ShareJunction - Member Posts

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@ Wiseguy, Genius, Professional, The next Warren B.......whatever you want to be known as. I don't know what gave you the confidence that 24.5cents is a zero possibility but I admire that courage as I have yet to seen any analyst making such bold claim. (but then again, I might be just a beginner).

Anyway, I did not claim that Yongnam will definitely reach 24.5cents, I merely warned that entry above this point is risky due to a need for buffer range- something I have learn from Warren B, and I am not sure whether he is a beginner to you too. Also, all of us are well aware that Yongnam is diversified (mostly in Asia), and I did warned in previous posts that funds are flowing out of Asia leading to expensive funds and less affordable projects. I shall not spoon feed you on how to reach the previous posts, you can try it out with the mouse buttons.

BTW expert, just like to let you know that huge warrants overhang is not the only factor that can keep a price down. Times do change and new factors do emerge. Sometimes it is better to be just cautious beginner than to be a bragging expert.

Since I have divested all my interest in this counter and currently hold no position, this shall be my final post- before those who longed the counters start to hate me. My final advice to those who emailed me: (Assuming no significant change in company fundamental)

1) Any price above 27.5 cents present an opportunity to exit.

2) Whether 24.5 cents present an attractive opportunity, you got to do your own assessment. But my own definition of attractive: 22 cents.

3) Shorting is discouraged as the counter remain highly volatile.

Goodbye and good luck to everyone regardless of the position you hold.

wiseguy1269 ( Date: 12-Aug-2013 07:30) Posted:

You guys are newbies or what?

Yongnam's current price already overfactored a no win scenario.

Why did you think the price fell from 35cts all the way down to 29cts in the first place? To hope for 24.5cts is just unrealistic thinking.

Remember, the reason why Yongnam's price was at 24.5cts was due to the huge warrants overhang which expired in mid dec 2012.

I agree that without the myanmar contract, Yongnam is well placed to look for better opportunities with less risk, just like Singtel.

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Correction for the following statement:

" The only product that should be brought are those that provide inferior return as compared to product of the same risk level."

It should be:

" The only product that should NOT be brought are those that provide inferior return as compared to product of the same risk level.

Anyway just like to add this:

After selling building, NOL WON'T sell ships because NOL operation can't continue without ship. The same apply for human.

After selling their conscience by making unfounded claims, human can't sell away their brains. Because without their brain they start to ask nonsense, make nonconstructive personal attack rather debating on theories, and finally gave themselves away as mere unscrupulous shortists trying to make ill-gotten gain.

Huh? Who do you guys think I was referring to? Don't get me wrong, I was simply taking about MW and block. LOL.

That being said, I still hold shortists who speak the truth with the great respect that they deserved!!!

Rosesyrup ( Date: 11-Aug-2013 21:10) Posted:

Though not an expert, I shall still try to answer beginners' really beginner (pun intended) type of question: " Hi all bros & expert here. Not vested yet. One thing I don't understand is NOL has been in lost for years. But still alot of ppl still interested in this counter? Is there any mean or hidden reason? Thks."

Cyclical businesses like NOL have their performance pegged to the economy. They tend to have great performance during period of economy growth and perform badly during downturn. For the past few years, the world economy has been plagued by Subprime crisis and Eurozone debt crisis. As the economy shows sign of recovery, we can expect world trade volume and NOL revenue to increase. Thus NOL's losses is not permanent and in stock market, decision should be based upon a stock future value not the past losses. Past losses in NOL are not really a big concern as it is a industry-wide phenomenal-meaning the losses is not due to NOL's inefficiency and lack of competitiveness. Most importantly, NOL has improved its efficiency greatly these years. This will greatly benefit the company when the industry recovers, especially with few competitors left after 4 years of shake out.

Although I do agree that NOL is a high leveraged counter, the same financial leverage would greatly magnify its return when revenue improved. Hence this is a VERY high risk/ Very high return counters. Those who find the risk level too high should simply stay out and seek other counters that fits their risk appetite. A high risk product does not mean it should not be bought, as there are always investors who have different risk appetite. The only product that should be brought are those that provide inferior return as compared to product of the same risk level.

In my valuation, I assumed that world economy recovers from June 2013 onward. I gave the counter a TP of $1.81 in near term (1 year) and mid-term (2-3 years) TP of $4.22.

NOL

ONLY FOR HIGH RISK TAKER

KEEP AWAY FROM CONSERVATIVE INVESTORS

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Though not an expert, I shall still try to answer beginners' really beginner (pun intended) type of question: " Hi all bros & expert here. Not vested yet. One thing I don't understand is NOL has been in lost for years. But still alot of ppl still interested in this counter? Is there any mean or hidden reason? Thks."

Cyclical businesses like NOL have their performance pegged to the economy. They tend to have great performance during period of economy growth and perform badly during downturn. For the past few years, the world economy has been plagued by Subprime crisis and Eurozone debt crisis. As the economy shows sign of recovery, we can expect world trade volume and NOL revenue to increase. Thus NOL's losses is not permanent and in stock market, decision should be based upon a stock future value not the past losses. Past losses in NOL are not really a big concern as it is a industry-wide phenomenal-meaning the losses is not due to NOL's inefficiency and lack of competitiveness. Most importantly, NOL has improved its efficiency greatly these years. This will greatly benefit the company when the industry recovers, especially with few competitors left after 4 years of shake out.

Although I do agree that NOL is a high leveraged counter, the same financial leverage would greatly magnify its return when revenue improved. Hence this is a VERY high risk/ Very high return counters. Those who find the risk level too high should simply stay out and seek other counters that fits their risk appetite. A high risk product does not mean it should not be bought, as there are always investors who have different risk appetite. The only product that should be brought are those that provide inferior return as compared to product of the same risk level.

In my valuation, I assumed that world economy recovers from June 2013 onward. I gave the counter a TP of $1.81 in near term (1 year) and mid-term (2-3 years) TP of $4.22.

NOL

ONLY FOR HIGH RISK TAKER

KEEP AWAY FROM CONSERVATIVE INVESTORS

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Not true. No one has a perfect knowledge of Yongnam's probability of winning the Myanmar contract. Thus some might overweighed the probability and invested more than what he intended if he had known of the true probability. Simply put, without full knowledge of the probability, he took more risk than he intended to.

Furthermore, Yongnam's case is very different from Singtel. For Singtel, the failure to secure Myanmar contract is a blessing in disguise as the contract would required Singtel to outlay huge capital and time but expose Singtel to a very high risk of zero returns. Thus when the announcement of the bidding result was out, SingTel's share price first dive but quickly recovered and closed with respectable gains.

Yoma's case is pretty much the direct contrast of Singtel. After the announcement Yoma's share price went straight down, any attempt to recover was dismissed. The reason: The loss of contract simply mean a loss of future revenue to Yoma, there is no blessing in disguise since Yoma's main operation remained in Myanmar regardless of the contract.

I expect Yongnam's share price to behave more like Yoma than Singtel, though with very different reason. Without the Myanmar's lucrative contract, Yongnam loses the chance to diversify away risk of shake out in Singapore construction industry. Thus I expect Yongnam's to now be valued at 27.5cents and I advice against entry above 24.5cents so as to provide a 10% buffer range. The stock is expected to trade within this range (1) during most of the shake out period or (2) until there are new contracts*** which provide Yongnam with an opportunity to diversify away risk in Singapore, whichever is sooner.

***Such contracts would have to be lucrative enough- form a major part of Yongnam revenue. Small contracts make no difference.

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Company=> result for the holding company ONLY

Group=> Company + Result from all subsidiaries (> =50% stakes)

Anyway, in my personal opinion, time is almost ripe to enter NOL.

alexsmith ( Date: 07-Aug-2013 23:41) Posted:

If you are looking at the balance sheet, you would see there are two columns over there. One column contains the breakdown for " Group" and the other one for " Company" ?
What is the difference between " Group" and " Company" ?
If somebody knows, please elaborate more. Tq.

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Sorry for the spam. For some reason, the format is kind of messed up. Send me an email if you need a more tidy format. My apology.

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Hi, I have recieved a number of emails from different users in the past few hours. Since they were asking more or less similar questions, I thought it would be better if I post the answers here. 1) "Do you mean that if I enter at 28.5cents, I would certainly make a profit?" ANS: NONO, no one can gurantee you a profit in stock market. My sentence of " Before the result of the Myanmar contract is out, 28.5cents remains a good price to bet" simply means that 28.5cents present a cheap price to bet that Yongnam be awarded the Myanmar contract. Put it another way, at 28.5cents you stand to gain more if the contract is secured, than to lose if Yongnam did not get the contract. Thus there is still a chance that you might make a loss-if the contract was not awarded to Yongnam. 2) There are a number of emails citing positive points about Yongnam and most supported their claims with Kim Eng's high TP of 46.5 cents My advice for these emails would be: If you are comfortable and confident about your (positive) views about Yongnam, please stay true to it. There is no gurantee that my views are whole and completely correct. You might be right and managed to make a big gain out of this counter- who knows. As for Kim Eng's high TP, it is inconvience for me to comment much about it. Nevertheless, if I were the investor, I would look for the underlying assumptions made by the analyst. Things to look out for include: Did the report consider all significant points (e.g. Gov's attempt to improve construction efficiency), weightage given the impact of each points, the reasonableness of such weightage. 3) "Should I start shorting?" This is your personal investment decision, I am in no position to tell you what to do. However, FOR MYSELF, I have no plan of shorting yet as currently the counter display high volatility-dangerous. 4) "Since you said that the construction industry is going to need more machinery, then should I move to invest in firm that rent construction machinery?" Again, this is your personal investment decision, I am in no position to tell you what to do. However, FOR MYSELF,probably not. The reason being the few constuction firms that are ultimately left, would be expect to face a large and continuous stream of contracts. The heavy requirement of machineries would most probably means that construction firms are better off buying them than leasing them. Also, the machinery rental industry itself might also experience a shake out of its own- instead of the current machinery owned, higher technology machineries might be needed. 5) "Rosy, you sounded as if there is a apocalypse in the construction firm (I think you meant industry). Any safety spot to reccomend?" Yup, I have divested my construction counters and I have no plan to look at them for at least the next 2 years. I am currently looking at STI components blue chips as these counters are often the first to rise in time of economy certainty. Still, I advise great cautious in selecting them as some like SIA and SMRT could be overvalued! Flattered to know that there are people who review my points, hope I answered yours questions. Good luck, regardless of what positions you hold.

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Hi, I have recieved a number of emails from different users in the past few hours. Since they were asking more or less similar questions, I thought it would be better if I post the answers here. 1) "Do you mean that if I enter at 28.5cents, I would certainly make a profit?" ANS: NONO, no one can gurantee you a profit in stock market. My sentence of " Before the result of the Myanmar contract is out, 28.5cents remains a good price to bet" simply means that 28.5cents present a cheap price to bet that Yongnam be awarded the Myanmar contract. Put it another way, at 28.5cents you stand to gain more if the contract is secured, than to lose if Yongnam did not get the contract. Thus there is still a chance that you might make a loss-if the contract was not awarded to Yongnam. 2) There are a number of emails citing positive points about Yongnam and most supported their claims with Kim Eng's high TP of 46.5 cents My advice for these emails would be: If you are comfortable and confident about your (positive) views about Yongnam, please stay true to it. There is no gurantee that my views are whole and completely correct. You might be right and managed to make a big gain out of this counter- who knows. As for Kim Eng's high TP, it is inconvience for me to comment much about it. Nevertheless, if I were the investor, I would look for the underlying assumptions made by the analyst. Things to look out for include: Did the report consider all significant points (e.g. Gov's attempt to improve construction efficiency), weightage given the impact of each points, the reasonableness of such weightage. 3) "Should I start shorting?" This is your personal investment decision, I am in no position to tell you what to do. However, FOR MYSELF, I have no plan of shorting yet as currently the counter display high volatility-dangerous. 4) "Since you said that the construction industry is going to need more machinery, then should I move to invest in firm that rent construction machinery?" Again, this is your personal investment decision, I am in no position to tell you what to do. However, FOR MYSELF,probably not. The reason being the few constuction firms that are ultimately left, would be expect to face a large and continuous stream of contracts. The heavy requirement of machineries would most probably means that construction firms are better off buying them than leasing them. Also, the machinery rental industry itself might also experience a shake out of its own- instead of the current machinery owned, higher technology machineries might be needed. 5) "Rosy, you sounded as if there is a apocalypse in the construction firm (I think you meant industry). Any safety spot to reccomend?" Yup, I have divested my construction counters and I have no plan to look at them for at least the next 2 years. I am currently looking at STI components blue chips as these counters are often the first to rise in time of economy certainty. Still, I advise great cautious in selecting them as some like SIA and SMRT could be overvalued! Really, really, really flattered to know that there are people who review my points, hope I answered yours questions. Feel free to contact me at Rosesyrup123@yahoo.com, if you have more to share. Good luck, regardless of what positions you hold.

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Sorry, forgotten to reiterate the following message:

" Before the result of the Myanmar contract is out, 28.5cents remains a good price to bet."

Rosesyrup ( Date: 06-Aug-2013 12:17) Posted:

No joke really. Without the Myanmar contract, The FUNDAMENTAL PRICE of this thing is only worth around 27.5 cents. The reason for such hopeless valuation is due to:

1) Construction indsutry expected to be faced with declining contracts

2)Labor cost expected to rise steeply

3) Although Yongnam remains the market leader, there is still a need to value Yongnam at near liquidation state. Reason being, government policies (such as those mentioned above) would cause more " Alpha Bau" (inefficient and small companies) to go bust. Since the construction companies are closely linked, you could imagine the impact of such bankrutcy to the survivors' profitability and most important survival (real cash flows). Present value comes from future value.

The reason for maintaining a premium above its book value is due to the possible chance of Yongnam surviving the upcoming government policies which are expected to start in Sept. Right now the only good news for the firm is:

" Should it survived the shake out, it would face much lesser competition, higher profit margin, and so profitability. Reason being many competitors, who can adapt to changes, will be taken out in this ordeal. The ones who would remained, are those who reached the Japanese level of efficiency- that is capable of taking on many contracts with little but skilled manpower, and many machines."

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No joke really. Without the Myanmar contract, The FUNDAMENTAL PRICE of this thing is only worth around 27.5 cents. The reason for such hopeless valuation is due to:

1) Construction indsutry expected to be faced with declining contracts

2)Labor cost expected to rise steeply

3) Although Yongnam remains the market leader, there is still a need to value Yongnam at near liquidation state. Reason being, government policies (such as those mentioned above) would cause more " Alpha Bau" (inefficient and small companies) to go bust. Since the construction companies are closely linked, you could imagine the impact of such bankrutcy to the survivors' profitability and most important survival (real cash flows). Present value comes from future value.

The reason for maintaining a premium above its book value is due to the possible chance of Yongnam surviving the upcoming government policies which are expected to start in Sept. Right now the only good news for the firm is:

" Should it survived the shake out, it would face much lesser competition, higher profit margin, and so profitability. Reason being many competitors, who can adapt to changes, will be taken out in this ordeal. The ones who would remained, are those who reached the Japanese level of efficiency- that is capable of taking on many contracts with little but skilled manpower, and many machines."

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The Cost Leader Who Forgets About His Cost

The reason that Sheng Shiong (SS) has such large scale of operation right now is that it managed to find and exploit the gap between NTUC and One-Dollar shops. Throughout the years, SS had been mindful of its cost and was able to transfer the cost saving to its customers. The cost saving capability thus becomes SS's competitive advantage that enable it to rout stronger competitors like Shop N Save. However, in recent SS appeared to have lost sight of the engine it depends on to propell its growth. In this report, I will attempt to explain what SS should not have and should have done, which might threaten its fundmental.

Should Not Have Done

24 Hours Operation: In the bid to remain " competitive" , SS followed NTUC's strategy of operating 24hours stores. However, this would prove to be a deadly mistake. With the little passenger traffic, low products' contribution margin, high overhead cost (due to SS large store front) and high labor cost (SS is a labor intensive firm), the cost of operating in the night can hardly justify the revenue. The only reason why 7 Eleven could run such 24 hours operation is due to its much smaller store, high contribution margin (The same products cost a lot more in 7 Eleven), and low labor cost (store manned by one staff). Moving back to SS, the losses from night operation has got much deeper implication. The huge losses from serving small amount of customers in the night will now be transferred to the majority of customers who do not make use of the night service through higher product prices. This reduced SS's competitiveness. SS would be better off by giving NTUC the night market which is loss making.
E-Grocery: E-Grocery has been pretty successful in large countries like US where population is scatter across the land. The story is quite different for Singapore which has uniquely small landscape and numerous high rise flats, nearly every family has access to a supermarket which is just a stone throw away from their block. This makes E-Grocery hardly necessary. Furthermore, the higher products' price in E-Grocery is targeted at a higher end customers who are very different from SS's current penny pinching customers.
However, do note that I am not trying to imply that SS should not go into E-Grocery at all. It is just that the time isn't ripe. SS could have better invest its capital on fine tuning many parts of its operation- which will be discussed in the SHOULD HAVE DONE part. The result of fine tuning would have increase SS efficient and enable it to better compete with the first movers-e.g. red marts. Simply put, the strategy is to let NTUC engage in a costly competition with the first movers first, meanwhile SS focus on improving its physical distribution and go in later. Afterall, the first mover has the advantage of doing away their overhead cost.
Mandai Link Distribution Centre: SS invested 65millions in this warehouse will lead to higher fixed cost and higher break even point. SS could have first rent a warehouse while continue to explore the option of cross-docking. This will remove the need of purchase expensive property on Singapore scarced land, and reduce its manpower which is another expensive resources in Singapore.

Should Have Done

If you are thinking about Walmart now, you are right. The history of Walmart provide many important learning points and guidelines for SS in its quest toward dominance of Singapore market.

Invest In Better IT System: SS lack of good IT support is especially evident in its outlet stockpile. It is not rare to: pick up expired products, hear employees complaining about overordering goods that are not selling and not ordering goods that are lacking. Just look up ontop of SS's shelves, the large number of boxes stacked on the shelves are the amount of goods that the employees overordered. All these point to the fact that SS is lacking an IT system that keep track of its goods and is therefore unable to make informed decision. A good item system that is able predict demand and make informed ordering should help SS to reduce unnecessary inventory level (wastage), and free up space in the store which will replace the need of a warehouse.
Setting Up Self Service Cashiers: These would reduce SS reliance on its massive manpower. Currently, much of the staff in SS stores are Malaysian workers.This is expected to increasing eat into SS profit as government continues to increase foreign levy. Just a little sidetrack, if you ever see a SS's staff standing infront of the store exit, he is not ideling- he is there to make sure there is no shoplifting going on. Assuming that the pay of that SS staff is $7 per hour, it would only make sense if SS starts losing a 5kg pack of rice (worth around $7) to shoplifting per hour. During peak hours, you can ever see more than one of these " security guards" . Reliance on security camera would make much more economic sense. Anyway, instead of reining in its staff cost, SS is still continuing its aggressive employment policy- overstaffing is what might follow.
Change In Management (I might be wrong about this point): Members of the management team in SS are mostly made up of the founding father's family members. This gave rise to some kind of nepotism where the decision makers might not be the best and most capable. At least, the founding father, Lim Hock Chee remain to occupy the most powerful and important position in the firm. One need to understand that the founding father not necessary has the skills and experience require to manage the now much larger and complex company, and take it to greater height. This is true for many startups, though painful, it is a delimma between CASH AND KING Thus for SS, the resulting poor management decision making can be seen from cases such as buying 5 wet markets that can't be converted into supermarket, and the poor strategic decision to operate 24hours. It is advisable that SS start bringing in professional managers to its top management office. Otherwise more costly problems would be expected to set in as the business grow more complicated and goes outside the expertise of the current management.

In a nutshell, instead of engaging in costly battle for new markets, SS should focus on streamlining it current distribution network and aim to replace NTUC as Singapore top retailer. However, should SS continue its current stratgey that stray away from its original customer group, it will soon loses it competitive advantage. The resulting sign of SS failing would then be expected to surface in 2 years time, when economy growth is strong and consumers are turning away from basic products sold by SS.

Based on the above forecast and the expectation that management would not made much changes from its current strategy, I have assigned SS a TP of 58cents.

Just sharing my view here, email me rosesyrup123@yahoo.com if you have something to share with me. Thanks.

Author: Rosesyrup

Disclaimer:

The following analysis is purely my personal opinion. I urge you to do your own assessment and calculation for any relevant decision making purposes.
The analysis is based purely on consideration of the company's financial and economic interest.

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Sorry, typo in the following sentence:

" Just to add on, even the bidding result is out, 28.5 cents present a good entry point."

It should be:

" Just to add on, before* the bidding result is out, 28.5 cents present a good entry point."

Rosesyrup ( Date: 01-Aug-2013 20:50) Posted:

Lets solve this part by part:

1)" Your analysis sound very pessimistic on Myanmar. Anyway,i beg to defer from you."

Nope, I am not pessimistic about Myanmar. I simply warned that Myanmar remains a country with high investment risk and I guess not many people would disagree with this statement. Good to have your own point of view though, and don't let my " pessimism" interrupt your decision to invest in Myanmar.

1) " Myanmar is going forward with reforms as you can read in the news of huge FDI is pouring into Myanmar and the country is opening up. They may have hiccups here and there but it is very difficult to reverse to the old military regime"

The above sentences describe the current status in Myanmar, not the future. In constrast, the purpose of analysis is to predict the future. This is the difference between news reporter and analyst. If you need verfication for the threats I warned of, you can do a quick Googling. There shouldn't be a lack of articles on this topic. The impact of these potential threats, should it happened, WOULD NOT be very difficult to reverse Myanmar to its old military regime.

3) " As for Yongnam bidding for the Yangon Airport... the result of who will be awarded the contract will be out this week (As per reported) IMO, Yongnam main contender will be the S.Korean consortium."

As I have mentioned above: " Myanmar remains a country with high investment risk ." This greatly lower the expected (not actual) profit of Yongnam even if it wins the contract. Future profit (value) affect current share price (Present Value). Thus my conclusion: TP of $0.34 even if it win the contract. If it loses the contract, it will go down to test 30cents.

Just to add on, even the bidding result is out, 28.5 cents present a good entry point. Yes, I am very pessimistic about Yongnam.

Atom99 ( Date: 01-Aug-2013 18:45) Posted:

Rosesyrup,

Your analysis sound very pessimistic on Myanmar. Anyway,i beg to defer from you. IMO, Myanmar is going forward with reforms as you can read in the news of huge FDI is pouring into Myanmar and the country is opening up. They may have hiccups here and there but it is very difficult to reverse to the old military regime.

As for Yongnam bidding for the Yangon Airport... the result of who will be awarded the contract will be out this week (As per reported) IMO, Yongnam main contender will be the S.Korean consortium.

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Lets solve this part by part:

1)" Your analysis sound very pessimistic on Myanmar. Anyway,i beg to defer from you."

Nope, I am not pessimistic about Myanmar. I simply warned that Myanmar remains a country with high investment risk and I guess not many people would disagree with this statement. Good to have your own point of view though, and don't let my " pessimism" interrupt your decision to invest in Myanmar.

1) " Myanmar is going forward with reforms as you can read in the news of huge FDI is pouring into Myanmar and the country is opening up. They may have hiccups here and there but it is very difficult to reverse to the old military regime"

The above sentences describe the current status in Myanmar, not the future. In constrast, the purpose of analysis is to predict the future. This is the difference between news reporter and analyst. If you need verfication for the threats I warned of, you can do a quick Googling. There shouldn't be a lack of articles on this topic. The impact of these potential threats, should it happened, WOULD NOT be very difficult to reverse Myanmar to its old military regime.

3) " As for Yongnam bidding for the Yangon Airport... the result of who will be awarded the contract will be out this week (As per reported) IMO, Yongnam main contender will be the S.Korean consortium."

As I have mentioned above: " Myanmar remains a country with high investment risk ." This greatly lower the expected (not actual) profit of Yongnam even if it wins the contract. Future profit (value) affect current share price (Present Value). Thus my conclusion: TP of $0.34 even if it win the contract. If it loses the contract, it will go down to test 30cents.

Just to add on, even the bidding result is out, 28.5 cents present a good entry point. Yes, I am very pessimistic about Yongnam.

Atom99 ( Date: 01-Aug-2013 18:45) Posted:

Rosesyrup,

Your analysis sound very pessimistic on Myanmar. Anyway,i beg to defer from you. IMO, Myanmar is going forward with reforms as you can read in the news of huge FDI is pouring into Myanmar and the country is opening up. They may have hiccups here and there but it is very difficult to reverse to the old military regime.

As for Yongnam bidding for the Yangon Airport... the result of who will be awarded the contract will be out this week (As per reported) IMO, Yongnam main contender will be the S.Korean consortium.

Rosesyrup ( Date: 31-Jul-2013 20:13) Posted:

I am just a Finance Student from one of the local uni. I have no relevant working experience in the finance industry.

Thus it is important for you to get your own opinion in making any decision.

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Riding Along The North-South Line

Disclaimer:

The following analysis is purely my personal opinion. I urge you to do your own assessment and calculation for any relevant decision making purposes.
The analysis is based purely on consideration of the company's financial and economic interest.

Introduction

In this report, I will first describe SMRT's business model, identify the mistakes made by SMRT, improvements that can be made. Finally I will attempt to predict its possible price movement under 2 scenarios.

Business Model And General Strategy

SMRT's business model is much like telecom companies such as Singtel. These comapanies spent huge amount of upfront captial to lay the telephone lines (for Singtel) and train track (for SMRT), these expenses then become fixed cost and sunk cost. After setting up the basic infrastructure, these companies can make a profit so long as they provide their service at a price higher than the variable per customer. The difference between Singtel and SMRT models being that Singtel incur negligible varible for serving each additional customer, while SMRT incur a slight higher variable cost for each additional (group of) customers served. This is due to the expensive fuel cost. Nevertheless, I would like to emphasize that SMRT business model is definitely viable, this is especially true as the firm has near monopoly advanatage. The " inelastic demand" advantage is not mentioned here as SMRT is not free to raise its price to use this advantage.

The general stratgey for such business model would be to (1) cut variable cost and (2) increase revenue (refering to customer volume not fare price).

Going Down The Wrong Track (SMRT's Deadly Mistakes)

Instead of following the general strategy, SMRT decided to do just the exact opposite- (1) increase variable cost and (2) decrease utilisation of the train track.

Increased Variable Cost
A huge increase in staff cost. These staffs are most probably those 3 types of SMRT staffs we see on board daily- some in green unifroms, some wearing a blue " security vest" , and others in full security unifrom carrying weapons. These staffs are basically there to guard aganist terror threat and ensure rules (no eat and drinking etc) are being enforced. As most these staff either have to be placed on board of every servicing train or have to check every train at the end of the line, they become a form of variable cost for each trip of train. Such cost cut into the contribution margin of SMRT and greatly magnified the volume/price it needed to breakeven.

Ever take a train on weekdays afternoon? The train is almost empty and you can choose which ever sit you want. However SMRT continue to run a standard 6 carriages train during such off peak period, carrying 10% human and 90% air. Enormous amount of wastage in fuel, wear and tear used to bear the weigh of empty carriages. This wastage may appear small on a single train trip, but the impact is magnify when SMRT run numerous train trip daily on different lines.
Decreased Utilisation Of Train Track
Instead of making full use of the sunk cost invested in laying out the track, SMRT cannibalised its train revenue by offering more frequent bus service and add more new bus routes. As we all know buses are good substitute of train services. With more human traffic shifted to bus services, the train track are left idel. To make things worse, more fixed cost are incurred in purchasing new buses. Thus instead of trying to cover its old fixed cost, SMRT found its way to more new fix costs.

The Right Track (What SMRT Could Have Done)

Decrease Variable Cost

Control the staff cost:

This can be done by doing sampling check on train rather than having a few staffs standing and ideling on each train.
Other than those staff who carry weapons, staffs on board should wear plain civilian clothes rather than flashy green uniform. This is a stronger deterrence for the passengers with any unscrupulous motive since the passengers have no idea who are the staffs on board, where are they coming from and how many of them are on board. Thus it achieve a stronger effect with less people. In constrast, under the old system unscrupulous passengers are only deterred when a staff is in sight. Hence the old system need to increase the number of staffs as passengers increase, which is inefficient and expensive.

Redesign the train:

Invest in designing train carriages that can be detached and attached easily. This allows better response to traffic demand. E.g. Running a 2 carriages train instead of a standard 6 carriages train during non peak hours. This not only allow huge saving from fuel cost, and wear and tear but also improve the frequency of train service- one 6 carriages train converted into three 2 carriages train. Thus improved quality of customer service.

Strategic Alliance (SA) For Alternative Fuel

Although fuel cost take up a sizable percentage of the firm cost, I am surprised to see that the company has not taken any significant step to explore alternative fuel. Instead of maintianing the high annual dividend payout, hoping investors to remain confident in it, SMRT could have invest the cash in a SA with other transportation comapnies (e.g. SIA) to search for alternative fuel. This should give sizable profit in the long run. The management should be expected to be more proactive in taking up such initiative, this is especially true as SMRT management has little worry about competition.

Increase Revenue

Remaping Bus Routes (I am not sure about the feasibility of this, can someone shed some light on this one?)

The train network is quite well developed in Singapore, granting access in all directions. How about using the train network as a backbone to travel between towns and limit bus services to intra-town only? Other than that, buses should only be travelling on routes where using the train does not make economic sense e.g. Pasiris to Punggol. If this idea is feasible, it would increase utilisation of the train network and improve its bottom line GREATLY- as the high fixed cost magnify the impact of higher revenue on profit.

Scenario 1: Riding Southward

This is the case where SMRT will keep its status quo and make no significant changes. In my own opinion, this is the likely case for the next 5 years. The current CEO who has taken leadership for about a year has not made much strategic changes other than making repair here and there. The management group also appeared to be at its wit end when it cried for a " More Sustainable Business Model" . Under this scenario, we can expect SMRT's profit to continue nosediving as the huge amount of wastage it is currently running would be further magnify as population continue to increase. Investors also have to mindful that SMRT is a defensive counter which tends to be overvalued during economic downturn and tends to be undervalued when economic is blooming. Under the assumption that economic will progressively recovered from June 2013 onwards, I have assigned a TP of 76cents to SMRT. That being said, investors should not expect to see SMRT share price free falling. This is because the high dividend payout continues to deter short-sellers. Thus the falling of SMRT share price will more likely to be a slow and painful death.

Scenario 2: Hope Of Riding Northward

This is the case where SMRT starts to implement major changes (such as those pointed out in the reccomendation) based upon the general strategy of reducing variable cost and increasing utilisation of its train services. However, the possibility of this happening is low and I do not expect this to be the case till there is a change in CEO. The current CEO continues to think that the problem lies within the tunnel and with its people. He probably wasn't aware that it is the high staff (variable) cost that is unsustainable not the business model, while frequent maintance and use of higher quality claws are highly affordable so long as the business remain profitable.

Anyway should this scenario happened, I would give SMRT a TP of 93cents. Nevertheless, this TP is still a long way from the current price. The huge discount reflects the high risk of making such a huge strategic changes- this is especially necessary for SMRT as its management has got little experience of initiating changes.

Just sharing my view here, email me rosesyrup123@yahoo.com if you have something to share with me. Thanks.

Author: Rosesyrup

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Really appreciate your comments on my postings. But unfortunately, it appeared that there are some misunderstandings between us, and I need to clear it up. Here we go:

1) If you think you're not qualified

NoNo, I am just as qualified as anyone on the street to give financial advice. Under MAS ruling, no license is required for giving plain finanacial advice, unless the advisor is trying to sell some financial product- that is a little side tracking. Although everyone is qualified, no one can guranteed that the analysis represent the full and perfect picture of the reality. Therefore it is only fair that I warn the readers of possible area that I might have overlooked- in this case referring to my lack of working experience. A good example would the case where I messed up my intrepretation of Cost of debt and Cost of equity, and was kindly corrected by one of the forum user. To verify this, you can check my posting history.

2) I make my own judgement but there are others reading your post who may not.

YupYup, I am fully awared of that. The sentence " Thus it is important for you to get your own opinion in making any decision" is purely my disclaimers just like those font 10 sentences you find under every analyst reports. The only difference being my disclaimer is a one sentence and much more simple. My disclaimer is intended for every reader of my comments, not specifically made aganist any one person.

3) then don't share it

Since no single soul can gurantee to give a full and perfect analysis, it is then important for small investors like us to share our views in the hope of getting a better picture of the reality. For the sake of getting a better view and making better decision, I will not stop the sharing, neither should you.

Hope this clear things up a little. Peace dude.

Cheers.

Topspin70 ( Date: 01-Aug-2013 09:47) Posted:

I'm just commenting on your post. This is a forum. Members share POVs and discuss each other's POVs. If you think you're not qualified and might mislead people then don't share it. I make my own judgement but there are others reading your post who may not.

Rosesyrup ( Date: 31-Jul-2013 20:13) Posted:

I am just a Finance Student from one of the local uni. I have no relevant working experience in the finance industry.

Thus it is important for you to get your own opinion in making any decision.

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x 1

Cornered With Its Wings Clipped

Pros

SIA announced that out of 8 of its new jets, 3 of them will have larger personal space. This is deemed to be a right strategy, as it turn wasted space (low load) into customer value (bigger space). It is expected to enhance the competitiveness of SIA against its rival.

Cons

-However, SIA is too conservative for its own good. Testing out the new strategy on a small scale (3 jets), though limit the cost of failure, gives competitors ample time to study the effect of the new strategy and to mimic if it turns out to be successful. As a result, SIA not only failed to achieve sustained strategic competitiveness, it will also becomes a free laboratory for its competitors. Thus, we can expect the latest strategy, which is supposedly a good one, to be a fail attempt for SIA to regain competitiveness in the industry.

- Although some analysts claimed that load and revenue would improve as economy recovers, the accompanying hike in oil price would jeopardise the company recovery.

- The fundamental of SIA business continues to get eroded by competitors who are offering services that are pretty close to SIA yet charges much lower fare e.g. Thai Airway. SIA's new strategy that focus on improving in-flight entertainment shows that its management is running out of ideas to improve the business. Reason being physical attributes of a " product" can be easily copied and provide little sustainted competitive advantage, thus it is normally the last thing that management wants to depend on for differentiation. The fact that SIA has been focusing on the physical atttribute prove how desperate it is.

-As time and option is running out for SIA management, I expect that the only viable strategy left for the company to survive would be to retreat to top end market where its higher fare can be justified. However to achieve that, SIA would have to shed off it current scale of operation, causing its revenue to fall- though proftiablility might improve should SIA survived the transformation.

Given such bleak prospect, I have SIA a TP of $9.60, this price has already taken into consideration of the strong brand name that the company possessed.

Just sharing my view here, email me rosesyrup123@yahoo.com if you have something to share with me. Thanks.

Author: Rosesyrup

x 0

Why OCBC is a better choice.

Not long ago, analysts claimed that DBS would be a better choice of investment than OCBC and UOB. Reasons given were:

A1) Singapore Government's cooling measure housing market would hurt the local banks. Since DBS is diversified across Asia, it would be less exposed to the impact of the cooling measure than banks (OCBC & UOB) who are mostly based in Singapore.

A2) DBS investment outside Singapore, gives it better growth opportunity.

A3) High amount of housing loans hold by Singapore Banks risk turning into large amount of Non Performing Loan when interest rate hike inevitably- claimed by Moody.

In my opinion, the above points are not the full story and a decision based upon those might be distorted. Allow me to share the reason why pure local banks are better selections.

1) Cooling Measure VS Economic Crisis

The worry about more property cooling measure to come, is a needless one. After some 7 rounds of cooling measure, property price and transaction volume are beginning to fall. Since the government policies has taken effect and reach its aim of cooling the market, it makes no sense to continue hammering the market with new measures. In fact we can expect government to start removing those measure as soon as interest rate starts moving up- most probably after 1 year. Removing those cooling measure is necessary to increase the liquidity of housing market and allow those investors cannot afford the high interest rate to sell their properties. The next question that comes naturally would be: Why would government want to help those investors who can't afford high interest rate? Well, those investors pledged their properties when apply for housing loan. If they can't afford the rising interest rate their properties and can't sell their properties, their properties would be seized and sell in the market. When such cases happened to large amount of investors, we can quickly see the market flooded with worthless properties while banks see many loan turn bad and collateral turn worthless- a repeat of US 2008 subprime crisis. As a small country, the economic resulting hardship would be unbearable. Thus government would its best to prevent such crisis and a necessary step would be to increase the liquidity of the property market once interest rate starts hiking.

In constrast, the risk of economic disruption as a result of fund exiting Asia would prove to be more worrying. This is especially true for developing countries like Vietnam, Indonesia, and India- check out news about India struggle to hike interest rate in order to fight currency devaluation. If not handled properly, the history of 1997 currency crisis would repeat itself and companies in the those countries would simply go bust. In all these developing Asian countries, DBS has stake in them and thus it run a high risk of suffering a huge loss should anything happened to these countries. Thanks to the smart polices by MAS, Singapore is expected to weather such economic disruption and thus" pure" Singapore banks are expected to be spared from the crisis. Strong policies that MAS have imposed to protect the economy include appreciation of SGD to its all time high and agreeing to accept Japanese bonds as collateral.

2) The Real Opportunity To Growth

Growth opportunites offered in other Asian countries are truly debatable. In the bid to protect their economy, most countries have imposed strong protectionism policies on their fianacial industries. These protectionsim policies limit the growth and competitiveness of foreign banks. A good example can be seen from the recent case where Temasek Holding faced tons of hurdles when it tried to sell shares of Indonesia's Danamon Bank to DBS. What is a growth opportunity when you can't even cash out?

On the other hand, Singapore as a financial hub for South East Asia and with its strong economic stability offer much more attractive growth opportunity for the local banks. Foregin business preferred to set up in Singapore and foreign funds flow first into Singapore then to the rest of SEA countries.We can safely assume this will continue to be the case for at least the next 5-10 years. Thus banks who focus more on local market are expected to grow better than bank who seek growth in other SEA countries.

3) MAS's ACE Card

As always Moody tends to exaggerate " crisis" that is unlikely to happen and comfort you when there is real crisis lurking (2008 subprime is a good example). Crisis as a result of high amount of housing debt is UNLIKELY to happen in Singapore. As mentioned above, the cooling measure can be removed to improve liquidity in the market, this provides opportunity for those who cannot afford the rising interest rate to exit the market. Secondly, government's plan on increasing the population by 2020 should also provide ample demand to balance the supply in propety market. Most importantly, MAS has an ACE card up its sleeve that will allow it to buy some time before rising the local interest rate- inevitably Singapore interest rate is highly pegged to US interest rate, which is expected to rise when Fed stops it QE by mid 2014. Remember the " All time high SGD" we are talking about? The high SGD gives MAS more flexibility and room in choosing to devaluate SGD over increasing interest rate. This delay the need to rise local interest rate, and should give sufficient time for property investors to be warned of the rising rate and to liquidate their properties. Thus the crisis warned by Moody is high avoidable and should not be of major concern.

In a nutshell, with the low economic risk and high growth opportunity, Singapore financial market is a much better investment than many SEA market. With this I concluded that banks that focus on local markets (OCBC & UOB) will fare much better than bank (DBS) that is diversified across the volatile Asia markets. As for why OCBC is preferred over UOB, it is because size does matter.

Just sharing my view here, email me rosesyrup123@yahoo.com if you have something to share with me. Thanks.

The above analysis is purely my personal opinion. I urge you to do your own assessment and calculation for any relevant decision making purposes.

Author: Rosesyrup

x 0

x 1

Why OCBC is a better choice.

Not long ago, analysts claimed that DBS would be a better choice of investment than OCBC and UOB. Reasons given were:

A1) Singapore Government's cooling measure housing market would hurt the local banks. Since DBS is diversified across Asia, it would be less exposed to the impact of the cooling measure than banks (OCBC & UOB) who are mostly based in Singapore.

A2) DBS investment outside Singapore, gives it better growth opportunity.

A3) High amount of housing loans hold by Singapore Banks risk turning into large amount of Non Performing Loan when interest rate hike inevitably- claimed by Moody.

In my opinion, the above points are not the full story and a decision based upon those might be distorted. Allow me to share the reason why pure local banks are better selections.

1) Cooling Measure VS Economic Crisis

The worry about more property cooling measure to come, is a needless one. After some 7 rounds of cooling measure, property price and transaction volume are beginning to fall. Since the government policies has taken effect and reach its aim of cooling the market, it makes no sense to continue hammering the market with new measures. In fact we can expect government to start removing those measure as soon as interest rate starts moving up- most probably after 1 year. Removing those cooling measure is necessary to increase the liquidity of housing market and allow those investors cannot afford the high interest rate to sell their properties. The next question that comes naturally would be: Why would government want to help those investors who can't afford high interest rate? Well, those investors pledged their properties when apply for housing loan. If they can't afford the rising interest rate their properties and can't sell their properties, their properties would be seized and sell in the market. When such cases happened to large amount of investors, we can quickly see the market flooded with worthless properties while banks see many loan turn bad and collateral turn worthless- a repeat of US 2008 subprime crisis. As a small country, the economic resulting hardship would be unbearable. Thus government would its best to prevent such crisis and a necessary step would be to increase the liquidity of the property market once interest rate starts hiking.

In constrast, the risk of economic disruption as a result of fund exiting Asia would prove to be more worrying. This is especially true for developing countries like Vietnam, Indonesia, and India- check out news about India struggle to hike interest rate in order to fight currency devaluation. If not handled properly, the history of 1997 currency crisis would repeat itself and companies in the those countries would simply go bust. In all these developing Asian countries, DBS has stake in them and thus it run a high risk of suffering a huge loss should anything happened to these countries. Thanks to the smart polices by MAS, Singapore is expected to weather such economic disruption and thus" pure" Singapore banks are expected to be spared from the crisis. Strong policies that MAS have imposed to protect the economy include appreciation of SGD to its all time high and agreeing to accept Japanese bonds as collateral.

2) The Real Opportunity To Growth

Growth opportunites offered in other Asian countries are truly debatable. In the bid to protect their economy, most countries have imposed strong protectionism policies on their fianacial industries. These protectionsim policies limit the growth and competitiveness of foreign banks. A good example can be seen from the recent case where Temasek Holding faced tons of hurdles when it tried to sell shares of Indonesia's Danamon Bank to DBS. What is a growth opportunity when you can't even cash out?

On the other hand, Singapore as a financial hub for South East Asia and with its strong economic stability offer much more attractive growth opportunity for the local banks. Foregin business preferred to set up in Singapore and foreign funds flow first into Singapore then to the rest of SEA countries.We can safely assume this will continue to be the case for at least the next 5-10 years. Thus banks who focus more on local market are expected to grow better than bank who seek growth in other SEA countries.

3) MAS's ACE Card

As always Moody tends to exaggerate " crisis" that is unlikely to happen and comfort you when there is real crisis lurking (2008 subprime is a good example). Crisis as a result of high amount of housing debt is UNLIKELY to happen in Singapore. As mentioned above, the cooling measure can be removed to improve liquidity in the market, this provides opportunity for those who cannot afford the rising interest rate to exit the market. Secondly, government's plan on increasing the population by 2020 should also provide ample demand to balance the supply in propety market. Most importantly, MAS has an ACE card up its sleeve that will allow it to buy some time before rising the local interest rate- inevitably Singapore interest rate is highly pegged to US interest rate, which is expected to rise when Fed stops it QE by mid 2014. Remember the " All time high SGD" we are talking about? The high SGD gives MAS more flexibility and room in choosing to devaluate SGD over increasing interest rate. This delay the need to rise local interest rate, and should give sufficient time for property investors to be warned of the rising rate and to liquidate their properties. Thus the crisis warned by Moody is high avoidable and should not be of major concern.

In a nutshell, with the low economic risk and high growth opportunity, Singapore financial market is a much better investment than many SEA market. With this I concluded that banks that focus on local markets (OCBC & UOB) will fare much better than bank (DBS) that is diversified across the volatile Asia markets. As for why OCBC is preferred over UOB, it is because size does matter.

Just sharing my view here, email me rosesyrup123@yahoo.com if you have something to share with me. Thanks.

The above analysis is purely my personal opinion. I urge you to do your own assessment and calculation for any relevant decision making purposes.

Author: Rosesyrup

x 0

I am just a Finance Student from one of the local uni. I have no relevant working experience in the finance industry.

Thus it is important for you to get your own opinion in making any decision.

Topspin70 ( Date: 31-Jul-2013 17:15) Posted:

Looks like your analysis proving to be true, Rosesyrup.

Rosesyrup ( Date: 18-Jul-2013 18:26) Posted:

It Is Almost A Dead End Anyway

Possibility 1==> > Never Win

Share price straight away go down to test $0.30. Might stuck there for another few years due to:

1) Singapore property market cooling down

2)SG Gov revamping construction industry to improve efficient ==> > A tough and costly process that is going to cause a number of construction firms to fail

3) A lack of development opportunity in SE-Asia in the short run (1-2 years), as fund flow back to developed countries in seek of temporily better risk-return ratio. Less supply of fund=> higher interest rate=> projects become more expensive and thus less often.

Possibility 2 ==> > Win

Risky deal as Myanmar's quest for Democracy is a going to be a very rocky one. 2 signifcant risk factors that could jeopardies Myanmar's determination:

In the short run (1-2years), the exit of fund from Asia is going to cause some diruptions in the Asia's economies and might lead to more serious threats- depreciation of asia currencies, flight of captial. Simply put, 1997 Aisa currency crisis might repeat itself. To fend off the potential currency attack, developing nations like Indonesia and Phillipine have been working hard to input measures ever since the start of first Fed's QE. However this is not true for Myanmar, which has been recieving much attentions and FDI in the recent years. Thus Myanmar, in my opinion has high risk of suffering economic failure in the event of fund flowing out from Asia. The resulting economy hardship would damage Myanmar's determination toward democracy.

In the longer run (3 years and above), there is still a risk that democracy might be stopped due to politcal pressures from the local rich and powerful groups. Myanmar has been too quick in opening up its economy and trade. Economic theories told us that trade lead to reallocation of resources(wealth) and power among different group in the country- in this case, wealth flow from rich to the poor. With this, we can foresee the richs in Myanmar will quickly lose their interest. Meanwhile the interest-group theory forecast that the few rich people in the country will benefit at the expense of the many poor in the country. Thus this give rise to the risk that the riches might pressure the government to give up democracy and the riches will most like get their way. Do remember that true power still lie with the military at this point in time.

The above mentioned 2 risks would threaten Myanmar's quest for democarcy and Yongnam project. Should the country gave up and return to its previous state, Yongnam's property in the country would most probably be nationalised or fail to recieve payment for the project.

Due to these reasons, I deemed Yongnam's prospects as bleak and divested it a couple of days ago. Just sharing my view here, email me rosesyrup123@yahoo.com if you have something to share with me. Thanks.

Author: Rosesyrup

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This is what I think:

-Beta would be a better and more comprehensive measure of risks than Gearing ratio, which simply measured bankruptcy risk.

-Expected return would be a more accurate measure than Price/NAV since NAV is a historical measure of asset worth. E.g. NAV of a piece of land brought 10 years ago might be much lower than its real value now, thus this give rise to low NAV and make the counter appear to have high Price/NAV (expensive counter). Similarly, if the historical price of a land is high, but after some disaster like nuclear leak, it would has a low real value now. However, its NAV continued to be high and its Price/NAV appeared to be deceiving low (cheap). Thus Price/NAV which is based on historical data might distort investment decision. Expected return, which is based upon future data does not has this problem.

Correct me if I am wrong.

Rosesyrup ( Date: 30-Jul-2013 14:01) Posted:

Erm, I clicked on your link. This is what I saw from your " Singapore Reits Comparision Graph" :

- Kep Reit has got high gearing,

-but it has low Price/NAV. (By the way: NAV= Net Asset Value)

And the following is my intepretation of what I saw:

-High gearing means high risk (of bankruptcy).

-While Low Price/NAV means that the current price paid for every dollar of Kep Reit's Net Asset is cheap. Since Kep Reit is cheap, one can get a higher return by buying into it.

-Thus the Risk-Return ratio of Kep Reit = High Risk/ High Return.

-What is there to short for such a balanced Reit?

-Shouldn't you call to short reit that has High Risk/ Low return (and so overvalued) e.g. PLife Reit?

marubozu1688 ( Date: 29-Jul-2013 15:51) Posted:

Potential candidate to short! High gearing!

http://mystocksinvesting.com/singapore-reits/are-you-ready-to-short-singapore-reit/