I once came across the idea that passion is nothing without discipline. Lately, that has felt uncomfortably true. Over the past six months, I have lost the discipline to write publicly.

Still, even as I stepped away from writing for a while, I never lost the passion behind it. If anything, that passion simply found another outlet — in the constant refining, questioning, and reworking of my investment process. It has been messy, uneven, and at times frustrating, but slowly, it is beginning to take shape.

Like many investors, I have found myself drawn to AI as part of that process. It no longer feels optional; it feels like a natural next step. Beyond experimenting with a wide range of AI tools to deepen my research on the companies I follow, I have also been working with Claude to simplify my workflow. The goal is not simply to move faster, but to think more clearly, research more effectively, and cover a broader universe of companies without sacrificing depth.

Looking at my YTD returns, however, I suppose AI is of limited use when a new war front opens and oil starts hovering around USD 100. After trailing the HSI for most of the first three months of the year, I have finally managed to outperform it — though only by losing less.

As usual, I expect to hold up better than the index in falling markets than in rising ones. Even so, it is still irritating to be down when I could have locked in gains nearer the top. If only I had not conveniently missed the construction boom in Singapore, the data centre names, and the rise in precious metals, my year-to-date performance would have looked far better.

That is the problem with being detached from the market: you miss all the froth and excitement. Then again, there is always something happening, always another pocket of opportunity forming. I suppose the only thing to do now is to go looking for the next one.

This was how I performed last year. I believe I took this screenshot sometime in November 2025, though the final return for the year ended up being fairly close to it.

Could I have generated higher returns by being more aggressive?

Probably. But that was never really the goal. What I wanted was a portfolio that could deliver decent outperformance while maintaining diversified exposure across asset classes, industries, and countries. I ended 2025 with 15% in cash, which felt appropriate given the opportunity set available, and I have carried roughly the same cash position into 2026.

Judging from the chart above, it is clear that I have been spending more time building familiarity with basic materials, consumer non-cyclicals, education, technology, utilities, and energy. I have also started working on ideas from Australia, Europe, the UK, and Japan.

In a small but deliberate way, I am trying to expand my circle of competence across asset classes, industries, and geographies. The number of stocks I have held and traded has also increased, and I would largely attribute that to AI.

AI seems to have given me greater perceived confidence in getting up to speed on new industries and companies more quickly. Its integration into my investment process has also allowed me to handle a larger volume of ideas. My hope is that this increased velocity of ideas will eventually translate into better decisions and, in turn, improve capital rotation at the bottom end of the portfolio. I am not going to say much about these individual trades at the bottom end of the portfolio, since those are usually rounding errors in the bigger picture.

Patience and Discipline

There has been only one change in my top five positions. I reduced my stake in Sprott Physical Uranium Trust (U.UN), which allowed Thakral (AWI.SI) to move into the list. In truth, Thakral was probably my largest holding for most of 2025, since I usually have SEAblings1 positions in my local accounts.

I have gotten most of my Thakral allocation on the 23rd May 2025 (Friday). That was the day where I mop2 up all the available shares that was available for purchase in the morning till the market took a break for the afternoon.

Looking back, I probably should have kept going in the afternoon. I had a clear informational advantage:

I read The Australian every day, first thing in the morning.

After years of that routine, it finally paid off. In 2025 alone, I came across two genuine informational arbitrage opportunities. Sometimes, you keep doing the same thing day after day, wondering whether it will ever amount to anything — until one two day it does, and in a meaningful way.

So keep reading whatever you can get your hands on. As an investor friend once said to me, “Out of the 365 days in a year, one of them will be your birthday. Just make sure it counts.”

I made sure mine counted in 2025. Now I am looking forward to my next birthday in the stock market in 2026.

Subscribe now

One particularly interesting stock-picking concept I picked up from them was strikingly simple: track Eyeballs and Buying Interest.

Low Eyeball Low Buying Interest: the neglected child

As value investors, we often get a thrill1 from uncovering stocks with low eyeballs and little buying interest. These are the classic “unknown and undervalued” plays—companies overlooked by the market, with limited demand and/or supply. Because they’re under the radar, liquidity tends to be thin. And while some may indeed be hidden gems waiting to be discovered, there’s always the risk that they’re simply neglected names—and could remain neglected for a very long time2.

Low Eyeball High Buying Interest: the high potential kid

These are the kinds of companies often circulating on financial blogs—well-known names among investors who see themselves as more “professional.” Everyone believes the stock is undervalued, and everyone wants a piece of it. But with buying interest already strong, chances are it’s not truly undervalued—it’s simply under-followed. The real question is: when will the story break into the mainstream? Once someone influential highlights the stock, fresh eyeballs flood in, often driving the price into a parabolic rise. That’s when it transforms into…

High Eyeball High Buying Interest: the popular kid

These are the companies you hear aunties, uncles, and friends chatting about—the household names everyone already knows and that are typically fully valued. Their stock prices rise and fall in lockstep with the broader market, simply because they are the market. Which brings us to…

High Eyeball Low Buying Interest: once popular kid

This is perhaps the most interesting segment. These are the companies that aunties, uncles, and friends used to talk about, but no longer do. Once seen as cool and exciting, they’ve since fallen out of favour—so much so that many investors don’t even want to see them in their portfolios. The stock still has high visibility, since everyone knows it, but buying interest has all but disappeared. Any serious attempt to accumulate shares is usually met with an equal wave of selling pressure.

Once Popular Kid - Once upon a time in Stock Connect

On other stock exchanges, you occasionally see a once-popular stock dropped from an index. The price reaction is usually swift, adjusting quickly to the new demand-and-supply dynamics.

In Hong Kong, however, the story plays out differently. Removal from the Stock Connect doesn’t just change liquidity—it cuts off mainland investors entirely. They can no longer buy, only sell. And since most are retail investors, the company drifts to the back of their minds. When opportunities to sell arise, many make them simply to ease the pain. This is the hallmark of the Once Popular Kid—and the story of one such fallen favourite.

YUHUA EDUCATION HKG:6169 - One such Once popular kid

With potential policy shifts on the horizon, the education sector appears ready to emerge from its doldrums. After scanning the landscape, I narrowed my focus to a few select education names.

I first wrote about Yuhua Education on Substack on May 8, 2025. For a full breakdown of Yuhua’s convertible bond saga, please refer to the footnote3.

China YuHua Education Corporation Limited, together with its subsidiaries, provides education services in the People’s Republic of China and Thailand. It is involved in the provision of private formal education from high school to university education services. The company also operates higher vocational colleges. In addition, it is involved in the property management business; and provision of research projects and training programs services. The company was founded in 2001 and is headquartered in Zhengzhou, the People’s Republic of China.

-tikr

I prefer Yuhua over other dividend-paying education companies because:

• Its universities generally enjoy a solid reputation.

• The balance sheet is now the cleanest in the sector following the bond default saga.

• The company has strictly complied with government policy by not drawing cash from its schools—hence, no dividends.

At the AGM, I picked up a few additional insights:

• The company has already laid out plans for the eventual conversion.

• However, the exact timeline for this conversion remains uncertain.

I left with a measure of confidence that, given time, the pieces will fall into place. On top of that, I learned they’ve already registered a name for the Changsha school—a small but reassuring sign of progress.

Last Friday (12 September), news surfaced on social media that Hunan had approved Yuhua’s application for conversion as of 30 July 2025.

The price then rallied from 50 to 74 cents.

But there are still much uncertainties.

I’m still betting that Yuhua will pull through on their conversion.

I’ve been accumulating shares since 6 May 2025, with an average entry price of HKD 0.425.

Leave a comment

Do your own research and I may buy and sell the above-mentioned stocks at any time.

These are the few core holdings which sat right at the top of my portfolio holdings and has not moved for a while.

*Average price shown on my IB screen is wrong. Most of the stocks above have been transferred in from another broker and IB has shown the price on the date that the stock has been transferred in. For the more correct average price, please refer to the articles.

CCID Consulting Company Limited (2176.HK)

2176.HK which was profiled on 2025 Week 5 - SOE continued to execute on many level. As the Chinese government designated consulting firm, 2176.HK could do no wrong for now.

My guess is that the growth in the second half will accelerate but in his latest post think otherwise. While I have gotten more comfortable in the company, I am not sure of the expectation baked into the share price.

I have been selling since Week 26.

If you are keen to read about my initial thought process on 2176.HK, then click the article below.

Essex Bio-Technology Ltd (1061.HK)

1061.HK was first mentioned on 10th April 2023. It has been > 2 years. Their main drugs Basic fibroblast growth factor (bFGF) continues to have patent protection till 2030. The approval of new drugs like HANBEITAI (bevacizumab injection) should drive the next phase of growth. The rest of the drugs in the pipeline like SKQ-1 are just options for future growth.

Two years ago, I bought it as a value stock to ride the Covid recovery and two years later I am holding it because growth seems more certain now. I try to be patient when growth comes about.

If you are keen to read about my initial thought process on 1061.HK, click the article below.

Fairfax India Holdings Corp (FIH)

FIH is an even longer hold for than 1061.HK. I first wrote about the company on 18th Sep 2020. It has been 5 years! FIH thesis rest on 3 assumptions.

1. management of Fairfax being competent,

2. management being equitable,

3. and the growth of India.

In that article, I wrote that I intend to hold this position for the long term (5 - 10 years). I am half way there now. Maybe teleportation will become remotely real before I even considering selling the company.

If you are keen to read about my initial thought process on FIH, click the article below.

Sprott Physical Uranium Trust (U.UN)

U.UN is not even known as Sprott Physical Uranium Trust when I first bought it. I first wrote about the company on 23rd October 2020. The continued bet has to be that Uranium will spike one day in the future? I am still looking forward to that day.

This continues to be in my portfolio as a hedge as well as an option.

If you are keen to read about my initial thought process on U.UN, click the article below.

Lever Style Corp (1346.HK)

1346.HK was introduced as a portfolio holding on the 20th February 2025. Every conference call involve analysts asking the most basic questions to understand their business model. This fundamental lack of understanding of the business have created a perpetual discount on this disruptive company to their industry. I believe the analysts and investors are getting their head wrapped around their business model.

This is my disruptive play on a traditional industry and it looks like it will be in the portfolio for quite a bit of time.

If you are keen to read about my initial thought process on 1346.HK, click the article below.

This also marked my 5 years on writing on Substack. What started as a thing to kill time during the pandemic has become a personal struggle. Struggling to keep creating-writing and the getting the habit going.

The best thing that has happened to me since writing on Substack is to know Chan Teik from nextinsight.net and got introduced to his investor-badminton friends. They are such a lovable bunch that I am constantly reminding myself that I need to make an effort to maintain-improve this precious friendships brought along by Covid.

The exhilaration felt on the ups and the excruciating pain felt on the downs in the market is something every investor needs to deal with. As an investor, there is a need for an independence of mind which meant that you operate alone most of the time.

For once this solitary journey does not feel as lonely.

Leave a comment

LAKSA PORTFOLIO: PERFORMANCE GRADE - AMAZING!

HP and I decided to host the next round of contest (Jan - Mar 2025) with the reward of going to an even more atas2 restaurant. This time, the stock pick is supposed to consist of 1-3 stock with the highest weighted returns by the end March 2025.

-2025 Week 8 - Expectations and Performance

1. As expected3, the US market retreated and HIMS gave up most of its gains for the quarter. But the best performing stock for this quarter remains a stock called Root Inc $ROOT. It is undeniable that US continue to be the most dynamic stock picking ground for enterprising investors.

2. Newborn Town $HKG:9911, The growth of the stock is due to the revenue and profit growth they are experiencing in Middle East. At current price of HKD 5.98, I would still deemed it to be pretty cheap in relative to its growth prospect.

3. XPeng $HKD:9868, Gained handsomely on their new car and humanoid endeavours? This is a story which I did not follow intimately. My guess is that the humanoid narrative would have legs to run on for a very long time. George Soros famously said ‘When I See a Bubble Forming, I Rush in to Buy’. Maybe this qualifies as that type of stock.

A handful of stocks also have performance coming in between 23% - 55%, like Alibaba $HKG:9988, Nam Cheong $1MZ.SI, CCID $HKG:2176, LeverStyle $HKG:1346 and Dynamic Holdings $HKG:0029.

It has been a stellar 3 months for Hong Kong stock.

We are on the midst of organising another round of contest. If I am lucky and the organiser allow me to write a post on it, you may just have the chance to have a peek at our stock picks for the next quarter.

INTERACTIVE BROKER (IB) PORTFOLIO PERFORMANCE GRADE - BAAA BAAA

It has been a crazy few weeks for my portfolio. After grinding4 very hard in HK for the past 2.5 years to just maintain in positive territory, it is nice to see my portfolio catching some wind and doing much better without the grind. This IB portfolio consist of all my stock picks except for companies that is listed in ASEAN5.

When I turn full time, my aim is to have a decently high annual returns like 24% per year. But after being humbled by the HK market for the past 3 years, I am happy6 with any positive returns. I guess I am very sheep7 like now.

This return is achieved on the back of 25% cash holding. If I had swing harder, I may have achieved higher returns but I named this Weighted for a reason. I want to weigh each and every position in relation to its risk reward, its path of getting there and probability that come associated with it.

This reminds me of the quote where Stan Druckenmiller said that he learned from Soros that position sizing was 70 to 80% of the game.

It’s not whether you’re right or wrong, it’s how much you make when you’re right and how much you lose when you’re wrong,”

- Stan Druckenmiller.

Portfolio construction is something I had struggled for the past 5 years and I think I am closer to a mathematical way of constructing a portfolio which best suit my temperament.

One reader asked to know the makeup of my portfolio.

I used to provide a summary for my readers but it is just too much work8 and restrictive to my thought process. I want to have the freedom to chase any stock I want without any need to spend a few hours writing about it9. That meant that I will only write when the thesis is in its infancy or is in the midst of playing out.

• every short post is just a fleeting thought with a possibility of following up or not…

• any long post meant that I owned the stock

If I write it twice, then this must be a significant position which leads me to a stock that I am going to talk about next.

ESSEX BIOTECH HKG:1061: PERFORMANCE GRADE - CROAK CROAK

I talked about my position in Essex on 14th April 2023 followed by more thoughts on it on 19th May 2023 and YES so this is a significant position in my portfolio.

It has been almost exactly 2 years and I have not followed up with another article. The reason is that there is really not much to update except that the business is progressing along while experiencing various shocks to the system.

For those who knows the China pharmaceutical industry intimately, there is indeed lots of changes on the ground in 2024. Minus the usual talk of central procurement10, the business environment has gotten more challenging. Hospitals are struggling to pay their bills as local government run out of cash. Doctors have been hauled up for questioning for suspicion of corruption. Any doctors who are “clean” are unwilling to prescribe any medicine that is beyond the “standard of care”. Instead doctors only prescribe what is way within the standard of care which usually meant under-prescription of various drugs. No wonder patients are complaining that the drugs are not working11.

But at the same time, the thesis for Essex has never changed. Their current drug patent will end in 2030 which meant that I can underwrite their current profitable business for another 5 years. Their potential ground breaking new drugs12 are simply not priced into its stock price.

Since 14th April 2023 (HKD 3.74) the stock price has progressively gone down with the broader HK market till HKD 2.14. I averaged down till HKD 2.20.

At every point of the journey, I questioned my thesis and my sanity.

Then suddenly everything changed. The market decide to price in the possibility of the new drug and the stock is up 56%13 in the past 5 days.

For now, Essex is still a Croak Croak…

A frog waiting to be turned into a prince.

Leave a comment

Recently, I have managed to transfer most of my HK portfolio to Interactive Brokers and that means that for the first time, I can present you some form of “audited” returns for my stock portfolio returns.

With a late rally in 2024, my HK dominated portfolio managed to eek out a small return for the year. Going forward, I guess I will just do a regular cut and paste of this chart to be accountable to myself and whoever who is reading out there.

Our Stock Picks Performance > Our Expectation:

Previously, I talked about how CT from NextInsight asked 11 private Singaporean investors (including me) to share their stock picks for 2024. The goal in mind is to select stocks that will finish the year 2024 with the highest percentage returns. The top 2 winners got invited to an atas1 meal.

We had so much fun that HP and I decided to host the next round of contest (Jan - Mar 2025) with the reward of going to an even more atas restaurant. This time, the stock pick is supposed to consist of 1-3 stock with the highest weighted returns by the end March 2025.

The list of stocks and their performance till 19th February are as below.

Those that are highlighted in bright green are > 10% and those that are highlighted in turquoise are > 20%.

It has been a really good year for most investors. It is not even the end of February and some of us are really hitting the ball out of the park with 28% - 79% weighted returns!

While everyone is celebrating the revival of the Chinese technology stocks like Alibaba, the real returns are still in the US stock market. If you have bought HIMS in September 2024 you would have been up a cool 238.93% in less than 6 months!

I am pretty sure that there is some form of bubble in the US stock market but I have been wrong for almost 2 years now. Maybe the bubble only exists in my mind.

Due to some personal circumstances, my portfolio pick came in late and only consist of only 1 stock which happens to be…

Lever Style Corporation which I covered on 2024 Week 45.

Lever Style - Operation Performance > Stock Price Expectation:

Lever Style Corporation, an investment holding company, engages in the design, production, and trading of garments. Its products include seamless-bonded, activewear, performance wear and outwear, sweaters, denim, bottoms, soft wovens, shirts, cut-and-sewn knit, fashion outwear, leather, and tailoring products for men, women, and kids. The company operates in Mainland China, Hong Kong, Macau, Taiwan, the United States, Europe, Oceania, and internationally. Lever Style Corporation was founded in 1956 and is based in Kwun Tong, Hong Kong.

-Tikr.com

I happened to learn about Lever Style when I visited HK with Swen Lorenz - Undervalued Shares and - last April 2024. The takeaway seems to be that most people are not comfortable with its business model.

Stanley Szeto, Chairman of Lever Style like to say that they are the Uber2 of apparels manufacturing. But any mention of any businesses describing themselves as any “innovative” business model usually comes with a large warning signs3.

If we are to understand Lever Style’s market positioning, I believe that Lever Style’s business model is the riding of the trend of “fast” fashion.

Unlike Li & Fung, who ride the trend of low cost textile manufacturing (low mix high volume) in China, Lever Style is riding the trend of fast fashion (high mix low volume). It means that fashion brands need to be much in tune with their supply chains - which meant dealing with lots of small orders and through many small factories.

This also mean that fashion brands either

1. beef up their design, purchasing and operation department to deal with multiple factories working on multiple designs with ever shortening timeline

2. work with someone like Lever Style to navigate these challenges

Coupled with the threat of a Trump’s tariff on almost every country in the world, wouldn’t most fashion brands take up Lever Style’s services than create a department who may or may not navigate the complexities of dealing with multiple factories, multiple designs, multiple tariffs while mulling how to get a quicker design and production period?

Lever Style announced their 2024 2Q results on 5th August 2024 with a drop in revenue and net profit for FY2024 due to some bad debt provision. I got into a conference call with the management and managed to clear most of my concerns in regards to their business and their bad debt situation.

The management started buying at HKD 0.78 and I also joined in the party and have continued to average up since.

On 15th January 2025, Lever Style issued a profit alert sending the share price significantly higher than before.

The latest profit alert highlights the attractiveness of Lever Style’s business model.

Lever Style high mix low volume business model is the trend forward and it has allowed them to win new customers and grow organically with their existing customers.

With Trump screaming “Tariffs!”, I expect the trend for brands to continue building redundancies and resilience into their supply chain.

Lever Style is going to be more needed than before.

I have been buying since 25th September 2024 and the average price paid is HKD 0.92.

Leave a comment

Do your own research and I may buy and sell the above-mentioned stocks at any time.

This cumulated into a series of article.

• 6th October 2024 - The bull looks strong. Here are 28 stock picks of 11 private investors

• 2nd December 2024 - 28 Stock Picks of Private Investors: 3 Skyrocket with 87%, 34%, and 31% Gains

• 1st January 2024 - 28 Stocks, 11 Investors: Massive Gains for Who at Year-End Finish Line?

Among these stock pick there is one company which 8 out of the 11 investors (including me) owns. Most of us believe that it should be another solid performer for us for 2025.

The bad new is that the stock has gone from HKD0.57 to end 2024 at HKD0.97.

The good news is that the company’s story remained untold and stock price cheap despite the rise in valuation.

If you have been patient to cross-reference the information provided till thus far, you will know that the company I am talking about is…

CCID Consulting Company Limited (2176.HK)

CCID Consulting Company Limited, together with its subsidiaries, provides consulting services in the People’s Republic of China. The company operates through three segments: Decision-Making Consulting Services, Data Platform Services, and Science and Technology Innovation Platform Services. The Decision-Making Consulting Services segment provides specific decision-making consulting services, such as regional strategy, park consulting, industrial planning, executive research and feasibility study, investment and financing, and digitalization transformation. The Data Platform Services segment offers industry data and digital technology-driven data analytics and decision-making services. The Science and Technology Innovation Platform Services segment provides comprehensive services, including science and technology innovation center operation, and brand conferences and exhibitions. CCID Consulting Company Limited was founded in 2000 and is based in Beijing, the People’s Republic of China.

- Tikr

Synopsis:

2176, unlike other SOE listed on the HKSE is owned by the China's Ministry of Industry and Information Technology. Being a leading consulting firm with proprietary data in China meant that they could be the Gartner of China.

2176 should report a double digit increase in earnings with earnings to at least RMB 80 - 90m. With a market cap of HKD 693m, the PE is around 7x - 8x. With the emphasis on shareholder returns by the Chinese government, I will expect that most of earnings to be distributed as dividends which meant that the conservative final dividend yield should be around 10% on current share price. Strong growth in revenue and net profit coupled with a ROE of > 20% meant that this stock will be rerated strongly when the next result is out on the end of March 2025.

Background:

The problem I have with China SOE is that every other week, there are some SOE selling/buying their subsidiaries to one another. Some SOE became stronger while other became weaker as a result of these “gerrymandering”. I have been on the short end of the stick before and I am glad that I am on the other side now.

We first got to know of the 2176 when they started this process in their 2022 4Q - 20th April 2023.

The accounts then were messy and hard to decipher. While we still do not know much about the CCID Supervision (which is being sold off), there are positives coming out from their core Consulting and Data Platform services divisions.

2176 also declared an interim dividend of HKD 0.046 when the stock is trading at HKD 0.36 on the 23rd August 2023. Using the share price of HKD 0.415 reached on the next day of 24th August 2023, 2176 still sport a 11.08% at half time.

On 28th March 2024, 2176 released their 2023 full year results where net profit more than doubled.

The platform services division (which included the acquired CCID exhibition) turns out to be highly profitable.

Coupled with another RMB 0.0764 (HKD 0.084) of dividends, 2176 paid out HKD 0.1246 for the whole year.

At that point, the share price has almost doubled to HKD0.67, sporting a market cap of HKD 469m, a single digit PE with a dividend yield of around 8.3% .

For 2024 2Q which was released on 23rd August 2024, the bottomline grew by another 35%. Surprisingly, 2176 did not declare any dividend. By this time, the share price has gone up to HKD0.84.

Future:

So what can we expect for the 2024 4Q results? For one, we know that the contract liabilities which is a good indicator for future revenue has gone up by 48%.

On the segmental analysis, the growth driver seems to be coming from their data platform and innovation platform services.

If you have been trying to log on to CCID official website, then you would have realise that it is unavailable in the anywhere in the world except China and HK. But if you have consistently tried to access CCID website since last year, you would have noticed that CCID website is briefly available towards the end of 2024.

On the now unavailable website, 2176 stated that they have 15 innovation centres around China which is an increase from 9 in 2023. Using some of the alternative data we have gathered, the consulting services also recorded a stronger 2H which indicated a strong revenue increase for the full year.

Valuation and Risk:

2176 should do much better in FY2024 than FY2023. A simple extrapolation from 2024 1H would indicate that net profit would grow by at least 15%. Since 2H is usually stronger than the 1H, we would expect higher growth. Reasonable future PE is around 7-8x.

Using last year as a reference, we could expect 2176 to pay out most of their earnings sporting a 10% dividend yield. Results should be out by the end of March 2025 and waiting 2 months for the stock to pop seems reasonable.

The usual risk of buying a Chinese SOE meant the taking on of China risk such as the invasion of Taiwan or the change in dividend policies.

At HKD 1.00, it also at the highest price it has been since its listing.

Expectation has somewhat been baked in but my guess is that there is still plenty of gas to go even higher when the results are released at the end of March.

I have been buying since August 2023 and the average price paid is HKD0.52 (without accounting for dividends received).

Subscribe now

Do your own research and I may buy and sell the above-mentioned stocks at any time.

Human race is ready for space exploration. For that I am much inline with Elon Musk. Mars, here we come!

If you are not making plans to travel to space, I believe it make ton of sense to travel to less well travelled places. They are definitely more interesting than Mars and the money you bring along and spend will help lots.

On the other note, is revenge travelling really slowing down or are we just missing the Chinese tourists?

From what I have gathered, the usual haunts like Japan and Thailand are still fully booked. Higher cost may have make everyone think twice about flying to Europe or the US or even Australia? Maybe one might also consider skipping travelling to the US because of Trump’s election win?

Airline capacity continues to come online in a rapid manner and ticket prices are looking reasonably affordable despite record demand. Maybe this is time to relook at some travel stock since this is what every middle class human seems to want to do?

Let talk retail, technology, luggage and finally an airport (vested).

Shopping at Duty Free at China Tourism Group Duty Free Corporation in Beijing?

Travelling through any China airport, you will see a familiar sign throughout most of them. While the Beijing Capital Airport is slowly healing from the increase in inbound foreigners and mostly from the improvement in domestic tourism, we cannot say the same for duty free shopping within the Chinese airports.

CDF is interesting as duty free spending has always tend to hold up pretty well across various time period. I guess there is always a tendency to splurge and spend that extra dollar when you are travelling or passing through an airport?

For the penny pincher like me, I may try to find that extra dollar bill and spare change to buy another cup of coffee or chocolate to make my wait in the airport more tolerable. For the extravagant Chinese, maybe they would grab their excess wad1 of cash to buy a Louis Vuitton bag?

Since CDF is almost everywhere they should be the bellwether of duty free spending in China. We know that most of the Chinese are travelling within China, so they should be at least be a good amount of spending within the airports?

Looking at the numbers below, things are not looking so good. Retail spending continue to slow leading to lower operating profit. The Chinese’s retail spending seems to be in a free fall and the government continue to be chill about it?

Checking in and checking Travelsky

If there is one thing we cannot avoid is the airport system.

TravelSky Technology Limited (TravelSky) is the dominant provider of information technology solutions for China’s aviation and travel industry. It is among the largest Global Distribution System operators in the world with Sabre, Amadeus and Travelport. This system 1. provides inventory and prices control services to airlines, 2. reservation and ticketing services to airlines and travel agencies and 3. check-in, departure services to airports.

This business is simple.

More passenger traffic = more ticket issued = more profit

The company still sport a 20% net margin without the full recovery of the international tourism segment. With a monopoly status and depressed earnings, the company is priced at a PE of 18x despite its share price being closer to the lowest it has been in the past 5 years.

Any improvement in net margin and earning will directly add to the share price at probably 18x.

Are you buying a Samsonite or just a luggage?

Sometimes, you take your own experience and try to extrapolate into an understanding of a firm.

Sometimes it works but mostly it doesn’t.

But I am going to try anyway.

Recently, I went out and bought 3 really good looking Pierre Cardin luggages for a pretty affordable SGD $300 and I wonder why anyone would part with SGD $400 to just get ONE measly Samsonite2?

Extrapolating from my shopping experience, I am sure that Samsonite’s latest quarter is a disaster since Samsonite is no longer the only good looking luggage bag maker in town. Sales have tapered off 8% and operating profit are off by 27%.

Commentary talks about an increasingly tougher retail market in China and tougher wholesale market in North America. They also mentioned higher promotional activities in India. Lower revenue, lower gross margin make it sound like Samsonite share price which is near one year low could be even lower soon.

Flying and Queuing at Kempegowda International Airport (Fairfax India)

I first talked about Fairfax India on Sep 18th 2020. It has been 4 years.

The new terminal is billed as one of the most beautiful airport in the world. And it seems that the constant traffic jams seen in the city centre has now also arrived at the Bangalore - Kempegowda International Airport’s runway. 

“Once flying from Goa to Bangalore, the pilot announced in Goa that we are delayed due to Air traffic at Bangalore . That time I realised that Bangalore has got traffic everywhere.”

-The Indian Express

With Kempegowda International Airport expected to be completely filled by 2033 or even earlier, there is an urgent need to plan for a 2nd airport. 

On the 19th October, M B Patil, Karnataka’s Minister for Infrastructure Development indicated that the location of the new airport was going to be finalized soon. 

When Kempegowda International Airport was inaugurated in Devanahalli, a clause was introduced prohibiting the construction of another airport within a 150-kilometre radius of Kempegowda International Airport until 2033.

So there is a good chance that it will still be BIAL who has the right to operate the new airport and that should be wildly positive for Fairfax India. 

Fairfax India continues to be the cheapest way to get access to the Indian market. The only worry is the tariff revision that is coming in 2026. That should be a minor issue now since the regulator needs to work with BIAL on the planning and building of the 2nd airport. BIAL may even get some reprieve from the tariff due to the planning for the new airport.

It has finally doubled from my initial price of USD 7.4 and it is up 28% since 1 year ago.

I expect it to go higher as soon as the news get confirmed? If not, expect some derating from the disappointment. There is also possibility of the Indian market collapsing into more sane valuation which could drive down the share price.

Subscribe now

On Week 26, I wrote about my thoughts on all the listed caterers in Hong Kong.

One of the observation I had made then was to observe that Tam Jai is the favourite go to place for young Hongkongers and I was more positive about the Yakiniku chain like LH Group than the cha chang teng (hong styled cafe) like Fairwood and Cafe De Coral.

I am wrong. I should be bearish on all the caterers in Hong Kong.

One of the biggest risk in investing in the catering trade has to be the continual increase in the number of northbound Hongkongers travelling up to China for food and entertainment.

Since then, has the northbound Hongkonger accelerated?

8th October 2024,

Hongkongers making 1.78 million trips this year, compared with 1.83 million in 2023

-SCMP

Surprisingly, there is a slowdown in northbound traffic. While traffic had slowed, one thing that is not captured in the traffic data is the spending.

But with most of the listed catering companies screaming out in pain, it is easy to see where most of the spending is going to…

LH group started with the first profit warning in August. The profit warning announcement did not highlight how bad the situation is until

we found out that LH Group (LH) is not even profitable on an operating basis.

For LH, the fight to retain customers meant offering promotions which translate into lower gross margin. The double whammy of lower customer throughput i.e. revenue and lower gross margin while toggling with a fixed expense base meant that most caterers will record a much lower net profit or any profit at all.

If one of the best operator is facing such a dire situation, I guess the rest cannot be far off.

In October, TamJai sounded the next warning and the story remain the same.

Next up is Fairwood in November with the same story.

And just as I was wondering if Cafe De Coral will issue a profit warning…

At least the companies profiled above other than LH are still profitable.

But if everyone in the industry is screaming fire, should you rush for the exit?

There is simply no way and need to fight a trend.

I am pretty sure that Taste Gourmet will be issuing a profit warning soon because no matter how good they are, it is hard to do business1 if there are not enough spending in Hong Kong.

If you must panic, panic early2.

-Nassim Taleb

Subscribe now

1

Trump is back in the white house. Like any events of the past, it is best to be well prepared for what is most likely going to happen.

Tariffs and possibly even tougher US chip restriction!

If the companies you are invested in are not prepared for a Trump’s tariffs, maybe it is time you start thinking on how to mitigate risk and possibly prepare your portfolio for the possible scenario?

Manufacturing stocks - into the unknown?

I have chatted about manufacturing stock on Week 40.

In that article I have broadly divided the manufacturing into a few categories.

1. parts manufacturing (high end)

2. capital equipment manufacturing

3. product/customer led manufacturing

4. specialised product manufacturing

Category 1 which include TK Group which manufacture high end parts of products which are meant to be integrated and then exported.

The final customers may have been stocking up goods to be assembled and export since 2024 Week 40 when Trump presidency looks like a possibility.

Since the final customers are stocked up, they will begin to look for alternate manufacturing sites to move their supply chain out of China. Since most of these high end parts cannot be reliably manufactured out of China, it also means that the distributors of these final products will be slapped with tons of tariffs.

There is a need for these tariffs to be “subsidised” by someone and that meant that all the manufacturer and assembly margin will be “transferred” to the distributor and subsequently to the US government. These “tariff” costs will feed into the final products with all the worldwide consumers subsidising to close the US deficit gap.

We had enjoyed the economies of scale of Chinese manufacturing and now we will have to face the dis-economies of scale from the American tariffs. Four years is too short to rejig a high technology supply chain.

So expect lots of pain in between for these set of manufacturers.

Category 4 companies like Ten Pao benefit from their ability to move abroad easily. For example, Ten Pao has the capability to manufacture in Mexico and Hungary, serving both the US and Europe market respectively. Ten Pao’s years of preparation should have serve them well?

The problem is what if Trump would slap tariff on Chinese goods originating from Mexico?

If that happens, Ten Pao may need to go one step further to set up a plant in the US. My belief is that these companies will finally realise that in they will need to set up a plant where the demand originate from.

Going forward, one cannot escape tariffs while trying to arbitrage human and capital cost. US is frustrated with budget deficit and this may just become a multi-decade trend of on-shoring manufacturing back into the US again.

On a side note, it seems that TK and Ten Pao share price seems to be holding up quite well due to the potential dividend yield of 10% (normal + special)? Maybe, the manufacturing sector will not be hit as hard as I had predicted.

Garment Manufacturing - let it grow?

There is another form of manufacturing which I usually try to avoid.

This industry is the first to start up in China and possibly the first to move out of China. The reason is that there is minimal skills required to put together a piece of clothing.

Since the opening of China, there has been a proliferation of various types of garment manufacturers. As they have gotten bigger, some of the better operators started to specialise on different set of product range.

The few operators who are big and profitable include

1. Shenzhou International Group Holdings Limited (2313)

   • knitwear

   • sportswear

   • casual

   • lingerie

2. Crystal International Group Limited (2232) 

   • lifestyle wear

   • denim

   • intimate

   • sweater

   • sportswear

   • outdoor apparel 

3. Eagle Nice (International) Holdings Limited (2368) 

   • sportswear

4. Nameson Holdings Limited (1982) 

   • knitwear

Crystal and Nameson have done very well and their stocks have mostly doubled from the 52 weeks low. 

Most of these players are in the high volume and low mix production. Increasingly, the international brands (due to the pressure from fast fashion players like Shein) are adopting the high mix low volume form of production. 

One such consolidator of high mix low volume form of production is Lever Style. 

Lever Style is involved in the design, production, and trading of garments. Its products include seamless-bonded, activewear, performance wear and outwear, sweaters, denim, bottoms, soft wovens, shirts, cut-and-sewn knit, fashion outwear, leather, and tailoring products for men, women, and kids. 

Instead of operating factories, Lever Style operates as a two way platform marketplace linking the brand names to the factories. Lever Style acquires the customers, works with them to come up with the template for the manufacturing and quality control and then works with their manufacturing partners to produce the goods. 

• For the brand owners, they know that they are dealing with a reputable party who is able to go from design to manufacturing different types of apparels across factories throughout Asia.

• For the factories, they do not need to worry about setting up a sales and design team to engage the brand owner, able to focus on production efficiency while being assured of constant work and payment from Lever Style. 

• For Lever Style, they are able to help their customers navigate the geopolitical risk by using their associates factories throughout Asia.

Their business model allows them to take advantage of two trends,

1. Trump’s tariffs,

2. The move towards high mix low volume manufacturing. 

The main risk is that Lever Style usually works with the smaller brands which will be more affected by any economic downturn. I am sure most of you would be hard pressed to explain the difference between the brands they manufacture for. 

In their latest quarter, Bonobos- the largest customer of the Group which accounted for approximately 16.2% of the revenue of the Group for the year ended 2023 fell into financial difficulties was “sold” to a consortium of new owners led by WHP Global. That meant that Lever Style most likely took a haircut on their receivables and pricing to keep their “new” customer. 

Lever Style usually uses a mixture of organic and inorganic growth to power their growth. When times are good, they will press hard on the pedal to sell. When times are bad, they will go inorganic and start to acquire customers through the acquisition.

They have set an aggressive growth target of doubling every 3 years. This is a tough target to hit but I am betting that Stanley and his team may just have the plan to be able to do just that. 

Graphic card manufacturing - Best in Singapore and possibly Batam?

PC Partner has finally been approved to list in Singapore…

with some “conditions” to be fulfilled.

That explained why the eligibility to list took such a long time…

PC Partner is a maker video graphics cards for personal computers. If you want to get your hands on the high end video graphic cards, you can only buy that from a handful of companies.

The listing exercise on the SGX allows PC Partner to be more “Singaporean”. This shift in “positioning” is required as their business requires them to have access to the highest end Nvidia chips.

That is one way to de-risk your manufacturing business…

On a operational basis, PC Partner is already ramping up hiring in Batam Indonesia and some of the production line has already got started a few weeks ago.

Their listing on the SGX should be well received by the Singapore investing community. The company is flushed with cash and has shown to be comfortable in sharing their spoils with their shareholders. A 7 % dividend yield should be highly attractive to the Singapore market.

Caveat emptor is that there are still “conditions” to be fulfilled…

Subscribe now

The Chinese stock market started to go on a tear and the Chinese were all forced to go on a long national holiday.

The scenario is like a beautiful woman inviting a young man to a party with the catch that the party is going to happens in a weeks time.

While he is supposed to be going on with his life during that week, the only thing that the young man can think of is the beautiful woman.

Could the week dampen his hormone or raised it further?

Personal experience tells me that the hormone should peak just right before the party…

What is going through the young man’s head is exactly what is going in within every Chinese’s investor head right now.

Anticipation and Fantasy galore!

Unlike Chinese investors, international investors has been gifted with a short HK holiday and a week long trading session.

We got to the party early with many beautiful women. The problem is that the ones who may be arriving tomorrow may be even more ravishing.

Most of us had our fantasy fulfilled and may seek more tomorrow and possibly the week after.

A hedonistic lifestyle seems predestined for most. Many will fall into the decadence and everyone knows what decadence will leads to.

Whenever a trading market begins, I repeat “The Gambler” by Kenny Roger on my speaker.

You've got to know when to hold 'em
Know when to fold 'em
Know when to walk away
And know when to run

-Kenny Roger

Lets do a thought experiment…

If the Chinese stock market shoots up like a rocket tomorrow, the day after or for the whole of the week, what would be going in the head of the every traders and regulators in China?

Every party will eventually come to an end.

The young man will eventually be exhausted and have no strength even for mere dalliance with another beautiful woman.

The Chinese regulator will be thinking that this looks like the Chinese stock market rally of 2014-2015.

Instead of giving it a boost, the regulators may pour some water on man’s head to clear his mind.

As what President Xi will most likely say,

“Do not just party and have fun, what you should do is to have kids and grow old with the beautiful woman.”

-Future President Xi’s Quote

Then it is too late to run.

Subscribe now

Nothing happened to my portfolio for 39 weeks and then 2 days of monetary stimulus announcement from the Chinese changed everything. Now, we await for the fiscal stimulus.

There is no reason to look for more misvalued companies on the HKEX when all of them have gone up >20% in price in the last few days so I have decided to start writing.

Writing stops my itchy finger from triggering any unnecessary buy or sell. 

It is often good to ride the bull and wait for the pullback. I can already foresee an avalanche of buying then selling when the Chinese come back recharge from their week-long national holiday. 

This week, I will be touching on some of my positions which requires more faith than the usual value play. Usually investors will want a simple story. But business gets bigger = complicated, or the beauty of the business depends on an alignment of interest = complicated capital structure.

These are the companies that are left out in this current HKEX rally and thats why I am talking about them.

Pentamaster International (Penta) - bigger complication

Let's go with  the “not so good” news first. 

Penta is not keen on doing any capital allocation exercise. That means that the dividend will remain low and share buybacks will be non-existent. Penta continues to believe that they are a growth company and they need all the cash to continue to build up their various businesses.

As for the low share price, they would rather have Pentamaster Corporation - Malaysian listed parent to come in to buy when the share price is low to act as a stabiliser. 

As a shareholder, I would love to have a higher dividend but at the same time I am keen to see them reinvest the money to grow the company. The way to judge their policy of retained earnings and growth would be to look at their ROE. 

Penta is still managing a ROE of 16% for this current FY. 

While this is not fantastic, this was achieved on a mid-cycle for their medical segment, a cyclical low for their automotive (Silicon Carbide) segment and an impending cyclical upturn for their Electro-Optical segment. 

As Penta got into more business segments, it is getting increasingly difficult to forecast their business for the next year. The irony is that as the business grows more robust, growing from an electro-optical company to a multi-industry, multi-technology segment company, there is less chance for it to significantly outmanoeuvre and outperform the market. 

Exceptional growth only when the company is tiny, focused on a particular segment or industry while being highly susceptible to death. 

Excess shareholder return is bound to decrease as robustness increases. 

It means that increasingly, I am betting on the management foresight to get into the right sector. 

On to the good news. 

“Penang attracted RM60.1 billion (USD 12.8 billion) in FDI in 2023, more than the total received from 2013 - 2020 combined.”

-Pangolin Investment Management

With a capable management team, a good set of technological know-how, I am sure that there are ample opportunities in Penang for Penta to tap into. 

The medical segment (FAS) is set to continue to grow as more medical manufacturing facilities expand into Penang.

The move towards silicon carbide (ATE) seems inevitable for automotive, data centers and renewables. The introduction of gallium nitride as another material also opened up additional possibilities for Penta.

With MediQ (Medical Device Automated Assembly Solutions) set to go into production, it means that Penta will have another line of revenue soon. 

Penta seems well positioned for future growth either on a locational basis or on a technological front.

If you happen to happen to be in Bayan Lepas Penang, do visit the first semi automated food hub there. The project is a collaboration between the Penang Development Corporation and Penta.

There are robots delivering food up and down the 2 levels. This is a testament on the ability for Penta to integrate various technologies to deliver something of use to the customers. 

If I am a new investor today, I will definitely choose a simpler company to analyse. Penta is getting way too complicated…

With an average price is HKD 1.00 and I am down 30% on the position.

p.s. another lesson is that I should have learned earlier is to stick to companies who are listed in their home market (excluding those who are listed on the international exchange like NYSE, NASDAQ and LSE).

China Leon Inspection (Leon) - complicated way of aligning interest

One of the things I have learned from a fellow investor friend is to be wary of convertible bonds. This is a red flag which puts him off. 

Another of my fellow investor friend hated minority interest as it is often hard to decipher the real financial situation. 

So a combination of both seems like a really bad idea if I use their evaluation criteria. 

While it is easier to click avoid, I do get attracted to some companies due to their industry like a fly attracted to a light source (to possible death).

China Leon Inspection provides services on inspection, testing, technical, and consulting services in Greater China, Singapore, and internationally. It offers coal inspection and data, mineral inspection, petrochemical product inspection, climate change and sustainable development, power and energy, and leak detection and repair services, as well as integrated services in the field of ecological environment. 

-Tikr.com

The testing, inspection and certification (TIC) sector is a highly fragmented industry. It also means that hidden within this fragmented industry are often leaders within the various niches. Leon happens to be the leading private TIC firms in the coal space in China and one of the leading players for petrochemical products in Singapore.

This is an industry which usually grow at 2x multiple of the GDP growth. It means that revenue will grow as long as the industry the TIC is serving is somewhat growing.

While coal usage continues to shrink in China, there is increasing environmental need to TIC-ing the coal at its source, while transporting and using coal. TIC is just going to go up. China is not going to give up on its coal production as coal energy generation is of strategic importance to them. Cost of coal is going to get higher but that is not going to stop them from burning coal to generate energy.

TIC is an industry that relies on motivated professionals. It means that Leon relies on aligning their interest with the partners on the ground through minority interest.

Overall, I like the TIC industry, less so of its product - coal which is declining in usage in China. I would have love to get it cheaper but HKD 1.32 seems decent enough to start an initial position.

As for the convertible, Leon redeemed their old convertible bonds on the 11th June before proposing to issue convertible bonds on the 27th September. My guess is that an acquisition is coming. Looking at their past acquisition, I am hopeful that it will be a good one.

And of course, the acquisition will come with more minority interest which will further complicate analysis.

How can one have a good life analysis without some complication?

Subscribe now

Who’s who on douyin? - ChicMax

On Week 31, I talked about ChicMax and its profit alert. It seems that most of the revenue growth (and possibly profit growth) are coming from Douyin. 

According to Feigua Data, Douyin’s beauty category sales are up 28% reaching 97.7 billion RMB in the first half of the year and could possibly exceed taobao GMV for 2024. 

Grabbing the chart from Feigua, it seems like the leading brand which dominated Douyin for the past 6 months is Kans (韩束) from ChicMax. This helped to explain their profit alert 2 weeks ago. 

While Kans is on the gold medallist spot, it seems that there is not a consistent silver or bronze medallist. 

We can look at this as a half-full or half empty situation. 

Half-full: Kans is such a standout that no one is close to usurping their gold position

Half-empty: The introduction of Douyin as a platform has leveled the playing field.

I am unsure on how to evaluate the cup so this looks like it is going into the too hard bucket.

Who’s the best? KOL vs Product - East Buy, Be Friends

I was pleasantly amused when I found out that there is ecommerce streaming for durian on Shopee. 

I have always assumed that ecommerce streaming is akin to home network shopping of the past - most probably like Qurate. After my durian experience, I started to understand why selling through streaming has its appeal. 

The seller is a pretty girl on screen, greeting their regular customers as they come into the “store”. You get an introduction on the durian on sale for the day, perhaps choose the durian and have it delivered to you in 2 hours time while in the comfort of your home.

Except for the smell, you are getting almost the whole retail experience. 

I guess the ecommerce streaming model does make sense if you want to mix entertainment and shopping together. 

One of the new companies that is in this sector is East Buy Holdings. 

A cursory look at the share price here would have given you the idea that ecommerce streaming is a fad and is dying. But there is a bigger story behind these numbers. 

The story revolves around the biggest Chinese star in the ecommerce streaming space versus the company he is in. For the detailed story, click here.

In a KOL (key opinion leader) or influencer economy, such as the live streaming business of East Buy, it is the influencer that matters most.

-https://chinahandsmagazine.org

So between the CEO and the KOL, who should the shareholder choose?

I guess you know where this is heading. It is the KOL who survives the shakeup. 

After a few months of turbulence, the story gets even weirder when the KOL, Mr Dong Yuhui gets to depart the company on pretty generous terms. 

The 99/1 rules work here. 1 percent of the KOL will get 99 percent of the reward and the special one gets to walk away with a highly profitable company. 

Since everyone knows about the KOL’s issues now, any streaming company will try to disassociate their business model from KOLs. 

BeFriends another company in the space have decided to be a ecommerce streaming company “without” the KOL. Instead of using KOL as a draw,  BeFriends will be relying on their good choice of goods. The goods sold through the ecommerce streaming platform would be authentic and good. 

But if you take away the entertainment, the pretty girl, handsome boy or a literary scholar like Dong Yuhui, isn’t this reverting back to become the home shopping network of the past?

Who’s turning head? - C.Banner, Daphne, Cosmo Lady, 

Long long time ago, I helped out in the IPO of Hongguo International Holdings on the SGX. Hongguo, or now known as C.Banner International Holdings distributes its ladies shoes primarily through department stores and independent retail stores. 

Another top brand of the past in that ladies shoe category is Daphne International Holdings (Daphne) Limited.

Specialty-fashion retailers are a tough space to be in. You make good money when times are good and slowly but surely fade out of the game with no recourse.

But the good news is that if you zoom in to the last 3 months, some of these companies stock has been on a mend. 

Daphne posted a positive profit alert of HKD 50m making the annualised 4x PE. 

With a market cap of HKD 423m, cash of RMB 366m, this seems like a good trade for a turnaround. 

Another top dog of the past, Cosmo Lady, has also released a profit alert of not less than 200% making this an annualised 4x PE as well.

Valued at HKD 595m, and having almost RMB 1,000m in liquid assets, the margin of safety for this looks even better. 

My fuzzy theory of why some of these lower tier brands are doing better

1. Chinese consumers are trading down,

2. the 3,4,5 tier cities are doing much better and

3. brands which were the top dog of the past (with some brand recall) are having their days again. 

But it is often hard to really know if a brand is on a mend or not.

But in the event they really do, some of these could be a multi-bagger in no time.

Subscribe now

YesAsia - the market knew…

In week 16, i commented that “it is always wise to get out when the valuation is far removed from the current realities of the business”. It seems that the market is correct is getting excited.

Now we know why the market got so excited last month. After the news, the stock continued to make new high at HKD 5.51 before retreating to HKD 3.64.

If it falls a bit more, this may once get attractive enough to get back into my portfolio. If a distributor is not up your alley, what about a branded cosmetic company?

Chicmax - the market derated…

While the American and the European are still at K-Beauty, Asian has moved on to C-Beauty. It seems that women can see more shades of colours than men and thus they have insatiable appetite for cosmetics?

Chicmax is going to draw in > RMB 800m in net profit. Valued at HKD 13,490m, Chicmax is closing down to PE of 15x with a 24% roe. This is starting to look like a bargain?

The worry is that the growth KANS is a one off and would taper off soon. If I own a C-Beauty brand, I will be copying what the K-Beauty is doing to expand throughout the world.

Slap on some english instruction, get some “asian international” stars to endorse their product and then sell them through beauty multi-brand retailers, like Sephora, Ulta and online on Amazon and YesAsia, and proprietary official websites.

Watch out for the onslaught of C-Beauty soon!

Hang Lung Properties - the market got disappointed

If you are looking at getting the best retail assets in China, then Hang Lung should be the preeminent choice.

If what the media is saying is correct, then all the Chinese are going over to Japan to buy luxury goods.

Maybe the recent yen increase would put a stop to that?

In the short term, it seems that Chinese luxury retail will continue to shrink…

I keep a look out for Hang Lung not because i am into property but because I am vested in the Chinese luxury retail spending through Activation. 

The good news for Activation is that the luxury marketing spend is base on the passport spend and not on country spend. So it does not matter if the Chinese spend in Japan or Europe.

The bad news is that luxury spend is definitely going to be lower for the next few years?

If I want to bet on the Chinese buying more luxury goods in 5-10 years time, maybe Hang Lung Properties may be a surer bet?

I am sure the shopping malls will still be around but would Activation still be the top player in the luxury marketing space in 5 years time?

Far Ltd - the market continues to not react…

No significant new news here since 11th June update except for “First cargo was loaded and ramp are expected to continue through 2024”

But alas, with the oil prices dropping below USD 80… it seems that the potential monetisation will become smaller?

Now the potential buyers will have less margin of safety in term of the oil prices but at least we have another USD 3-7 to go before it drop below USD 70…

I guess that why there is never a sure thing on the financial market…

Powermatic - where the market react to a shareholder friendly management…

One of my investing buddy wrote an article and posted it on nextinsight.

The gist of the story is that the management has been listening to shareholders and has turned increasingly shareholder friendly through the years.

Anyone who has been to PMD’s shareholder meetings (especially in recent years) could easily see that its directors are fully engaged and were fully able to express their voice in response to questions from shareholders.

The commitment to create value and distribute excess capital to reward ALL shareholders is especially commendable. -Free Wifi

That continued work on niche business and the continued monetisation of hidden assets meant that Powermatic would have returned a 1,116.4% return over 19.25 years.

Since most of us are not that patient to wait for 10 - 19.25 years, I guess that we have to contented with whatever gain that could be realised - when Powermatic complete the sale of their Harrison Food Factory and proceed to distribute out the excess cash on their balance sheet…

I have scheduled a meeting with Pentamaster’s management in Penang, Malaysia on the 14th August 2024 morning to understand more about their newest development.

If anyone want to tag along for the meeting, just drop me a DM.

Subscribe now

Manufacturing in China - from China + 1 to China + N?

One of the major learning I have from my last trip to China is that it is going to be really costly and is going to be almost impossible to replicate China’s supply chain within a short period of time. Like it or not, most stuffs are still going to continue to be manufactured in China.

The important phrase is “within a short period of time”. Given enough time, money and attention, my guess is that anything can be replicated but that risk is low.

The main risk or the axe that is hanging over all the factories are the Trump’s theoretical 60% Chinese tariff on all Chinese import.

déjà vu! That has happened before and what has transpired since?

During Trump’s last presidency, most manufacturer started the China + 1 strategy with most of them setting up plants in Vietnam.

Today, most of the Vietnam factories have remained small and idle. One reason is that Biden is not actively pursuing tariffs on manufactured goods from China, the other reason is that unlike low end manufacturing (like textile), slightly higher end manufacturing requires supply chain support which is currently non-existent in Vietnam.

But as Trump second presidency comes closer to reality, manufacturers are once again making all sorts of plans.

During my last trip I have heard China + N strategy.

Other than the usual of India, Mexico, Malaysia and Vietnam, I have known of manufacturers with plans to set up offshoots in Hungary and Japan . It seems that to avoid tariffs, Chinese manufacturers need multiple sites to fully utilise the various supply chain that could be co-created throughout the world.

So if all the manufacturers are planning on moving out of China and taking advantage of the various supply chains available, will China’s manufacturer die a slow death?

What is clear now is that the assemblies of the these products are already moving out of China. Foxconn is spending tons of money and time moving plants out of China and into place where there are abundant labours.

I will broadly divide the manufacturing into a few categories to help with my thinking process

1. parts manufacturing

2. capital equipment manufacturing

3. product/customer led manufacturing

4. specialised product manufacturing

1. Parts Manufacturing: Sunny Optical, TK Group - the windfall before the storm?

Since Trump is looking like he is going to win in the November election, would brands be ramping up their purchases of selected Chinese manufactured parts to ensure that they do not get hit with tariffs?

Is that the reason why we are seeing positive alerts from companies like Sunny Optical (Sunny) and TK Group (TK)?

So did the Sunny Optical share price react to that news? Share price has treaded lower since the positive profit alert on the 21st July.

Since phones have a fixed lifespan of around 7 years, it seems like there could be a handset replacement cycle going with handset lens sets sales growing year on year for Sunny.

As for TK which is also announced a rise in profit hardly budge when their positive result alert was announced on the 18th July.

So the market is pricing in a Trump win and a tariff for these companies and their products, but is there a really good way to replace these manufacturers who have become one of the best in their trade?

2. Capital Equipment Manufacturing: Chen Hsong, Tsugami Precision - the coming windfall?

While most of the part manufacturers are raking in the bucks, the manufacturers of capital equipment like Chen Hsong (plastic injection moulding) and Tsugami Precision (computer numerical control CNC machine tools) reported a weak end to their financial year with all reporting a drop in revenue.

Since most of their capital equipments manuafctured are sold in China, there is some expectation that sales to be weak for the coming year. Instead, I think there is a good chance that capital equipment sales may rise moderately in the coming FY because of the “two new” policies (两新政策).

The Chinese government is offering rebates on consumer goods and equipment goods. These rebates may encourage factories to upgrade their equipments. For high end manufacturers making the high end precision parts, they will be enticed to upgrade their factory equipments at the government’s expense. Though, the possibility of a slow end consumer demand may still dampen their capital equipment renewal cycle.

The wild card is the electric vehicle (ev) production and consumption. While there is an over excess production right now, the government could easily stimulate demand through more tax rebates for ev.

The capital expenditure upsides will come from the high end industries that the Chinese government is promoting like medical technology, industrial automation and robotics while the downsides will come from the Computers, Communications, and Consumer Electronics (3C).

3C will be slow for the Chinese economy but expect a bounce of 3C upgrading cycle in the west with Europe and US needing a refresh of their communication system which lead us to the next section.

3. Product/Customer led manufacturing: Powermatic, Plover Bay Technologies - having a blast of their time

There is a replacement cycle of communication equipment within the US and Europe so some of the companies like Powermatic (Power) and Plover Bay Technologies (Plover) are doing relatively well on their core router business.

With manufacturing sites away from China, Power - Malaysia and Plover - Taiwan, it seems that geo-politics is far away from them. As long as they remain in their niches, it seems like they could be benefitting from the assembled anywhere than China preference from the western countries.

4. Specialised product manufacturing: Vincent Medical, Ten Pao - where China + N is necessary

Vincent Medical (Vincent) is the Original Equipment Manufacturing (OEM) and Original Brand Manufacturing (OBM) for respiratory devices. They also manufacture disposable parts for Bayer both for China use and oversea usage. That meant that they may have to work on establishing plants in Mexico, Japan and Europe.

Ten Pao develops, manufacture, and sale of electric charging products for various customers in China and Europe.

Due to both of their customer profile, there is a need for them to have multiple bases. While they continue to scale up their manufacturing bases in China they need to simultaneously building up factories in other jurisdiction.

That is a tough order.

The upside for such a strategy is the ability to navigate the geo-politics but the cost for such a strategy is high and the reward may not be forthcoming.

Hope this is useful for you to think through the various type of manufacturers and their various growth and cost structure.

Subscribe now

Capita Plc is a stock that I have covered at every price from its previous height of GBX 29.32 to its depth of GBX 12.50 and back to its current height of GBX 21.35. And through this period, they have been streamlining their business by selling their subsidiaries.

The last I wrote about Capita is on the 7th April which happens to be a low at GBX12.50 when Capita is valued at £211m. The valuation stayed pretty much at between £200m-£220m for 4 months.

Just as the market is coming to a conclusion that Capita is “screwed” as they have seemingly sold everything of value off, the new CEO - Adolfo Hernandez pop the following news.

Capita One which is deemed as “non-core” is another one piece that is going out of the Capita portfolio at a price tag of £207m. The total assets of Capita One as at 31 December 2023 were £67m and the revenue and profit before tax for the year then ended were £55m and £19m respectively.

“As I outlined recently at our Capital Markets Event, Capita’s strategy is to become a more focused company, prioritising businesses where we can deliver material opportunities in the future, with greater simplification and cost reduction.”

-Adolfo Hernandez Capita CEO

Now, the market decided that Capita is worth £357m. If we net off the incoming £207m, the rest of Capita will be valued at £150m. This  leftover business is supposed to have more material opportunities and comes with ample chances of cost reduction. 

Just like the Chinese market, I think that the UK market is equally hated.

But like any turnaround, the turnaround effort may just not happen…

Looking among the wreckage - Beijing Capital Jiaye, Jinmao Property Services, Yuexiu Services, Jinke Smart Services Group, Yincheng Life Services

The Chinese property management sector is so wrecked that there is bound to be some opportunity within that sector?

My initial preference is to limit my search close to Beijing. The thesis is that there would be less hanky-panky in the accounts from a Beijing based company.

I quickly narrowed down to Beijing Capital Jiaye (Jiaye), Jinmao Property Services (Jinmao) - Tied to Sinochem through Jinmao Property. Since they are all based in Beijing and have some ties to some State Owned Enterprise, would their financials be better?

A cursory look would have indicated a big fat no. Receivables looks unreasonably high and long and seem likely to be written off. 

Coupled with much love for SOE linked companies, their valuation have become unpalatable. 

Maybe the companies who are doing share buybacks are better?

Yuexiu Services (Yuexiu) and Jinke Smart Services Group (Jinke) have been buying back stock regularly for quite some time now.

Yuexiu Services which is owned by Yuexiu Property is primarily controlled by Guanzhou Yuexiu Holdings which is an investment corporation owned by the Guanzhou Government. All these look good except that it is newly listed and is sporting a valuation far in excess of Jinmao and Jiaye.  

As for Jinke, I continue to wonder why they are buying back their stock. It may be a diamond in the rough but getting there will be too rough for my liking. RMB 2,372m of receivables on RMB4,979m of revenue. They have tons of cash at RMB 2,905m but sport a market capitalisation of HKD 3,860m. 

Another company that caught my eye through my random screening on HKEX announcement is Yincheng Life Services (Yincheng). Yincheng is the only company whose financials look relatively “clean”.

Yincheng even paid a special dividend of 12.4 cents when the stock price was trading at HKD 1.8.

But alas, on 11th June, Yincheng released this information about their executive director.

The executive director was removed and then further allegations were made against the non-executive director and controlling shareholder.

This is how the stock looks since the announcement. This could be the cheapest of the lot but I do not think I have the stomach for it.

I even pulled out my old list of Property Management Companies to have a look and nothing passed my simple filter. My old time favourite (before the Property sector bust) - First Services Holding is on the non-tradable list on Saxo joining may other dubious companies.

There is seldom just one cockroach in the kitchen.

-Warren Buffett

I looked through the wreckage and only found cockroaches.

Handicapping the ratings - Pernod Ricard

Following on my post last week, an update on Pernod Ricard came in. There is a single change from Underperform to Hold.

I do not know how ratings have changed for the sell side.

In the past, a Underperform is a Hold, a Hold is a Sell and a Outperform is a buy and a Buy is issued by the “consensus” analyst who dare not say anything else but Buy.

Any analyst who issues a Sell call is the one with the balls of steel or an idiot.

The consensus looks like a sell (or Hold to the analyst) to me. For any investor with a > 1-2 year horizon, that should be positive cos there are ample brokers to shift from hold to outperform.

Share

During my last visit to Shenzhen, a company treated us to dinner. How could a Chinese dinner go without some tipple? We ended up downing a couple of bottle of Californian red wine and Chinese liquor (baijiu).

Instead of the regular revenge toasting and drinking of the past, drinking China has become more moderate. Similar to the west premiumisation move, the Chinese are drinking lesser but better and drinking the more expensive stuffs.

So what does it mean for the Chinese liquor companies if the Chinese are going to drink better? Does it mean that the top end liquor companies like Kweichou Moutai (Moutai), Wuliangye Yibin (Wuliangye) will have a bigger share of the wallet?

If your idea is to use the economist as a contrarian indicator, the recent article would have bolstered your confidence.

But maybe there is a good reason for that article since I ate Moutai ice cream and drank Moutai latte from Luckin instead of drinking Moutai in China.

Moutai has been transferring much of their distributor profit to themselves by increasing the ex-factory sale prices. In recent months, wholesale prices has also fallen (thou at the time of writing this article it has risen slightly) which meant that wholesalers are lowering prices to move their goods.

For more in depth thoughts on Moutai, you should read the writing from @moatlesscapital.

Moatless Musings

Kweichow Moutai's Impossible Trinity

In context of the upcoming Third Plenum, historically a venue for the leadership in China to announce consequential agenda on a series of reforms, this will be the first of a few posts where I provide microeconomic examples of how political economy is deeply intertwined with business economics in China. As the title suggests, this following article will…

Read more

2 years ago · 14 likes · 5 comments · Moatless Capital

My thinking is that the taste profile for Moutai should not travel well. It is an acquired taste and will be a drink for the Chinese and curiosities for any unsuspecting foreigners who waddle into a business drinking meeting.

The only way for Moutai to continue growing is to go the Hermes way.

Like Hermes, it needs to take back all the distribution points and start to control the growth of its supply and ultimately control its demand. Unlike Hermes, it will most likely never be an international product.

With a 50% net margin, Moutai has ample profit and time to figure out its next profitable-loss making move.

If your idea is to look for value stock within the alcoholic space, maybe Shede Spirits or ZJLD Group would fit the bill. They are selling close to 52 weeks low, sport a > 20% ROE and has a PE <= 10x. They are supposedly state owned and should pay a good portion of their profit back to their shareholders.

They may taste like Moutai or Wulianye but unfortunately do not have the pedigree like Moutai or Wuliangye.

Then we have the beer companies like Tsingtao Brewery (Tsingtao), China Resources Beer (CR) which sells Snow beer. They have also gone on a premiumisation drive.

Unlike Moutai which needs to be aged for 15-year, 30-year, 50-year, and 80-year, beer premiumisation can be more easily executed through the act of increasing the range of beers and then trying to upsell the consumer on their regular tipple.

During the Reporting Period, the Company achieved sale of a total of 4.56 million kiloliters of Tsingtao Beer, up 2.7% year-on-year. In particular, the sales volume of products above mid-to-high-end reached 3.24 million kiloliters, up 10.5% year-on-year, and the Company’s revenue per kiloliter increased by 6.4% year-on-year.

-FY2023 commentary Tsingtao

Looking at the ytd stock chart, both Tsingtao and CR are trading closer to their 52 weeks low. With revenue increasing due to premiumisation, a stable gross margin coupled with restraint in SG&A and an increasing ROE, better margin and capital allocation has being awarded with lower stock prices.

The market seems to have been throughly sold on the premiumisation strategy, but would the investing community be willing to rerate it from it current PE of 15x to its historic PE of 20-25x?

While the Chinese liquor companies suffers from the PE derating, the world behemoth of liquor like Diageo and Pernod Ricard suffers earnings fall from lower post pandemic demand around the world.

Similarly, their share price are all at 52 weeks low.

Unlike the Chinese liquor firms, their business is bound to grow much bigger due to the entry of a new class of connoisseur from India who is bound to enjoy the finer taste of alcohol from Europe.

Fun fact: The amount of whiskey India consumes is more than half of the world's entire production!

Global agency IWSR in 2022 wrote that nearly two-thirds of the spirit sales are dominated by whiskey. Within that, 85% of the market is controlled by 10 home-grown brands. Imported whiskey is estimated to be at 3.3% of the total pie.

The premiumisation strategy India is already working and should continue for a very long time.

In addition, both Diageo and Pernod has a significant Indian whiskey portfolio. Between Diageo and Pernod, Pernod being family owned is more conservatively managed and should weather the downturn better than Diageo.

Finally, if you are still looking for a sin stock priced at the value range with a special situation in sight. You can look at ThaiBev which is listed on the SGX.

It seems that the long awaited (like forever) BeerCo IPO is still on track for mid 2025. There are ample levers to pull for ThaiBev. They own Fraser and Neave (F&N) and Fraser property within their portfolio. While “strategic”, I am sure they are up for sale at a right price.

Recently, UOB Kayhian and DBS Group Research just issued a buy call for ThaiBev at 57 cents and 69 cents respectively.

It seems that every “sin” investor has lost hope and is heading somewhere to drown their sorrow. Maybe this is the time to pin on some hope that the only sin to commit is to buy some sin stocks now.

Subscribe now

One of the observations I have made during my recent travels into Hong Kong and Shenzhen is that the catering trade is getting rough. Retail is dead and restaurants of all sorts seem to be at every corner of every building. 

But like any competitive trade, there are always a few companies that stand out. 

I have been tracking Tam Jai since their IPO. When they first opened in Singapore, I was the first few who trekked down to Chinatown Point and grabbed myself a bowl of noodles. While I am impressed by the IPO numbers, I am not impressed by the taste of the noodles. In Singapore, we are used to strong spices and Tam Jai’s style of noodles just do not appeal to me.

I guess certain tastes just do not travel well. 

But the conversation with the regular (younger) Hongkonger highlighted to me that Tam Jai is undoubtedly HK’s favourite restaurant. Quoting from a few people, it is the place to go when you just do not know what you want to eat. 

Despite being Hongkonger favorite restaurant chain, they have struggled in their overseas expansion plans in China and Singapore. A hefty dividend of 8% and a declining share price is an indication of their overseas struggle. Their recent refocus back in HK, may just help them to recover some of that shine. 

If you extrapolate out the popularity of Tam Jai in HK, It seems that the younger Hongkongers no longer like the cha chang teng (hong styled cafe) of the past. The single store popular cha chang teng still draws in the tourists, but the modernized cha chang teng chain like Cafe De Coral (Coral) and Fairwood could only draw in the older and much more budget constrained crowd. 

Coral, the original has been declining for the past 5 years and now sport a 7% dividend. 

The successful copycat Fairwood has followed an almost similar downward trajectory and now sport a 6% dividend. 

Both of them have been tweaking their menu and format, but I do not see how they could fight against the general trend of the HK consumers. Both should just continue to muddle along and become a shadow of their former self. 

On the other hand, you can see the proliferation of Japanese food cuisine in all parts of the world including HK. One of the beneficiaries of the universal appeal of Japanese food in HK is LH Group (LH). Riding on the popularity of yakiniku, LH has become possibly the largest yakiniku player in HK. 

LH mainly operates franchised outlets from Japan. As franchise operators, they should supposedly have lower margins and ROE. Through astute financial management, they have an ROE of 20%, and have been able to pay out more than 100% of their earnings giving a dividend yield of 11%. 

Taste Gourmet (Taste) which I have covered multiple times in this blog, is an operator of multiple brands across multiple cuisines. Japanese cuisine like Shabu Shabu plays a big part in their rise as a reputable operator. 

Similar to LH, they have been astute in their capital allocation, paying 50% of the earnings while ensuring growth. Unlike LH, their ambition is to become a multi brand and multi cuisine company.

Minus the negative effect of more and more Hongkongers leaving HK for Shenzhen to get their dietary fixes, I think the latter companies like LH and Taste are a much better bet than Coral or Fairwood.

At the right price, I might also be a buyer of Tam Jai.

Plover Bay - bringing private interest into a public investment

On my first trip to Hong Kong in April, I visited Plover Bay Technologies (Plover) and was duly impressed by the dynamism and entrepreneurialism of Alex - Founder and CEO of Plover. He peppered us with the technology stack that he is building, leaving us minimal time to ask questions. I know that I will have a second trip to complete my due diligence. 

On my most recent-second trip to Hong Kong in June, I met up with their CFO Christopher to talk more about their business and charging model. I also managed to meet up with Simon, their newly appointed VP of sales and development to talk about using their expansion plans.

In addition, I link Simon up with a private technology firm that I am vested in to take on the deployment of Plover’s product in India. 

This has to be the best way to do due diligence. Other than being a shareholder, I am doing due diligence as a business partner.  

But alas, when a company is really exceptional there is really very little time to do due diligence in this manner.

A few good results and a positive alert is enough to send the stock much higher.

Sometimes, for the exceptional companies with exceptional management, the gut is a good enough filter.

There may not be enough time to do an in depth analysis!

Subscribe now

I spoke on Week 20 about CMCDI.

While everyone's idea of a good entertainment is a good Korean drama with some spark with a pretty boy and a stunning lady, my idea of entertainment is to see the “sparks” fly between bad boy Brian from Argyle Street Management (ASM) and stunningly conflicted Elizabeth Kan - one of the board of director from CMCDI during their AGM. 

Instead of sparks, we got a respectful ASM at the AGM. 

The reason is the bad boy did not speak at the AGM and left the mic to his colleague, the mandarin speaking politically correct Star Gui. He is definitely a “star in the making” for his respectful speech to the BOD. 

So is this the typical activism in Asia? Really aggressive online presence coupled with a really muted offline performance? Or is this the norm for all activism campaigns around the world?

Anyway, back to the meeting.

It looks like ASM has almost 44m votes wrap up on their side.

Quoting from ASM unlockvaluechinamerchants.com,

Given that China Merchants Group and Victor Chu (and their respective affiliates) own 29.6% in CMCDI, that means: almost everybody else (including sophisticated institutional investors) wants Elizabeth out.

Now they need more shareholders to move over to the dark side and vote.

The problem is that I still do not know which side Lazard (one of the major shareholder of the firm) is standing with.

If I am Lazard, it is time to shop around. They may choose to go with anyone who provides them the “best possible deal:. Since ASM is unwilling to be see acting in concert with any other shareholders, it meant that Lazard could be talking to CMCDI?

The varied possibilities of Lazard working with CMCDI could throw a spanner into ASM’s plan?

My key takeaway for the AGM,  

1. Interim dividend is coming?

   • Meant divestment is coming?

2. BOD seems to be comfortable to consider value enhancing measure

   • Some share buyback?

3. If ASM get lucky, they may have just enough votes to remove the manager in November

   • So a reduction of manager fees will be coming?

So the melodrama will drag on to November and the episode 2 will resume. This time the main character will not be Elizabeth but her boss Victor Chu.

I am not going to speculate on what value enhancing measure CMCDI will do but either way I think continue to favour the thoughts of getting a decent return from CMCDI at current prices of HKD 13.56 before the year end.

Natural Food - Everything is natural or so they say…

Natural Food International Holding Limited, an investment holding company, engages in the processing and sale of natural health food products in China. The company also offers management and administration services. It markets its products through a network of concessionary counters; channel networks; and online channels, including e-commerce platforms. The company was formerly known as Roomy Development Holdings Limited and changed its name to Natural Food International Holding Limited in May 2018. The company was founded in 2007 and is headquartered in Shenzhen, China.

-Tikr.com

I understood a little more history on their listing during my second meeting with them and I think I can make some sense of their business or capital allocation decision. 

Natural Food listed when their offline business is declining. 

• Just before Covid hit, their pivot into online sales managed to catch the wave of online purchases. 

• Leveraging their brand recognition, their new online products gained traction and managed to offset their declining offline sales. 

• Their success and possibly the growth of online sales of food products attracted tons of competitors into the online space. 

• After the end of lockdown, renowned competitors like Beijing Tonrentang also noticed this trend of health food online and have started selling similar products offline

• Online food products operator also started to move offline albeit with huge losses

May it be in the online or offline space, the question is how is Natural Food going to handle all these old and new competitors? Natural Food may have a branding advantage for now but can they continue to maintain a premium pricing in a weakening market where product is inherently hard to be differentiated in an online world?

The uncertainty on the success of their new products meant that the management knows that the company is on a knife edge. They need the excess cash to be lying around just in case anything trips up. There is much uncertainty when there are so much competition. 

In addition, in the latest annual report, there is an Impairment of RMB 10M of financial assets due from related parties - Shenzhen Jingya. This is a potential red flag which could warrants more explanation…

Thinking about gross margin:

My simple thinking in the past has been that the higher the gross margin, the better the business. 

There is nothing wrong with that thought but the better question to ask would be 

• What are the factors that help the company maintain or even improve that gross margin?

That sounds better?

An even better one?

• What are the things that the company is doing that may decrease your gross margin but help create a long lasting moat for the business?

The question is not about a higher gross margin but what is the gross margin that is left untapped. If you have tons of gross margin left untapped, it means that it is hard for competitors to come in. If you have tapped out all the last drop of gross margin, expect some serious competition for your business.

My last trip to Hong Kong help to solidify the thoughts that HK is most likely not dying?

My recent trip to Hong Kong - Shenzhen - Beijing only solidifies my thoughts that there may be something fundamentally broken in China? 

It starts with large huge uncollectible receivables. 

Receivable days in China for b2b are usually very long. If you deal with the big boys like Huawei and Xiaomi, expect a receivable days of > a year. But if you deal with the government or SOE, it may be > 6 months.

During this trip, I have heard of horror stories where the provincial government have basically stopped paying their suppliers while continuing to demand services from these very companies. The negotiation tactics are like, we are not going to pay you for your past services but if you continue to service us we may just pay you - for your future services... 

For those dealing with “reputable” state owned enterprise (SOE), expect receivable days to balloon from 6 months to a year or more.

As for the banking system, I know of one software vendor who need to write off their receivables as they cannot get their “reputable” bank customers to pay them. The software vendor I talked to provide core banking services…

I wonder what will happen if the software vendor pulled the plugs on these banks. The ensuing chaos would be unimaginable. My guess is that the software vendor is in as much of a bind as the banks as they cannot be seen as creating chaos - disrupting the banking system. 

The whole economy is suffocating under a lack of cash. Everyone seems to be owed money and every source ultimately point towards the provincial government. The biggest spender has simply stopped spending.

The only answer is that everyone expects the central government to step in and provide some help. 

My question is what if the central government chooses not to step in or if the help came in too late or came in too little?

YesAsia - More luck than smart

I spoke about YesAsia and the potential arbitrage of HK companies who speak Cantonese in week 16. 

I would not have guessed that YesAsia would have become a 3.8 bagger (from HKD 0.75 to HKD 2.85) in a span of 3 months. From its trough (HKD 0.44)  to its peak (HKD 4.86), it is a 10 bagger in a year. 

I am not so smart to have bought it at its trough and not so smart to have sold it at its peak, but it has been a profitable exercise. 

So what has transpired these moves?

My guess is that someone is trying to make a play for the company and it is likely a big Korean cosmetic brand who wants YesAsia’s digital channel distribution in the US and Europe.

No matter the reasons, it is always wise to get out when the valuation is far removed from the current realities of the business.

FAR Limited - Still far from a complete sale?

I wrote about Far Limited on week 22. 

Now, they have further announced that that the contingent payments are coming and the share price has barely budged. 

If the situation is conducive, we should be expecting FAR to be marketing the block out for early monetisation. 

Expect to get some money back soon!

Aerovate Therapeutics Inc - Aero-elevate to Aero-depreciate

I have been dwelling into therapeutic medicine for some time. 

I am not medically trained and could hardly read and understand any medical finding with any speed and precision. But this space is intellectually stimulating and fun to research on. 

Looking at the chart, it seems that fun and profitability usually do not mix. The binary nature of drugs development meant that a single announcement could decimate a company’s prospects. 

Looks like it is best to stick with the HK market where stocks are less well researched and there could be an clear edge.

Since posting about Mermaid’s pullback in price from SGD0.16 to SGD0.13 on 2024 Week 20, the stock price has continued to power up.

With a market capitalisation of SGD 251m, it is hard to justify that Mermaid is a value stock. At a higher price, it is getting harder to justify holding a full position. Depending on your horizon, it may make sense to start trimming the position. 

It is more of a momentum play now. The main trade is that growth is going to continue and the margins are going to hold up.

Since Subsea work typically comes after the discovery of oil through an oil rig, my guess is that the subsea sector up-cycle is just coming. 

If you pull out the chart to the max, the recent rally is just a blip in the Oil and Gas services sector turnaround and recovery. 

Semler Scientific - Taking the LUCK”Y” bitcoin:

Imagine you see this after just taking an initial stake in the company and they release this piece of news. 

I always thought that treasury are meant to 

• provide a safety net 

• preserve bullets so that one can pounce on an opportunity

for the company.

Somehow I cannot see bitcoin serving either of the above mentioned functions.

The stock price looks like this right after the news.

The management manages to get the adrenaline and the testosterone pumping and I am thanking my lucky star and saying adieu to this position.

FAR Limited - not how much but when?

FAR Limited operates as an oil and gas exploration and development company with primary assets in West Africa and Australia. The company holds a portfolio of exploration licenses in the Gambia and Guinea-Bissau. 

-Tikr.com

But FAR is no longer 

• oil and gas exploration and development company

• has any asset in Gambia or Guinea-Bissau

Currently, FAR only holds a Contingent Payment from Woodside for the Sangomar field which is expected to commence its first production in mid-2024 which is like now?

It is also the intention for FAR to monetise their contingent payment to get the money NOW than in December 2027.

So FAR is going to receive USD 55m/ AUD 82m in 2027 (around 3.5 years time) or an early contingent payment of around USD 30m / AUD 44m (depending on the discount rate you are using). 

So you either get USD 55m/ AUD 82m in 2027 which is not a bad outcome since you basically double your money in 3.5 years (which should be around 23% per year) or you get a payout north of AUD 44m soon. 

I like the odds of not losing money here.

China - If there is one metric to tell it all…

I know I am supposed to 

Trust but Verify

- Ronald Reagan

Sometimes the concept below just simply appeal to me.  

If there is one metric that helps to determine the competitive advantage of a nation, it has to be the cost of generating power (and the amount it could generate at that price).

Judging from Luke Gromen’s comment, China is gaining a significant advantage against the US unless something dramatic happens on the technological front for energy.

I believe the China bull market or turnaround is only starting.

There is still time to get on the train.

I am flying once again to do some research, first to Hong Kong, Shenzhen and then Beijing.

Subscribe now