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Review: Sino-Env

Sino-Env recently released their FY06 results, showing an astonishing FY06 results. EPS for FY06 grew 37.2% over FY05 on the back of a 70+% of FY06 profits. Dispite the large difference between EPS and Profits, I'm still not worried as a 37.2% EPS annual growth is already a very healthy growth.

Sino-Env's revenue increased 76.2% in FY 06, and in line with that, Gross profit was up 72.5%. Though gross profit margin was down from 61% to 59% due to lower "gross profit margins on the industrial water treatment contracts secured by Fuda Desai", a 2% drop in profit margin is not a worrying trend on the back of the healthy profit growth.

Asset/liability ratio in FY05 was 18.7 vs FY 06 of 24.8. The asset liability ratio is in fact improved dispite the quick expansion in operations into industrial waste water treatment.

On top of that, the average contract value increased by RMB0.9 Million with an increase in contracts. Not only does this be a proof of Sino-Env's ability to secure more contracts, it shows that the status of Sino-Env over its competitors has improved.

Looking forward, I favour Sino-Env's prospects. The Chinese Government has stated its intention to improve its enviromental efforts, although they did mention they are unwilling to convert coal powerplants to oil powerplants due to cost. This could lead to more contracts for Sino-Env for desulphurization in China's dirty coal powerplants. On top of that, in 3Q2007, we are looking at a 309% increase in capacity for its industrial waste water treatment business. I look favourably to the management to fill up that extra capacity in a short time.

With the recent global sell off, Sino-Env's shares are below the $3 level. In addition, there has been increased in volume in recent times, probably a sign of increased investor interest in Sino-Env once again. Its time for investors to accumulate in their holdings in Sino-Env.

Maintain BUY, with a target price of $4.00, with 70% certainty target to be reached in 6 months.

Review: China Hong Xing

China Hong Xing saw a 59% growth in revenue, with a increase in 85.5% for its gross profit. EPS increased 31.7% for FY06.

China Hong Xing has attributed the increase in sales to its advertising and promotion campaign for major sporting events in China. The company has recently launched its new "Ground Shock-damping System" in April 2006, and according to the management, has received positive feedback from the market.

In addition, the company is successfully increased the number of Erke specialty stores by 550, from 2100. This 550 stores far exceeds the target of the management of 364 stores (1 a day). In addition, the actual profit for FY06 exceeded the target of 180Million RMB by 30.4%.

The management has proven itself as a over performer, ie delivers more than what they promise. In the stock market sense, this is good for share prices as they constantly exceed market expectation. The company has set a $300Million profit target in FY07. I look favourably for the company to exceed that expectation.

China Hong Xing has constantly found itself as sponsors for sporting events, and is looking enthusiastic about getting a foothold in Beijing before the Olympics in 2008 with a flagship store near the Olympics location.

China Hong Xing looks to expand its capacity to be completed in 2Q2007. With a inventory turnover time of 37 days (increase in 6 days over 06), China Hong Xing must keep a watchful eye on this trend of increased turnover time for its inventory as it increases its capacity.

Dispite this, China Hong Xing shows good potential with good growth and ambitious marketing campaign. Like Sino-Env, with the large global sell-off, its perhaps a good time for investors to accumulate more China Hong Xing stocks.

Maintain BUY, with a target of $3.80

End Of Week Review

This week saw the much anticipated correction become a reality. Many fundamental investors (like me) saw their portfolio wipped out. Many are probably seeing a red in their portfolio, but for me, I still see an overall green, other than the red for Swiber.

Realised my Put Warrant at $0.31, a 63% gain over $0.19. Decided to realise the warrant as the market was showing signs of "slowing drop", probably on its way to a recovery or out of this bull run. That will really help me in any more falls where I may see my margin ratio fall out of acceptable range (which is unlikely as my purchase prices of the shares was low).

But really, nothing seems to be any where close to predictable. Just when the market thought the worst was over, to my horror, we saw the US market open 200pts lower on Thursday, only to see the market quickly recover back to a 20-30 point drop.

This is a period where good financial results have no effect. China Hong Xing released their results and showed a 100++% gain in sales and profit. I'll be doing a review on it soon. Sino-Env, Swiber performed extremely well as well.

The reason why I did not sell Swiber was firstly cause I was late in seeing the price low (ie saw the closing price only), and the other reason was cause the closing price was about -6% consistantly for 2 days already. In this Bear run, I'm reluctant to let go of Swiber until the price actually closes at -7 to -8%.

With the weekend ahead, all we can look forward to is for the market to take a quick breather, and start next week stronger than ever.

Review: The Global Sell Off

I was watching CNBC last night for an update on the US market. It collapsed 2% in the first hour of trade, and finally closing 3% down at the end of the day. I knew today would be a rough day.

Indeed, the STI Opened at 120+ points on the word "Go". I was shocked. Shocked to see my portfolio collapse. Yes collapse. This over "night" collapse is indeed a harder blow compared to last year's correction.

But for those who had bought Raffles Edu, China Hong, Sino Env at my purchase price, i don't think we have anything to worry about. The price should not drop anywhere close to below your purchase price.

This kind of correction may be good for long term investors like you. When was the last time you said "Hey, Sino is too expensive to buy now". Think this is the time to do it. But I don't recommend doing it now. Do it when the future is clearer. Buy closer to the "rock bottom". (Of course i don't think you can ever read the market to daily accuracy. )

But one thing is for sure (IMO), the STI is on its way back to the 2900+ level.

I've never recommended buying warrant but I've done it myself this morning.

I've purchased some insurance. I've bought STI 3000SGAePW70427, as insurance. My trade went thru at 0.19 this morning. This way, at least i've got something to cheer about when the market goes down.

Review: STI

Today, the STI index saw the biggest 1 day drop in a while. The STI index dropped 2.29%. The last time the STI started its month long correction that saw almost 300 points wiped out, the STI closed 3.27% over the previous day.

Today's correction is not isolated. Most international indexes (HongKong, indonesia, Korean, Malaysia, Manila, Japan, Shanghai, ShenZhen, Thailand and Sydney) saw the red, following the USA's Monday poor performance.

This could be one of the tell tale sign of a correction that most are anticipating. Whether this happens or not will depend on whether the US market continues its slide tonight or not.

For those who have not been vested in the market, i recommend against it until the outlook becomes clearer. For those who are already in the market, fasten your seatbelts and be prepared for a bumpy ride. But stay vested in the shares you already hold.

Review: Swiber

Swiber recorded a profit after tax of US$3,922,000. Thats a 55.4% growth on the back of a 288.4% increase in revenue. This translated to a 22.9% profit margin in FY 06, versus a profit margin of 42.0% in FY 05. The board has stated that this reduction in profit margin was "mainly due to chartering of third party derrick crane barges and vessels for the installation jobs in Malaysia".

It is my opinion that this increase in cost (and decrease in margin) is due to Swiber's contract that included their non-core business of EPCIC services. That explains their need to "chartering" 3rd parties for installation jobs.

Hence, I believe this reduction in profit margin is not a sign of weakness.

Full year 06 revenue ammounted to US$66.772 M, 262.9% increase, with a 96.5% increase in profit after tax to $12.140M. With just the Shell contract they recently won expecting to contribute $70.5M to FY07's results, together with contracts with BG exploration worth $33.75 M, we are already looking at a healthy revenue growth of 56.13% in FY07.

"A revenue growth of 56.13% growth expected in FY07, remember, we are only 2 months into 2007."

Challenges for Swiber this year. They have to keep their profit margin up, with new ventures into Brunei for Shell expected to increase their infrastructure support cost. It is now up to Swiber to convert that $140M contract into a healthy profit, with good margin.

Barring unforseen circumstances, I expect Swiber to win several other contracts, as their contract with Shell has really put Swiber up a few levels in its industry. Other large oil companies may now have more confidence in Swiber, and award them with more contracts this year.

Maintain BUY, with target of $1.95

Buy: Swiber

I apologise for the lack of updates for the last few days. CNY and work has been taking a toll on me for my trading job.

I had taken notice on Swiber immediately after Swiber announced their US$146.6 M contract.

Swiber_clinches_record_USD146.6_million_from_Shell_in_Brunei_13Feb2007_.pdf

Told my friend to add it into his watch list (it was already on mine), saw the price increase 20% in Friday, and than up further on Wednesday. Thinking a small correction was coming on Thursday, I saw the price at $1.21 in the morning, and half hour later it was $1.3++. Immediately put my trade for it.

I did my analysis on Wednesday night, that assured me about entering at the stocks price high. I apologise again for informing you all about my trade, but my blog is meant to "teach" my stock pick technique, not for you to mimic my trades.

If you look at the financial statement for the 9m 2006, they only have a 43,196 M revenue. Consistant with the boards expectations, they expect $70M from the Shell contract in FY2007.

Mind you, the company was trading at the range of $0.9 to $1.0, thats the price the market was willing to pay for its current financial performance. However, with this new contract, expected to increase the company's revenue by another 100%, if the company is able to keep its cost down, we could see the company share price double.

"In the medium to long term, share price growth almost always mimic the company's profits growth"


Already, Swiber has already been climbing at a good pace up to that "double" point.

Whats the risk? Swiber needs to keep its cost under control. There is no use of having that $70M contributed on FY2007, but seeing cost increase $70M. However, the company has been showing their ability to keep their financial records strong.

Looking forward to FY 2007, at $1.35 close on 23 Feb 2007, that stock price is still cheap. Although WestComb has set a target of $2.03, I'm not that optimistic. Unless Swiber shows it has the ability to win more of this kind of contracts, the P/E Ratio is definitely going to drop as the share price climbs. Thats why i'm not that optimistic on a $2.00 target, unless more contracts comes its way (which i think its possible)

BUY Swiber, target of $1.90.
Vested on 22 Feb 2007 at $1.30

Updates

China Hong Xing will be announcing their FY06 on the 26th Feb 2007.

Sino-Env will be announcing their results on the 28th Feb 2007.

Stay updated. I'm expecting results that meet, or exceed expectations.

Quick Lesson: Specialisation VS Diversification

Specialisation VS Diversification. Thats the question most investors, traders, whether new or experience, ask.

Anonymous said...
"hi musicwhiz
if u look at BusinessedTimes diversification of over 10 stocks, one of the portfolio has a 300% gain over 5 yrs..."

I'll like to show everybody the insignificant of that return. "300% over 5 years". If you do your calculations, this is what you'll notice for $1 that you invest in that 10 stocks 5 years ago.

• End of Year 1 - $1.25
• End of Year 2 - $1.56
• End of Year 3 - $1.95
• End of Year 4 - $2.44
• End of Year 5 - $3.05

Impressive. Thats slightly over 300% over that 5 years. OR is it? I used 25%PA for that calculation.

"25% PA"

Thats the kind of returns you get in equity unit trusts with good historical returns (ie. Aberdeen Pacific Equity). When you invest in stocks, you'll want to be looking at better returns wouldn't you? Otherwise why would you be in the stock market? Why don't you just buy unit trusts?

"Whats the use of buying shares and achieving returns attained consistently in Unit Trust? Excitement in shares? Shares are not meant to be exciting. Its for investing."

On the other hand, I'll like to bring to your attention to the powers of compounded returns. It can really make your portfolio look really good. Imagine getting 50%PA on your portfolio in shares. It will look something like this.

• End of Year 1 - $1.50
• End of Year 2 - $2.25
• End of Year 3 - $3.375
• End of Year 4 - $5.06
• End of Year 5 - $7.59

When investors diversify, they are trying to spread their eggs into several baskets. A well diversified portfolio would usually mean 15-20 stocks, but it really depends on the amount of money you have. What diversified investors get is a pretty safe annual return that generally mimic the country's stock index. And thats a very mediocre return.

What unit trusts do is just that. They diversify their funds over large number of companies in their target market. The result is the same. Almost consistant annual return that mimic the country's stock index.

"So why don't you just buy Unit Trusts if you want to diversify?"

For specialisation, investors don't like to spread their eggs. Usually, this kind of investors hold a portfolio of 1-10 stocks. This kind of investors will usually get large returns that can range from 2-5 times the general market movement, but tend to be exposed to a lot of volatility and risks. However, this exposed risk can be managed by several precautions like "cut loss of -7 to 8%", which i preach.

Specialised investors generally know more about their companies they hold. They have more time to do research for their companies, and generally are better informed compared to diversified investors who are probably overwhelmed with information, especially during financial statement season.

Here's my take. If you were to diversify your own assets into many shares, its in my opinion that you should just buy into Unit Trusts. The returns for your diversified shares, compared to returns in Unit Trusts will not vary much.

"Buy into Unit Trusts, if you are looking for safe and well diversified investments."

Do note that when you buy unit trusts, its not necessary for you to buy 10 different unit trusts. Unit trusts are already very very well diversified. I recommend for you to own only 3-4 unit trust, with each targeted to different market.

If you are looking into larger returns in excess of 30% PA or even 50% PA, the route you should take is to specialise. Buy a few stocks, and keep track of those companies like a hawk. Every financial release, every contracts won, every movement in its management (Notice i didn't say keep track of the stock charts).

My recommendation for all is not to over diversify in shares, but to specialise in some. This way, you'll be looking at returns similar to the 2nd example above.

Happy Chinese New Year to All!

Hello to all my readers,

Sorry for the lack of updates over Chinese New Year. I was too busy visiting relatives and friends, eating and laughing. But I guess so did you, readers. I saw a large drop in "readership" over CNY. =)

I'll like to wish all a Happy Chinese New Year! And may the bull run continue into the New Chinese Year!

PeHon

Quick Lesson: Cut loss, is that trading or investing, FA or TA?

I've created a controversy with some of my readers by practicing a "cut-loss" at the 7-8% point on my China Farm holding. So is that trading or investing? If the fundamentals of a company is that good, why be shocked at the 7-8% loss in shareprice?

Well, to recap. My China Farm shares were bought at $0.995, and sold at $0.915, for a 8% loss. If i was still holding on to my China Farm shares, I would be looking at a -25% paper loss, which would require a 33% rise to break even.

Emotions have to be taken out of investing. Yes, the ideal state will be to buy a fundamentally sound company and hold on to it through thick and thin. However, I wouldn't think its practical for relatively small investors like me and you (well unless you have a $5,000,000 portfolio, i'm talking about you).

When i was talking about "traders" and "investors", I'm basically talking about "traders" who practice Technical Analysis, who sits infront of a chart to find the pivot point and potential breakout point. "Investors" are fundamental analysts who look at the financial statements and research information to dictate their choise of investments.

Having a cut loss point of 7-8% does not make you a "trader". It can be a capital protection technique for "investors". Like me.

Review: China Farm

Following the fall of 7% from my purchase price of $0.995, I've cut loss at my 7-8% rule that I've always encouraged. Sold my holdings of China Farm at $0.915.

So whats wrong with China Farm? China Farm is still fundamentally strong. The cut loss rule is there to save my (and your) ass.

"Said it before, compounded returns magnifies your losses as well. a 30% loss would require a 42.8% gain before you break even. And 7% gives the share enough room for short term weakness."

Cut loss is even more important for a person like me that uses margin trading.

China Farm is fundamentally strong, but with the impending bear (or already in a bear) market, maybe the time isn't right. Will be monitoring China Farm and the market, and high posibility of reinvesting into China Farm in the near future.

Sold China Farm at $0.915, 13 Feb 2007 1140h

Review: The Bull Overcomed by the Bear?

Today I looked at the world market indices with fear. All the major stock exchanges showed a red. The US market last friday, KLSE, SGX, HKSE, MCI and australia all showed red. Only the Chinese market, Thai market showd me the green.

Looking at the top 30 volume on SGX showed more red than green. Thats not a good reflection of the performance this morning, where all i saw was red. Only on 1 - 5 stocks in the top 30 volume did i see green.

So what the hell is going on?

Well, the market is in intense anticipation for the upcoming US interest rates meeting. Whether the market will be a bear or bull will really be the result of what they say before the meeting, and what's changed after the meeting. Simply a simple negative remark can spark a global market correction, like the one last year, where after all the fan fare, interest rates were left unchanged after all, leaving all the professional analysts red faced.

"Those professional analysts were really the messengers of what didn't happen. They are the ones that affect whether the market is bull or bear."

But locally, we have a short term relieve. Singaporean companies can look forward to a good budget announcement this week, that may be able to offset any negative effects from the USA.

So would I recommend selling your shareholding to escape any volatility? First of all,no cause thats what you call trading, not investing. And in this season of financial year reports, you can look forward to a good financial report for FY06 (that is if your company is a good growth company), which will reinforce your shareholdings current price.

"When you trade, only your broker is happy."

Watch the market closely for the next few days. Watch the budget 2007 announcement. Watch any reckless comments by the USA officials. But do not dismay if a correction comes. Not all stocks went bear last year. Good companies like Sino Env and China Hong Xing were just 2 of the companies taht did not get affected that bad least year.

Review: Raffles Education

Anonymous said...
"hi pehon

i'm thinking of buying REC tdy at 2.33. Do you think it is a good buy at tis price ?

UBS is calling a buy but OCBC is saying a hold becoz of risk factor in the current price"

Usually, after a large price advance, you'll also see a very volatile few days or even weeks. The large increase for Raffles Education recently was good for traders, not investors.

I've read the UBS and the OCBC reports. I personally like the UBS valuation of Raffles Education. I personally feel the OCBC report is tuned to the general market trend. The general trend of trading, not investing. The UBS report however did mention the high posibility of a sideway accumulation, but they did give enough credit to the growth potential of Raffles Education, with the recent aggressive market actions by the board of Raffles Education.

So to answer your question, its never too late to buy Raffles Education, even at the current price high. WIth the excellent profit growth record, even with a relativelity large market cap, I'll still classify Raffles Education as a "Growth" stock.

However, if you invest at the current price, you've got to expect an extremely volatile period ahead, and you must be able to hold on to the stock for at least 6 months, or even 1 year, to remove all the short term risks of a volatile share price.

For existing shareholders (like me at $1.68 vested in Jan07 =) ), Raffles Education has potential for more in terms of its share price. So hold on to it. I won't recommending taking such a small profit right now, as its game for larger returns.

Quick Lesson: Fundamental vs Technical Analysis

There are 2 widely used techniques of analysis of share prices. Fundamental analysis which looks at the bottom line of a company, its management, its people and its products / services. Technical analysis generally looks at the stock chart and looks for known patterns that show good potential of breaking out. But which method is the better way to "invest"?

When I say "invest', its really different from "trading". The basis of technical analysis is really an assumption that price patterns are influenced by a company's financial performance, and impending good announcements. Most people who practice technical analysis are essentially, "Traders". They trade on the monthly, or weekly, or even daily basis. They spend lots of time going through charts to find potential break out points. Technical analysis assumes that historical price patterns repeat itself.

However, price patterns may not always repeat itself. When Traders buy shares using TA, they are exposing themselves to the risks of volatility of the daily market. TA teaches market timing. Many investors say you can't time the market. But traders claim they can. But the fact of the matter is, large returns of 100% or more are seldom achieved by trading. This is because Traders don't buy and hold. For most cases, they only hold for less than a month.

"Technical analysis practices market timing. Traders think they can time the market. Investors don't"

As a trader, how many times do you see yourself selling your shares at 20% gains, only to see it climb more than 100% over the next few months, and even 200% over 2 years.

Ask any successfuly investors like Warren Buffett, how do they buy shares? They invest. They look at a company's bottom line, the company's potential and fundamentals, and they buy the company and hold them for 5 or more years. They are the ones making compounded returns of 500% over 5 years. They practice Fundamental Analysis. They do not market time.

"Fundamental Analysts are the ones that make 100% or more gains. Not technical analysts."

Fundamental analysis base an investment on its future value. It really doesn't care about the comany's current P/E ratio. If a company grows at more than 25% PA, the high P/E ratio now, will be even out in future. In fact, most companies with High P/E are the ones that have good growth (>25%PA). Companies with no growth have low P/E. Investors and traders have nothing to look forward to, and no reason to increase the P/E. If you shy away from high P/E companies, you are missing out on good growth companies.

"With good EPS growth, a high P/E ratio is not a problem."

FA believes that over medium and long term, the daily volatility is taken out as share prices always climb in line with a company's earnings.

"FA removes the daily volatility and risks for a long term share appreciations in line with earnings."

You might say that in SGX, large returns (300%) thru fundamental analysis is nearly impossible, compared to the US market. However, you've got to remember that the SGX is very young. Singapore listed companies are young. Given another 50 years, the Singapore listed shares may mature its way to that of USA's.

Many times i hear people telling me that they bought Keppel Corp when its $2.00, and sold it at $4.00, and how they regretted not holding on to it (its $19.00 now). However, looking at their style of investing, they are traders. Many times they come to me telling me they made $1000 yesterday. But thats just 10% from one month. They are not the kind of people who would have held on to a stock. No matter what regrets they have. They are the ones that buy penny stocks in a hope that punters will have interest in them. They buy companies without knowing what the company does. They never learn from their previous experiences.

"You must tune your mentality to be a fundamental investor (holder), not a trader. This way, you will see larger returns."

Though both techniques provide good short term returns, it is Fundamental Analysis that assures an investor large price appreciation, removing all the short term volatility. The way to be a (very) successful is through fundamental analysis, not technical analysis. Fundamental analysis is the way to long term gains, while technical analysis exposes traders to lots of unknowns, and hence, lots of risks, with relatively less gains than FA..

Review: China Farm

What a debut! IPO at $0.345, opened at $1 on day 1!

Sincerely congradulate those who successfuly subscribed to it. But "BOO!" to those who sold it on day 1. This counter is meant to be held on to. For the long term.

So where do we go from here? Having only being vested at $0.995, I can tell you I'm bullish about this counter.

With such a surge from its IPO, there is bound to be a short term weakness. Expect to see some fall thru past CNY, in-view of the possible market correction around CNY. After the company announces its FY06 results, expect the price to start its upward trend.

So why don't I buy later? Well, first of all, I don't like to time the market. Secondly, who says there will be a correction? I expect China Farm to live up to its FY06 profit & eps growth, and maybe the market sees eye to eye with me. With the Chinese "farms" modernising, i espect China Farm to continue its growth.

Even with a high P/E ratio (relative to 8x P/E at $0.73), there is no saying that China Farm wouldn't be trading at 20x P/E in the near future.

Addition on 10 Feb 07:
With regards to the company's competitive edge, they have recently filed a patent for their latest plough machine. This shows the company's edge over other companies in the industry. In addition, with several awards for branding and satisfaction to China Farm's name (can be found on the website), it is clear that the company's managers know what they are doing when it comes to expanding China Farm.

With regards to the possibility of the company not being able to keep cost down, i'm consoled by the fact that they have won several awards for "financial performance" and "quality trustworthy enterprise". And on a more important note, the company has successfully maintained a good growth, and able to raise their sales and keeping cost in control in 9M06.

That assures me that FY06 will not produce any negative surprise, but a positive surprise is more likely.

In a short time to come, $1.00 would seem too cheap, and you will be wondering why oh why didn't you invest in China Farm then. (well, i hope so, nothing is certain in shares.)

Target of $2.00 for China Farm, in 1 year.

Buy: China Farm

I've been off the blogging mood for the last 2 years due to my anticipation for this stock.

"Please give me some lots for my subscription... Please!"

Coupled with the fear for me affecting the subscription (due to the sudden increase in visitors to my blog, and with more people influenced, less chance for me to get this stock!).

The growth potential for China Farm is immense. With the Chinese (communist) government targeting a mechanization rate from currently 7% to 45% by 2015, there is room. Lots of room for growth for China Farm.

"With such increase in mechnization rate, there is lots of room for China Farm. Will it be able to grab a share in that growth?"

China Farm is well positioned to tap this growth. Why do I day that? I've gotten a hold of China Farm's 10M06 vs 10M05 statement from Kelive Research.

Looking at the statement, we are looking at a 48% EPS growth for 10M06 vs 05. Already for 10 months in 06, China Farm has made 10.9 Million RMB more than the whole of FY05 (+32.1%!)

With that, I'm more assure the management of China Farm knows exactly what they are doing, and their ability to bite a big chunk of that 45% mechanization rate by 2015.

"There is no use for an industry to grow. The company has to show that its able to tap a large (larger if possible) chunk of that annual growth over its competition"

My plan. I'll be realising my profits for Tech Oil & Gas and Hiap Seng tomorrow (negative profits if it makes you happy). Don't mind me, but Tech Oil & Gas and Hiap Seng are good companies, but it is my believe that I'm putting my money in a better company, with relatively less competition, and a company thats a leader in China in its industry (vs the 2 above companies fighting in a tight market).

"Selling my losers for winners (or possible winners) is in line with my trading principle"

I'll put my money into China Farm and look forward to the long term, pending an easily achievable good 1Q07 results, as I already expect a good FY06 result.

Buy China Farm, with a short term target of $1.00, and a 1-2 years target of $2.00.
Sold Tech Oil & Gas for $0.870
Sold Hiap Seng for $0.78
Vested in China Farm at $0.995 on 9 Feb 06, 0901hrs.

Quick Lesson: Unit Trusts

As requested, many people have been asking me about my claims for high returns in unit trusts. I think this misconception is due to many not knowing and undetstanding the principles of unit trusts.

The basics
Unit trusts are basically funds "trusted" to fund managers to be invested accordingly. There are different type of funds. High returns (high risk), Balanced (medium risk), Income (low risk). Typically, high risks are invested largely into equities (shares) or properties depending on the type of fund you buy. Balanced typically mixed with equities and bonds, and Income mainly bonds.

How about the returns?
You'll be surprised. What are your returns for your shares last year? Think about it. Consider all the contra losses. Consider all your cut losses. Consider all your paper losses. Consider all the returns that you fail to reinvest cause you used the money to celebrate your 10% gains. Yes. My guess is that your return last year was less than 15%?

For aggressive unit trusts, Aberdeen Pacific Equity Fund. For the last 5 years, it has consistantly given me a return of 20% PA.

"20% pa only?!??!"

Mind you. At 20% PA, calculated monthly, your $10,000 would become $20,000 in 2-3 years.

"20% PA will mean double your investment in 2-3 years"

Another fund i own. Henderson European Property. Its given mea 40+% PA return last year. And from 2 -5 years ago, its given a 33-35% PA return.

"33% PA will double your returns in 1-2 years"

Remember, the stats above are assuming you reinvest all dividends and capital appreciation.

It just gets even better. My other holding. DWS China Equity. Its given me a 58% PA last year. And the fund is only 1 year old.

Does price of fund matter?
The price of a fund doesn't matter like shares. In fact, there is no such thing as P/E ratio of a fund. The only assurance you have of future performance of a fund is its previous performance.

"You don't look for funds that have bottomed out. Unit trusts don't work that way"

Why its previous performance? Isn't a unit trust that is too expensive dangerous to enter? No it doesn't matter. The reason why the fund is so expensive now is cause the fund managers's investment selections have been right for the last few years. Their investment model, their fundamentals, their asset allocations have been spot on.

"Funds that are expensive, with proven growth over the last years, are your best bet. They will out perform cheap unit trusts with bad performance."

Buy a fund on descend, you can only be assured that the fund managers don't know what they are doing.

Service charges are so expensive!
Consider this. If you were a share trader (notice trader not investor), you buy and sell shares 10 times a month, each time $5000 is traded. You've just paid $300, 6% has been paid. Thats alot of work for a month.

Banks charge 5% for unit trusts.

"Don't buy funds from banks, stupid."

Poems charge 1-2%. With very cheap fees for switching funds.

I'm currently buying funds with an wealth management company. 3% per buy, sell for free, switch funds for free. 1% PA for advise. I don't pay management fees by funds.

I don't mind paying for the services by the wealth management company as they monitor the performance of the funds, they have insider info on the fund manger's capabilities and i'm sure they are able to take care of my money well.

I don't have cash
Thats when you are wrong. have you thought of CPF? The funds above are all CPF OA approved. Imagine how much money you'll have for retirement now if you started 3 years ago?

"Would you rather risk your retirement by buying individual shares, or buy safer high return funds."

Even my CPS SA is growing at 10% PA (vs the 3% PA given by CPF), by investing in AIGIF Acorns, a CPF SA approved funds.

"Its never too late to start. Start now, be rich later"

If you were to buy funds the way they were supposed to be bought, you'll realise that the 3% charge is really insignificant to your investment. Its when you start trading funds (making 10%? cash it in!), thats when you'll see the banks growing rich.

If you need help in kick starting your investments in CPF in Unit Trusts, you can contact me. I can refer you to my financial adviser. From there you can find the value in their services and the 3% per buy (sell is free) is worth it. You don't need much money to start. Whats most important is that you've started.

Ps. i have no direct benefit from refering people to my financial adviser. I'm just sharing what i think is a good way to invest, and to grow your money..

Buy: Raffles Education

"What a week!!! Its like hitting the home run!"

Anyway, on a serious note, Raffles Education has traded at a high of $2.360, way past my target of $2.00.

Raffles Education has been brought to its all time high due to interest by investors for its dividend (though not much <1%>$2.00), on very low volume.

Fundamentals for the company has not changed. With 60% certainty, Raffled Education will see a small correction after it goes XD. With a very strong financial statement, which is unlikely to change in the forseeable future, its financial statement is set to see more improvements despite a relatively poor debt / assets ratio.

"Growth in Raffles Education has been impressive, and is set to continue its growth"

I recommend investors to buy after XD.

BUY Raffles Education, with a sell target of $3.00 for the long term

Review: SunVic

SunVic made a extremely impressive debut. Looks like the market is bullish about SunVic's potential. Its is however my opinion that this stock is over hyped, and over priced in a long run. With a poor showing in 1H 06, one must not forget a possible poor showing in FY06. That might cause shareholders to run.

In view of SunVic's good performance on day 1, I think it is possible in everyway for China Farm to perform as well as SunVic on day 1.

Advertorial: How to make money in stocks

I've been asked repeatedly how I learn my stock picking techniques. Over the years since I became interested, I've been reading into the mechanics of the economy, micro and macro. Its only with that understanding that I've been able to understand the stock market, quickly.

I've been largely influenced by this book, "How to Make Money in Stocks -A winning system in good times or bad". Although i've got to admit, the cover looks kind of dodgy, but take note, its the 3rd edition already, and i've read it, and it has influenced the way I choose my shares in a large and important way.
One thing to note here is that this book doesn't use P/E ratio. In fact, like me, it heavily dismisses P/E ratio in this book. It uses what i practice as well, EPS analysis. Using some of the techniques learnt from this book, I've been able to locate the winners and the losers.

"This book doesn't use P/E ratio to analyse stocks. Its uses EPS growth"

The only thing I don't really agree with is the fact that the author advocate market timing. As we all know, its impossible to do so, and by doing so it can diminish your returns. But this book was where i learnt the importance of "cut loss point", which has saved me a few times.

Though most books at the store aren't really relevant to SGX, the techniques taught in this book can be applied in our context, just like I did.

"Lessons learnt in this book can be easily applied to SGX"

If you are serious about learning how to pick good stocks, instead of listening to your friends at the cafe, buy this book.

Quick Lesson: What the Rich Does, and the Rest Don't (part 3: Compounded Interest)

It was in an article I read recently, that when asked what was the most powerful math formula known to him, Einstein said it was "Compounded Interest". Indeed.

The basic idea is simple. For every return in terms of capital gain and dividends, you reinvest them, to see exponential growth.

Lets say you have $10,000 to begin with. And assuming a return of 25% PA on your best investment (25% is achievable easily in Unit Trusts, so its conservative). You do not spend the returns on food or car. Calculated on a monthly basis, here is what the $10,000 would look like.

• 2 Years - $16,403
• 3 Years - $21,007
• 5 Years - $34,458
• 10 Years - $118,736
• 15 Years - $409,140

Time to buy the SLK you always wanted. But on the other hand, if you find yourself there with this kind of success, you'll not spend that money as just another 5 years. This is what you get if you didn't buy the SLK.

• 20 Years - $1,409,815

So, still want to buy your SLK?

Maybe spending your $1,000 profit in Sino-Env wasn't such a good idea? Though its tempting, I recommend buying shares on the notion that the returns are not "spendable".

So does that mean that after buying Share A and seeing a 100% return, I've got to sell it to see the compounded interest grow itself?

That was what I thought. But recently, I've got this revelation in my sleep.

Lets say you bought Sino-Env when it was $0.50. A few months later, you see it at $1.00. Thats a 100% return. A few months later, at $1.50, thats a 100% return from $1, but a 200% from your capital. From $1.5, to $3, thats a 100% return from $1.5, but a 600% return from your $0.50.

A $0.1 gain from $3 is about 3%. But from your purchase price of $0.5, its 20%. Need i say more?

Thats the beauty of compounded interest. Hold off that champagne to 20 years from now, where the champagne is 0.00001% of your gains, rather than 10% of your gains.

Review: IPO SunVic Chemical

In the recent "Edge", SunVic was hailed as an IPO that would open at $0.60 on day 1 of trading. Thats 100% gain from its IPO of $0.30. But here is why i think China Farm is a better choice over SunVic.

From their prospectus, you can see that from FY03 to FY05, the company's profits has increased at a good rate, backed by increase in revenue. If you based your IPO choice based on that, it might seem as a good choice to put your money at. However, look closer.

For HY05 to HY06, there has been a decrease from $118.7M to $63.3M. From that, my bet is that the FY06 profits will not show a growth over FY05. Infact, there would be a shrink in profit.

"No growth? Move on."

Based on my experience on IPOs, prior growth is extremely important for its share's open price, and of course future price appreciation. For Eg, Sino Env opened at $0.40 (ipo at $0.33), and quickily went to $3.00 in half a year due to its prior growth records and sustained growth after IPO.

vs

Sunshine Holding that had inconsistant growth before IPO, and IPO at $0.3, opened at $0.4, now $0.345.

Thai beverage public co as well.

Its my belief that SunVic Chemical is a good stock to apply for in IPO, but my money goes to China Farm, with the intention to keep the share for 1 year. SunVic Chemical would be a day 1 play for me, if I have even applied for SunVic Chemical's IPO.

Buy: IPO China Farm

As the name suggests, China Farm is a farm equipment supplier to farms, in China. They produce harvesters and plough machines (bye bye bulls hello stock bull), and they produce diesel engines for various uses, including in their own product.

In terms of prospects, there is lots. Looking back that the industrial age in USA, farms are rapidly mechanised to increase efficiency for the population, with a reduced amount of arable land for urban use. Bring it back to present world, we could see the same rapid mechanisation in China. China Farm is well placed to tap into that.

Prospects aside, hows the fundamentals? Since its an IPO, there really isn't much I can look into its quarterly performance. However, the yearly performance has been nothing short of impressive. Revenue, Profits and EPS has more thandoubled for the last 3 years, each year. >50% growth.

"Thats the kind of company that calls for not only a headliner day 1, but a headliner for 2007. "

Risks? What are the chances of the government withdrawing grants for machines to farmers? I think its unthinkable. The government, though Communist, has proved to be an extremely efficient government in economics, and is unlikely to make a decision like this. The farm industry is set to grow.

I will within the next few days sell my shares of Tech Oil & Gas and apply for China Farm's IPO (pick me!). I am 70% certain that shares for China Farm will gain >70% over $0.345, and may reach $1.0 by the end of the year. I based this on nothing.

Joking.

I've been monitoring IPOs for the last few years using my model, and companies that fit my model generally do very well on day 1 and the next year.

I just hope i don't make such an impact on the IPO that i don't get a single lot in China Farm in the ballot. I'll still buy China Farm on day 1, in view of its potential upside of a $1 stock.

Apply! With an interim target of $1.00, pending day 1 open price.
Will inform on blog when I sell Tech Oil & Gas. With graphical prove.

Buy: Hiap Seng

Before I start, here is the prove ("God!").

And so, a little background, Hiap Seng is a company involved in local oil & gas fabrication. With the impending completion of reclaimation projects in Jurong Island, coupled with the $3b investment from Shell on a plant, and seeing the number of plants on Jurong Island double over the next few years, there is room for growth for Hiap Seng, and of course, Hiap Seng's shares. In fact, Technics Oil & Gas is a direct competitor to Hiap Seng.

Analyst reports indicate that Hiap Seng's order books are fully booked for the next 3 years, but they have recently completed a capacity expansion project.

HY2006 Results show an increase in profits attributable to equity holders of 237.9%. The EPS growth is pretty close as well.

Likewise for their FY statements and forcasts, 2007 F looks at a 169% growth in EPS, and supported by increase in sales and profits.

"EPS EPS EPS. It shows the profit growth vs shares in the market. Follows the ancient supply and demand rule"

With the recent sudden surge in interest, it might be a good time to jump into the wagon. And on top of that, with such an upside to Hiap Seng's shares, we are looking at a possible $1 stock right now.

"Sustained interest is important"

The only downside to Hiap Seng's shares? Its listed in the Sesdaq, and my other share that is listed in Sesdaq (Techics Oil & Gas) isn't doing too good.On top fo that, both shares are in the smae industry. I'm also unable to find % shares held by institutional investors.

"Institutional investors are important for the good of the share. They control the number of floating shares as institutional investors don't engage in daily trade"

If Hiap Seng doesn't do well, I'm out of Sesdaq for life.

Buy, with target of $1.00.
Vested $0.785 at 1 Feb 07, 0910hrs

Reply to Critics and kids

For all the critics, here is my portfolio. Note Raffles Education is held in my cash account. This is my margin account. Why don't I show my cash account? I don't see the point in going thru more trouble. I've got nothing to proof to you. I'm the one with 100% gain in 1 mth (used margin for leverage).

For those who are lost on whats going on, visit this link.

http://forum.channelnewsasia.com/viewtopic.php?p=726896

And i thank you all for your interest in my blog. Thanks to my supporters, and of course, the kids.

Reader's Questions

My reader said
"Hey there Pehon,

I really like your blogsite, it's really informative and succinct.I'll continue to read from it regularly!Just hope you can maybe give me some advice on Wilmar.

I bought it at $2.82 earlier this month, and currently it's been hovering at about $2.30 to $2.40 on a daily basis. I've invested x amount in it, and I too agree with you about not averaging down. Iresisted the urge even when the price bottomed out at $2.25 just lastweek.

So, in your opinion, following your trading philosophy, whatwould you do? Hold, sell and invest in other things, or buy somemore?

Another share that I've very recently purchased is MMI Holdings. I think it's got very good upside potential, and there has been alot ofinterest in this stock lately. Currently it's already up 4.7%. I'vealso put in x amount in this.Do you think it is wise to sell off whatever I have in Wilmar to invest in MMI as you have suggested in your example you gave aboutStock A & B in your blog?

Cheers,
Reader"

Well, first of all, thank you for your support for the blog.

For the first question, based on my investment model, i would have sold Wilmar at $2.61 if i were you. That would translate to a -7% to -8% loss. At the price you are talking about of $2.40, its already a -14% loss. Its much easier to swallow a -8% loss compared to -14%.

I'm definitely against averaging down, buying or holding your Wilmar anymore. I'll say sell and buy into other shares.

For your portfolio, I would recommend 2 routes.

1. Sell all of Wilmar and invest into other shares.
2. Sell all of Wilmar, and invest in MMI.

I'm aware that most professional analysis houses recommend MMI. However, i've looked into MMI's 1Q2007 results, and I'm going to voice concerns about its QoQ growth.

"Its a single digit growth. I've resonable doubt to say that its not going to sustain its growth achieved in 2006."

Maybe another counter would be better for your cash.

Ps. Refer to disclaimer below.

Review: China Hong Xing & Sino Env

What a good day it has been with China Hong Xing. Congrats to those who has followed my recommendations, and made 13% in 2 days (at todays intraday high).

Take profit if you are on contra. There might be a small correction for the next few days. I'm staying vested. Looking for more gains for China Hong Xing, which in my opinion, has a huge potential.

Addition (1700H, 31 Jan 2007):

I do not recommend selling before a possible correction. What if it doesn't happen? I recommend investors who intend to stay invested, to stay that way, and not try to outsmart the market by selling today at a high (for both Sino Env and China Hong Xing), and hopefully bargin hunt tomorrow.

I'm talking about people who bought on contra, on my recommendation. Today is a good day to take profits. Don't hold contra gains for too long. (i don't recommend contra by the way).

For those who have missed the boat for both counters (Sino Env and China Hong Xing), it is my opinion that these 2 shares can still grow. But you must be patient and have the holding power. Generally, a large 1 day gain isn't healthy for a short term.

Buy: Ching Hong Xing

China Hong Xing deals with sporting equipment in China. They own two brands, namely China Hong Xing Sporting Equipment and Li Ning. They have recently won a sponsorship contract with the South Koreans for their Olympics campaign.

China Hong Xing's profit growth has been increasing steadily, and at an increasing rate over the last 2 years. Like many of my lost opportunities, China Hong Xing has been in my watchlist for the last year already, and I've seen it grown to its current level from a modest price.

The 3Q 2006 report showed a 3Q QoQ growth of 40% and likewise for the 9 month comparison. This impressive quarter is supported by several quarters in the past 1 1/2 years. They showed similiar increasing profit growth.

"A company with not only profit growth, but increasing growth is the perfect company to invest in."

China Hong Xing's annual growth has also shown growth over the last few years. Infact, China Hong Xing has a even larger room to grow. With an extremely large population, China Hong Xing is well positioned to tap the large consumer base. The projections show a steady increase in retail outlets to tap an increased pie of consumer spending.

Looking forward, to the next few years, with the Olympics in Beijing coming up, there will be more Chinese spending on sporting goods. Who knows, with them sponsoring the Korean team, they might just be the next big thing in sports like the way Nike is.

Buy, with a target of $3.00
Vested at $2.56 on 29 Jan 2007, 1415hrs

Quick Lesson: What the Rich Does, and the Rest Don't (part 2: Gambling?)

One important factor that the rich sets themselves from normal investors, is the way the rich look at investing.

Normal investors have to understand that investing in shares should never be exciting. Define exciting? When you find yourself sitting infront of the live price stream, and find a drop of 2% too much to handle, such that it makes you want to look at the price stream, hoping for more buyers than sellers.

If you are staring at the charts cause of contra trades, you are gambling.

In the past, with me holding shares of companies that have made +30% (and still holding), I no longer feel the thrill of the shares increasing in price. In the search for thrill, I made the mistake of finding excitment by doing contra on large movers. Maybe initially I'm able to make money, but gains were in the range of $100-$500 dollars, but losses were larger due to the large commission charges. In the end, I see my +30% gain in my portfolio become something more like 20% due to contra losses I made.

I can safely bet (and its a calculated gamble here) that 90% of successful investors never do contra. The gains from contra trading is too insignificant for the amount of time staring at the charts, and sleepless nights cause its T+2 already. If you were to hold on to good stocks, chances are 50% PA returns are very easily achievable. Together with compounding returns, you will see your $10,000 become $50,000 in no time. Try doing that in contra trading.

Quick Lesson: What the Rich Does, and the Rest Don't (part 1)

Many people around me always whine about how the rich seem to get richer, and the poor just stays poor. And when I'm talking about poor people, I don't just mean families or individuals that make less than $20,000 a year.

First of all, what makes an individual wealthy? By the car they drive? House? Monthly expenditure? You've got to understand, even if you make $5000 a month, but you squander away all that money within that month on luxury stuff, you might appear wealthy, but in fact you are not. Here is why.

Most wealthy have the ability to put aside a large proportion of their income to investment. Most of us don't. The wealthy have the ability to to that due to their large income. Many of us can't due to our small pay check. And even when we get a raise, we would just increase our monthly expenditure, and that includes our year end bonuses.

"The rich get richer cause they know how to spend their bonus and pay raise, not on material gains, but in investments."

Most of the wealthy people reinvest their investment returns. Most of us don't. Many of my peers make $1000 from their $10,000 shares, and immediately sell and splurge on a holiday or a material gains. They remain that "10,000-dollar-air". You should reinvest to enjoy compounded returns.

"Spending your profits in shares really leave you standing in Square 1"

The fact of the matter is, if you are interested in trading in shares, and you are here reading my blog, really means you have that spare cash (that you really don't need) to invest! So ask yourself, why do you need to spend the cash that you made on your investments?! Isn't it better for you to reinvest those gains, for larger absolute gains next time? Yes I do understand the need to enjoy yourself. My guide is not to use more than 10% of your gain on celebration.

"The fact of the matter is that if you are reading my blog, you probably have the spare cash that you don't ever need to use to invest. So stay vested."

So to answer the question, the ricch have the ability to not only make their capital grow, they know how to make their investment returns grow as well.

Over the next week, I'll be talking about "compounded interests" and several other things that the rich do, but the rest don't.

Sell: UTAC

Lack of interest in UTAC despite good FY. Maybe investors really did read the management review section of the report.

Keep away from UTAC, unless you are a shortie.

Review: Sino-Env

For the last few days, Sino-Env has started a slight descend since its peak of $3.00+. However, I'm not worried yet.

Sino-Env is still a fundamentally strong company, and there is no reason for the price drop (price rise was due to placement of shares). The price drop currently is just a flow of cash out of Sino-Env to other stocks right now that are rallying.

Historically, Sino-Env is "immue" to market corrections, remembering August 06. The chart shows a healthy base during the period where most other shares are struggling.

And boxed up in those three red boxes, show similiar patterns as what we are seeing for the last few days. The share closes at a low point on the chart, and its almost sure to rally the next day. The logic behind this is investors see it as a good point to accumulate.

I'm saying with 70% certainty, Sino-Env will rally latest on Monday, due to possible profit taking seen on Fridays.

Trading Buy: UTAC

UTAC has put in an extremely impressive performance for FY 06. They have achieved a profit growth of 81.9%, and EPS growth of 67.3%.

For Quarter on Quarter (4Q 06 vs 05), there was only a change of 11.7 % for its EPS. For the model i follow, not only am i looking at a good FY result, i'm also looking at QOQ Quarterly results.

Why is it so? Its possible that this profit growth can't be sustained for the next quarter, by virtue of the fact that QOQ growth isn't good. Indeed, if you were to look into what the management thinks, they only expect a growth of -6% to 0% on Q1 07. This makes UTAC not a stock to hold for the long run.

However, it is my belief that the stock is on its way to a rally. The stock should rally for the tomorrow and thru to wednesday. I'll make a high risk call for

Trading BUY, to Queue tomorrow morning, and a conservative sell target of $1.00.

Preview: Why do the rich get richer?

Ever wonder why does the upper echelon of wealthy people always seem to become richer?

What are they doing that lower and middle income people are not?

Find Out This Sunday

Buy: Technics Oil and Gas

As the name suggests, Technics Oil and Gas provides services to the Oil and Gas industry, though they are not directly involved in the drilling process.

Technics Oil and Gas has turn their years of loss to years of profit growth.

Revenue for FY 2006 increased 154% while gross profit for the years was up 361%. The company has stated that the good resut was cause of technics oil and gas's expansion programme reaping benefits.

Net margin in 2006 improved to 13.1% from 7.2%, due to economies of scale.

"Technics oil and gas has shown that they are able to keep cost down with expansion."

Technics Oil and Gas's liability to equity has remained significantly unchanged over the years.

"Expansion seemed to be well executed and well planned. Liability to equity seemed to be healthy."

YoY EPS has improved from 2005's 1.54 to 6.24. And another interesting characteristic of this company is the extremely small number of issued shares. Only 142,000,000 shares are issued, with 76.74% of that held by the top 20 shareholders. I estimate less than 25,000,000 shares are floating on the daily market.

"With less shares in the market, it doesn't take a big or important announcement to create a large price change."

However, there is much doubt to whether the earning (and eps) will continue to grow, or will 2007 show a eps and profit unchanged from 2006. The company only releases their reports 2 times a year. Therein lies the risk for this company. If 1H2007's results don't show any significant earning growth (i'm talking about 30% or more), than get out of this company, provided the 7-8% cut loss mark has not been met first.

"Always cut loss at -7to8%. This way, you can be right once, wrong twice, and still be profitable"

However, approaching the 1H 2007 announcement, watch out for any contracts that Technics Oil and Gas wins. This will give us an idea on how 2007 will be.

Buy Technics Oil and Gas, Target of $1.10
Vested at $0.88, 23 Jan 07 1700H

Quick Lesson: Should I Buy and Hold?

Most financial advisors will advising against contra trading or trading for the short term. They say that one should buy a fundamentally sound company and hold on to it, through thick and thin. However, I'll like to show you the other side of the coin.

The problem with buying and holding is that you might not maximise your returns. Lets say you buy a stock for $1.00. 2 months later, it rises to $1.50. However, a market wide correction occurs or even worse, a economy downturn causes the share to drop to $0.50.

Most of the time when this happens, most daily traders would have cashed in on their loss (if they were late in withdrawing), or made a profit less than what they could have made (if they saw the trend earlier). Institutional investors will stay in it, so long as the company fundamental has not change. If you believed those financial advisors, you would have stayed and suffered a paper loss of 50%. From there, do you realise you need a 100% gain to get back to your break even point?

"A 50% paper loss would require a 100% gain to reach breakeven point"

The difference with institutional investors and small time investors like you and me is the volume of assets we have in Equities. Most of us only have $100,000 or less in the market. The institutional investors have whats more like $100,000,000. They have the ability to move the market single handedly to their advantage. Could you do that? Thats their advantage.

The advantage investors like you and me is the ability to cash in on profits before an impending correction or downturn.

Use the advantage that you as a investor have. You are more agile than large institutional invstors. You can move from trend to trend quickly, mostly within an hour. They can't do that. When you "fight", you fight using the advantages you have. Its the same here in the stock market.

You have the upper hand in withdrawing from a downturning market. Use it.

Review: Sunpower

FUNKY Said

"How about Sunpower....it has been tout as a medium risk high return stock (WILD CARD)...Care to analyse or review....Thanks..... "

If you haven't noticed, the way I analyse stocks defies the norm. The basic reason is I don't use P/E ratios, and stocks i invest in need to have earning growths.

I don't know why sunpower has been touted as "high return". My reason being this.

It seems to me that sunpower is having problems controlling their expenditure. Sunpower have had an excellent revenue growth over 2004, but because of all the incurred cost of increasing the revenue, Sunpower's profit for 2005 has dropped vs 2004.

This is just the kind of company I'll keep away from.

"Earning increase, thats what I look out for"

Otherwise its just like gambling.

Review: Sino-Env

Several people has asked me. "Sell"?

Here is what I will say. "NO"

Just in from the news, they are going to announce FY2006 performance on 28 Feb 2006. In my opinion, its going to be an extremely good result. Does that change your mind?

I'm looking at a 12% profit from my buy price. However, when we are into stocks, we are looking at big profits, when we finally identify a company like Sino-Env. My current sell target is $3.40, but when we reach that price, I'll be evaluating the performance of the company, whether they still have the EPS >25% quarterly growth. If they are, I will re-evaluate the profit target, and of course the loss point (-7% from $3.40).

"The point in shares is to make big profits, when you are right. Invest in Aberdeen Pac Equities Unit Trust if you are looking at 15-20% PA"

Quick Lesson: Share Placement, the aftermath

When I first started studying the stock market, it was my understanding that the more the issued shares, the more diluted the supply and demand effect will be. When my company, Raffles Education announced a 30,000,000 share placement, i was worried. I thought it would dilute the market. Whats more, the EPS will be much lower. EPS is really what i work with. What i really wanted was a share buyback, to undilute the market.

But I was pleasantly surprised.

The stock increased over 2 days to $1.890. The same thing happened to Sino-Env, though the rise wasn't that significant, due to a previous rise prior to the announcement. So doesn't it defy the economics law of supply and demand?

Well, if you were to learn about placement, its not avaliable for people like you or me (unless you fish it out from your broker or other sources). Most won't issue this discounted placements to the public, for the obvious fact that its discounted. Daily traders would apply for the placements and for sure, immediately sell for quick profit.

The placements are usually given to investment companies or board directors who have a long term out look about the company. Hence it doesn't affect the "free floating" shares out there. The number of floating shares for daily trading remains virtually unchange as the new placements remain unreachable to the common market.

"The Free Floating shares avaliable to you and me remains unchanged after a placement"

What causes the price rise is probably the expected increase in earnings from a company that re-invests the income from the placement. Hence the subsequent price rise.

Request: China Energy

Extremely impressive performance since IPO. Offered at $0.83 a share, and currently trading at $1.210.

I did look at this IPO initially, but I decided against applying for it. Yes, you might say I've just missed the boat, and i'm stupid. But in my experience and analysis, it could have gone both ways. Here is why.
A look at the prospectus. Skip all the tall stories. Jump straight to the financial statement. China Energy had problem keeping profitable since 2003. On top of that, given the sudden jump in 2005 and impressive 1H earnings that exceeded all of the last 3 years combined, I would have given some time for the company to prove itself.

What were the problems China Energy any had when they were losing money? Why the sudden rise?

"I'll only invest in companies with 3 years of proven earnings growth"

A quick look at IPOs last year that had the above condition. Sino-Env. China Fishery. Really. Just take a quick look. Look at their prospectus (financial statement part). Look at where they started trading. Look at where they are now. Will China Energy perform as well as these shares? I don't think so.

Current price hike is caused by too forward looking expectations. It will be very badly hit when the correction comes.

Maybe i'll consider China Energy after its FY2006 report.

Requests: Various Companies

A-Sonic

No offence, but i took a look at the 2005 annual statement, and i closed it immediately. There is no significant profit growth, and the EPS remained virtually unchanged. The industry has been growing alot but A-Sonic doesn't seem to be able to capitalise in it. This is the kind of company to keep away from. On top of that, being a penny stock, it is extremely volatile, and subject to alot of punters' torture.

China Sun

The annual report looks really good. However, stock prices has been on a downward motion. I was unable to access its quarterly report. Website was down. I'll really take a good look at it when I can.

Quick Lesson: Contra vs Cash

There has been some people writing to me, telling me they have lost big money on contra.

Just like to send out a note to all readers that all my recommendations are not contra recommendations, but recommendations for the short (not contra short) to medium term.

And I've never had luck with contra. Everytime I do that, i see the price drop, and I'll do whats known as a "panic sell", and most of the time I'll see it rise above my buy price.

Buying contra is really like going to Genting (Highland), for a double or half (double cause most contra on more than their capital, hence 100% gain).

I won't recommend going contra. Its very vulnerable to daily market flauctuations.

Review: Sino-Env

Sino-Env's stocks tested the $3.00 mark today. Reached a $3.08 high today. Doesn't the following statement sound familiar to some of you.

"Sino-Env at $2.58, thats too expensive!"

I understand. Thats the kind of response i get when i tell my friends about this stock. Many will rather buy shares that are less than $0.50, as a small price rise translate into a large % gain. However, many of them buy these shares without due research.

"Don't expect quick gains, without adequate work done."

I'm not saying stay from shares that don't cost much. As long as a company is showing good growth, it should be a safe bet, even if its only $0.01. In fact, if u can find a company that is $0.01 and shows 30% QoQ growth, i would say its the perfect share to buy.

I'll re-emphasise that no stock is too expensive, as long as they show a proven profit growth for the last 2 years, most of the quarters.

"No stock is too expensive as long as they have a proven profit growth for the last 2 years, for most of the quarters 30%rise QoQ."

Don't make the same mistake again, when picking stocks.

Review: Osim

As requested by one of the readers, here is my take on Osim.

Look at this report.

2005 Annual Report


It looks really good. Turnover, profits and EPS has increased at an impressive rate. The company has been coming up with new products, and Singaporeans will know they are one of the most actively marketed companies here in our island.

However, look between the line.

3rd Quarter Report

Doesn't look that good anymore. 3rd Quarter profits has become negative. 9 month profit has also become negative. Needless to say, the EPS has dropped from 2005.

There are 2 reasons i can think of that gave Osim good results in 2005. First, there might be a one off gain by offloading some of it assets. Secondly, there has been an unsustainable growth in sales, which i can't really confirmed cause i don't think this stock is worth looking at.

Give I might have vested into this stock if i had saw the 2005 report, provided the profit growth was not from an one off gain. However, you should be glad if you did not invest in Osim then.

"One off gains should be taken out of a company's profits, and EPS when analysing."

Based on my investing model, I advise against investing in Osim. There isn't sustainable earning growths, yet. Until next time, there are other stocks to look at.

Quick Lesson: P/E Ratio vs EPS Growth

Yesterday I recieved an E-Mail from a reader, asking me to review a particular company, whose P/E Ration is extremely low, but growth is almost not consistant.

I'm aware that most professional research companies use P/E Ratios to pick out undervalued stocks. I find it amazing how these reports put so much emphasis on P/E ratio, cause I find a consistantly growing EPS more important than a low P/E ratio.

"EPS growth is more important than P/E Ratio. I say that through experience and research."

The idea of comparing 2 competitor's P/E to decide which stock is undevalued is wrong. Lets take stock A and B. Stock A has a P/E ratio of 5x while B has 30x. Stock A has reported flat annual earnings, while B reported growing profits of 30% annually (and of course 30% EPS growth).

Before you buy Stock A, you should ask yourself this question. "Why is there such a big difference in P/E ratio?". Well, P/E ratios are really affected by market anticipation of a company's potential. There really isn't any anticipation for a good future for Stock A, due to the company being unable to grow earnings. There is no reason to expect increase in earnings.

However, Stock B has been growing. In theory, a 30% profit growth should translate to a 30% increase in share prices, all things being equal. Most investors will invest in this company as they anticipate higher earnings.

"Which stock will you invest your hard earned money?

How many of you thought that singtel was expensive at $3.00 now $3.40, and shyed away from investing in it. Capitaland when it was $5.00 now $6.00 SGX when it was $5.00 now $6.00. High P/E ratios. don't invest. Google was $400, now $500. Well you missed more than 20-30% of profits. These companies have a few things in common. High P/E rations, and more than 20% EPS growth.

"Anticipation for profit growth (EPS growth) is an important market force, able to push P/E ratios up. But a high P/E doesn't make a stock unattractive"

Given the rare chances of a low P/E ratio stock surging thru a 1 day frenzy, you're better off putting your hard earned money in a company that can almost guarantee growth thru their operations, using the above companies as prove of the importance of EPS growth.

"Investing in a low P/E company with no EPS growth is like gambling."

Next time when you recieve a research report, claiming stock growth due to low P/E, maybe you should look between the lines, in the financial statement. Look for EPS growth, not the P/E ratio. Or you should just check if those research companies have vested interested in low P/E companies. Maybe thats the reason why they upgraded that company.

The real ideal investment would be in a company with low P/E ratio, and high EPS growth. These stocks are putting in great profit growths, but have not been discovered. But chances are, you will never see this.

Review: Genting International

Many would have made thousands of dollars over the last 1 month buying Genting when it was $0.50 cents and now, its challenging the $1.00 mark. In fact, today it broke above the $1.00 mark again, though you got to take note it reached $1.10+ for what felt like 1 minute, 2 weeks ago.

Even I've joined in the speculation at $0.56, on its initial advance, and sold my shares at $0.79, worrying over the impending correction, which only happened after $1.10. And with me thinking it'll correct to $0.80--, I was only proved wrong when it went back up to $1.00 today.

So what do i think about this stock? Well, in my opinion, its a $2.00 stock, after 1 year of IR operation. Why? I invest on the belief that the only "pillars" holding shares at their prices are positive profit growth. Last year, Genting made a loss. There isn't really much growth in this company over the years anyway. Whats holding it at $1.00 is the excitement, and anticipation.

"Only buy shares that have good growth for the last few years. Anything else, its just speculation, otherwise known as gambling."

There isn't going to any profits for the next 3 years. In fact, the company's liability is going to increase to $3 billion dollars. Will the current share holders stay in this company for another 4 years to allow it to grow to $2.00. I don't think so, no matter how Genting is known to take care of her shareholders.

With far better shares out there supported by good financial results, I'll give Genting a miss, based on the fact that there isn't going to be any increase in operations for the next few years, my money goes to other stocks.

Quick Lesson - "Free Floating" Shares

When you start off with trading stocks, you got to understand that the market, is simply put, a large scale demand and supply mechanism. When there is demand, and little supply, large price fluctuation occurs!

Raffles Education has to date issued 516,000,000++ shares.

http://www.listedcompany.com/ir/raffleseducation/web/show.cgi?content=shareholdings&integrate=1

Look at the amount of shares that are held by the top 20 share holders. A whooping 94.25%. It is safe to say that these people won't buy and sell their holdings on a day to day basis. So only 5.75% of all shares are actually being traded daily.

Food Empire, to date issued 389,000,000 shares.

http://www.foodempire.com/investor1.htm

But only 77.96% are held by the top 20 share holders.

Just by simply looking at that, you can conclude which company has more shares that are 'free floating' in the market.

And with the theory of Supply and Demand, with less supply, a slight increase in demand, will cause a larger increase in price equilibrium!

Quick Lesson - When to take profit

I remember for one of my trade, UTAC, before the mid 2006 correction, it was priced at $1.10, and i bought it at $0.80 cents. Thats a 27% rise. It has already hit my target at $1.00. Being greedy, i didn't want to sell it.

Over the next few weeks, I saw the price fall back to $1.00. I didn't want to see my 27% profits turn into something smaller. Than in no time, it was back to $0.80, and finally below my buy point. I was stupid into thinking I wanted to keep it for a long term. It never moved for the next 6 months, and still isn't. Luckily i sold it at $0.79. Why would i said lucky? Well, i guess i've placed the money somewhere else, and I've profit much more from it!

Anyway, what the lesson to be learnt from here. Although you might have chosen a good stock, its a good reason to think you can keep it for 5 years and expect the stock to rise with its actual quarterly profits. The market might be shrinking in the total money supply. Investors might just not be interested in the stock.

Through my experience of seeing unrealized profits become realized losses, I've learnt some important lessons.

1. Set a target price. Usually, for good companies, a 30-40% price appreciation would be a good price target.

2. When the stock price reach the target, you can re-evaluate the situation, and consider setting another target, for selling.

3. Never let your profits fall below 7% of its current high. You may want to look at my Food Empire buy and sell. (For eg. you bought a share for $0.7 and it rises to $1. Once the price drops to $0.93, sell.)

4. If your stock rises past your target in less than 8 weeks, keep it for the whole 8 weeks, provided the previous conditions have not been met.

Thats the basic rules for you to follow. If you follow that rule, you will never see your profits fall to a loss, like I did. So what if you sold too early (ie the stock continued its ascend after that), don't worry about. You now have 30-40% more to spend on your next great stock.

Tune in next time. I'll talk about tell tales sign to take profits, from the charts.