Daniel Chan, founder of DCG Capital.DCG Asia Value Fund has just emailed its annual letter (for FY 2018/2019) to investors. We publish, with permission, the fund's commentaries on two of its stock holdings: SBS Transit and Broadway Industrial Group. (Other stocks held by the fund are traded on regional exchanges).

SBS Transit Ltd We have reiterated our investment thesis on SBS multiple times over the past 3 years. We are still committed to this Singapore land transport stock which remains one of the top 5 positions despite its 70% price appreciation over the year. There are no major bus route tenders due in 2019, with the next batch not due till 2020. “Earnings are expected to be buoyant in 2019 with a full 12-month contribution from the Bukit Merah and Seletar contracts. The balance sheet is now net cash.” With its good track record SBS has a good chance of getting a share of the bus tenders in the future. SBS trades at a forward dividend yield of 3.5% and 6x free cash flow. For 2018, SBS reported earnings of S$80 million with S$158 million cash flow generated from its bus and rail operations. Although dividend payout remains around 50%, the dividend was increased to S$0.13 per share. SBS Transit operates the North East Line, the Downtown Line and the Sengkang-Punggol LRT line. Photo: www.sgtrains.com Losses from rail operations (North East Line and Downtown Line) have been shrinking as ridership continues to grow. However, advertising revenue is unlikely to improve due to weak economic conditions and e-commerce’s impact diverting advertising dollars from traditional media. Earnings are expected to be buoyant in 2019 with a full 12-month contribution from the Bukit Merah and Seletar contracts. The balance sheet is now net cash.

Broadway Industrial Group This is a deep value stock which got cheaper and cheaper. Broadway manufactures actuator arms for hard disk drives. An actuator arm pulls data off magnetic disks or writes new data on them.The Company sold its core business of foam plastics and flow control device manufacturing in 2016 for S$150 million and distributed most of the proceeds to shareholders. What remained is the hard disk manufacturing operations, a thin margin, and challenging business. After transferring its manufacturing from Shenzhen to Thailand, the Shenzhen site is available for sale. “….realisable net asset value should be several times the current market valuation of S$16.9 million.” This property is valued at S$50 million, well above book. With other assets, realisable net asset value should be several times the current market valuation of S$16.9 million. The Company recently bought back its own shares at around S$0.043 each. We expect management to eventually unlock value for minority shareholders.