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Thursday, January 22, 2015

Recent Action - OUE Limited

I am pretty sure that I am going to receive quite a bit of backlash after this post following some unsightly comments from the hardwarezone forum for my decision to divest AHT two weeks ago. Regardless, I will try to be as transparent as possible and hope readers do their own diligence before deciding to invest their hard earned money. This is one of those evidence that if you don't do your own diligence and simply follow other bloggers purchase, the situation may not turn out to be great.


Today, I made the decision to divest all my 5 lots of OUE Ltd at a price of $2.22. Given that I had purchased them last September at a price of $2.16, this represents a minor gain of $0.06/lot, which translates into a total gain of $300 in absolute amount. I suspect the reason for the increase is due to the latest Keppel Land announcement which Keppel Corp has offered to purchase at a premium. This boosted the whole property related counters which are currently traded at a discount. Having said that, OUE isn't any of your Keppel Land or Capitalmall Asia and I seriously doubt the big boss up there is willing to privatize this asset generating machine.

I have blogged a few times last year after my purchase on OUE and you can view them here below for those who are interested:


Rationale for divesting

My thesis for the strength of this company is still the same as before. I think the company is currently trading at an undemanding book valuation of around 0.53, which is almost half what their liquidation value is right now. The earnings though are a little weak so this Iis very much more an asset play than anything else.

However, there are a couple of things which makes me think deeper:

1.) Confirmation of divestment of Crowne Plaza Changi Airport & Extension

When I purchased the company back then, I was playing a little guessing game about the potential divestment of the abovementioned assets. When news about the confirmation was announced, the market doesn't seem to take into that positively. This is in conjunction with the previous divestment when they injected their two Reits properties arm OUE Hospitality and OUE Commercial Trust and the share price slumped down heavily. This is just something I don't really understand. Is there something behind the curtain that retail investors does not really know?

2.) Guaranteed Income Support

The above reason could perhaps be attributed to this income support cause. Given that the management chose to aggressively inject their properties into the Reits arm without any stabilization, they are able to recycle capital quickly but chose to provide guarantee income support to these Reits as a result. As an investor, I am not sure if that is the best option to do because some of these capitals are not being recycled to obtain a higher required rate of return.

3.) Aggressive Venturing

If you read about the background of the Riady family, they are almost into all the businesses you can think of. Properties, retail, hospitality, food and beverages, logistics, recreation are all part of their diversified business. This is not necessarily a bad thing per se, but you can see how the risk has increased because of this. Imagine if there were recession and their capital is stuck in any of these businesses. Further, we look at the Return on Equity over the past few years and they do not really impress.

4.) No Share Buyback

I remain baffled why the company did not step up to stabilize things when the share price is weak by doing things such as share buyback to give investors a vote of confidence. Instead, what they have done is to use their capital to some mutual funds which yield at about 3% after inflation. I'm not sure if the management see that is more value or is the undemanding valuation of their current share price is more value. The action doesn't seem to justify some of the reasoning in my head.


Final Thoughts

It's always easy to put the blame on others when things doesn't go in your favor but difficult to concede that it's your own mistake through our own personal reflection. Again, I wanted to highlight the risk of following a blogger's pick on stocks when you do not do your own due diligence.

Thankfully, this is a situation where I managed to get out unscathed because of the optimistic nature of the property related market today due to Keppel Land privatization.
As mentioned above, I feel that this a case where I may have overlooked some of the key important items and the lack of having further due diligence in knowing more about the management style and history. I have taken a step up by recognizing my own mistake without doing enough when I purchased the company.

This does not mean that the fundamentals of the company is bad. But some of the things and actions at the moment left a few question marks in my head which I do not really understand and because of this I do not feel very comfortable investing in something I am not entirely sure of. This may seem like a quick trade in and out but I rather be at a situation out right now. As it is looking right now, I may already be regretting my action.

I may be vested back in this company some time in the future, regardless if the share price is higher than now, once I have understood the whole situation much better. But until then, I rather focus in companies I know much better.

What about you? Anyone been in this situation before?

22 comments:

  1. Hi B,

    side track abit if you don't mind.

    Keppel Corp paid a 26% premium to acquire Keppel Land shares. Do you think Keppel Corp has overpaid for it ?

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    1. Hi betta man

      Ahh this is a tough question.

      It appears that the acquisition is accretive based on mangement report but gearing had also increased. I am somewhat surprised that they are acquiring keppel land at this point in time but it seems that they may need the earnings of the other half of keppel land in the foreseeable future.

      I think the market will see this as a positive news though we really need to see how their core business will.be doing in 2015.

      Delete
  2. Hi B,

    Hehe, I actually bought a counter before based on some analyst report and also what a blogger wrote. Truth be told, I didn't understand much of what he was saying. It just sounded cheem, so I thought, "sounds like someone did all the heavy thinking for me, great!".

    The counter starting sinking a bit and I remember feeling a bit sian. Why did I even buy the counter in the first place? Because I didn't do my own research, I couldn't remind myself of all the reasons the counter was good. I actually didn't even know if it was good! I just felt so uncomfortable and wanted to offload it.

    Eventually I sold it later at breakeven. It was a good (and cheap) lesson to learn though! Don't follow blindly, and also don't expect bloggers to be gurus!

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    1. Hi GMGH

      Thanks for sharing your stories.

      I am sure many investors have done the same at some stage in the past and they hv learned from it. The bottomline is ultimately to do their own due diligence and this can be very difficult to put across.

      Delete
  3. Hi B,

    I'm following closely to your blog and well aware of the post u have on OUE. I'm also kinda wondering how come this counter did not really rose despite all the actions and news. It got me pondering for awhile and did not really vested in. Well I still think its best to play in fields u are most familiar with. It might be tempting to follow bloggers to get counters but I totally agree gotta do your own research. Have ample reasons to convince ourselves to part the $ for these counters and not follow blindly.

    Seen more news online on commercial rents going up in 2015 with limited commercial space released. Sounds like gd news for Commercial Reits. Regret that I did not have a heavier warchest to stock up on them while they are lower. :(

    Still have a lot to learn. Really much much more..... I'm lacking behind way too much haha ;)

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    1. Hi GH

      That's what I am thinking.

      I feel like there is something which I am not aware of and usually things like this are pretty rare so I am.not sure if I should stick to the share.

      Commercial reits have indeed run up the slope though it isnt entirely new news that they will do particularly well in thr next 1 to 2 years.

      Delete
  4. Hi B,

    I think you have been transparent and detailed in your research, so need not be affect by the comments. Also, from a more positive light, that you are "commented" in other forums does reflect your reach, and size of audience, isn't it.

    I do follow your posts closely, however I have yet to follow any of those you written except Sembcorp.

    We are all adults. =)

    regards

    ReplyDelete
    Replies
    1. Hi Silly investor

      Thanks for your encouragement as always.

      I hope the public will know that bloggers are only human and they do make mistakes so to do own due diligence is key to long term success.

      Delete
  5. Hi B,

    Good decision there regarding divesting a stock position that you realize you are uncomfortable with. From this experience you gain 2 things, the $300 amount and also a good load of learning experience from understanding your mistakes. Just know that even the stock price rise later, you still made a valid move because you did it based on your facts and reasoning.

    No regrets and well done!

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    1. This comment has been removed by the author.

      Delete
    2. Hi Secretinvestors

      I hope I won't have seller's remorse later on :D

      But as you said correctly, it's probably a risk if there are something that we are uncomfortable with yet still holding on to it without any further justification.

      Of course, I could be wrong with this whole epsiode.

      Delete
  6. Hi B. Just want to tell you that I really appreciate your sharing of opinions.
    While it is common to seek other's opinions, the investment decision is entirely one's own.
    Let me make a point. I invested in this counter, partially due to your research. With more capital and a lower entry price, I made more money than you. I have no intention to share my gains with you now that MY decision is profitable. So why would I blame you if I have lost because of MY decision to invest?

    Keep up the good work!

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    1. Hi Pc7872

      Very much appreciated on your comments.

      It's glad to see understanding people like you and all the more because you did your ultimate due diligence and risk before taking the call. Congrats on getting on a lower entry price. You should be sitting on a pretty nice 10% gain right now if you catch it right around $2.

      Delete
  7. Hello B
    Thank you for sharing your knowledge and opinion.I am one of the many readers who bought into oue ltd after reading your blog. I bought in at a lower price than you and should i cash in,make more profits than you and I will Not be writing you a check ha ha...every decision that I (we, out here make) is mine (ours) alone. afterall we are adults so ..NO Need to feel bad if the reverse comes true.

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    1. Hi blazingruby60

      Thanks for your kind comments.

      Appreciate your understanding on this matter and once again prove that there are many investors out there who actually understand the risk involved on investment and are willing to put their money to risk.

      I still hope you guys profited from it though as the fundamentals figure wise look pretty good.

      Delete
  8. Hello B,

    After seeing similar incidents happened in the blogsphere over the past few months, I've realized it is more common than expected.

    What differentiates savvy financial bloggers from professional broker analysts? Not much, it seems. Just that we do our analysis only in our spare time and we have our skin in the game.

    Yet, when bad things happen, the bloggers seem to get the flak while the pros are shielded by pages of legal disclaimers.

    Take heart. It is generous of you to share your analysis even though you're not obliged to. I've learnt much from reading your articles.

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    1. Hi SRSI

      Thanks for your kind comments as you have always been.

      Even though I saw other bloggers doing the same disclaimer as the professionals, it appears that there are still many investors who are following the call blindly and to further aggravate the situation, they blame the picks on those that they follow.

      It is currently bull scenario, so it is not so bad. When recession comes, it'll be a wreck in the blogosphere I'm sure. We'll see how when that happens.

      Thanks for your support as always and learnt as much from your posts too. Keep it up.

      Delete
  9. Hey B,

    When share price, it's my effort. When it drops, blame it on you! This kind of mindset is shameless.

    When it comes to Investing, do not listen to anyone! Treat it like choosing your wife. Once wrong, consequences undesirable! Go for what you know best n ignore the noise n focus on fundamentals...

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  10. When share price rise, I mean.

    Anyway I m not listening to u... I m gg to keep oue!!! Hahaha

    Even if wrong, it's my decision...I bear... LOL

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    1. Hi Rolf

      I won't be worried on you as I know you have done your own research before buying. Ah ha...

      I hope it pays off for you one day on OUE (and I sincerely do) and as long as you have those reasons in your head on why you think this is an undervalued play and have considered the risk, then that will be enough to take the risk and go for it.

      Delete
  11. Thanks for sharing your journey! I bought this counter near $2 and I'm keeping it as a value play so I'm not "following" you in that sense. At the end of the day, we make the call and bear the consequences ourselves.

    Keep up the good work!

    Hope to catch up with you over coffee. We met at the BFP seminar last year when we sat beside each other... :)

    L

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    1. Hello

      Sorry for the belated reply.

      I'm sure you are a rationale person who will do well. I will not be worried about you. I hope the share price will go well for you :)

      Keep in touch.

      Delete

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