Portfolio Update - Challenger Out Keppel Corp In

ARA Asset Management16.83.0%
Keppel Corp7.95.9%
Semb Corp Industries9.94.0%
ST Engineering19.44.1%

Portfolio PEPortfolio Yield


In my previous post I mentioned how a good deal kep corp was, today I was monitoring the price and it still remained at 8 times earnings even after announcement of the results and kepland deal. I was glad to initiate this position as I strongly believe that the selling down of marine stocks has kinda bottomed, as per my action on Semb Corp and Kep Corp.

I may be wrong but I do think I'm getting quite a comfortable amount of margin of safety, for example if kep corp earnings were to fall 20% in FY15 it would still trade at around 10 times earnings which is still pretty decent for this blue chip.

However I really didn't want to stretch out into a 6th stock as I still firmly believe in my strategy of staying focused instead of diversifying. I had a another quick look at my 5 core holdings and their fundamentals.

ARA - Record earnings coming for FY14, yet stock price is on a downtrend. Dragon fund 1 exit performance fees to help boost earnings in FY15.

Semb Corp - I expect them to maintain earnings, so FY 14 earnings should be comparable to FY 13. Utilities still growing well with India power plants coming online for FY 15, boosting earnings.

Starhub - Earnings still stable and the 20 cents dividends is still juicy. No growth at all but has been my super cash cow for over 5 years. Yield on cost is around 10%, my golden chicken.

ST Engineering -I mentioned the 5 reasons why it was a good buy, I still think of it as a decent defensive stock with a dividend yield of over 4% with 5% earnings growth rate.

Challenger - FY 14 earnings will probably drop 20%, pressures on rental and labor costs, Valore house brand has not been picking up well base on my on the ground research.

So of the 5 stocks, sadly I ended up cutting Challenger to make room for Kep corp. Challenger meant a lot to me as it was my earlier growth stocks which I had held for over 5 years, I wrote about it over here and was published by nextinsight too. Sometimes when you hold a stock for too long, you get too complacent to cut it off even when results have been disappointing. Today I threw away my emotions and when to be more practical, hope it doesn't come back to haunt me.

Good Bye Challenger, you will be missed...

"It's easy to make a mistake and do the opposite, pulling out the flowers and watering the weeds.  If you're lucky enough to have one golden egg in your portfolio, it may not matter if you have a couple of rotten ones in there with it.  Let's say you have a portfolio of six stocks.  Two of them are average, two of them are below average, and one is a real loser.  But you also have one stellar performer.  Your Coca-Cola, your Gillette.  A stock that reminds you why you invested in the first place.  In other words, you don't have to be right all the time to do well in stocks.  If you find one great growth company and own it long enough to let the profits run, the gains should more than offset mediocre results from other stocks in your portfolio." - Peter Lynch

Keppel Corp Full Year Results - Super Value Buy~!!!!

Kep Corp, down over 25% within the last 12 months as the oil bear scared many investors.

Full year results actually came out pretty decent, as revenues came in 7% higher and earnings per share grew slightly at 1.5%. Well if you have been reading my blog, you would know I've been nagging like an old man and screaming how cheap marine blue chips were. Keppel Corp currently trades at only 8 times earnings! An easy buy against the STI which trades at over 13 times earnings.

To top that off, they will be paying out 36 cents in final dividends for a one time yield of close to 4.5%, remember that they already paid 12 cents after mid year results and this brings a juicy full year payout of 48 cents! Yes! that's like close to 6% dividend yield for this strongly hated blue chip!

I would be waiting for Semb Corp Industries results which will be announced on 17th Feb. I also do strongly believe that SCI, like kep corp, is vastly undervalued.

Be Greedy When Others Are Fearful - Warren Buffett

January Portfolio Update - ARA Asset Management

January was an active start as my equities portfolio received a cash injection from my side business (I only take payout once annually after full year accounting), I quickly put the cash to work by adding more ST Engineering (near 2 year low) as well as initiating a new position in ARA Asset Management (near 1 year low).

I have mentioned ARA a couple of times before on my blog, its in the business of asset management, mainly as managers of REITS as well as private property funds, this provides shareholders will a regular stream of very predictable management fees. Strangely the price had fallen close to 10% over the last 12 months while earnings for FY14 looks to be solid as they are expected to make over 10 cents per share, an all time high.

However at over 15 times earnings with a dividend yield of 3%, I believe the stock is neither cheap nor very expensive but rather its probably fairly priced. Like the saying by Warren Buffett which goes its better to pay a fair price for a good business than a good price for a fair business, I stood to this school of thinking and paid up for STE and ARA as I believe both are amazing businesses with an extremely wide moat not easily copied as seen by their high ROE.

Also a common thing that attracts me to STE and ARA is that both businesses are in net cash position(same for Challenger), this extra safety is important to me as I have worries of a gradual increase of interest rates which would definitely hurt companies that are highly in debt.

Current holdings in alphabetical order

ARA Asset Management15.23.0%
Challenger Technologies11.05.4%
Semb Corp Industries9.54.1%
ST Engineering18.84.0%

Portfolio PEPortfolio Yield




2014 was a disappointing year as my portfolio under performed the STI  (5% against 9%), as Challenger dragged the overall returns down due to its closure of 3 stores in Malaysia leading to a 20% decline in its stock price.(do note that FY13 return was 30%, also mainly due to the Challenger as it ran up close to 50%... the volatility of small cap stocks)

For 2015 I'm not expecting much, but ideally I still hope that over the long run I could outperform the index by at least 2 percentage points. (STI's historical returns has been about 8%, so I'm aiming 10% or better over the long run)

"Go for a business that any idiot can run - because sooner or later, any idiot probably is going to run it." - Peter Lynch

“It’s far better to buy a wonderful company at a fair price than a fair company at a wonderful price.”
- Warren Buffett