Comparison of Falcon Energy vs Ezion Holdings

2016 Investing Report Card

Year 2016 Closes, Results and Returns

2016 closes and with SGXcafe calculating returns on a daily basis, I knew what was coming before the year ended. Disappointingly, my portfolio underperformed STI ETF returns this year - the first time since 5 years of investment. With the negative losses last year, it was quite disappointing to have not grown my investment this year as well.

2016 Portfolio XIRR: -2.215%
STI ETF XIRR: 2.864%

Fun Facts

For now, let's lighten up the mood for some infographic about my portfolio movement this year:

Dividends Goals

With regards to $1000 the dividend goal I had set for 2016, you can see that I have narrowly missed it with $954.25. This partly due to Singpost's tightening dividend policy as well as Falcon Energy not yielding any dividend this year.

For 2017, I hope to increase my dividend received to the tune of $1100. Building up a portfolio that can gives me a steady income stream is one of my retirement goals for the long long term, and I hope that I am able to slowly accomplish this goal.

To increase the dividend, one way is to focus on purchasing stocks that are dividend-yielding and have the cash flow to support it. Monthly investment in STI ETF with my siblings will also contribute in a minor way, probably to cover the shortfalls from the dividend cut by Singpost.

Going Forward

Despite these two years of negative returns, I aim to keep the course. But it has certainly made me re-assess the way I look at gains. A problem is me not realizing profits only to watch it slip away and never coming back. One part of me always wants to be noble and be a "long-term investor". The other part is Graham's and Buffet's mantra of only buying companies where you will never give it up. Falcon Energy has been a bummer and I hope it proves itself in 2017.

For further pickings, I have a few stocks in my mind for research and considerations. Working gives me an steady income to invest but it takes time away from research and homework. But I hope to stay the course and just keep moving ---- towards financial freedom!

Updates to Portfolio

It has been a while since I updated this blog of mine, the last post being in July after I bought Falcon Energy. So three months later, what has changed with my portfolio? Well, below are the three main things I would like to talk about in this blog post, to keep myself and you updated.

DCA on STI ETF

Since June this year, I've start contributing a small amount of money into dollar-cost averaging of STI ETF. This was done through POEMS ShareBuilder Plan. Though the fees were relatively higher than say POSB InvestSaver, I mitigated this consideration by pooling money with my siblings and buying it together. This way, the commission by percentage is comparable to POSB InvestSaver and I also get to enjoy the reinvestment option of dividend issued. 

Every drop of water contributes to the ocean. Buying STI ETF religiously every month will hopefully contribute to my retirement fund 40 years down the road. 

Bought more Falcon Energy

Hindsight is always 20/20. Before the results announcement, share prices were ranging as high as 19 cents - allowing me to exit with some profit. However, thinking it was a start to bull run in O&G, I decided to hold on. Without a dividend, coupled with the deterioration of the industries (think Swiber and Swissco's bond default), Falcon Energy was also brought down. 

However, its full year results were decent still and it left a big question mark for me. 4.92 US cents translates to a P/E of less than 3 leh! Cash generated from operations was US$111,747,000. There was a net decrease of cash because of hefty repayment of borrowings, which was the right thing to do in this environment where debt brings down O&G companies. Reflects the prudence of the management, to be frank. 

A strong argument I had previously was Falcon Energy stake in CH Offshore. CH Offshore's stock price had tanked recently and as of now stands at $0.29. This stake in CH Offshore translates to a value of $177M for Falcon Energy. Funny how at $0.16, Falcon Energy is valued at $129M. So, core business of Falcon Energy is valued at -$50M? 

With this, I've decided to further another round at $0.166. There are a few risks I am aware of and would highlight here for reference. 

1) Protracted depressed oil prices. Similar to the shipping industry, this would probably kill off many O&G companies. While the P&L looks good now, experience says that the bottomline will turn red in a quarter. 

2) CH Offshore revalues. A main reason why I invest in Falcon Energy was the stake in CH Offshore. It is not entirely impossible that CH Offshore becomes a penny stock, rendering its stock worthless. Then, what value to talk about? However, keep in mind CH Offshore does not hold significant borrowings and thus less likely to go under compared to say Ezra. 

3) Interest rate rises fast. In the annual report, every 50 basis points increase in interest rate will decrease Group's profit by US$801,000. US is increasingly likely to raise rate further this year. 

Planning to Sell Karin Tech

Should I....? Debating hard on this one, but already queueing at $0.315 to sell. 

Between China's diminishing economy, lowest EPS ever, and statement like this..,

"After the disposal of KCF A Store Limited, it is not expected the CEP segment will be able to fill the revenue and profit shortfalls in the near future even though the Group has been adding various prestige consumer electronics products into its product mix."

Totally feel like relieving myself of this company. The only thing holding me back from selling is the 7% dividend that was declared along this set of horrendous result. The management totally knows how to keep its shareholder. This is also apparent in its annual report where it shows that the company has already paid out 126% of the IPO price in dividend (within 10 years). Omg, if I hold for 10 years, will I be getting "free" shares as well?

Previously, I was scared that dividend paid out is no big deal as prices drop after the dividend was paid out anyway. But k1 Ventures totally proven me wrong on this point. Therefore, I am totally undecided.

Fundamentally, I should be getting out while stock prices are held up by the dividends. Emotionally, what about the dividends!!! T__T Help pls? 

Falcon Energy (5FL.SI)

Falcon Energy (5FL.SI) - One of the forefront in offshore marine and also O&G sector. It is divided into 5 business sectors namely, Marine, Oilfield Services, Drilling Services, Resources Division and one more that I couldn't find (LOL!). All this, you can read from their company website. Essentially, Falcon Energy feels like Nordic Group which provides O&G support services yet has a more direct exposure to oil prices through the Drilling Services and Resources Divisions.

I started searching for an O&G company as I wanted to gain some exposure to the potential oil price movements. Truthfully speaking, I did not do any deep research into oil prices. But seeing how far it has come down and the relative stability now, I wanted to capture some gains when the industry move into the up-cycle again. And I chanced upon this stock - a rare profit-making O&G company amidst the gloom and doom. Below are some of the points I like about this company:

1. Financial Metrics

Easiest go-to method to valuate a company from the surface. Was really too lazy to predict cash flows with expected oil prices etc. The ratios I calculated were really impressive till I started to doubt the going concerns of the company (the ratios were like that of a distressed company)!

Based on the time I did my calculations, where the price was at 17.2 cents and data obtained from the latest FY report,
EPS: 6.45 US cents
P/E: 1.975
P/B: 0.348
Debt/Equity: 0.9854
Dividend: $S 0.005 (2.9% yield interim)

In this set of data, it only seem that debt-to-equity ratio is high. I give it leeway as it is expected for O&G company to have significant debt, especially in these trying times. In addition, this 2016 figure is actually lower than 2014 and 2015, having paid off a sum of debt in the latest quarter. P/E and P/B is super impressive and actually needs no explanation. In the final dividend, I will guess that another half cent of dividend will be given out, ending with a near 6% yield. Warren Buffet had always like to buy stocks with significant higher book value and I actually think Falcon Energy fits the criteria.

2. Stake in CH Offshore

Falcon Energy actually owns 86.7% stake in CH Offshore, another listed firm on SGX. When I was doing this research on Falcon Energy, the market cap of the company was 139.2M while that of CH Offshore was 282M (sitting at 275M as of 06/07/16). This means the stake Falcon Energy has in CH Offshore is worth at least 244.5M! That's right, the market is selling the core operations of Falcon Energy for nothing and its stake in CH Offshore is valued at discount! This is the singular most blatant mispricing of Falcon Energy which I didn't believe. And if I calculated wrongly anywhere, please let me know to save me the money and embarrassment.

3. Share Repurchases

The company is aggressively doing stock buyback since 17 June 2016. The volume of the stock traded is not high, hence by aggressive, I meant as a percentage of the transacted volume that day. I suspect the company is doing so to meet the minimum trading price of 20 cents and since the volume is so thin, the company is able to do so easily - since there is little sellers blocking the queue. This is an situation that can be taken advantage of as the company is essentially being a guarantor of your entry price. It started doing buying back at ~16.8 cents till 19.5 cents today. In the last 2 days, it seems that there were some public support. As of now, still monitoring closely to see if the company is still going to support at current price.

 4. Conclusion

I had actually bought in at 17.7 cents on 27 June 2016, which I vaguely remember as the day Brexit occurred. I figured if it did not drop at such a dramatic event, surely it will grow when things got better. As my buy-in capital is small, I am not very tempted to take profit at current price. I hate to write this post as I do not want to jinx it (things are still going well) but in the spirit of sharing and also in the spirit of not being accused of hindsight-predicting, I have decided to write this post in the end.

NOTE: This post is not to comply you to buy the above-mentioned stock. Notice the price has actually gone up. Do your own due diligence before you take any action. To make sure you do indeed do your homework.... yes if you buy, you are helping me to prop up the share price!!


Cheers