Kevin Scully made the following presentation at the Value Investing Summit on 26 January 2013. The full presentation slides are available at

Kevin Scully, executive chairman of NRA Capital. NextInsight file photo

My definition of Value Investing for my Singapore investments:

♦ Investment must show immediate value (price to book <1)

♦ You must pay me to wait as there is an opportunity cost to holding the stock – should have running dividend yield

♦ Have sufficient liquidity – must have trading liquidity to reduce exit costs

♦ Have a definable catalyst event and exit price –investment horizon shorter than WB’s 20 years

♦ Should offer huge upside – one or two bagger.

How do you find these Value stocks? Look for major price declines and analyze whether it’s justified…..go against the herd and crowd instinct !!

Three Value stocks which I am recommending now


First, a bad financing decision…

An AHTS (anchor handling tug supply vessel). Jaya Holdings owns 22 of such vessels in its fleet of 28 vessels which are chartered out in the offshore oil and gas industry. Photo: Company

♦ June 2009, Jaya announces that some of its creditors would be reducing their lines – problem was that Company was financing its medium term ship building program with short term debt from global banks.

♦ Shares fell from $0.67 to S$0.31.  This was 0.54 times price to book with a forward PE of 3-4 times.

♦ Gross gearing was about 0.84 times which net gearing was 0.61

♦ The main problem – wrong kind of financing with wrong bankers

♦ Loan restructured with no haircut.

Second, its major shareholder defaults

♦ February 2011 – its major shareholder Affinity fund defaults on its loan….shares fall from $0.79 to $0.51 

♦ New financial shareholders emerge.

♦ Gross gearing was about 0.64 times while net gearing was down to 0.25

♦ 2012 loan restructured – Jaya can now pay dividends and is in a net cash position

♦ Its chartering business seeing a nice cyclical rebound as regional exploration activities pick-up. 

Recent story: JAYA HOLDINGS: Full steam ahead to expand charter fleet


In Wenzhou in July 2011: Two high-speed trains collided due to a faulty signalling system, killing 40 passengers and injuring about 200. Photo: Internet

China Railway Minister found guilty of corruption…

♦ Midas problems started in early 2011 when the shares was around S$1.00 with the China Railway Minister being investigated for corruption

♦ September 2011, Shanghai railway accident, Chinese Government stops issuing new high speed rail contracts

♦ Midas shares fall to a low around $0.25 with profits down 80-90% as the absence of high speed rail contracts lowered its utilisation rate.

New Chinese Govt in late 2012 gives hope of renewal of highspeed rail contracts

♦ At $0.25, Midas shares were trading at 0.5 times price to book, with gross gearing of 0.51 and net gearing of 0.23.

♦ China has just announced in January 2013 an increased budget for railways in 2013 to RMB630bn from RMB400bn in 2012.  This is to meet a railway rollout of 9300km now to 20400km in 2015.

♦ Midas has been surviving on municipal rail contracts since the Shanghai accident. It's one of two manufacturers of the train carriages so should be a major beneficiary when rail contracts resume.

♦ Net profits were in excess of RMB150mn before the rail accident and were down to RMB 10-20mn now.  A major high speed contract should see the share rerate to their old highs.

Recent story: YZJ, MIDAS, CAPITAMALLS ASIA: What analysts now say...


AEM shares fell in 2007 on corruption investigations 

New tester made by AEM that can do multiple testing and sells for between US$1.2-1.4mn each.

♦ AEM’s woes started in 2007 with its Chairman, another ED and its CFO were investigated by authorities for corruption and insider trading.

♦ The shares fell from S$0.25 to S$0.03 over the next four years with huges losses being incurred. The company was also placed on the watchlist and about to be delisted.

♦ In late 2011 and early 2012, a new shareholder emerged together with a new CEO replacing Transpac Capital.

♦ AEM managed to get off the watch list by making more than S$10mn pretax profits in 2010/2011.

Very compelling valuations

♦ AEM at $0.08 is now trading at 0.5 times price to book.

♦ Its gross/net cash is about S$43mn compared to its market capitalisation of S$35mn – so it's trading below cash.

♦ Its main business is in the semi-conductor sector and it only has two customers.  An earnings recovery in the second half of 2013 should see the shares first rerate to its NAV $0.16.  Its next target would be earnings driven. 

Recent story:  KEVIN SCULLY: Takeaways from meeting with CEO of AEM

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#6 C.C. Low 2013-02-04 07:29
Jaya Holdings

They need to pay an interim dividend because the consortium group needs to show some form of returns on their investment (nil for the past 2 years) and mostly because Jaya is already one foot in the money. The profit derived from sale of OSVs will mainly be contributed by the sale of the 16,000 bhp AHTS Jaya Supreme to Canadian group Atlantic Towing (delivered on 29 Nov 2013), with another similar vessel due for delivery in November 2013. The 2 vessets were contracted for US $84m, and based on industry average will generate about US$30m-40m in profits. I believe Chairman Stephen Le has already hinted that an interim dividend is forthcoming.
#5 Admin 2013-02-03 17:32
Leong Chan Teik: me going to Jaya results briefing on Thurs. What would you like me to ask?

Kit Whye Chan: Leong Chan Teik, two points I like you to ask: (1) can Jaya provide earnings guidance for FY 2013; (2) What is the expected dividends for 2013 if the debt covenant is discharged?

Kit Whye Chan: Leong Chan Teik, if you look at Q1 2013 numbers vs Q4 2012 numbers, Jaya revenue has increased from US$23.3M to US$38.7M, but NPAT has declined from US$34.3M to US$10.1M. EPS has also declined from 4.4 cts US to 1.3 cts US. What was driving the high NPAT in Q4 2012 where revenue is much lower than NPAT? Jaya has projected that in Q2 2013, sales contracts of US$95 million for three AHTS vessels have planned for delivery in Q2 FY2013. Could Jaya confirm that all the US$95M will be booked in Q2 2013 and what is the net profit derived from the US$95M revenue?

Tan Peng Hock: Kit Whye Chan: some of them are sensitive data, and Jaya board cannot disclose to you until the financial announcement. Jaya NPAT is not stable because there are some exception items, if you read the announcements carefully..

Tan Peng Hock: Leong Chan Teik: Can ask to check with Jaya 1) what are the progress on JV with IHC Merwede. Previously got Upstream newspaper report they are in talk for few vessels building but Jaya CEO said still in negotiation, any further updates? 2) what is Jaya next 5 years? 3) are consortium members going to take profits soon since the share had gone up since. Any timeframe they have in mind to keep their investment in Jaya (i think this question probably hard to get them to answer)

Tan Peng Hock: while searching for news about Jaya and IHC Merwede:
Singapore: Offshore vessels shipbuilder Jaya Holdings and technology innovator IHC Merwede have jointly launched a new energy-efficien t platform supply vessel (PSV) labelled as the IHC Packhorse series.
“This is an exciting development in the market to offer vessels built with European quality at Asian prices,” said Venkatraman Sheshashayee, ceo of Jaya.

The range of vessels consists of the IHC Packhorse which has been positioned as a PSV, and the IHC Packhorse-Maxi, which is a variant on the basic hull form, providing a 59-person accommodation unit and a range of options designed for subsea support.
In its pure-play PSV form, the IHC Packhorse represents a vessel with main features like a large working deck, a fuel-efficient hull form, optimised power distribution and a flexible tank configuration.

The same platform is used for the IHC Packhorse-Maxi, designed for easy retrofitting of a heli-deck and is pre-strengthene d to accommodate 100-tonne heave-compensat ed crane.

Leong Chan Teik: Kit Whye Chan: 4Q2012 i think was boosted by one-offs. I can't find the announcement but.....for a fact (i quote from my article) the group's FY12 revenue was down 17% and net profit down by 33%. Net profit would have been even lower if not for a US$10.2 million reversal of impairment losses and provisions and if not for a US$11.4 million adjustment for over-provision of tax in previous years.

Leong Chan Teik: As for projected 2Q13 vessel sales, all will be known this week when the 2Q results are announced.

Leong Chan Teik: Tan Peng Hock: as for (1), u hv found the answer. I believe Jaya & IHC are looking for customers for the new designs. As for (2) and (3), the same questions were asked and the answers (tho not as full as you may wish them to be) can be found in :

Leong Chan Teik: Kit Whye Chan: (1) SG companies typically dont give earnings guidance, at least not in public (2) dividend policy can only be articulated if the board has decided on it. My gut feel is they will declare an interim dividend since it has been eons since they last paid.

Tan Peng Hock: Leong Chan Teik: I always visit nextinsight, posted too in the forum, but wish to know further progress if any on my questions, prefer to listen from the Chairman Stephen Le if he's present.. Thanks.

Tan Peng Hock: hope got dividends surprise lor.. lol.. but 2nd quarter of financial year? any odd though.. i not sure if dividends payout need approval from shareholders anot? but i don't mind go there again to approve if needed.. lol

Leong Chan Teik: U r in luck : interim dividends don't need shareholder approval. Only final dividends. (But don't get too excited just yet. My only reason for expecting the interim div is they have not paid a div for so long and shareholders are clamouring for it. )
#4 Admin 2013-02-01 16:11
Alvin Yong: I rather take Hotung, LC Development and Heeton Holdings

Lee TG: From the chart, jaya is very easy to make big profits using the buy on breakout strategy. But you have to know TA. You cannot trade this stock when it is sideways and worse in contra. contra on breakout is possible, but not contra when it is trading in a range

Tan Peng Hock: did i see AEM top volume up 7% today?

Darren See: AEM 16.5% Up on price !!

Michael Toh: Nice call on AEM, was looking at the chart this morning, afternoon chiong liao lo.

Calvin PassiveIncome: AEM is a penny stock, it is very easy to move the stock with just one positive report as nobody is covering it. Just be careful with volatile penny stocks.

Calvin PassiveIncome: Also, looking at the recent 2012 quarterly reports, AEM does not seem to be doing well with declining revenues and a net loss in Q3 2012.
#3 Admin 2013-02-01 16:10
Lee TG: The rule of thumb to read SM, is that you may not be able to read them or see their activities in low volume. Any high volume means SM are in action. SM will quietly accumulate in low prices for weeks or for months without anyone noticing, and will be marking up with high volume and mark up is the last stage of accumulation as marking up with higher volume will attract the herd to join in pushing the price to sell. Learning about SM is about learning the psychology of market participants. Take this as a rule of thumb to learn about SM activities, and think from the perspectives of the herd as well as from the perspective of SM. It is difficult to detect when SM accumulate, but mark up activities can be detected by price increase with volume increase

Kit Whye Chan: Jaya is purely local syndicates play, not big funds. But from a Ichimoku Analysis, Jaya is bullish, but it may retrace back to the KJ lie at 67.1 cents before resuming the uptrend. The black candle with high volume four days ago is like a shakeout rather than distribution. That is my interpretation. Their earnings seem to be very inconsistent and unpredictable. What Jaya needs to do is to provide guidance on earnings and dividends.

Lee TG: kit: for syndicate stocks, forget about FA and being manipulated. Just analyse the price actions and volume to follow the SM or just stay out if you are not sure

Kit Whye Chan: Lee TG, I stay out until I see dividend, that is my investment criteria, unless I am certain that some corporate move will drive up the share price. For Jaya, it is good to monitor and see how the new team is going to transform the company into a blue chip.

Lee TG: The business model, the products, the competition and competitive advantage would be able to assess of future fundamental prospects. In short use the 5 Competitive Forces Framework. It is a waste of time to watch for the company development without intention to look for profits. Dividends may allow consistent income, but high dividend paying companies may not have growth in share price for higher capital gains. For trading we look for capital gains, but for long term investment we may look for both capital gains and dividend. But to be a long term investor, we have to have a lot of idle cash

Tan Peng Hock: i think if u are in doubt, best look elsewhere..

Tan Peng Hock: lol... this 1, i tracked since 2009.. 30c that time heart pain never buy.. lol
#2 Admin 2013-02-01 16:10
Tan Peng Hock: Kit Whye Chan: they had cleared their previous debts which prevent their dividend payout recently, thus their share price can move up now... The chairman said hopefully Jaya can give out dividends coming quarters or next AGM.. lol.. these major investors also wanna see some returns to their investment as well..

Kit Whye Chan: Tan Peng Hock, that is good news. From a TA perspective, does the chart point to an entry?

Tan Peng Hock: Kit Whye Chan: TA i not so good lei.. haha... need to ask other TA guru here.. anyone can help? my guess is it's trying very hard to break the resistance of 70c convincingly.

Kit Whye Chan: Have to ask Lee TG and A Kay Sin to interpret Jaya's chart.

Tan Peng Hock: i think i saw ppl asking Kevin Scully why he recommend a rotten egg to them (jaya) when Jaya price crashed.. i myself paper loss very huge also...

Tono Leechie not me dont have...

Lee TG: Maybe this comment may help you guys. From TA and VSA perspective, Jaya Holding was under distribution. SM should have already accumulated below 60 cts. I am afraid it is no use to look up the ceiling, but look for holes on the floor. Support about 60-61.5 sen, and can get lower. if not sure of TA, take profits or not to enter. if you still want to hope, make sure you set a trailing stop, or a stop loss.

Tan Peng Hock: err.. i no good in TA but from my observation, below 60c, there are hardly any volume... this stock actually like sleep mode from 50c to 60c.. but i do agree there are alot of private equity, capital venture footprint on this counter now.. u can check the annual report to see.
#1 Admin 2013-02-01 16:09
Just for sharing & everyone's enlightenment: Here is a long series of probing and inquisitive postings on Facebook regarding the article on this webpage...

Kit Whye Chan: Jaya CFO is a electrical engineer. Can he perform that role of CFO effectively? Fortunately, Yeo Seng Lan has a NTU accountancy degree, formerly from Temasek finance department.

Tan Peng Hock: The CFO worked in EDB, private equity firm and UTAC.. mostly jv, m&a and investment type of work nature

Jeffrey Loo: Is it safe to buy now?

Kit Whye Chan: Tan Peng Hock, when a CEO and CFO is not in the business before, there is a steep learning curve and mastering the intricacies of the business is certainly a challenge and at the same time ensuring the competitiveness is not being eroded. I will monitor Jaya's financials before committing as their policies on business growth, dividends, etc will not be similar to the previous team.

Tan Peng Hock: Kit Whye Chan: let me share something with you. the Chairman had recruited managers specialized in offshore industry to head each of the different department within Jaya. This was not done overnight but slowly in past 2 years or so. I was not able to visualize the Chairman vision during that time at their AGM 2011. but slowly u find out each department are headed by experienced managers... now they are in talk with JV with IHC, i think that's why they get this new CFO on board, specialized in JV and M&A.

Kit Whye Chan: Tan Peng Hock, that is good news. Do you know where the old team has gone to?

Tan Peng Hock: Jeffrey Loo: some1 asked same question not long ago on Nextinsight and my answer is safe region around 60c to 65c, but I think abit hard to accumulate 60c to 65c now.. but 65c to 70c should be good enuff.. anyway, it's still below their NAV

Tan Peng Hock: i only know the CEO retired liao.. he's about 65 or so.. he's loaded now after previous private equity buy out his Jaya... he tried to gain control on Jaya again but his bid price was below than current consortium group. then some of the independent directors also about 70 also retired.. btw, the previous CFO also been with Jaya about 3 years only..

Kit Whye Chan: Tan Peng Hock, Do you know Jaya debt restructuring agreement and at what point they will be free from paying dividends?

Kit Whye Chan The the timing is very important, and we need to know more information about Jaya's plan before we enter the counter.

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