My Investment Record (25) - 31st October 2015 & 30th November 2015

Market Overview

KLCI recorded two consecutive months of advancing, ending up at 1665.71 and 1672.16 pt at end of October & November respectively. 

Current Return and performance

For October 2015, 

The estimated holding period return for KLCI in the past period (1st October 2015 - 31st October 2015) is 3.06% (with dividend included). Holding Period return for my portfolio, is 2.35%. Total holding period return for my portfolio since the inception is 2.66%, annualized to be 0.83%, this is far lagged behind KLCI total return of 12.57% (annualized, 3.81%) 

For November 2015, 

The estimated holding period return for KLCI in the past period (1st September 2015 - 30th September 2015) is 0.68% (with dividend included). Holding Period return for my portfolio, is -2.29%. Total holding period return for my portfolio since the inception is 0.31%, annualized to be 0.09%, this is far lagged behind KLCI total return of 13.33% (annualized, 3.93%) 

Trading Activities

1. Addition of Coastal Contract (5071). The main business of the company consists of two division, the primary division deal with Offshore Special Vehicle with contract value sustaining beyond year 2017, the second division involved in drilling rig & jack up rig business, which just sold one drilling rig and secured a 12 years contract in jack-up rig. The main exposure is on another drilling rig set for delivered in Q4-15/Q1-16 which has yet to secured buyer/rental. The maximum exposure is RM 800 million which is about half of the net asset of the company. However weakening ringgit should be favourable to the company as majority of its business is oversea. 

I don't think Fed is raising rate soon....

The fed are looking at two main indicators, unemployment rate and inflation. 
"In determining whether it will be appropriate to raise the target range at its next meeting, the Committee will assess progress--both realized and expected--toward its objectives of maximum employment and 2 percent inflation. " (source)

The maximum employment occur when unemployment rate reach between 5.0%-5.2% (source), 
which had been reached according to latest unemployment statistic from US bureau of labor statistics (here)

However, core inflation remain low at zero level (source), i believe mostly thanks to collapse in crude oil price and appreciation of dollar. As crude oil price is expected to remain low in foreseeable future (see here), and there is unlikely for dollar to depreciate soon, given all major economies around the world (EU, China, Japan) are still trying to pump liquidity to revive their economy growth pace, the core inflation rate will likely remain low in foreseeable future. 

Even if the inflation rate do climb beyond 2%, the Fed will still likely wait until the trend (inflation) become firm before taking further action, as per below statement: 

"The Committee currently anticipates that, even after employment and inflation are near mandate-consistent levels, economic conditions may, for some time, warrant keeping the target federal funds rate below levels the Committee views as normal in the longer run."- source

The implication could be that, the longer the Fed hold off in raising rate, the less attractive it is to hold dollar asset, and the more undervalued emerging market asset could reach.

3069 Mega First Corporation Berhad (Undervalued)

The research note in Public Invest pretty much summarize what my current thought. Interesting readers can read it here. I just like to share my thought on the new project - Don Sahong Hydropower Project undertake by the company.

Few Key Notes:
1.  This is a hydro power plant with fairly reliable electricity output. Coupled with the fact that the PPA is of take or pay type. Revenue for the company will be fairly stable and predictable.

2. The actual selling price of the electricity per kwh is undisclosed. My guess will be $5c /kwh, based on the average unit cost in Laos in 2009. (source)

3. Once built up, the major component of the cost will be
a) yearly repayment to long term debt
b) Annual O&M cost, the most likely to go up. Estimate is about 2-2.5% of the total installation cost.
(Source)
c) Depreciation charge, assuming linear depreciation.
d) Corporate income tax, currently 24% in Laos.

The net cash flow to the company, will then be profit after tax + depreciation charge.

4. Financing Structure. MFCB average return on equity is about 10%, higher than the typical rate for long term corporate bond. Given the stable nature of its revenue stream, the best option is to finance large part of the project using short term and long term debt (USD bond if revenue is fixed in USD term). which can go up to 90% of the financing requirement.

Estimation Results:
I made a few set of assumptions on major factors that could affect the PV valuations, these factors include:
a) the total CAPEX of the project
b) Annual generated unit of electricty
c) Capacity degradation of the hydroplant, either due to change in river flow rate or aging of generator.
d) Unit price of electricity
e) Adjustment rate of electricty
f) Long term debt interest rate
g) Opex,

with assumptions and results as below picture.

I haven't run a sensitivity analysis yet but the bigger uncertainty will be on electricity unit sale price and loan interest rate. Nevertheless, based on the mid-case, it seems the current share price (RM 2.5) is a good bargain compared to the valuation you will get.

However, do be mindful that as one of its power plant PPA is expiring at end of 2017 (2018?), there will be period where Its profit & cashflow will dropped, before its picked up again.

Disclaimer
The data above was taken and calculated according to information supply from the company's announcement, quartery report and annual report available at the Bursa Saham website, there is some element of estimation in deriving the figure. 
The author bear no responsibilities of any buying/selling action of the investor, and any profit/loss incur by the investor.

The author had ownership in the stock covered.

My Investment Policy Statement (2nd Edition revised in 2015)

Things have change since i wrote my investment policy statement in 2014 (here).
The most notable one is that i had changed my job to one with a higher commendable salary, and save up a small amount of money. L

Few assumptions:

i. Malaysia Inflation Rate to be 2.5% per year. (last 10 years average, 2.38% see calculation here.)

ii. Salary to be rise at 5% per year. With average income per month = RM 10,000 (include base pay, allowance and bonus).

iii. required living expense per month to live comfortably = RM 2,000 in current ringgit. 

Additional insurance expense = RM 500. 

iv. Malaysia income tax rate unchanged. No introduction of capital gain tax and dividend from public company remain tax - exempted. 

v. EPF average return to be 5% per year. This is also the achievable return by my own portfolio. Current EPF saving = RM 60,000, current own saving = RM 200,000. 

vi. Risk Free rate = 3.25%, this is also the discount rate used to calculate the PV. 

vii. Life expectancy to be 90 years. 

___________________________________________________________

Goals: 

1. To buy a RM 1,000,000 house at the age 32. with 30% downpayment. The rest will take a 25 years loan.  

2. To retire early at age 45. 

3. A saving buffer of RM 500,000 at age of 45. 

Thus my IPS will be

Return Objective : after tax 5% per year (nominal) 

Risk Objective: 

Ability to take risk - High ( as i am currently still young , with stable income to sustain living）

Willingness to take risk - High

Constraints: 

Time Horizon - Long (two period, first one is 18 years, second one is after the 18 years till deceased)

Tax consideration - as Malaysia dont tax capital gain nor dividend income, there is less concern here. 

Liquidity requirement - Not applicable for the moment. ( or one month expense to sustain living until next salary banked in)

Legal - Not applicable for the moment. 

Unique requirement - to paydown RM 300,000 for house downpayment at age of 32. 

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The first thing to know, is to calculate how much you need to sustain the living standard for 45 years after early retirement.

This can be done by summing the Present Value (PV) of all future expense at age of 45 (year 2033). 

First , the nominal equivalent of RM 2,500 expense today at 2033 is RM 3,899, i will still need to pay house loan monthly installment of RM 3,890. The total PV of the future expenses at year 2033 will then be, RM 2,330,000. Plus the saving buffer desire, i will need to save up to RM 2,830,000 by year of 2033. 

This is achievable if i can save at least 55% of my total income every month. 

Thus current monthly saving target = RM 5,500. 

Things will get complicated when I need to save for marriage, save for some desires in my life etc. This will be address later when i subsequently revised my IPS and setting saving goals. 

My Investment Record (24) - 31st August 2015 & 30th September 2015

Market Overview

Last two months KLCI  hit its lowest point within three years at 1532.14 pt, end up at 1612.74 pt and 1621.04 pt at end of August and September respectively. 

Brewing of 1MDB scandal, anticipation of Fed rate hike, and consistently lower crude oil price results in capital flight out of Malaysia, pushing the ringgit lower and thus tumbling the stock market. 

However, with the annoucement of Value Cap by Najib Administration and subside chance of Fed raising rate this year, KLCI began to stabilize and should perform better as the end of October. 

Current Return and performance

For August 2015, 

The estimated holding period return for KLCI in the past period (1st August 2015 - 31st August 2015) is -6.12% (with dividend included). Holding Period return for my portfolio, is -9.42%. Total holding period return for my portfolio since the inception is -2.46%, annualized to be -0.83%, this is far lagged behind KLCI total return of 8.35% (annualized, 2.79%) 

For September 2015, 

The estimated holding period return for KLCI in the past period (1st September 2015 - 30th September 2015) is 0.82% (with dividend included). Holding Period return for my portfolio, is 2.83%. Total holding period return for my portfolio since the inception is 0.30%, annualized to be 0.10%, this is far lagged behind KLCI total return of 9.23% (annualized, 2.91%) 

Trading Activities

1. Addition of RHB Cap (1066), with impending right issues the stock is currently trading at P/E ratio of about 8, one of the lowest among its peer. As Q2 earning was still steady, this provide a comfortable safety margin for me. 

2. Addition of Maybank (1155). its currently trading at P/E ration of about 12, with projected dividend yield of 7%, which is good for me. 

3. Addition of Public Bank (1295), Public Bank is the MVP stock, it seldom come cheap, when it does, i will just add on . 

4. Addition of Symphony Life (1538), this property stocks have attractive dividend yields with huge unbilled sales and landbank, even though most of the sales may not be realized as profit in this financial year, it still a good bet in the long run. 

Snapshots on what my performance constitute for

Figure 1 shows the stocks that i currently hold, with average cost and current value. The total cost of investing will not be equal to the net capital i invested in, as i do reinvest dividend from stocks (Total about RM 14,000) and realized capital gain (Total about RM 10,400). 

Total Holding Period Return measures the performance of RM 1 invested with me starting day 1. 

The formula will be 

(1+ HPR1) * (1+HPR2)*...*(1+HPRn), 

where HPRn is the holding period return for particular period, measured as change in total portfolio value, and 

current portfolio value = Total capital invested + total unrealized gain/loss + total realized gain/loss + total dividend gain. 

The holding period return measured is better than the straight comparison between the total capital invested and total portfolio value now, this is due to my portfolio sustain greater loss lately when higher capital had been invested, thus resulted in less negative impact on the holding period return. The summary of period holding return vs KLCI return is as per figure 2. 

Figure 1: Summary of shareholding now

Figure 2; Summary of Holding Period Return

My Investment Record (23) - 31st July 2015

Market Overview

KLCI end up higher in 1723.73 point, political fighting in Malaysia seems to dominate the theme of discussion in the market. Until there come to a solution state, it will be unlikely for the investor (local retail or foreign) to restore confidence and re-enter the market. 

However, i believe institutional investors who have the ability to hold longer, will continue to be the supporting forces for KLCI. There is however a higher risk that current political instability and ringgit fall will continue to manifest into a bigger storm, ultimately land as crisis  to the country. 

Current Return and performance

The estimated holding period return for KLCI in the past period (1st July 2015 - 31st July 2015) is 1.25% (with dividend included). Holding Period return for my portfolio, is -1.02%. Total holding period return for my portfolio since the inception is 7.69%, annualized to be 2.57%, this is far lagged behind KLCI total return of 15.42% (annualized, 5.04%) and lower than return from Fixed Deposit.

Trading Activities

1. Addition of MNRB (6459), which seems to be a loosing bet for now, as the board of directors didn't recommend any dividend for current financial years. The majority shareholders (the institutional investors might be ok with it or they want it that way), but the minority shareholders will often be loosing out when the company stop paying dividend even for a while only. 

My Investment Record (22) - 30th June 2015

Market Overview

Bursa Saham end up in 1706.64 points, 40 points lower compared to closing of previous month. 

Two events dominated KLCI performance in the past month:

- Possible of rating down grade by Fitch

- Possibility of greece defaulting from its loan. 

Both event pro-long the decline of ringgit against major safe heaven currency (like US dollar), 

which further putting pressure on local stock market (KLCI) performance. 

However, as Fitch revised the rating outlook for Malaysia, i will expect KLCI stopped its decline for next July, while trading narrowly waiting for the impact of GST to corporate earning become obvious in next cycle of financial reporting. 

Current Return and performance

The estimated holding period return for KLCI in the past period (1st June 2015 - 30th June 2015) is -2.06% (with dividend included). Holding Period return for my portfolio, is -0.44%. Total holding period return for my portfolio since the inception is 8.79%, annualized to be 3.02%, this is lagged behind KLCI total return of 13.99% (annualized, 4.73%) and lower than return from Fixed Deposit. 


Trading Activities

1. Addition of MNRB (6459),  loss shown in quarter 3 seem to be short lived as the company quickly turn into black and record EPS of 60 sen per year. This translate to P/E ratio of about 6-7, with P/B ratio still less than 1. With current cash level, i believe the next dividend will be around 20 sen, translate to dividend yield of more than 5%.  The worrying sign however is that, the total revenue seems to be stop growing. 

2. Addition of Symphony Life (1538), its unbilled sales increased significantly from 196 million at FY 2015 Q2  to 469 million at FY 2015 Q3 and 667 million at FY 2015 Q4, guarantee of at least 2 years revenue in the future. Thus with current P/E about 6, and Price to book value around 0.4, and recently announce dividend (not yet approved by shareholder) of 5 sen (translate to dividend yield of more than 6%), the company looks attractive to me. Not to mention the company still sit on top of large parcel of land in sungai long which had yet to start develop. 

Some signs need to take note of is the quick build up of inventory level, and whether the projects launched will be take up 100% in the end. 

My Investment Record (21) - 31st May 2015

Market Overview

Bursa Saham end up in 1747.52 points, 70 points lower compared to closing of previous month. 
Few events affecting KLCI's performance in short term horizon, 
- Possibility of Fed raising rates, resulted in net sell off of foreign investors in May?
- 1MDB saga, where its debt woes are worsen by downward trend of Ringgit following crude oil price crash. It will be interesting to see how negative the event can unfold. 
- Effect of GST, that will hit hard on retail & consumer's sectors performance.

- X factor, MERS outbreak, if uncontrolled like SARS, could hit asia economies hard. 

Current Return and performance

The estimated holding period return for KLCI in the past period (1st May 2015 - 31st May 2015) is -3.62% (with dividend included). Holding Period return for my portfolio, is -1.75%. Total holding period return for my portfolio since the inception is 9.27%, annualized to be 3.28%, this is lagged behind KLCI total return of 16.39% (annualized, 5.67%) and lower than return from Fixed Deposit according to best available market rate.

Trading Activities

1. Addition of Affin holding (5185). My rationale behind was this, there are few types of industry that is perceived to last long, and return moderate profit to the shareholder, these includes infrastructure (toll way, utilities, telekom), finance and banking business, FMCG (fast moving consumer goods). In current KLCI market, it seems banking and finance sectors is the only sector left with low P/E ratio, high dividend yield and back by low P/B ratio.  Sometimes my bet might go sour (like previous bet with CIMB and current bet with Affin holding), sometimes my bet remain promising (with Maybank and Public bank). 

2. Addition of Maybank (1155). First quarter profit went up but price still go down, at anticipated dividend rate current price offer a dividend yield of close to 6%. Seem acceptable for me. 

3. Addition of Public Bank (1295), a balancing act continuing from previous trading month (see here). Seem to pay off for me for now. 

My Investment Record (20) - 1st May 2015

Market Overview

US 1st Quarter GDP data came out surprisingly weak with growth of 0.2%, 

Fed is holding its move on next rate hike, consensus now looking at the earliest hike in september, 

Market become nervous, 

KLCI pare its early gain in the month and end up with 12 points lower than opening of the month (1818.27 pts currently). 

And here the theory,

A meltdown of the market usually triggered by sheep herd behaviour, where exiting of one group of investors follow by another. 

In Malaysia case, it will most likely be foreign investors who sell off first, then local retail investors who under margin call, and finally the remaining local retail investors. Institutional investors (like EPF, ASNB, Public mutual) etc seldom sell off as they investing strategy is to hold for long term. And the institutional investor often become key stopper of the fall/crash. 

And when market become sentimental, anything could happen and it will be likely those who ride the first wave (whether selling from a peak or buying from a trough) will gain in this cyclical market condition. My prediction is KLCI will remain cyclical in current level at least until Q2 economy data is out, if the outlook is positive only then a move to break 1900 pts become possible. 

Current Return and performance

The estimated holding period return for KLCI in the past period (1st April 2015 - 30 April 2015) is -0.42% (with dividend included). Holding Period return for my portfolio, is 1.09%. Total holding period return for my portfolio since the inception is11.22%, annualized to be 4.07%, this is far lagged behind KLCI total return of 20.76% (annualized, 7.33%) and just about the same as return from Fixed Deposit according to current market rate.

Trading Activities

1. Disposal of  PohKong (5080), When i first start my investment portfolio, i made a few mistakes which resulted in poor performance of my portfolio compared to KLCI, This include, ignore how the huge inventory level (even the inventory is ready to sell) can influence the performance of particular company (in this case, gold inventory to PohKong and Tomei), ignore how the controlling stake holders can  act in the interest of its own while sacrificing the interest of minority shareholder (PohKong, few chinese stocks). The only chance to correct those mistakes is when the shareprice rise according to tide. Which i did for Poh Kong recently.  

2. Disposal of  Public Bank (1295), Public bank is a good stock that seldom disappointing its shareholder,  But viewing its current share price level and in anticipating of upcoming volatile market condition,  partial disposal of it is one of my strategic move to accumulate some cash and prepare for any short term slump in share price. The strategy might or might not paying out.