STOCK CHALLENGE: Sebastian in No.1 position with 98% gain

FIVE MONTHS gone – with just one more month to go in this current edition of Stock Challenge.

Sebastian Chong continues to lead the pack with a 98% gain in his portfolio which started with a hypothetical $100,000 in capital. ‘Neontet’ is No.2 with a gain of 58%.

It looks like, barring any surprises, Sebastian will cross the finishing line with the biggest portfolio gain - and collect $250 real money.

It is part of the $400 pool that all four participants had contributed $100 to. The second winner will collect $150.

Meantime, here are their reports on what trades they did in September and how their portfolios have performed:

 

Sebastian Chong has invested actively in equities since the 1970s. He is managing director of Financial Info Analysis Pte Ltd, a company he founded after he retired as an accounting professor at the National University of Singapore. He now runs his popular investing website, www.shareowl.com


Sebastian says:

On Friday Oct 30, the STI closed at 2,651, which is just 21 points below its level of 2,672 on Sept 30. However during the month of October, the portfolio value slid from $211,610 to $198,085 due mainly to the pullback in the price of Yongnam Dec 2012 warrant from 9.5 cents to 8.5 cents.

My purchases of Anwell and Ziwo using the proceeds from the sale of Yanlord, Guthrie, and some Straits Asia and Sinotel shares did generate some profit but it more or less offset the effect of the drop in price of 15,000 Straits Asia shares which I am still holding.

Straits Asia: The stock was at $2.13 at end September but closed at $1.83. Fortunately I sold 8,000 out of 23,000 shares at $2.03 and used the proceeds to buy 48,000 Ziwo shares at 33.5 cents.

Straits Asia went up to as high as $2.30 in October but plunged to $2.02 the day after it announced that its recently completed loading facility at Jembayan coal mine collapsed after a landslide caused by heavy rains and that it would take up to 9 months to rebuild the facility.

Production output would be significantly affected and the company would be able to meet its customers’ orders already committed by buying the shortfall from other coal mining companies in Kalimantan.

As the longer term prospects of Straits Asia still look bright, I decided to sell only 8,000 shares out of the 23,000 shares that I held on Sept 30. 

Ziwo Holdings: I bought Ziwo at 33.5 cents because it was one of the few S chips that managed to increase its revenue and profit during the recession in China. Ziwo produces special foam and other synthetic fibres that were in short supply in China and the national shortage is likely to persist in the foreseeable future. 

Anwell CEO Franky Fan with a model of the company's solar panel factory.

 

Anwell Technologies: I sold Yanlord, Guthrie and some Sinotel shares to buy Anwell shares as Anwell recently announced its breakthrough in producing a prototype of a thin film solar panel.

It announced that when it is ready to mass produce the panel in late part of first quarter of 2010, its unit production cost would only be half of what it would cost its key competitors in Germany and Japan to make the same type of panel. A couple of weeks after the “breakthrough” announcement, Anwell made another announcement that it had signed a non-binding MOU (memorandum of understanding) to supply a very large quantity of the thin film panels to a large American solar farm operator in 2010 and 2011.

Anwell’s R&D is financed by a RMB 250 million grant from the Chinese government and Premier Wen Jiabao had recently visited Anwell and was reported impressed by Anwell’s capabilities.

Anwell’s execution risks remain but I was prepared to assume the risk of investing in Anwell given the central government’s focus on renewable energy alternatives like wind power and solar energy. The Americans, Germans and Japanese are well ahead of China in the operation of solar energy farms using thin film solar panels.

Hence Anwell had to target these markets first. China is now beginning to develop solar farms using thin film panels and it is estimated that Anwell could well be supplying large quantities to the domestic market in 2 to 3 years time.

In any case, I decided to limit the investment in Anwell to less than a quarter of the total portfolio value. (My exposure to Anwell in my real life portfolio however is only 2%).  

Why I sold Yanlord: Yanlord had very successful luxury condo launches in Beijing, Tianjin and Nanjing between May and August or so and its next major launch would not take place for some time as the huge mixed complex in Zhuhai would not be ready so soon.

Yanlord’s shares were fairly valued and was likely to stay flat for the rest of the duration of Stock Challenge which finishes at end November. Shanghai listed China Vanke and Hong Kong listed Shimao Property had September and October launches at record prices and hence their share prices outperformed Yanlord throughout September and October.

However, for those holding Yanlord shares, its long term prospects remain bright.

Why I sold Guthrie: I sold Guthrie to switch to Anwell because the short term potential did not look as good since it does not have any new major property development projects either on its own or via joint ventures.

Its future growth depends more on engineering consultancy services and property project management services. Perhaps I did underestimate its strength in this area.  

Shortly after I sold Guthrie, it announced that an associated company had clinched a $123 million project in civil engineering services and project management in the Middle East. That is why Guthrie’s share price is 3 cents higher than the 36 cents at which I sold it. It is not much higher for the reason that not the entire $123 million will go to Guthrie.

The amount goes to the associated company and Guthrie’s stake in it is less than 50%. The profit will also be spread over a couple of years. Guthrie will be a cash cow this year and in the next few years and we can expect quite a good dividend (probably 3 cents) each year.

Yongnam warrant: Expiring in Dec 2012, this warrant still looks good for the next few years and hence I have not sold a single unit in my Stock Challenge portfolio.

New contracts for steel struts for infrastructure or building projects can be awarded to Yongnam anytime and hence I got to keep holding this warrant and not try to move in and out of it. We should actively trade only with short term covered warrants issued by investment banks.  

Well, there is only one month left before this round of Stock Challenge ends. So let us hope that the market will be kind to us in November.

 

Neontet is inclined towards high-growth small- and mid-cap stocks, preferring to stay away from most blue chips. He has had a good time investing in small- and mid-caps despite being burnt by some S-chips and Singapore companies with corrupt management.

He says:

I have held steady to my portfolio as I recognize that the potential value of the stocks has yet to be realized. All these stocks – Oceanus, Sinotel and Techcomp - are growth stocks, rather than value stocks and even less so, dividend stocks.

Their growth stories stretch out for at least the next one or two years, and holding on to them even during this six-month Stock Challenge is only logical, unless the stock prices blast off. Well, they haven’t.

But I am pleased that they have grown the portfolio value to a respectable 58% in five months.

It’s worth highlighting some key developments:

Oceanus: It is on the verge of listing its shares through Taiwan Depository Receipts on the Taiwan Stock Exchange. Chances are, this move will spur a higher valuation for the Oceanus shares on the Singapore Exchange.

Sinotel: After a lengthy process, the company has listed its American Depository Receipts and this move too is expected to result in a higher price for Sinotel shares. The reason is, US fund managers are said to be unable to buy Sinotel via the Singapore Exchange because their mandate doesn't allow them to buy foreign-listed shares. 

But they can buy Sinotel ADRs. If they buy the ADRs, the market maker has to buy the SGX-listed Sinotel shares to package into ADRs. This will have a positive effect on Sinotel's share price.

Techcomp: No recent news from the company, but it announced a few months back that it had record revenue and profit for 1H. Am keeping my fingers crossed that its second half will deliver good numbers – no reason for that not to happen as this business is essentially predictable and stable and growing

With just one month to the end of this round of Stock Challenge, I intend to just sit on these stocks.

 

Level 13 is a 31-year-old investor and a business analyst with 4 years of investing experience. Check out his blog for insights on financial matters (mainly equities).

Level 13 says:

This month, there are two major movements in my portfolio. The put warrants on STI (STI 2200SGAePW091029) which I have been holding for 4 months have expired worthless.

At the same time, I have shorted 40 lots of Starhub at $2.09 in early Oct when it announced that it had lost the rights to screen English Premier League from next year. No doubt that Starhub will lose some clients, especially restaurants and nightspots.

I managed to close my position a few days ago at $1.90 and made $7,600 in the process. We saw a slight correction taking place in the last few days which, in my opinion, is long overdue. As a result of pumping huge amount of cash into the system, the central banks are running a risk that property bubbles will be inflated.

I am sure they are keeping a close watch on real estate prices and will not hesitate to intervene when needed (like what Hong Kong has done).

Shuishui

Shuishui, who is in his mid-30s, has been a stock investor for many years. A Singaporean, he has close ties with China as his parents and relatives are living there. He has taught himself how to analyse financial statements. 






For past Stock Challenge stories, go to our archives.