I took a trip up to KL over the last weekend to meet up with some of my friends for a weekend getaway. On the way up via the North South Highway via the Second Link, it was good seeing vast open spaces compared to the urban jungle that we see in Singapore. More importantly, it was good looking out of the window to vast amount of palm plantations which got me looking, thinking and ultimately digging further into information about the palm oil industry.
(1) Mature and Immature
Sounds really easy at first, where mature palms are those that are able to produce palm fruits and immature ones are those that have not started producing fruits. Travelling along the highway, what I saw was the really new plantations, where you see the palm leaves just sprouting; medium height plantations, where you could see a short trunk; and the older palms, where it looks exactly like a tree.
So when do palm trees produce their highest yield? That was an immediate concern that came to my mind. Firms may classify their palms as mature, however it may be near the tail end or past the peak production age. What I found out was palm oil yields were highest were from the 6th year to the 12th year. After that, the yields will start decreasing.
(2) What happens after death?
I saw a few plantations where there were withering trees, or just clearings. A few questions came to my mind.
First, what is the life of the palm tree, and given that yields decline after 12 years of age? In the article "The Optimal Age of Palm Oil Replanting", they have stated that the optimal age of replanting based on marginal revenues would be of 30 years of age, when after that the palm trees get too tall, and yields will be too low to support the labour costs. However, I have my doubts on the viability of replanting trees when they reach 30 considering that yields may be too low to sustain the total sum of all costs (including SG&A costs).
Second, how long will it take before the land is viable to replace palm trees? Would they do better to replant on uncultivated land or replant on land that has been planted on before? Thus far, I am unable to determine the answer to the question, and I am currently finding more information on this topic. However, one thing I noted was if it ever came to this situation, chances are the company does not have a large enough land bank, which may be detrimental to future expansion plans.
(3) Wide Open Spaces
One thing I noticed is that wherever there was wide open spaces, there were palm trees. From an industry point of view, it would mean that there will be ample supply. However, this may cause prices to be depressed in the situation where supply exceeds demand. Interestingly, with the current weather patterns said to cause yields to be lower, the issue of supply outstripping demand has not been a big issue to deal with as yet. In the future, there is a need to consider this supply demand balance.
Later today, I will be attending FR's AGM, and I hope it would be a good experience (especially with the food). There will be a summary of the AGM, and a review of property prices coming up in the next week or two.
Tuesday, April 27, 2010
Wednesday, April 14, 2010
Forex and Politics
Before I start this piece, I would like to mention that in no way does this blog have any political ideas, all things included in this post are just my opinions. Hope I don't lose any readers because of this.
On the Financial Times yesterday, there was an article about the upcoming elections in Britain (Britain is arguing about the past, by Philip Stephens). This article got me thinking about how politics and economy of a country is intertwined.
When Gordon Brown announced that elections were going to take place on May 6th, this is what happened between the GBP/AUD is shown below.
What is interesting here to note is that the GBP had a 200point dip against the AUD in a little over 4 hours. The large drop was due to the worries that neither party would be able to able to secure a majority in the upcoming elections. Although it has since recovered, to 1.6521, and admittedly forex is extremely sensitive to political instability, questions popped up in my head about governments and how political instability, flawed monetary policies, or just plain mismanagement can affect a country's finances and economy.
The best example would be Zimbabwe. Any country with inflation rates that high ought to be listed in the Guinness Book of Records. Other examples that come to mind would be as recent as the PIGS incident, where spending sprees by government has come back to haunt them. Likewise, low interest rates in US helped fuel the housing boom which resulted in the subprime crisis that we have all come to know.
Somewhere in the middle of the article, Stephens writes:
"Colleagues of Mr Cameron say he is confident about being the next prime minister: the nation, they judge, cannot contemplate the prospect five more years of Mr Brown. This tells us little about the Tory alternative"
I thought this was quite apt in describing the political situation in Singapore. With house prices increasing, without our salary matching it, and with COE prices increasing probably due to the change in number of COEs provided, it makes me wonder what happens when I graduate and start a family.
It makes me wonder whether a change in the number of opposition in government would be a good solution that would change policies that we have right now. However, from what I read from several websites, Temasek Review being one of them, it cast a lot of doubt on the quality of the opposition because simply, there isn't enough news on them and the positive things they have done. Instead it is more like an anti-PAP session than a positive opposition session. It seems that the idea is either NBP (nothing but PAP) or ABP (anything but PAP).
Looking at how several bad policies as mentioned earlier would have an adverse impact on the economy, my vote rests with the party that is able to prove that they are able to do a better job, instead of competing for which is the lousier of the 2 parties. If PAP's policies are working for Singapore's economy, I really don't see a need to change because I don't see much benefits.
Once again, I would like to reiterate that this is my personal opinion, and the only inducement is to provide a point of view for everyone.
On the Financial Times yesterday, there was an article about the upcoming elections in Britain (Britain is arguing about the past, by Philip Stephens). This article got me thinking about how politics and economy of a country is intertwined.
When Gordon Brown announced that elections were going to take place on May 6th, this is what happened between the GBP/AUD is shown below.
What is interesting here to note is that the GBP had a 200point dip against the AUD in a little over 4 hours. The large drop was due to the worries that neither party would be able to able to secure a majority in the upcoming elections. Although it has since recovered, to 1.6521, and admittedly forex is extremely sensitive to political instability, questions popped up in my head about governments and how political instability, flawed monetary policies, or just plain mismanagement can affect a country's finances and economy.The best example would be Zimbabwe. Any country with inflation rates that high ought to be listed in the Guinness Book of Records. Other examples that come to mind would be as recent as the PIGS incident, where spending sprees by government has come back to haunt them. Likewise, low interest rates in US helped fuel the housing boom which resulted in the subprime crisis that we have all come to know.
Somewhere in the middle of the article, Stephens writes:
"Colleagues of Mr Cameron say he is confident about being the next prime minister: the nation, they judge, cannot contemplate the prospect five more years of Mr Brown. This tells us little about the Tory alternative"
I thought this was quite apt in describing the political situation in Singapore. With house prices increasing, without our salary matching it, and with COE prices increasing probably due to the change in number of COEs provided, it makes me wonder what happens when I graduate and start a family.
It makes me wonder whether a change in the number of opposition in government would be a good solution that would change policies that we have right now. However, from what I read from several websites, Temasek Review being one of them, it cast a lot of doubt on the quality of the opposition because simply, there isn't enough news on them and the positive things they have done. Instead it is more like an anti-PAP session than a positive opposition session. It seems that the idea is either NBP (nothing but PAP) or ABP (anything but PAP).
Looking at how several bad policies as mentioned earlier would have an adverse impact on the economy, my vote rests with the party that is able to prove that they are able to do a better job, instead of competing for which is the lousier of the 2 parties. If PAP's policies are working for Singapore's economy, I really don't see a need to change because I don't see much benefits.
Once again, I would like to reiterate that this is my personal opinion, and the only inducement is to provide a point of view for everyone.
Tuesday, April 13, 2010
Mencast Holdings
A friend asked me to look through this company, Mencast Holdings, and provide an opinion about it
About Mencast Holdings
Established in 1981, Mencast manufactures and supplies sterngear equipment and provides sterngear services for a wide range of commercial vessel applications.
Mainly caters to customers in the offshore oil and gas and marine industry, our customers include local and regional shipyards and owners, such as the subsidiaries within the offshore and marine business division of Keppel Corporation Limited, Labroy Shipbuilding and Engineering Pte. Ltd. and the subsidiaries of SembCorp Marine Ltd.
Led by a dedicated and experienced management team, as well as equipped with advanced machinery and strong technical expertise, Mencast is committed to providing quality products and services to our customers. We are one of the first sterngear equipment manufacturers in Singapore to obtained the ISO9001:2000 Quality Management System certification. In addition, we achieved the Singapore SME 500 award for two consecutive years in 2005 and 2006.
Strategically based in Singapore, Mencast is well-positioned to ride on the growth in the offshore oil and gas and marine industry.
Structure of Group
(as taken from mencast.com.sg)
First Thoughts on Mencast
When I was first told about Mencast and what they did, he looked at it as they provided a unique service that shipping companies needed. Furthermore, there were no other companies that specialized in building and maintaining ship parts.
The first thought that hit me was shipping. Earlier in the year, I did a research on dry bulk shipping and the shipping industry as a whole and not surprisingly, there was overcapacity in the sector resulting in low freight rates. Tankers however, fared better than dry bulk, with a higher demand.
I am currently avoiding shipping counters currently and may review it after this earnings season. (I bet those people out there holding NOL and Cosco will be laughing at me right now.) So when he first told me about Mencast, I was (and still am) negative about the industry as compared to the company itself.
I will give the upside on the industry at the end of this piece, although I remain underweight on it.
Mencast Income Statement
Since 2007, Mencast's revenue has grown approximately 39.19%, and COGS has been at 54% of sales on average over the past 3 years. Since its IPO in 2008, the Sterngear Manufacturing division's revenue has dropped by 3%, while the Sterngear Services division revenue increased by 16%, all together contributing to a 4.83% increase in revenue since its IPO.
This large topline growth has contributed to a 35% adjusted growth over 3 years for operating profit. One thing to note about operating profit for 2009. The Other Gains includes one off gains, and the figure of 35% does not take into account this one off gain. Net Profit excluding one off gains increased by 25% since 2007.
Since the IPO however, excluding one off gains, Operating Profit has increased by 5%, and Net Profit, excluding one off gains (in this case I included the IPO expense as a one off), fell by 1% from 2008 to 2009.
This translated to a P/E ratio of 6.6 at the end of FY2009, and a 3 year trailing P/E of 7.2.
Taking into account the theoretical growth rate (ROE x Retention Ratio) using the amount retained by the company, the PEG ratio comes in at 0.67 assuming continuous 20% growth. Using the earnings per share growth, however, the PEG ratio was 1.22 for FY2009. This assumes that the P/E of SGX trades at a 50% discount to NYSE.
Mencast Balance Sheet
Mencast NAV value for 2009 was SGD0.181, an increase of 4cents from 2008. Its NTA, however, was SGD0.16 for FY2009. This translated to a P/B ratio of 1.65 for FY2009. ROE decreased due to a decrease in the Asset Turnover Ratio, due to the increased amount of PPE they have taken on since the IPO.
The company has also taken on long term debt of 8345k at YE2009, compared to 2937k at YE2008. The increase in Finance Expense in the income statement to 1.3% of sales from 0.5% of sales shows that the company has incurred more debt, though not necessarily a bad thing should they wish to expand.
Mencast Cash Flow
Mencast Free Cash Flow has been positive over the past 3 years, with FCF 52% of Operating Cash Flow for 2009. For 2009, the dividend paid was 47% of its free cash flow.
Opinions on Mencast
Mencast is tied closely to the shipping industry, and with the shipping industry still at the bottom of a down cycle, I believe that Mencast would be have a buy rating if we are looking at industry wise, and if there were no opportunity costs. However, purchasing Mencast stocks exposes us to opportunity costs as we would have to wait to see signs of recovery from the Shipping industry.
Mencast is slightly overvalued at this current time, especially with limited growth prospects. The issue with Mencast is that there are no other companies to do relative comparisons.
Due to my negative forecast on the shipping industry, coupled with the analysis of Mencast, I would not think right now is the correct time to purchase Mencast Holdings Inc.
Shipping Industry
For readers who are still reading this, I wish to point out something regarding the shipping industry. Right now shipping seems to be at the bottom of a down cycle, and the question should be asked how low can it go. If your analysis tells you that the economy is recovering and commodities boom is going to reduce the capacity of the shipping sector, you should purchase shipping companies. I believe shipping would recover by 1H2011, and I actually own shares in a LTL company, YRC Worldwide, although it is banking more on the turnaround of the company, and hopefully an early recovery in transportation.
About Mencast Holdings
Established in 1981, Mencast manufactures and supplies sterngear equipment and provides sterngear services for a wide range of commercial vessel applications.
Mainly caters to customers in the offshore oil and gas and marine industry, our customers include local and regional shipyards and owners, such as the subsidiaries within the offshore and marine business division of Keppel Corporation Limited, Labroy Shipbuilding and Engineering Pte. Ltd. and the subsidiaries of SembCorp Marine Ltd.
Led by a dedicated and experienced management team, as well as equipped with advanced machinery and strong technical expertise, Mencast is committed to providing quality products and services to our customers. We are one of the first sterngear equipment manufacturers in Singapore to obtained the ISO9001:2000 Quality Management System certification. In addition, we achieved the Singapore SME 500 award for two consecutive years in 2005 and 2006.
Strategically based in Singapore, Mencast is well-positioned to ride on the growth in the offshore oil and gas and marine industry.
Structure of Group
(as taken from mencast.com.sg)First Thoughts on Mencast
When I was first told about Mencast and what they did, he looked at it as they provided a unique service that shipping companies needed. Furthermore, there were no other companies that specialized in building and maintaining ship parts.
The first thought that hit me was shipping. Earlier in the year, I did a research on dry bulk shipping and the shipping industry as a whole and not surprisingly, there was overcapacity in the sector resulting in low freight rates. Tankers however, fared better than dry bulk, with a higher demand.
I am currently avoiding shipping counters currently and may review it after this earnings season. (I bet those people out there holding NOL and Cosco will be laughing at me right now.) So when he first told me about Mencast, I was (and still am) negative about the industry as compared to the company itself.
I will give the upside on the industry at the end of this piece, although I remain underweight on it.
Mencast Income Statement
Since 2007, Mencast's revenue has grown approximately 39.19%, and COGS has been at 54% of sales on average over the past 3 years. Since its IPO in 2008, the Sterngear Manufacturing division's revenue has dropped by 3%, while the Sterngear Services division revenue increased by 16%, all together contributing to a 4.83% increase in revenue since its IPO.This large topline growth has contributed to a 35% adjusted growth over 3 years for operating profit. One thing to note about operating profit for 2009. The Other Gains includes one off gains, and the figure of 35% does not take into account this one off gain. Net Profit excluding one off gains increased by 25% since 2007.
Since the IPO however, excluding one off gains, Operating Profit has increased by 5%, and Net Profit, excluding one off gains (in this case I included the IPO expense as a one off), fell by 1% from 2008 to 2009.
This translated to a P/E ratio of 6.6 at the end of FY2009, and a 3 year trailing P/E of 7.2.
Taking into account the theoretical growth rate (ROE x Retention Ratio) using the amount retained by the company, the PEG ratio comes in at 0.67 assuming continuous 20% growth. Using the earnings per share growth, however, the PEG ratio was 1.22 for FY2009. This assumes that the P/E of SGX trades at a 50% discount to NYSE.
Mencast Balance Sheet
Mencast NAV value for 2009 was SGD0.181, an increase of 4cents from 2008. Its NTA, however, was SGD0.16 for FY2009. This translated to a P/B ratio of 1.65 for FY2009. ROE decreased due to a decrease in the Asset Turnover Ratio, due to the increased amount of PPE they have taken on since the IPO.The company has also taken on long term debt of 8345k at YE2009, compared to 2937k at YE2008. The increase in Finance Expense in the income statement to 1.3% of sales from 0.5% of sales shows that the company has incurred more debt, though not necessarily a bad thing should they wish to expand.
Mencast Cash Flow
Mencast Free Cash Flow has been positive over the past 3 years, with FCF 52% of Operating Cash Flow for 2009. For 2009, the dividend paid was 47% of its free cash flow.
Opinions on Mencast
Mencast is tied closely to the shipping industry, and with the shipping industry still at the bottom of a down cycle, I believe that Mencast would be have a buy rating if we are looking at industry wise, and if there were no opportunity costs. However, purchasing Mencast stocks exposes us to opportunity costs as we would have to wait to see signs of recovery from the Shipping industry.
Mencast is slightly overvalued at this current time, especially with limited growth prospects. The issue with Mencast is that there are no other companies to do relative comparisons.
Due to my negative forecast on the shipping industry, coupled with the analysis of Mencast, I would not think right now is the correct time to purchase Mencast Holdings Inc.
Shipping Industry
For readers who are still reading this, I wish to point out something regarding the shipping industry. Right now shipping seems to be at the bottom of a down cycle, and the question should be asked how low can it go. If your analysis tells you that the economy is recovering and commodities boom is going to reduce the capacity of the shipping sector, you should purchase shipping companies. I believe shipping would recover by 1H2011, and I actually own shares in a LTL company, YRC Worldwide, although it is banking more on the turnaround of the company, and hopefully an early recovery in transportation.
Thursday, April 1, 2010
Portfolio Review
In the month of March, many indexes rallied, hitting new highs. One surprising thing that I noted over the releases in March is that the British economy is recovering very well, posting strong manufacturing data. However, there was still debt fears over Greece, and US and China are still at loggerheads over the failure of China to revalue its currency.
In Singapore, property prices soared yet again (looks like that has been the story for the past months). HDB prices rose 2.7% over the first 3 months compared to the 3 months before that. Private home prices are also through the roof, breaking its 2007 high by 6% for non landed private homes and landed homes are 15.6% ahead. More interestingly, private home prices are above their 1996 peak, meaning that home prices are their highest ever.
I am still neutral, tending to the underweight side on residential property. I do not think that high prices are here to stay because
Transpac
The dividend ex date was announced to be 3rd May, and upon announcement, the share price went up by 10cents, factoring in the dividend payout
First Resources
Company results were announced on 1st March, and can be found here.
Industry wide, Nestle has announced that it will not source palm oil from Sinar Mas Group in a victory for Greenpeace. Sinar Mas Group has been accused of deforesting while carrying out of its agricultural activities. Nestle has sourced from Sinar Mas only for its Indonesian businesses, and has announced that it will change suppliers. This is good for the industry as it seeks to produce palm oil while reducing damage to the environment. It also gives other companies in the industry to attract new customers.
Palm oil prices are well supported by energy prices, says James Fry, as the agri business and the energy business becomes more intertwined. The article can be found here.
China Telecom
China Telecom FY2009 results were announced, and the results were positive. The news article can be found here. As for the detailed analysis, it will be out before the end of April, hopefully by the end of next week.
Novo Group
Novo Group released its 3Q results, achieving tremendous improvement. It has also started preparing for its scrap metal business, which is scheduled to come online is 2011. The analysis can be found here. Operating Profit was up by 186%, and Net Profit up by 816% for 9M2010 as compared to 9M2009.
I am looking forward to Novo to increase the long term debt of the company as an indicator of expansion plans.
Blue Gem
Products have gone on sale at more Walgreens stores in Florida. I am looking forward to the release of the financial statements
Soilbuild
Soilbuild announced that the stock split has been approved in principle, in an attempt to increase liquidity. Many shareholders have been converting their warrants in an anticipation of the 6cents dividend payout, with the ex date on 7th May
YRC Worldwide
YRC Worldwide has announced that shipping trends over the 1st quarter has shown signs of improvement, and that its customers have been returning. I look for its cost cutting targets to be hit by mid year.
YRC Worldwide's independent auditors have announced that it has doubts on YRC Worldwide's ability to act as a going concern. It has seeked a court ruling to prevent a 20 million bond payment to its bondholders who did not agree to the debt to equity swap back in December. It has said that should the court ruling be approved, the 20million will be used to help its recovery thus far.
Prospective Companies
I am looking at several companies who have large land on their balance sheet. Furthermore, I am looking at Palm Inc as another turnaround play. Should there be a prospect for investment, I will do a writeup.
I am very busy for the next week, so apologies if there isn't much update for the next week.
In Singapore, property prices soared yet again (looks like that has been the story for the past months). HDB prices rose 2.7% over the first 3 months compared to the 3 months before that. Private home prices are also through the roof, breaking its 2007 high by 6% for non landed private homes and landed homes are 15.6% ahead. More interestingly, private home prices are above their 1996 peak, meaning that home prices are their highest ever.
I am still neutral, tending to the underweight side on residential property. I do not think that high prices are here to stay because
- Government restrictions on new foreigners in Singapore will not increase the demand of property
- The effect of the IR is still unclear, with reports of it being frequented more by foreign workers instead of gamblers
- The government has been releasing land for developers to bid, in an attempt to increase the supply of housing
TranspacThe dividend ex date was announced to be 3rd May, and upon announcement, the share price went up by 10cents, factoring in the dividend payout
First Resources
Company results were announced on 1st March, and can be found here.
Industry wide, Nestle has announced that it will not source palm oil from Sinar Mas Group in a victory for Greenpeace. Sinar Mas Group has been accused of deforesting while carrying out of its agricultural activities. Nestle has sourced from Sinar Mas only for its Indonesian businesses, and has announced that it will change suppliers. This is good for the industry as it seeks to produce palm oil while reducing damage to the environment. It also gives other companies in the industry to attract new customers.
Palm oil prices are well supported by energy prices, says James Fry, as the agri business and the energy business becomes more intertwined. The article can be found here.
China Telecom
China Telecom FY2009 results were announced, and the results were positive. The news article can be found here. As for the detailed analysis, it will be out before the end of April, hopefully by the end of next week.
Novo Group
Novo Group released its 3Q results, achieving tremendous improvement. It has also started preparing for its scrap metal business, which is scheduled to come online is 2011. The analysis can be found here. Operating Profit was up by 186%, and Net Profit up by 816% for 9M2010 as compared to 9M2009.
I am looking forward to Novo to increase the long term debt of the company as an indicator of expansion plans.
Blue Gem
Products have gone on sale at more Walgreens stores in Florida. I am looking forward to the release of the financial statements
Soilbuild
Soilbuild announced that the stock split has been approved in principle, in an attempt to increase liquidity. Many shareholders have been converting their warrants in an anticipation of the 6cents dividend payout, with the ex date on 7th May
YRC Worldwide
YRC Worldwide has announced that shipping trends over the 1st quarter has shown signs of improvement, and that its customers have been returning. I look for its cost cutting targets to be hit by mid year.
YRC Worldwide's independent auditors have announced that it has doubts on YRC Worldwide's ability to act as a going concern. It has seeked a court ruling to prevent a 20 million bond payment to its bondholders who did not agree to the debt to equity swap back in December. It has said that should the court ruling be approved, the 20million will be used to help its recovery thus far.
Prospective Companies
I am looking at several companies who have large land on their balance sheet. Furthermore, I am looking at Palm Inc as another turnaround play. Should there be a prospect for investment, I will do a writeup.
I am very busy for the next week, so apologies if there isn't much update for the next week.
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