Things people do not care

The following are things people do not care about when the market is red hot!!! The following are quotes from today's papers after the blood bath yesterday.

"People are not investing BUT trading."
[(red face) Edgar was trading on IPOs. He didn't read the prospectus.]

"It went from unbelievably bullish to unbelievably bearish in just hours."
[Edgar was searching for news to explain the suddent turn in sentiment. I thought a bomb went off somewhere in the world.]

"Traders were unnerved by a sharp sell-down..."
[Edgar has been mentally prepared for this type of occurrence. He was actually looking to buy.]

"Many heavily traded stocks are those belonging to financially strapped companies with poor earnings records."
[Edgar is fully aware of this and has been advising caveat emptor. See past posting.]

"Reverse takeovers can take as long as a year."
[Edgar understands the difficulty of doing business. A simple deal may take weeks or months to negotiate. Imagine a reverse takeover between 2 entitites under 2 different legal, accounting, financial and sovereign jurisdictions. The deal may even break down.]

"Can a company with poor earnings record be valued at close to a billion dollars?"
[Edgar cannot believe it is happening. But apparently there are many who give such valuation to those companies.]

Mr Oei again with Equation and Centillion

Who are the investors?

• Mr Oei Hong Leong
• Mr Eddie Chng, Equation (ex-HeShe)

What is the target company?
- Centillion Environment & Recycling (ex-Citiraya)



Background

• In 2005, Mr Oei and Equation bailed out Centillion by investing $8.05mio each for 37.5% share each of company.


• Centillion also gave both investors the right to buy more shares. Each may buy another 950mio shares for $8.05mio.

On the Tuesday, 17 July 2007,
Both gave notice to exercise that right. Expected settlement on Friday.
Each would then control 42.86% of Centillion.



Looking forward to Friday, 20 July 2007
Assuming Centillion share price hold steady at 20cts, both Mr Oei and Equation are sitting on a paper gain of $364mio each!!!!! (computation as per BT's article)

$8.05mio for $364mio over 2 years!


My sincere respect to you, Mr Oei and Mr Eddie Chng.

Another Mr Oei's sale and profit

Just over a week after he sold off his shares in Super Coffeemix for an estimated profit of $40mio, he sold off the entire 29.98% stake in China Healthcare.

Estimated profit - about $13mio.

Didn't know China Healthcare was Econ Healthcare until yesterday. Since most of the Chinese counters are in fashion, I wonder whether I can change my company name to China XXXX Pte Ltd.

May we speculate why he sold China Healthcare or why he is in the mood of selling or are these two transactions totally unrelated but coincident?

China Healthcare and Super Coffeemix are ripe for profit taking given the recent run in share prices. Just like hundred of other counters on SGX?

IPO Strategy

Hi friends,

In the middle of a night of a day last week, I chanced upon the opportunity to apply for IPO for China Sunsine using the massively convenient internet banking. The IPO price was 39cts and I decided then to apply for 20 lots.

The next day after the closing date, I was informed that I have been successfully alloted 3 lots.

On trading day, I sold at 57.5cts. A nimble profit of 18.5cts per share or $500 over a few days.

Given the small success, I started to give IPO a little more attention. I applied to a few but was unsuccessful in all of them. The opportunities missed are as follows.

• RH Energy - IPO at 32cts and closed the trading day at 87cts.
• China Angel - IPO at 35cts. Traded as high as 80cts.

Moral of story - It confirms again - There is no sure thing. Caveat Emptor always.

P/S - Financial One - IPO'd at $1.15 and closed the day at $1.15.

HG Metal Chairman sells 1.1mio shares

The point - Whenever an insider make a buy/sell activity or a series of buy/sell activities, we should pay attention.

We need to evaluate that action/s in perspective ie.

• How insider is this person? Key/majority/very executive shareholder?
  
• no. of shares bought/sold against his existing holding
  
• any reason given for the buy/sell - Sometime, the person may sell to pay for the bungalow he is buying etc etc.
  
• pattern based on past activities of this person

Let us take a look at what is reported in Straits Times today on the sale of 1.1mio made by HG Metal Chairman.

• Who is he? The Chairman of the company.
  
• 1.1mio shares sold --> reduced his total shareholding position from 6.06% to 5.65%.
  
• no reason given
  
• pattern of activity - I did not check.

My view - He sold when the share price broke new high yesterday. I think he could be cashing in on some of the gains.

PE ratio

What is PE ratio?
The formula = market price of share / Earnings per share (EPS)

It is how much you are willing to pay for the earnings being generated by the company. This is a tool to value the company under consideration.

Interpretations - example - SIA's PE as of 10 July - 11.3x

• It would mean that an investor is willing to pay $11.30 for every $1 earned by SIA.
• It would also mean that the same investor is happy with a return of 8.85% return on investment (ie. invest $11.30 to get a return of $1)
• It would also mean that you are willing to wait 11.3 years to "get back" your money. (assuming SIA pays out the full $1 it earns as dividend)

The PE ratios for all listed companies are provided in our main newspapers on the following:-

• price - as per last trading day's share price
• EPS - as per the lastest actual audited earnings available

Example - If a company's last financial year end was 31 Mar 2007, the PE ratio reflected in today's papers would yesterday's last traded share price divided by EPS as per 31 Mar 2007.

What are the current PEs of some of bluest stocks on Singapore Exchange?
To give you an idea of market valuation,

• UOB Bank - 14x
• Keppel Corp - 26x
• F&N - 26x
• SPH - 16.7x

So what is/are the PE of the companies that you have invested in?

In search of next stocks to buy

On Jul 7, 2007's Weekend edition of Business Times, Ms Teh Hooi Ling gave us the following clues to find our next winners.

"Go for stocks with high return on equity but low price-to-book ratio"

What are those ratios?

• Return on equity (ROE) - We have several versions of the formula to ROE. Basically "return" could profit before tax or profit after tax and "equity" would be the summation of paid up capital plus all the reserves. Ms Teh is telling us to look for companies with high ROE.

Take for example - If most businesses in Singapore are able to generate a return of 10% on its resources, that 10% becomes the normal rate of return. Then look for companies making above the normal rate.

• Price to book (PTB) ratio - What price? Share price of that company. What "Book"? It refers to the net assets value as reflected in the accounts. PTB ratio will give an indication of how much we are paying in excess of the book value per share of the target company. Thus Ms Teh rightfully told us to look for companies with LOW PTBs.

Take for example - If the book value is $1 and the share price is trading at $2.40, PTB is 2.4x.

So where to find those ratios?
Sadly, such information is not easily found and nicely presented somewhere for us to see. Ms Teh had downloaded the ROEs and PTBs of all the companies listed on the Singapore Exchange from 1990 until 2007 from Thomson Financial Datastream. She had done a lot of secondary analysis to do the article.

As retail investor, we can do calculations on the few target companies. But market or industry figures would be the value added of institutional investors.

But if you actually do your homework, you will be well rewarded as per historical data. Ms Teh found out that the top 10 per cent of companies with the highest ROE/PTB would have turned your $100 into $34,048 in 17 years ie. average growth of 41% per annum.

Buying Hope?

I hope you are not buying shares of a company based on HOPE that a particular deal will go through.

A good company's fortune should not be dependent on just one deal!!

But if you had bought into these companies as mentioned below, your pocket would have been lighter with your hope dashed (at least for now).

• Carats Ltd (formerly known as Daka Designs) is continuing the search for reverse takeover (RTO) opportunities, after a memorandum of intent for a potential RTO fell through.

• The share price of YNH Property, a Malaysian property company has tumbled by 13% after the company failed to go through with a planned development with CapitaLand. Both companies had been hoping to develop a block of grade A commercial offices on a three-acre plot of freehold land along Jalan Sultan Ismail in the centre of Kuala Lumpur.

To buy on hope, I might as well go buy 4D. Cheaper and simpler.

The Lexicon Group

This public listed company has experienced a few rounds of changes of its majority shareholders, name of company, a lot of acquisitions and disposals and I still don't know what it is trying to achieve.

The name has changed from Panpac Media to Sun Business Network (SBN) (2005) to The Lexicon Grp (2007).

The company has reported a whopping loss of $102mio for year ended 31 March 2007. SBN's grand plan involving Greater China, NASDAQ and London's AIM failed miserably.

I definitely do not have shares in the company.

But I am just curious for the sake of minority shareholders, will there be light at the end of the tunnel under the new ownership?

Mr Oei exits Super Coffeemix

Mr Oei bought into Super at 34cts and 45cts per share about 2 years ago.

Yesterday he sold his total holdings at $1 per share Yeo Hiap Seng to reap an estimated profit of $46mio!!!

Amazing!

Did Edgar mirror Mr Oei's moves?

Edgar didn't. He was tracking the share price for months. The share price just exploded upwards from 40 plus cents level. He didn't follow. He regrets his inaction.

Should the market celebrate his departure by bidding the counter higher?

Sadly, I don't think so. We should take his cue.