place to look for oil will be those in the deeper regions. As usual, Swiber likes to capitalise on industry veteran to gain entry into new areas and this is exactly what they did. They hired this Mr Glen which is a prominent industry veteran to help Swiber group in this new business. I like their active approach :P

Dow haven't opened yet. Their daylight saving is now on, so their opening will be at 1030pm instead of 930pm. Europe all green though :)

Monday, November 05, 2007

Market downturn

Market u-turning now. STI dropped 45.14 (1.21%) to close at 3670 with a volume of 2.24 billion. It was pretty bad from the start but the selling got worse when Europe started trading around 4pm. HSI dropped a hefty 5% after china indicated there might be some delays in the investement to China (something like that, wasn't really paying attention to the news).

Quite surprised that Swiber fell so much, even dropping below my buy target of 3.37. It went down 3.28 down 0.200 today. Wondering whether to buy more or not...

Big singapore sale is coming. Problem is, as always, we do not know if the cheap can get cheaper. Will we can a year end rally? Not sure what's the answer to that question. Let's act accordingly. Since STI support is broken, will expect to see more downside.

Some news to share:

1. Yongnam group is buying 49% of Aasia from Yongnam private ltd. Aasia is a company under yongnam pte ltd in middle east. The rationale is to hinge on the expertise of Aasia on the Saudi market, as well as to gain market access to the Saudi market. Can benefit from the network of contacts from Aasia too. Good for Yongnam group. But I wonder if there is any actual benefits.

Yongnam closed at 0.365, quite a big drop. XR coming in another 2 weeks time, don't know if I can sell off by then. Hmm, don't even know if I wanted to sell off in the first place.

Dow is down by 85 pts down. More bargains to hunt tmr :)

Profit got hurt quite badly by swiber's drop. Ouch...

Saturday, November 03, 2007

Saturday thoughts

This is one of the rare Sat that I do not have work. Come to think of it, the most recent Sat that I do not have work is on 30th June, where I hopped over to Batam for a short weekend getaway. Hence, I'm rather free to reflect about issues over my blog now.

The most naturally thing that comes into my mind is to debunk the myth that blue chips are stable. From investopedia, the definition of blue chips is:

A nationally recognized, well-established and financially sound company. Blue chips generally sell high-quality, widely accepted products and services. Blue-chip companies are known to weather downturns and operate profitably in the face of adverse economic conditions, which helps to contribute to their long record of stable and reliable growth.

Notice the last sentence of the paragraph above. Are blue chips really that stable? Well, of course not. The recent crisis that global markets are facing affects the bluest of the blue chips - financial institutions. Subprime crisis comes because banks sold debts of subprime loans to other banks, who in turn sell it to investors. Subprime loans are risk groups because they would have failed the normal credit task to secure the 'normal' loans to finance their houses. Can you believe it? Debts can be sold and there is even a market for it. Pay a certain amount to secure other people's debts, in return get a 'stable' interest payout.

How about other blue chips in Singapore? Are they stable? Sembcorp marine just recently announced their foreign exchange losses to the tune of SGD 439 million after they closed their transactions - meaning that the losses are realised. Sembcorp marine is a blue chip quality firm and they even won an award from SIAS (i think) for their transparency. Ironic isn't it?

Generally it's true that blue chip stocks are less volatile. Take a look a those china stocks or the crazy newly listed Uni-Asia. But my take is that investor still need to pay attention to the winds of change. Don't get me wrong, I'm not against blue chips. On the contrary, I think now is the best time to get these blue chips at super cheap prices. DBS at $16 (it was at this price around feb last year 2006) anyone?

Another topic is the different approach to investment. My parents went overseas for like a week plus and I was tasked to water the plants for them. I watered it for a day and nothing happens. I watered it everyday for a week and I see nothing happens. But today when I watered it, I noticed that little white flowers appeared on the plants (it was a chilli plant).

TA guy would watch the plant closely because a breakout had occured. Breakout (on the upside) is when a stock is trending sideways then suddenly (okay, I exaggerate) there is high volume movement above resistance. TA guy would buy at this point and ride the wave up.

FA guy would water the plants daily because he is the one who picked the seeds out of so many packets in the market, planted it to wait for it to grow. Patience is the key because FA guy could be watering the plants for days and weeks and months without seeing any results. Those who are not in the know who think you are just putting water on soil but the truth is - the seeds are growing slowly under the soil! It cannot be seen until the young seedling grows out of the soil and progress to grow flowers and bear fruit.

What's my point? It's just an analogy to the different approaches to investment. And I'm trying to be that FA guy.

Alright enough of my nonsense. Dow did pretty well, recovering strongly intraday to close +27 pts. Monday will be exciting. Will we recover from Fri's selling or sell even more? We'll see.

Have a great weekend!