The Chronicle of My Investment Journey

Bull or bear?

2007-03-01T11:07:00.000+08:00

Yesterday I experienced the worst global equity sell-off after September, 2001. STI index shedded 4 percent or 127.87 and closed at 3104.15 with all of the major stock markets across Asia, Europe and Latin America are in the sea of red. The story was started with a bloodbath in Shanghai on Tuesday with dramatic 8.8 percent drop followed by 416-point plunge on Wall Street overnight.

But it was quite an expected event since the global equity markets were long been overdue for a correction. Stock markets across the globe were at their record highs after multiple years of bull-run.

But what had ignited this sell-down? Did the rumors of China government's crackdown on stock speculation change the global economic fundamentals overnight so as to trigger this sell-down? Did the suicide attempt to kill US Vice President Dick Cheney in Afghanistan change the world's geo-political lookout suddenly? Is it because of the former Federal Reserve chairman Alan Greenspan's warning on Monday that a year-end US recession could be possible? There was a report which showed durable good orders are much more lower than expected in January, and the news which announced leading US mortgage lender Freddie Mac' tougher lending standards. Did those reports and news give the investors clearer picture of wold economy outlook than previous ones?

Whatever the reason is, one thing I can be sure is global stock markets are heading for more and more volatility.

Currently with a mixture of good and bad economic reports, it is too early to say if the markets are heading for prolong declining trend or yesterday event was just a minor accident in a decade long bull markets.

Anyway I must be more cautious nowadays.

Unifiber?

2007-01-21T03:28:00.000+08:00

Teh Hooi Ling took on Unifiber. I'll hold a few lots of it...

Is Unifiber a worthwhile bet?

By TEH HOOI LING

IT IS hard to win back investors' confidence after as harrowing an experience as seeing a stock plunge 50 per cent in a span of two hours.

That's what happened to United Fiber System on April 18, 2005, when its share price plunged from 51 cents to 23.5 cents. Of course, in the four months leading up to that fateful day, the stock had climbed more than 230 per cent.

The climb was fuelled by the promise of its forestry and yet-to-be-built pulp business. And the fall was attributed to some vague rumours of it not being able to get financing to build the pulp mill.

Nearly two years have passed and Unifiber is still trading around the same level.

Yet on the operations front, some marginal improvements have taken place. But still, it has some way to go before fulfilling the high hopes investors had of it a few years back.

First on the improvements. Its legacy construction business, under Poh Lian Construction, is looking up as the development of numerous massive projects as well as private residential projects in Singapore picks up speed. Poh Lian Construction is an A1 class contractor, and can tender for public sector projects of unlimited value. Its order book expanded to $220 million from $150 million a year ago, gross profit margin has also fattened to 5-8 per cent from 3-5 per cent last year.

Forest concession

Also, in the two years since, Unifiber's Acacia Manguim trees in its forest concession in South Kalimantan, Indonesia, has had time to grow a little bigger. As at end 2005, the forest asset had a book value of over US$204 million, based on valuation by international third party consultant Poyry. Meanwhile, its wood chip mill was finally completed at the end of last year at a cost of US$45 million. Production has begun, and according to Unifiber's newly appointed chief executive Jaka Prasetya, the mill will reach 80 to 90 per cent of its capacity in the first 12 months of its operations.

At 100 per cent capacity, the mill is expected to rake in earnings before interest, tax, depreciation and amortisation (Ebitda) of US$25 million to US$30 million. How much of this will trickle down to shareholders in the first two years remains to be seen. About US$39 million of the wood mill construction costs was funded by China National Machinery & Equipment Import and Export Corporation (CMEC) and Raiffeisen Zentralbank. Interest for the loan is about 6 or 7 per cent, and repayment has to be made in three years.

All along, the big money earner was going to be the pulp mill - one to be built by Unifiber itself, and another through acquisition.

Its own pulp mill, able to produce 600,000 tonnes of bleached hardwood kraft pulp (BHKP), was supposed to have started construction end 2004 or early 2005. Now, work is only expected to begin end of this quarter or next. And very optimistically, the mill will only be operational end of 2009. Similarly the development costs of US$863 million will be 80 per cent-financed by the turnkey contractor CMEC.

Meanwhile, Unifiber announced in mid-2005 that it was eyeing to buy PT Kiani Kertas, an operationally ready BHKP mill with an annual capacity of 525,000 tonnes, at a price of US$475 million.

One and a half years on, the deal is yet to be closed. In the meantime, Unifiber has entered into an operational management arrangement to try and restart the Kiani mill. The mill had its last full commercial run in 2002. To be fully operational again, new investments worth US$40 million to US$50 million, in addition to working capital, have to be made.

Business backing

All said, there are still many question marks surrounding Unifiber. But it is also true that the 28 cents that it is trading at now has more tangible business backing it than two years ago.

In a recent report, DMG & Partners Securities valued the group's forestry concession at 18 cents a share, its wood chip mills 10 cents, and construction 5 cents. Applying a discount of 40 per cent for the many execution disappointments in the past and one gets a value of 20 cents a share. The remaining eight cents can be seen as an option to the new pulp mill and the acquisition of Kiani.

Two US funds seem to think Unifiber a worthwhile bet. Last November, Stark Investments and Polygon Global Opportunities Master Fund paid 27 cents apiece for 180 million new Unifiber shares, or a stake of 7.8 per cent.

Thus at current level, Unifiber may appeal to some speculative investors. They, however, must hang on until the day the market got over its bitterness with the stock, or until the good news on Kiani comes through, or if Unifiber announces new projects on the construction or property front, or for signs of earnings finally materialising. The last may indeed turn out to be the last to happen.

Offer for Landwind Medical by Echo Investment

2007-01-13T11:46:00.000+08:00

Yesterday Landwind Medical announced that Private equity investor Echo Investment Holdings was making US$108m tender offer to acquire it. Echo has offered 58 cents in cash for each share in Landwind.

This offer price represents a premium of nearly 60 percent over last closing price of 36.5 cents or a premium of nearly 15 percent over my effective cost.

I’ll sell off all my holdings for Landwind Medical in open market in coming weeks.

My faith in Landwind medical has finally paid off.

My Portfolio as of 07/01/2007

2007-01-07T17:09:00.000+08:00

This is my portfolio at the beginning of the year of 2007. In 2007, I hope at least to double the unrealized profits currently I have.

My stock holdings are -

- Ho Bee, bought @ 48 cents, currently @ 140 cents
- HG Metal, bought @ 32.5 cents, currently @ 46.5 cents
- Landwind Medical, bought @ 47.75 cents, currently @ 39.5 cents

I don't intend to sell off Ho Bee until the end of 2007. If the price drop below one dollar while the Singapore economy is still in good track, I'll buy a few more lots of it. As for HG metal, I'll subscribe my entitled rights as well as excess rights and hold it until the end of 2007 too. With this two counters, I hope I will also have a fair share of properties boom Singapore currently enjoying. I will sell off at half of Landwind if the market if price exceed 48 cents.

I started my unit trust investment in March 2006. As of today, my unit trust holdings are -

- Aberdeen Indonesia Eq Fund
- Aberdeen Thailand Eq Fund
- Schroder Emerging Europe Fund
- DWS China Equity Fund

After 2006 ...

2006-12-31T16:59:00.000+08:00

Abundant of liquidity had turned 2006 to the most bullish year in the decade for most of the stock markets. But with the major economies tightening their liquidity, will 2007 become a year of recessions?

I just want to recalled this BT article from March 2006.

Beware the Ides of March - or of other months - 16/03/2006
By ANTHONY ROWLEYIN TOKYO

'BEWARE the Ides (fifteenth day) of March', as the soothsayer urged Julius Caesar in Shakespeare's play of the same name.

That fateful date has come and gone. But what we should perhaps beware of is a period, such as the present, when things seem too quiet and when it appears that we can afford to let our guard down.

This is not to turn from soothsayer to doomsayer. But it is not a bad idea to take stock of whether or not economic conditions are really as benign as they appear to be, or whether there could be nasty surprises lurking beyond our immediate field of vision. If there are threats on the horizon, they probably will arise in Japan and in China - but more of this later.

For the moment, the world seems to have absorbed the emergence of new economic powers such as China, India, Brazil and others with remarkable ease. There are no major trade wars currently being fought; unemployment is contained in most major economies; inflation seems to have been tamed; and there is no crisis in currency markets. Above all, global economic growth is progressing at solid and apparently sustainable levels.

'All', it would seem (to quote Rabelais) 'is for the best in the best of all possible worlds.' Yet, in the case of the global economy, all is being sustained upon a fundamentally unstable basis. The US economy is the chief source of this dubious period of prosperity and plenty. Borrowing and spending with abandon, the US consumer is creating massive import demand, thereby sustaining stunning growth in China and recovery in Japan.

This, together with domestic demand in these two countries (which itself is fed by the confidence generated from exports), has leveraged up world trade and investment growth to remarkable proportions. Fortunately - or so it appears - for the rest of the world, the Japanese, Chinese, Indians and other Asians are not consuming but rather saving. More fortunately still, it appears, they are not investing their savings at home but in the US instead.

This completes the circle and not only enables the US to sustain a massive current account deficit but also permits the government there to run a huge budget deficit which its own citizens are in no position to fund themselves.

Meanwhile, the dollar is saved from collapse by this circular flow of funds, and the US Federal Reserve is able to preserve interest rates at levels which do not damage a housing boom that, in turn, provides a basis for borrowing and consumption.

Thus the merry-go-round of global growth, trade and investment spins on, while stock markets ride gaily on the back of it and even overstretched government bond markets - which ought to be shaking on their axles - are able to grind along too. The keystone of what appears to be this splendid edifice of global prosperity (but is in reality a house built upon sand) is the huge cache of financial liquidity which central banks have injected into its foundations.

If once that liquidity should dry up, the sand is in danger of becoming unstable and crumbling away. This is why developments in Japan and China over the past week are of great potential significance. The Bank of Japan has decided drain 30 trillion yen (S$414 billion) of excess liquidity from the banking system - a development which could have global ramifications of earthquake proportions.

The Japanese government will be unable to finance its own colossal budget deficit so easily as this liquidity evaporates and may be compelled to liquidate part of its vast holdings (some US$850 billion) of foreign exchange reserves in order to make ends meet. In China, monetary authorities have suggested this week that they will allow the yuan to appreciate further, which means they will buy fewer dollars and that domestic liquidity will contract.

Just what the consequences will be for the global economy is not something that is easily read in the cards but what is clear is that one vital link in the chain of global pseudo prosperity is about to come under stress. And, if Asian governments heed the advice given to them this week by Asian Development Bank vice-president Liqun Jin and use some of their 'vast financial reserves for (infrastructure) investments at home', that link could snap.

All this is to say nothing of the secondary effects of the recent oil shock, being manifested now in US gasoline prices. Nothing damages confidence quicker in the gas-guzzling US economy than a rise in 'pump' prices. If that should put pressure on the spigot of US personal spending, then the wave of consumer liquidity washing up on Asia's shores will recede.

The Ides of March may be gone but the Roman calendar shows there are Ides in other months, too - and we have yet to survive those.

Would You Rather Own Google or Indonesia?

2006-05-22T21:14:00.000+08:00

While I was searching information about Indonesia, I came across this article from Bloomberg.

by William Pesek Jr.

William Pesek Jr. is a columnist for Bloomberg News. The opinions expressed are his own.

Oct. 11 (Bloomberg) -- Faced with poverty, surging oil prices and terrorist threats, many of Indonesia's 235 million people probably never noticed the milestone. Ditto for global investors, who care more about such things.

In April, Google Inc. surpassed Indonesia's entire stock market in value.

Think about it. A seven-year-old company that produces no physical products is now more valuable than the equity of Southeast Asia's biggest economy. Indonesia is an archipelago of some 18,000 islands holding natural resources --including oil -- that make the world's richest nations salivate. Google is, well, an Internet search tool.

It raises an intriguing question, and one Mark Matthews, a Singapore-based director at Merrill Lynch & Co., posed this week in a sales note to clients: Which would you rather own: 100 percent of the Indonesian equities market or Google?

A bit existential perhaps, but a question that focuses the mind and gets at a bigger point. Matthews' take on it? Indonesia is the clear winner.

``Indonesia is a hairy asset to be sure,'' he wrote. ``It has African levels of corruption, thousands of islands spread out over three time zones, Islamic extremists. But judging by the market's ability to withstand the most recent mini-crisis and Bali bombs, this is in the price. So there is upside if they can eventually get it right. And it is something real.''

Today's Cotton Gin?

Matthews can't help but wonder if Google will go the way of inventor Eli Whitney. ``The cotton gin changed America,'' Matthews wrote. ``It revitalized the South and boosted the British textile industry, and had a thousand other effects. And this earned the inventor, Eli Whitney, almost nothing.''

What's all this got to do with Google? ``That's sort of where Google is today,'' Matthews wrote. ``Google has a small lead over a pack of competitors, all eager to fight for one of the few remaining high-margin zones left in tech-land. Does Google management know that the supply of advertising space on the Internet is unlimited?

Google's market cap is $92 billion and last year it had $3.2 billion in sales. Indonesia's stock market is valued at $72 billion and its gross domestic product is $258 billion. PT Telekomunikasi Indonesia, the nation's biggest telephone operator, alone had sales of 33.9 trillion rupiah ($3.3 billion) in 2004. In other words, one company that's just 14 percent of the Jakarta Composite Index had more sales than Google.

Indonesia's Pros and Cons

Matthews' basic conclusion is this: Folks who buy Indonesia at current prices may do better than those who buy Google.

In 1998, for example, Microsoft Corp.'s market cap was bigger than South Korea's. Now Microsoft's is $272 billion and Korea's is $530 billion. ``If I could take a 7-year view on them, I would long Indonesia and short Google,'' Matthews says.

Aficionados of the information age may fear Matthews is spending too much time in the tropical sun. The stock of the most- used Web search engine rose 62 percent this year alone. Clearly, people are making some serious money off Google. And how many companies have seen their name become a verb?

Google comparisons aside, Matthews raises some interesting points about the state of the world's fourth most-populous nation.

The aftermath of the deadly Oct. 1 bombings in Bali hasn't been what their perpetrators might have expected. If the hope of the suicide bombers who killed themselves and 19 other people was to shake confidence in Indonesia's economy, they failed miserably.

Bonds Tell the Story

That Indonesia's stocks are still up nearly 10 percent this year is one sign. A more important one is that Indonesia drew excess demand last week for its biggest overseas debt sale, and that it plans to sell more 30-year bonds in 2006.

If investors viewed Indonesia as a basket case -- which many did following the 2002 Bali bombings and the 2003 attack on the JW Marriott Hotel in Jakarta -- would they really have placed $4.25 billion of orders for the $1.5 billion of 10- and 30-year debt it sold? That demand prompted the government to increase the sale by 20 percent.

While the yields Jakarta is paying are higher than those offered in April, they were at the bottom of the range marketed to fund managers. The demand reflects confidence President Susilo Bambang Yudhoyono is making progress toward reducing Indonesia's budget deficit, protecting currency reserves and attacking corruption.

Subsidy Gamble

Risks indeed abound in Indonesia, an economy whose only real consistency is its ability to confound investors. The place has crushing poverty, terrorist threats and chronic inefficiencies. And those are just the concerns investors focus. Any Asia-wide outbreak of bird flu, for example, could hit Indonesia hard.

Yudhoyono says he's tackling the problems that cost Indonesia the foreign direct investment it needs. Earlier this month, he almost tripled kerosene prices and more than doubled diesel tariffs to cap fuel subsidies and reduce the budget deficit.

While a tricky maneuver for any leader, that's a particularly perilous one in Indonesia. In 1998, the removal of subsidies fueled violent protests that toppled President Suharto. Yet Standard & Poor's on Oct. 3 said Yudhoyono's move was ``encouraging'' and will spur investor confidence.

It's a reminder that in any Google versus Indonesia debate, Asia's No. 7 economy may not be as bad a bet as you think.

To contact the writer of this column: William Pesek Jr. in Tokyo at wpesek@bloomberg.net and .

Last Updated: October 10, 2005 21:41 EDT