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Friday, December 30, 2016

2016 Review & 2017 New Year Resolution‏

This week is reflection period as we clocked down 2016 to the last day of the year.

Personal Objective is always something personal which I look back from time to time to see where the indication of the goal is. They are not exhaustive by any measure but they give a direction to where I wanted to focus during the year.

I tried to do this at least once every 6 months to see where the progress is. The last review was during the mid year sometime in Jun (Link Here).




2016 Review

1.) Individual Performance vs Market Benchmark

I understand there's a couple of people who kindly commented on the process in my previous post on the XIRR return.

They are very good feedback which I will take into consideration and revise the process moving forward.

Notwithstanding that into consideration, I think I did pretty reasonably well for this year on this one.

Verdict: Pass


2.) Dividend Income of $24,000

This was a rather stretch goal to begin with as I did not keep much of the passive strategy as much as I would have liked. I also bought and sold companies during the year instead of buying and keeping them.

I didn't do well on this one as the amount of dividend income fell short in 2016.

Nevertheless, I'll try again for this in 2017 and hoping to achieve on the same this time round.

Verdict: Fail


3.) Attend at least 3 AGMs

I completed this in the first half of the year and completed 5 AGMs.

It has been a true pleasure to attend the meeting and get to know more insight talking to the management and knowing the company's prospect.

I would do the same again in 2017 as much as time permits.

Verdict: Pass


4.) Better Health and Fitness

With kid(s) around, everyday is tough and tiring with so much activities to fit into a regular day.

However, health has visibly improved as I began to construct my sleeping pattern more regularly (no more midnight football) and eat healthier food.

I also exercised more regularly by swimming at least once every weekend.

Verdict: Pass


5.) Increase spending on intangible relationship and learning

There's a lot more meet-up this year as compared to the last.

One of our 2016 Meet Up

More relationship building, more long lasting friendship and more networking, all for the good cause of helping one another become a better person.

Verdict: Pass


2017 Goals

1.) Portfolio Networth of $600k

I'm going to give myself quite a big stretch target here so I have put $600k as a goal by the end of next year.

I am expecting a capital injection in the range of $40k next year, so the rest would have to come from either dividend or capital gain.

Let's try to see if this is achievable.


2.) Dividend Income of $24,000

I'm going to redo this goal because it is one of the only one which I failed to reach in 2016.

This would equate to a $2k/month dividend income so that'll be a rough ball-figure park for me to note.


3.) Build up on the Child's Portfolio

I'll have two kids by the time 2017 hits so I'll need to work around and think of building this up in tandem with my own portfolio.

The goal is to buy companies that have decent growth and roe over time since this will compound for many more years to come. In the local market, I'd be taking a close look on banks to do that.


4.) Project Miles

I am on the personal project of chalking up miles so that I will be able to redeem them for my traveling hobby.

Currently, I am using the Citi Premier Miles as well as the Amex Krisflyer and the points have been chalking up nicely. To date, I have about 60,000 miles notwithstanding the bonus miles received.

I'm unlikely to travel in 2017 due to the newborn situation so I'm keeping this for 2018 and beyond.


5.) Influencing Personal Finance and Investing Interests Amongst Close Friends

I've received a couple of requests, both online and offline about asking me to help them to start engine their financial journey.

I think this is just about getting them interested in personal finance and some of the basic finance 101 stuff which allows them to get going for the much longer run. Once they are well equipped with the handling of money, then the harder part would be onto the how to grow the money, which is essentially what I am doing at the moment.

It's nice to be able to just extend my assistance in any way they need.


Summary

So 5 goals there for 2017 to aim for.

I hit 4 out of the 5 goals in 2016 and I am looking forward to hitting all bulls eye on 2017 target.

Happy new year everyone and have a blast year ahead in 2017.



Wednesday, December 28, 2016

Recent Action - LMIRT

This will be a quick update on my latest addition to the portfolio as I tried to allocate some capital from the profits made on Spackman sold this week.

I added 80,000 shares of LMIRT at a price of $0.37. My rough calculation tells me that's about 9% yield on the dividend.

People who know me knows that I used to work as an employee there so I'd probably not talk too much about the specifics operational performance of the company. 

CEO Alvin has also since then left and is currently vacated temporarily by Albert Cheok.

The main reason I'm buying this right now is I am predicting a few phases of growth in the next couple of years, both in terms of micro and macro.



Macro Factors

The tax amnesty reform is a super huge thing that happened across in 2016 for all Indonesians. These amount of money will be used for fiscal policies in improving the infrastructure of the country.

GDP growth seemed to bottom in 2016 and has seen a reversal in the last 3 quarters and expected to drive up further in 2017 and 2018. 

The rupiah currency has also seen some strengthening as a result of this reform.




The government has introduced a string of reform policies in a bid to build up the economy back and they streamline and welcome foreign investment into the country.

Central bank has also eased rates and required reserves for helping the economy to pick up.


Micro Factors

Operationally, rental reversions continued to be strong over the last 20 quarters and is expected to pick up even further in 2017 and 2018 as economy picks up.

The company has 23% of the lease that needs to be renewed in 2017, so I see this as a positive growth which will contribute to the bottomline.



The company has bonds and term loans that ranges from 3% to 5.18% with a weighted average expiry of 2 years. The company has recently acted by issuing a perpetual bond to refinance the existing term loan expiry albeit at a higher yield since this is classified under the equity portion of the balance sheet. Interest costs will reduce as a result but distribution will have to be considered for these perpetual security shareholders.

Summary

I am not expecting too much for this other than for the dividend yield and the natural growth from the organic portfolio.

This would fall under the 9 + 2% strategy, at least of what I see in 2017 and 2018.

I'll review again every quarter of the performance and development.

Thanks for reading.


Thursday, December 22, 2016

2016 XIRR Portfolio Return and Key Takeaways

I always do this every year just to quickly see where I stand beside the benchmark, which in this case is the STI ETF.

XIRR is not an exhaustive measure for performance because it depends on many various factors, such as whether it includes cash. Mine did not include cash consideration otherwise it would have been a lot lower. A low XIRR in one particular year also does not mean that you are a lousy investor. Similarly, a high XIRR does not mean that you are a good investor.

We just need to be aware of the shortfall of the tools.

Many people have asked me on my previous post for the 31.8% growth year on year. To clarify, that includes capital injection and is simply a mathematical function of the overall portfolio growth. It does not measure the performance returns (though there are some correlation to it), which I will do so below shortly. 

2016 XIRR Performance

My XIRR performance for 2016 returned 26.76% this year. The STI benchmark meanwhile returned 3.78% (measured as of 21st Dec). Both are inclusive of dividends.

If I were to focus on the performance, I'd take a look at the variance portion instead. To me, returning -20% when the STI is returning -40% in a particular year is a great achievement. I am not overly focused on individual returns but more focused towards what works and what doesn't work for me.

Captured as of 21st Dec 2016*

10 Key Takeaways

There a couple of key takeaway which I wanted to pen down for my future reminder. I think this is more important than anything else to make me become an even better investor.

1.) Kingsmen is still currently my biggest under-performance because there is no margin of safety when I bought them in 2015 (key takeaway for 2015). The loss has now narrowed down after receiving dividends to lower down the costs but they are still down 10% as of writing.

2.) The China scare in the beginning of the year was a fantastic opportunity to go aggressively long on the portfolio. If you look at the portfolio, it went down sharply in Jan and Feb but rebounded back strongly a couple of months thereafter. It was an opportunity to add position into some of the stronger companies.

3.) There were plenty of volatility this year - Brexit, Trump and Italy Referendum and opportunities are aplenty during such uncertainties. I simply love events like this because I can take advantage of it. Forecaster who predicted that the market will be shocked are left dumbfounded when the market continues to edge higher.

4.) Cash is such an important call option function. We need to have sufficient warchest when the big opportunity comes. Having more cash means more "bullets" to average down on strong companies when the market continues to discount them unfairly.

5.) Have a plan. Stick onto the kind of strategy you have envisioned from the start, always have a back-up plan and think of the worst case "what-if" scenarios should things backfire or doesn't go to plan.

6.) Do not jump onto the crowded bandwagon. At the beginning there was Keppel, then M1 and then now Sabana. It is entirely ok not to participate in such bandwagon if we are not comfortable with it. If want to initiate a position, ensure that we always know the valuation of the company and wait for the crowd to subside down before entering. That's usually when you get your maximum risk reward.

7.) Always be flexible in our strategy and approach. Do not be overly defensive on our own strategy no matter how much we believe in as we may be blinded by our own blind spot.

8.) Value investing is such a hotly sought after word that everyone wants to be associated with it. Value investing can come in many forms, depending on how you view it. Benjamin Graham and Warren Buffet style of value investing are not the only successful one out there.

9.) Always know your character and choose the style of investing that suits your character. 

10.) Always be humble about our own performance, regardless of how we did in the year. There are always things that can be improved upon and things that we can pick up and learn from others. If we are not doing well, embrace criticism and feedback with acceptance and improve upon it.

Diary,
B

Tuesday, December 20, 2016

"Dec 16" - SG Transactions & Portfolio Update"‏

No.
 Counters
No. of Shares
Market Price (SGD)
Total Value (SGD) based on market price
Allocation %
1.
IReit Global
73,000
0.73
53,290.00
11.0%
2.
CDL Hospitality Trust
40,000
1.31
52,400.00
11.0%
3.
Fraser Logistic Trust
40,000
0.92
36,800.00
8.0%
4.
Spackman
150,000
0.19
28,950.00
6.0%
5.
M1
15,000
1.93
28,950.00
6.0%
6.
Kingsmen
45,000
0.63
28,350.00
6.0%
7.
ST Engineering
8,000
3.30
26,400.00
6.0%
8.
FCL
10,000
1.55
15,500.00
3.0%
9.
Micro-Mechanics
15,000
0.85
12,750.00
2.0%
10.
Singtel
3,000
3.67
11,010.00
2.0%
11.
Ascott Reit
10,000
1.14
11,400.00
2.0%
12.
First Reit
8,000
1.26
10,080.00
2.0%
13.
OCBC
1,134
9.08
10,297.00
2.0%
14.
UMS
15,000
0.61
  9,150.00
2.0%
15.
Warchest*
140,000.00
29.0%
Total SGD
475,326.00
100.00%




We are heading into the last week right before Christmas so I want to wrap up on the December portfolio and then move on to reflections week and then goal-setting for the new year.

The market has been rather kind because we are going one way up from here since Trump was elected President. I also took the chance to accumulate some opportunities which I saw in the market meanwhile (need to get my cash to work hard!!).

First, I bought 150,000 shares of Spackman at a price of $0.136 which I blogged over here. This is a catalyst play which the risk reward play was tilted towards my favor as mentioned. The premiere movie will be launching on the 21st Dec and I'll be awaiting for the development closely this and next week.

Next, I took the chance to offload partially by divesting 7,000 shares of ST Engineering at a price of $3.39. This 7,000 shares is the batch that I've added in the past 6 months when the share price was languishing low. I still believe in the long term prospect of this company and am still holding 8,000 shares at the moment. I'll look for a chance to add this back if I get the chance.

I also took the chance to accumulate more M1 by adding 5,000 shares at a price of $1.97 and another 5,000 shares at $1.925 which I blogged over here. I believe a lot has been priced into the share price and valuation is cheap, relative to their historical valuation. I believe the trough for M1 is not far away and if it does go lower, I'd be happy to add more to my position.

I also added CDL Hospitality Trust for 33,000 shares at a price of $1.31 which I blogged here. This has become my top position which I believe will outperform in the next 1 to 2 years. I remain convinced that CDLHT is a quality company trading at a discounted valuation. It's a steal this one.



The portfolio has continued to do well this month as it closes the year on an high end note of $475,326 (+4.15% month on month; +31.8% year on year). 

I'll be summarizing the whole summary and the journey this year in the next post so I'll skip that for now.

In terms of cashflow, it's been sitting very nicely as I have kept aside the required huge cashflow that I will be needing in Jan 2017 so that is another tick on the box.

I hope everyone has the best out of 2016 and we'll strive towards a new and upcoming year pretty soon.

Wishing everyone a Merry Xmas and happy holidays.


Friday, December 16, 2016

Recent Action - CDL Hospitality Trust

This should be my last action for the year as I tried to wrap up 2016 and preparing for the new upcoming and exciting year.

I accumulated CDL Hospitality Trust for 33,000 shares at a price of $1.31. Together with the existing I have, I now own 40,000 shares of CDLHT. This becomes immediately my top holding going into 2017.

I last added CDLHT back in October and you can see my article here.

My main thesis for hospitality reits continued to grow stronger as I see decline of revpar slowing down (revpar bottoming) despite influx of incoming supply which has been factored in, discount to historical valuations which I find attractive, and stronger tourist demand coming in from the weaker SGD , completion of terminal 4 and continued initiative from the tourism board to grow on these aspects.

Out of all the hospitality reits around, CDLHT remains my strongest pick because of the quality of the hotels, stronger pipeline, healthier balance sheet, and most resilient revpar (despite the drop) as compared to the others.



The Singapore hotels revpar is currently hovering at around $156, while during the GFC period it was at around $150. At the highest, this can go to as high as $200. I think a lot of the weaknesses and bad news have been factored in the share price and again the important thing is about not overpaying. 

Buy low. Sell high.

Buy when there is pessimism. Sell when everyone is getting onboard and crowded.

There's a few reasons why I didn't consider the other hospitality reits.

I've spoken previously quite extensively on Ascott here. Even though their service residence business model is more resilient than traditional hotel stay, I just find that the management interests' are getting ahead of the minority shareholders without really adding apple to apple value. You can read my articles above if you'd like to understand what I mean. For now, I just keep my small ascott holdings intact in my portfolio as I don't want to incur the commission fees by selling it away.

OUE Hospitality Trust is also a big no-no for me. Anything that has to do with the parents, I'd avoid generally as they tend to use it more for dumping ground purpose than anything else. Forget about their huge discount to nav. Look instead at their leases, the quality of their assets and the cap rates that they are getting from their assets. Not good enough.

The same goes for Far East Hospitality Trust. Huge discount to nav, that's good contrarian play. But they have not shown enough to convince that they are bringing any sort of added value to shareholders. Not for me too.

Both Fraser Hospitality Trust and Ascendas Hospitality Trusts are more catered towards Australian tourism play. In terms of M&A, the management has not totally convince that they are out there fighting for the best deal. It seems more towards buying first for now and the accretive part might come at a later stage. I'd give this a pending review for now but the yield has not convinced me to part with this.

The above is of course forms my own opinion and they might or might not be biased towards what I've seen and analyzed from my angle.


Thursday, December 15, 2016

Recent Action - M1

An announcement was made yesterday that TPG is the confirmed 4th telco operator in Singapore. It made a winning bid of $105 million for the spectrum on offer and was 3x the preferential reserve price of $35 million.

TPG will be allocated 2 x 10MHz in the 900 MHz and 40 MHz in the 2.3GHz spectrum bands, with the new spectrum rights to commence from April 2017 onwards. TPG has a stronghold base in Australia so I believe funding capex will not be an issue for them.

Such news meant that there was going to be short term volatility in terms of the share price of telcos, which in fact is not at all new to us. I took this chance to add onto my second batch of M1 by accumulating 5,000 shares at a price of $1.97. On top of the existing shares I had, I had a total of 10,000 shares position now.

My friend, Kyith wrote extensively recently on telco operators which you can find here. He's the expert in this one, so I usually read and consulted his brain and mind.




Why Am I Buying At This Price?

All of us knows how this is going to play out for M1, given the softer outlook now with more competitor. Mobile service revenue is expected to take the hit once TPG competition intensifies but I am not expecting this until at least 2018 earliest. Handset sales has also show some weakness this year as well as the falling ARPU margins.

The goal here is to manage expectations of what we want to get from this and make sure we don't overpay.

For me, I wanted an establishment track record of 6% yield in times of difficult period and I think I will achieve this with the company.

M1 current enterprise value is at $2.27B at this moment. The company's 12 month trailing EBITDA is at $328.95m. We divide them to get an EV / EBITDA of  6.9x. For the record, the last time the company hits valuation this low was during the 2009 GFC period when the EV/EBITDA was at 4.5x. The past 10 years (with exception to the GFC period) we have seen EV/EBITDA ranging at around 8.5x.

What this means is that current valuations are cheap and that the share price has fallen more than the fall in their bottomline. Cheap can be cheap for many reasons and given the drastic pessimistic outlook, it appears like it will continue to languish low. 

By the same comparison, Starhub valuations are at 8.5x and Singtel at 15x. Alright, they aren't totally comparable due to the more diverse and resilient nature of their business.

EV/OpFCF for M1, Starhub and Singtel is at 12x, 13x and 17x respectively.

The regional telcos valuation are at a range of 8x and above. Only XL and Indosat of Indonesia and Axiata of Malaysia are cheaper.

If we assume the next 5 years EBITDA for M1 to drop by 20%, that is EBITDA drops to $268m that will bring the EV/EBITDA valuations to 8.5x. That's about the range they have been trading at in the last 10 years in terms of valuations. In other words, most of all the bad news have rather been priced in at this price.

The management is likely to cut dividend to about 12 cents. That still gives a respectable 6% yield for the next 3 years at least, and then we'd review again what might come up in the meantime.


Wednesday, December 14, 2016

How Much Am I Making From Online Income in 2016?

I tracked on this last year for fun and I am going to do the same for this year.

Writing has been very helpful in organizing and strengthening my thoughts and I enjoy doing so in the midst of busy schedules.

I do get paid daily from writing on this blog and they are mainly derived from Adsense. Nuffnang also contributed a few but not significant. There were also a couple of adhoc sponsored request sometimes which I will also include. There were also many requests which I had declined due to incompatibility of the objective.




For those who are new to blogging, Google Adsense is easy to implement and they are within a click of a button to get started. The platform has 3 main avenues which bloggers can earn their money from:

1.) Cost-Per-Click (CTC)

2.) Click-Through Rate (CTR)

3.) Cost-Per-Impression (CPI)


The CTC and CTR are mainly banners displayed on the side where if someone clicked on them, I will earn a portion of revenue from it. Unlike in the US, the revenue amount the advertisers are willing to fork out in Singapore are low so they are unlikely to be significant. On average, I get about 2 to 3 clicks a day on this.

The Cost-Per-Impression (CPI) is one that you can directly have an influence on. They are computed based on per 1,000 impression into your traffic. On a good day, my CPI rate can go for as high as $7 per 1,000 impression while on a low traffic day, it can go for as low as $2 per 1,000 impression. From the blogger side, all we need to do is write and churn out decent post so that viewers are able to read and go back to your site often. Bloggers who post exciting title post without decent content (click-bait) are often penalized as their churn out rate is high but short (people click onto the link only to find out that it's a rubbish post and never return thereafter). Retention rate is an important aspects in this category as well.



The online income for 2016 came up to $1,727.06

They are slightly higher than the previous year but not by a lot. I also haven't been putting in a lot of writing time this year as compared to the previous year due to personal commitment so it's a good achievement altogether.

I hope there will be more new bloggers that will start to write as we grow our small finance community around. For new bloggers who just joined, please do not forget to approach TFS, your friendly neighbor who will show you a lot around the blogosphere. 

Thanks for reading.


Monday, December 12, 2016

Process and Outcome

This is a general observation from reading the Pareto Principle, named after the economist Vilfredo Pareto.

The principle states that 20% of the invested input from the process is responsible for 80% of the outcome.

The thing about process and outcome is it follows the general correspondence trend of causes and effects. You have to first have a process which will results in an outcome. The interesting thing about the two is that they are not necessarily correlative in nature. A good process may not lead to a good outcome and a bad process might not lead to a bad outcome.


I've been relatively successful today because I'm grateful for what I have. But I often wondered had I studied a lot harder in the past would I had become a lot more successful today. Perhaps a doctor or lawyer is in the making. And the fact is I'm not today. Things can also go the other way and perhaps I'd be a lot worse position than what I am today. It's entirely possible. I'm not ruling that out.

In investing, there are 4 possible scenarios that could play out.

1.) You had a good process and a good outcome.


2.) You had a good process but a bad outcome.


3.) You had a bad process but a good outcome.


4.) You had a bad process and a bad outcome.


To begin with, it's difficult to quantify what's "good" and "bad" means.

In mathematics, 1 + 1 is equal to two and it is quantifiable.

In investing, who is there to tell you that your process is a good method. Neither you, me or our friends are able to proof it with certainty. I always like the elephant example because every time there are buys and sells in the market, people on the both side of the trades think that their strategy is superior.

If I'm buying a blue chip and it rises 10% next week, does that mean I am on the right process? The outcome certainly advocates that it seems like it is the right process. What if luck plays a part in this? What if the law of large numbers come into play, i.e you do this for 1000 times and you managed to get it right for the majority part of the time?

There are many paths to Rome and there are many different strategies to investing.

Some may have a heavy flavor to value investing approach and even within that there are many different ways to approach it. Some favors technical approach and it worked perfectly for them. Some are mixed approach which for some reason just work well for them for years.

Regardless, there's no right or wrong process. An outcome can best tell you if you are walking in the right direction but that does not mean that your process is best optimal. Be flexible, learn from mistakes, enhance one's process and note the outcome.

You'll eventually know what you are getting into.


Wednesday, December 7, 2016

Spackman (SEGL) - Presold Distribution Rights To More Than 30 Countries

This is a quick follow-up updates on the recent post I made last week on Spackman (Link Here) where I bought the shares based on a few catalysts play ahead.

The Group's upcoming premiere movie "Masters" is one of the catalyst play and the company announced yesterday that they had successfully sold their distribution rights to 31 countries.

The movie is expected to premiere in Korea on the 21st December and they are expected to do well, very well in fact as expectations are running high. Given the level of distribution rights sold to the various number of countries, I think we can expect the movie to be a big hit.

I mentioned in my previous post that we can take reference from their previous big hit movie produced, "The Priests". They managed to successfully earned a 50% margin on the production and distribution on rights and we can expect this to go a step level better.

If you'd bothered to notice the way they made the announcement on "The Priests", the company made 7 consecutive positive announcement on the successful production of the movie since it was premiered. The share price meanwhile has rallied double from the beginning of Nov (8 cents) to the end of Nov (16 cents). That's in 2015 and the share price tumbled again upon the announcement of their full year results.

For the record, "The Priests" has only managed to sold distribution rights to 5 countries.



My Take

I attended training outside today so I didn't really see the market movement today but I was told the share price went up 11% today on high volume.

I think we'll see a similar stretch of good news announcement coming towards nearer to the screening premiere of the movie and I feel there are still plenty of room to run up for the share price meanwhile. Being in a FP&A work myself, I know how easy it is for a company to announce some positive news which will delight the investors.

I spoke about what it means in terms of valuation in my previous post. At 22 cents, they are valued at around 15x PE. If we look across other competitors like MM2 and other Korean production company, they are all trading above 30x and some nearer to 45x.

I think the safest play for me is still to hold this on until the premiere starts on the last week of December but probably exit just before their full year results. We know how sensitive companies can be when they announce results so I probably don't want to take that risks.

This is just me thinking of the risk vs reward play.

I will never put my money into areas where I think the risk are higher than my rewards.


Sunday, December 4, 2016

Dividend Income Updates - Q4 FY2016

It's the time of the year again where I try to tabulate all the dividend income received in the quarter and see where I stand in terms of passive income cashflow.

I am terming it as passive income because it's the closest to passive as I can get. Naturally it means having the management takes good care of the company and then we reap in the rewards as a shareholders of what's left in the profits.

I'm also excited because I've geared my portfolio purposefully towards companies that pay out decent amount of dividends so some of them may look slightly lesser geared towards growth but they are designed this way according to what I want it to be.



Ideally, I hope this will one day overtake what I am earning from my active income so it'll give me a peace of mind financially towards having more option on what I can do with my money and life.

The goals of financial independence have always been about freedom to me. I don't seek an escape from my life today or appears to be running away from something. I look to it as a long term goal which everyone is involved having the same target. It is an admirable merits which gives me a lot of things to say or different actions to take.

Having different income streams is not a must but a nice thing to have.

Some day in our lives, we will be faced with certain unexpected things that we may be wary of and this could include financial means, and having that buffer of money that you have will help a lot. I just can't stressed how much helpful it has been to me over the past couple of years since I began investing.

Without further ado, I've tabulated the dividend income for Q4 below.

Dividend Income Q4

The last quarter of the year has not been the best in terms of dividend income. In fact, I think I suck in the last quarter of the year :)

There were some companies paying interim but they aren't usually as significant as the other quarters.



CountersAmount (S$)Ex-DatePayable Date
Micro-Mechanics600.004-Nov18-Nov
First Reit169.6025-Oct29-Nov
UMS150.0029-Nov15-Dec
Total919.60




With that, I'm ending the year with $16,505 of dividend income received. It's a far cry from what I'm expecting it to be but with the recent reshape of the portfolio, I think 2017 would be a good year in terms of dividend income.

What about you? How did you fare for the year in terms of dividend income?



Monday, November 28, 2016

Recent Action - Spackman Entertainment (SEGL)

I do these catalysts play once in a while.

The last time I did this was with Noel Gifts which went pretty well.

The idea is to ride on the catalysts ahead which I think there may be further upside to share price and gain from it. Of course, if it doesn't play out well, then I'd be staring at the dark sky. Pinpoint accuracy in reading their financial statement, studying their recent development and forecasting future outlook will be key in this one.




I bought the shares at a price of $0.137 for 150,000 shares.


Company's Overview

Spackman Entertainment Group Limited (SEGL) is a leading entertainment production company that is primarily engaged in the independent development, production, presentation, and financing of theatrical motion pictures in Korea.

Below is the structure of the company's overview:


One of the Group's main gem is Zip Cinema, one of the most recognized production labels in Korea and has originated and produced some of Korea's most commercially successful production. For instance, movies such as "The Priests (2015)", "Cold Eyes (2013)" and "All About My Wife (2012)".

The Group is also a strategic shareholder (27.3% interest) of Spackman Media Group Limited (SMGL), a company which is now incorporated in HK. SMGL is a leading talent agency and entertainment content production company in Korea, collectively managing 50 artistes including some of the top names in the Korean entertainment industry such as Son Ye Jin. Through its wholly-owned subsidiary, SMGL owns a 51% majority stake in Breakfast film Co. Ltd, a leading marketing and media company and a 99% interest in Demedia Co. Ltd, a leading variety show and entertainment program production.



Catalysts (Why I am buying)

There are a couple of catalysts which I am awaiting for them to crystallize:

1.) On April 2016, SEGL announced a proposed restructuring of its loss making assets pursuant to which the company would sell its entire 100% equity interest in Opus Pictures Limited and its 51.5% equity interest in UAA Korean Co. Ltd. The divestment has just been completed recently.

The restructuring will allow SEGL to streamline its core operations and better focus its resources on its better profitable production in Zip Cinema and Novus Mediacorp. The restructuring will also enable them to save an estimated overhead costs of around $2.5 million (by working backwards) and I calculated that it will bring them back to profit in FY2017.


2.) The company is also releasing major hit blockbuster in Dec 2016, a movie titled "The Masters".

Since the company is listed 2 years ago, their released movie have been rather lackluster. These were mostly produced via Opus, which thankfully they have divested now.

One of the decent movie is titled "The Priests", released in 2015. From here, I am able to use the margins as a case study example.

The idea with the movie production business model is they earned revenue not only from the production of movie, but also through distribution of the movies to regional countries and earned the royalty from the distribution, rights and documentary sales.

If they are successful, they are able to earn a gross margin of around 50% which is extremely decent.

Unfortunately, not all movie can be a blockbuster so if the movie doesn't appeal, then the company will be in loss making position or if slightly better at a low single digit margin for most of the time.




The movie starred heavyweight actors like Kim Woo Bin, Kang Dong Woon and Lee Byung Hun. If you ask your crazy movie fanatic friend, she'll be already shouting "Dong Woon, Saranghaeyo" even before the release. 


3.) The third catalyst is the likelihood to divest Spackman Media Group Limited (SMGL), a leading talent agency and entertainment content production company in Korea, collectively managing 50 artistes including some of the top names in the Korean entertainment industry such as Son Ye Jin.

The company's stake in SMGL stands at 27.3% and may be worth at about $45 million.

Management has already guided that they are in a talk with a potential private equity investors who are looking to take a stake into SMGL.

Son Ye Jin <3
Risks

One of the main risk with the business model is they require huge capital commitment upfront to make and produce the movies. I'd equate this to something similar to developer's model. Managing working capital would be key in this one.

The other risks is with the key-man risks.

A good movie production is usually credited to the top producers, who will be key in retaining their services.

Then there are also the industry and business risks with competition and low entry to barriers.

Summary

This should be a short term play for me until the catalysts are played out.

Only then I'll be able to see if the thesis proves to be right.

At the moment, the company is still making losses, so it's hard to put a valuation up there.

If they can return to the black (which is my main thesis), then we'll start looking at what their valuation might justify. Some of the peers are trading in at about 40x earnings and that's how high it can go in terms of the industry. 

I'll check back on how I am doing on this.


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