Second Annual Review FY2015

Today Huat Fund turns two. Fortunately, Huat Fund has been able to achieve the minimum return rate of 10% for the second consecutive year.

At the end of the first year FY2014, Huat Fund's fund size was RM84k due to a market correction at that time. Lesson learnt from that episode is to keep calm during the correction and do not follow the selling crowd. During FY2015, Huat Fund duly recovered and the current fund size is RM119k.


For FY2015, Huat Fund has return of RM35k, equivalent to a 41.6% return rate. The current paper gain is RM12k. This time round, the all the stocks in the portfolio are in the green with Inari being the main contributor.

 FY2015 proved to be an active year for me as there are opportunities abound in volatile times like this. Being active is not necessarily good as I would have pocketed another RM10k if I had not sold the stocks in March this year. The total realized stock profit and stock dividend are RM14k and RM2.3k respectively. Below is a summary of the realized stock profits for this year. Note that Westport has been sold (I did not write an update on that).

For the year ahead, I would expect USD-MYR exchange rate to recover to sub-RM4.00 because ringgit is undervalued at the current rate.

Globally, China is clearly slowing down and the world is still looking for the next source of growth. We can expect a stagnant market in the next 12 months.

Meanwhile in Malaysia, more banks(CIMB, RHB and Affin) are doing VSS at the moment in an effort to reduce their cost. Companies in other fields are doing the same as well. The outlook for local market is gloomy as people will spend less and feel that their ringgit is "smaller". The property sector will remain subdued. We can expect more rebates =). For the next Financial Year, I will focus on stocks that can withstand cost cutting measures and also recession. In fact, I have already have one such stock in Huat Fund right now. Make a guess!

Ongoing Bursa MegaSale

Sorry guys, I am still unable to provide an update on Opensys. At the moment, I have a very special project XC. 

However, due to the ongoing MegaSale on Bursa, I have added 20000 units of Opensys. In the meantime, I am collecting some investing ideas as in stocks to research so that the cash in Huat Fund can be put to work soon.

In addition, I have also added 2000 units of Westport into Huat Fund. This is purely for short term purpose since I noticed that this stock had fluctuate between RM3.90 and RM4.60 for the past few months. 

Huat Fund looks like this now:

Adopting wait and see approach

During my CFA class last weekend, my lecturer of the day Mr O shared with us his view of the current outlook for Malaysia. I sort of agree with him that the next 12 months will not be good for Malaysia because:

1) Fitch is planning to downgrade the credit rating of Malaysia from A- to BBB. This would cause the Malaysia Government Bond 's yield to spike above 5%. This coupled with a high foreign bondholding would mean that the yield might spike further and ringgit will fall further if some foreign funds decide to exit in exodus. See you at 4.00?

2) GST is not a April fool's joke. With the implementation of GST, the consumer mood will deteriorate. The country's GDP will be affected as well based on the experience in Japan and Singapore. Lets hope Malaysia will not experience technical recession at the end of the year.

3) The Kelantan flood repair bill has not come in yet. Nobody knows as of now the extent of the destructions brought by the worst flood in some time. The government will have to foot the repair bill soon. 

4) The oil price will probably linger at 50USD level for the next one to two years at least. Although Malaysia has become a net oil importer according to the government, we still depend a lot on oil revenue. In 2014, the government receive at least RM 60 billion from Petronas. Other than that, due to the capex cut, there are less projects for the downstream and upstream companies in Malaysia. Hopefully these companies can stay profitable in the mean time.

Based on the few points above, I have decided to sell 

- all 40000 units of Hovid @ RM 0.43

- some 8500 units of Inari @ RM 3.33 

- all 1500 units of Inari - WB @ RM 1.47

- all 3000 units of Westport @ RM 3.70.  

*I have actually forgotten to sell Jaya Tiasa. It will be done tomorrow.(Update: JTiasa has been sold as planned @ RM 1.70 each

So Huat Fund looks like this today:

All in - Huat Fund fully invested~~

I am jobless for this week due to my second job-hopping for the year. Thus, I have some free time to do some readings, analyzing works and market watching.

So firstly some market comments: In my honest opinion (IMHO), the market will be increasingly volatile for the next one or two years but overall the market will keep on rising as long as the interest rate is kept low. A 20% to 30% annual return will continue to attract more newcomers like me into the market to earn "quick money". As more newcomers come into the picture, the arrogance and greed in the market grow. Then we will see another severe market correction in maybe 2-3 years time.

Based on this hypothesis, I have decided to tinker abit with Huat Fund and insert more stable and mature stocks and make Huat Fund to be more dividend yield orientated. That means I will only invest in growth stock IF there is a gem out there. Ideally I would like to do these changes slowly. However, I had to move faster since one of my favourite stable stocks Westport is having a run for the past two days.

I reckon this is due to a 67pages research report from CIMB with a Target Price of RM4.57. FYI, I still have not read through this report. A summary of the report in TheStar can be found here. Knowing that CIMB has joined the bandwagon, I got excited and bought another 1000 units of Westport @ RM 3.40. Well, this is the side effect of intensive market watching. Your hand tends to get itchy after a few minutes in front of the screen. Anyway, Westport is a stock that is worth investing for a simple fact that it would certainly earn more in 5 years time down the road compared to today's earnings.

After this transaction, Huat Fund is cashless and fully invested. I have to sell off something to increase the cash level soon. Guess which stock will be axed soon. The fund looks like this as of today:

Minor change to Huat Fund - Additional units of Westport

Previously I have actually bought 2000 units of Westport but only included 1000 units in the Huat Fund as the other 1000 units is intended as share dividend for the biggest shareholder of Huat Fund.

However, she had changed her mind and decided to reinvest her RM 5k dividend into the fund. So now the bar has been raised, i.e. I would have to pay her RM 5.5k next year (10% return for 55k). Game on!

Accordingly, the portfolio has been updated and Huat Fund looks like this now:

Financial assets at 28.07.2014
	Name	Purchase Date	Purchase Price	Current Price	Unit	Current Value	P/L ex Dividend (%)	Dividend	P/L inc Dividend (%)
Cash	Hle-Broking			13985.88
Stocks	Inari	24/02/14	2.30	3.24	10000	32400	41.1	270	42.2
	Sunreit	04/10/13	1.40	1.43	5000	7150	2.4	282.75	6.4
	Cypark	22/10/13	2.17	2.76	3000	8280	27.1	147.5	29.4
	Jaya Tiasa	24/04/14	2.74	2.48	2000	4960	-9.6		-9.6
	Westport	09/05/14	2.75	2.87	2000	5740	4.2		4.2
	QL	07/07/14	3.60	3.39	3000	10170	-5.8		-5.8
	Hovid	14/04/14	0.38	0.465	40000	18600	20.9		20.9
Total value of current Stocks				87300.00	86.2	%		700.25
Total cashin Hlebroking				13985.88	13.8	%
Total				101285.88
Original Capital				50000.00
Addition to original capital				20000.00
Total Capital invested				70000.00
Current paper gain				13662.86
Total profit including current paper gain				31285.88	44.7	%
Total dividend				1088.66

Huat Fund grows - capital injection

After investing in QL last week, the cash holding in this fund was quite low and stood at about RM 5k . At the moment I do not intend to sell any stocks in the portfolio since these stocks still have quite some upsides in them. Some comments on these stocks:

Inari - this company is still growing very fast organically. The recently in Oct 2013 completed factory #5 in Penang is now almost fully utilized at 85%. The rights issue announced will be used to fund another expansion and the rights issue is at reasonable price. Will buy more to average up.

Sunreit - this company is quite undervalued due to the impending launch of renovated Putra Place. Earnings and dividend will improve once it is operational.

Cypark - the renewable energy quota for this year will be released soon. Will be interesting to see how many Megawatts this company wins.

Westport - One of the long term buys. Proxy to the economic growth of Klang Valley industries.

Jaya Tiasa - One of the long term buys. Proxy to the palm oil consumption worldwide.

Hovid - One of the long term buys. Proxy to increasing healthcare cost in Malaysia and its' export markets.

QL - New addition.

Since the cash holding in this fund is low, I decided to solicit some extra capitals and expand the fund size in order to grow it further. Starting 15th of July 2014, Sister Ying will inject RM 20k into Huat Fund with the same return rate i.e. guaranteed 10% annual return with capital protection. After this capital injection, the cash holding increases to RM 25k. This could come handy in the next few months if and when the market corrects.  

Yet another long term play - Westport

Westports 's journey began in 1994 in Pulau Indah, Port Klang. Since the humble beginning, Westports has grown into the second busiest port in Southeast Asia by containers' volume handled. Due to its excellent port and logistics management, Westports currently accounts for 72% market share in Port Klang (the remaining 28% for Northport). 80% of the transhipment and 59% of the import/export business in Port Klang are handled by Westports. The major owners are the Gnanalingam family (43.2%) and Mr. Li Ka Sing who own a stake of 23.6% via Hutchison Port Holdings, the world biggest port operator.

The pulling factors are:
1) Natural advantages:

• In the Straits of Malacca there are main competitors for Westports are Northport, Port of Tanjung Pelepas (PTP) and Port of Singapore (PSA). Other than Northport, these ports have natural deep water berth, which allows them to       accommodate large vessels. Northport has only 12m canal depth im comparison canal depth of at least 17m for Westports and the other two. This means Westports can handle bigger vessels of up to 18000 TEUs.
• Westports is also naturally sheltered by Pulau Mat de Zin and this eliminates the need for costly artificial breakwaters. 
• According to Drewry Maritime Advisors, the deviation of Port Klang, PTP and PSA from the main shipping route along the Straits of Malacca is approximately 12, 15 and 9 nautical miles, respectively. The lower the deviation, the more suitable a port's location is to operate as a transhipment hub.

2) Operating efficiencies:

• Besides location, operating efficiency is very crucial for port operators because shipping liners opts for ports which are able to load and unload their container cargo fast as this allows them to maximize vessels utilization and reduce cost. Westports earns the recognition of one of the world’s highest productivity with more than 35 moves per hour (mph) per crane for vessels over 300metres as compared to industry’s average of 27 mph. Its terminal utilization is maintained at the optimum level of 76% which translate to the least waiting time for vessels (2-3 hours) while its peers, PTP and PSA, have rather high terminal utilization of close to 90% that implies average vessels’ waiting time of 12 hours. To note, for every hour a ship waits to unload its cargo, it will cost them USD10,000 per hour. Therefore, it is extremely material for port operator to maintain their terminal utilization at the optimum level.

3) Low port tariff - Possible tariff hike?

• Another competitive advantage of Westports is the attractive port tariffs offered to shipping liners; lowerst transhipment tariff rates in the region with huge discount of 50% to PSA's rate and 30% to PTP's rate. Despite the huge discount, it still managed to achieve relatively high EBITDA margin of 51% (PSA: 51% , PTP:46%). The tariff rates in Port Klang is set by the Transport Ministry and regulated by Port Klang Authority. Last tariff review was in 2002.

4) Concession secured and capacity expansion in place

• The port concession has been extended by another 30 years until 2054. With the commission of berth CT7 at end of 2014, Westports will increase its capacity from 9.5mil TEUs to 11mil TEUs per annum. The future CT8 and CT9 will enlarge the capacity to 16mil TEUs. The competitors PTP and PSA are also expanding to cater to new volume diverted from new alliances and to optimize terminal utilization respectively.

5) Proxy to growth in greater Klang Valley

• Most of the industries in Malaysia are located in the greater Klang Valley. As long as the industries are growing, the port business should grow in tandem. The port business is a monopoly similar to airport whereby the port will continue to earn money even if the shipping lines slash their rates and compete amongst each other. 

Risk - P3 alliance?

• The risk of reduced volume from its major customer CMA CGM after the formation of P3 long term alliance of world's three largest shipping liners with Maersk Line and Mediterranean Shipping is overrated. The P3 rationalisation plan from middle of 2014 will be minimal and involve only 200k TEUs which is 3% of Westport's total volume. This will be compensated by the allocation of more non-P3 alliance services for growing Intra-Asia, Asia-Africa and Asia-Middle East trade.

This stock is starting to gain some recognition from the investors of late as seen by the volume and price rise in the past week. As a start, I bought 1000 units of Westports at RM2.76. The huat fund looks like this now:

Financial assets at 09.05.2014
	Name	Purchase Date	Purchase Price	Current Price	Unit	Current Value	P/L ex Dividend (%)	Dividend	P/L inc Dividend (%)
Cash	Hle-Broking			15618,78
	Inari	24.02.14	2,30	2,83	10000	28300	23,2	72,5	23,5
	Sunreit	04.10.13	1,40	1,37	5000	6850	-1,9	188,8	0,8
	Cypark	22.10.13	2,17	2,88	3000	8640	32,6		32,6
	Jaya Tiasa	24.04.14	2,74	2,7	2000	5400	-1,6		-1,6
	Westport	09.05.14	2,77	2,77	1000	2770	0,1		0,1
	Hovid	14.04.14	0,34	0,355	20000	7100	3,9		3,9
Total Stock				59060,00	79,1	%
Total cash				15618,78	20,9	%
Total				74678,78
Current profit				7761,27
Total profit				24678,78	49,4	%
Total dividend				642,92