Tuesday, July 31, 2007

Movie Review - Simpsons The Movie

"Spider pig, Spider pig, And it does whatever Spider pig does..."

Haha! My Precious and I went to see this movie over the weekend and this is be far the best movie I have seen for the year 2007! It's a real hoot with it's laugh-a-minute jokes! I thought it would be tiring at first, but it didn't feel that way at all!


The Good

The sappy part when Marge taped over the wedding video to tell Homer she was going to leave him... ("Why do birds, suddenly appear... Every time... you are near...")

Green Day going: "Da Da Da Da Da Da Da Da Da Da Da Da" (Count the no. of "Da"s; it's correct) and the ship sinking ala Titanic style

Arnie going: "I was elected by the people to Lead... Not to Read!"

Homer scolding the audience (i.e. us) for watching a paid movie when we have been watching the cartoon on TV for free for so many years

My Precious likes the Naked Bart scene and the Boob Lady

Maggie 1st word: "Sequel" (Hopefully I don't have to wait another 18 years for that... Don't even know if I will still be around then...)

And of course - The Spider Pig song with the opera singers backup during the rolling of the Credits


The Bad

The hole through which the Simpsons escape from the Dome; Seems a bit too easy.

The side story about Bart wanting Ned Flenders as his Dad instead of Homer... Seems like the theme for one of the cartoon episodes... A bit repetitive...

The Verdict

Why are you still reading my review? Go watch the movie NOW!

Saturday, July 28, 2007

When God Makes 2 + 2 = 5

John Shore (Source: Crosswalk.com)
Writer, Editor, Author


In the course of recent posting of mine called The Comfort of the Cross, I wrote (under the paragraph "Pray"), "God, and only God, can make 2 + 2 = 5." A reader wrote to ask if I'd expound upon that a little.

Sure, reader. Thanks for asking! What I meant is that God can't do math. He's outstanding at trees, excels at underwater life forms, and most definitely has a thing for beetles. But math, not so much. Any of you who have ever tried to figure out logarithms has some insight as to why that might be true.

Ha! I'm kidding! KIDDING!
Boy, I hope God has a sense of humor.
Oh, right! The dung beetle!
So he does. Cool.

(aC: Haha! I'm sure the author is just kidding because God is the creator of numbers! He did the first count as he created the universe during the first 6 days and rested on the 7th (the Sabbath). And I thank him for making me numerically inclined)

Anyway, what I really meant was this: Sometimes I find myself involved in a situation about which I simply cannot find peace. Something will be genuinely wrong: someone will be doing myself or someone I care about harm, or someone with power will in some egregious way be abusing that power, or ... something will be happening that no one would be okay with. And so I'll be having a lot of emotional turmoil about that situation or dynamic.
About most stuff I can reason or feel my way into emotional clarity--with most conditions or situations I can make a pretty solid peace by just sort of ... relaxing around it. I usually just open myself to God's perspective on the troubling situation at hand, and then I sort of ... know how to feel or think about it

But sometimes that just doesn't work. Sometimes I can't move into a place where the thing I'm dealing with is okay. That's when I know I've really got a real problem on my hands. I can look at it from the top, the bottom, from either side, from beneath it--and no matter how I look at it, it still looks bad.

And that's when I ask God for his peace. Even though I know there's no way to be with that situation and still have peace, I ask God to bring me his peace. In effect--well, not in effect, in reality--I'm asking for a miracle. I know there's no way for me to feel okay with whatever's going on; I know it can't be okay. By the time I'm at the place where all I can do is pray for God's peace, an idiot would be able to see that I'm involved in a problem that would have Buddha whining and ulcerating.

And whenever I ask for God's peace, like that it's there. Almost instantly my anxiety about the situation is replaced by that expanded, deep, indescribably ... peaceful state God puts you in when he's decided to grant you a little taste of what heaven must be like.
And he never fails to grant me that peace when I ask him for it. I don't think he ever fails to bring that peace to anyone who asks for it.

So what I meant was that when you pray for God's peace, even though you know you're dealing with a situation that factually, really, quantifiably cannot be resolved--a situation where you know that what you've got is the equivalent of two plus two equaling four, and the four is the part that's killing you--God, and only God, can turn that four into a five. Or a six. Or two million six hundred thousand and eight.

Just by asking him to do it, God can make more out of the situation you're struggling with than you would have ever dreamed was possible before he performed that miracle.
I go to a church where, about half way through the service, everyone turns to those around them, shakes hands, and says, "Peace of the Lord." In the course of my daily life, I never say anything to anyone that I mean more than that.

(aC: I do pray to God to bless my investments. After some analysis, I realise most people succumb to greed when they trade; Afraid that they will will miss the boat if they dont act now. And that is usually the worst time to act. I realise to have peace in your trading activities, you must know why you are trading. In the hope to acquire riches - what are you going to do with it when you have it? When you can answer that question honestly and it aligns with God's will, then God will bless you. And you will automatically have peace even when performing a stressful task such as trading. It's that simple. But if you throw all that away and just trade to get get few hundred dollars regardless of how you get it... You will end up losing more...)


Sunday, July 22, 2007

Fear and greed in the 2007 stock market: a tale of gonzo investing

By R SIVANITHY SENIOR CORRESPONDENT (Source: Business Times)

POSSIBLY the most renowed book written by the late, great American journalist Hunter S Thompson is Fear and Loathing on the Campaign Trail '72, a wild and detailed account of his coverage of the 1972 US Presidential election for Rolling Stone magazine.

He subsequently went on to write a whole series of bestselling Fear and Loathing books that popularised 'gonzo journalism' a manic, full-tilt and often profane style of writing in which the writer lives within the story and often exaggerates it with personalised embellishments.
If Thompson were alive today to witness the current stock market boom, you'd have to wonder whether he'd write a book on the present mania and call it Fear and Greed in the 2007 Stock Market

To be sure, the present bubble in penny stocks bears all the hallmarks of 'gonzo investing' (if we may be allowed to borrow and tweak the term).
Punters have whacked stocks ten-fold in less than six months and incredibly, are still hell-bent on continuing to inflate what is already a devastatingly massive bubble.

Worst (like the dot-com mania of 1999-2000), most of the companies involved are fundamentally unsound with poor financials to begin with.
In many cases, vague speculation of a reverse takeover (RTO) accompanies the rises, as if there are that many foreign or domestic acquirers stupid enough to spend large sums of money taking over failed companies, assuming their debts and cleaning up their balance sheets just to get listed here. (aC: Haha, I like this description; people are just buying blindly whenver there are rumours of reverse takeovers)

You can't help but get the feeling though, that everyone knows that RTO stories are no more than flimsy fabrications aimed at covering up major syndicate manipulation (as are many of the other stories and announcements that accompany large price gains). Then again, the principle of 'caveat emptor' which is the perennial fallback as far as regulators are concerned, says that if everyone knows the game is a scam and everyone accepts the risks, then it's OK to leave things as they are. (aC: Well, the risks clearly falls on your retail investors then)

And what of blue chips? Here too, fear and greed intertwine, although 'gonzo investing' bears a tad more legitimacy in the form of programme trading and economic justification born from rationalisation in hindsight. (aC: Do people actually just leave their computers on and let the programs do the investing for you? It seems theoretically plausible but is it practical?)(aC: Hindsight benefit: I have seen so many "genuises" because of their hindsight wisdom)
By now, observers would be familiar with the way all markets move as one, the high degree of correlation undoubtedly due to the widespread rise of computerised buying or selling based on changes in predetermined parameters.

They'd also recognise how experts have glibly changed their tune about US interest rates being cut by year-end but because momentum and liquidity have remained high, have continued recommending investors buy and keep buying.
Fear however, will play a part in the early part of the week - Wall Street's Friday slump looks set to bring prices down in the early part of the week as will news of China's interest rate hike.
Thereafter, things get hazier. The US earnings reporting season has kicked off - not too auspiciously it would seem with Google and Caterpillar missing targets - but the best that can be said that Wall Street looks headed for another volatile week.

The same can probably be said for the local market. Headwinds as far as blue chips are concerned will come from Wall Street grappling with its inner demons - inflation, interest rates, skyrocketing oil prices, a crashing housing market and an economic slowdown, while it'll be interesting to see how the China market copes with yet another rate hike to cool off the economy.
On the other side of the fence sits a grim defiance instilled in all investors to buy the dips and keep buying because of a belief that they can't go wrong. In short, it's all about fear and greed - in that order.

(aC: Well, I have predicted correctly that the slump on Wall Street on Wed will persist longer but I see many clueless investors still jumping onto the equity bandwagon on Wed, Thurs and Fri this week, chasing the prices up thinking that everything now is at a discount. Using Fri as an example, the STI opened 107 points down and close at around 85 points still down no less, but that is evidence that some ppl have chased stocks up for about 20+ points. Given the overnight slump of 200+ points on Wall St, I expect the week starting 30 July to be a continued downtrend in the market)

Saturday, July 21, 2007

IPO Review - MAP Technology (Part 2)

(1) Business of the 3 main subsidiaries (revised):

(a) Min Aik Precision
Principal Activity - Precision Stamping - VCM Plates (main product)
Operations - China
Main Customers - Maxtor (20%) and Western Digital (80%) for FY06
Revenue Contribution - 22%

(b) M&J Technologies
Principal Activity - EMS Solutions - EHDD (main product)
Operations - Thailand
Main Customers - Western Digital and Latronix (in Nov 06; Reputable customer but too new to determine sustainability and significance)
Revenue Contribution - 66%

(c) Art Craft
Principal Activity - Die-cut components
Operations - Singapore
Main Customers - BMS Tech, Metalform, etc whose end customer is Western Digital
Revenue Contribution - 6%

Conclusion: Company is highly dependent on Western Digital for its Revenue; If for whatever reasons it loses WD as customer, its revenue will be adversely affected.

(2) EMS Solutions
The Company employs 696 full time production operators and 530 subcontract workers - Is this normal?

(3) Utilisation Rates (FY06)

(a) Precision stamping - 44.7%
Q: What are the Company's plans for the under-utilised maunfacturing facilities since the focus moving forward is clearly EMS solutions

(b) EMS - 49%
Q: Why does the company still need to spend $8.2 million (of net proceeds) on expansion when it is under-utilized?

(c) Die-cut - 98.9%
Efficient!; But sadly, this is a low revenue contributor.

(4) R&D
The company mentions that R&D is an essential part of the precision stamping business - So why is none of the proceeds spent on R&D?

(5) Credit policy
Allowance for doubtful receivables increased from $17K in FY05 to $63K in FY06, but no bad debts have been written off in FY06; The company gives bad estimates for doubtful receivables

(6) Customers
Min Aik Technology (a controlling shareholder) contributes 76% and 45% to FY04 and FY05 Revenue respectively. This decreased to 22.3% in FY06 with Western Digital accounting for the Company's FY06 Revenue.
Q: What do the revenue figures become if we remove Min Aik Tech's contribution?

(7) Strategic M&A
Form the Prospectus, it does not seem that the Company is certain of any JVs or M&As, so why is $7.8M (of the net proceeds) being set aside for it?

Friday, July 20, 2007

IPO Review - MAP Technology (Part 1)

Prospectus Fundamental Analysis

You can get a copy of the Prospectus here.

(1) Issue Price: $0.32

Issue Size: 76.5M New Shares comprising only 3M Public tranche (representing only 3.9%) - I suspect this is going to be heavily subscribed again.

(2) Business: 3 Principal activities:

(a) EMS Solutions (66% of FY06 Revenue)
- Main product: Data storage devices (such as EHDDs)
- Main operations: Thailand

(b) Precision Stamping Products (25% of FY06 Revenue)
- Main product: VCM plates of HDDs
- Main operations: ROC

(c) Die-cut Components (9% of FY06 Revenue)
- Main product: Acoustic Damper
- Main operations: S'pore

(3) Historical EPS: 2.4 US cents = ~3.6 Sing cents (Therefore 15X EPS gives S$0.54)

P/E Ratio: 8.7 X



(4) Use of Net Proceeds (S$21.1M)

(a) 38.9% - Expand EMS solution operations

(b) 35.5% - Expand business through M&As, JVs, etc. (Vague)

(c) 25.6% - General Working Capital



(5) Capitalisation & Indebtedness

Actual Cash + FD = US$6M

Actual Total shareholder's equity = US$26.6M

Both more than offsets Actual Total Debt of US$2.7M



(6) Dilution
Directors and Substantial shareholders holding stock at only ~S$0.13
Min Aik Tech holds 50.7% of total shareholdings

(7) Main Customers
(a) Western Digital - EMS Solutions
(b) Min Aik Tech - Precision Stamping Products (They are also substantial shareholders - check IPT/Conflict of Interest)

(8) COGS
Raw material costs constitute 82.2%; Raw materials maintained for only 7-14 days because of JIT system; Prices not subjected to seasonlity.

(9) Gross Profit Margin
Decreased from 29.6% in FY04 to 13.1% for FY06, mainly due to EMS Solutuions which typically command lower margins

(10) Inventory Management
Inventory Turnover = 25 days only due to JIT system (for FY06); No write off

Is The Party Over?

Abrupt end to sizzling market rally serves as wake-up call for investors
By Goh Eng Yeow,
Source: Straits Times Interactive

THE recent super bull run by penny stocks has been nothing short of spectacular - despite Wednesday's slide which was followed by a rebound yesterday.
In just three months, stocks costing less than $1 have shot up in value by half.
This week alone, the more fancied counters have registered double-digit percentage gains daily - barely raising an eyebrow.
Buying into the right penny stocks at just the right moment seems to have become a sure-fire way to make quick money.

On Wednesday, trading became so frenzied that one counter - Ban Joo - attracted a volume of 581 million shares. This would have been the equivalent of a day's trading volume on the entire Singapore Exchange only two years ago.

For many observers, it begs the question as to whether the rally has become so fevered that it amounts to irrational exuberance - a term coined by former United States Federal Reserve chairman Alan Greenspan to describe a market that has lost its head.

Ever higher volumes and greater volatility - all these can lead to a build-up of a stock market bubble, and that may be what we have been witnessing in the penny-stock buying frenzy in recent weeks.

One brokerage's head of risk management noted that many of the punters did not even know the type of companies they were buying into when they snapped up penny stocks.
Many of these companies are financially-strapped firms whose businesses have been bled dry by years of losses.
The only reason why there is such hot demand for their stocks is that these companies have become attractive takeover targets for businessmen who want to inject assets or businesses into them.

But even this line of reasoning may not hold much water.

The run-up in prices of some penny counters has been so sharp that it defies any logical reason for the lofty valuations, even after throwing in the valuations of the businesses which may be injected into these companies.

Take Jade Technologies, for example. The company is worth $395 million, based on its stock's closing price of 46.5 cents yesterday.
In its latest full-year results, Jade reported a loss of $1.4 million on a revenue of only $39.2 million. The only attraction it holds for any new owner is its listed status, which may be worth up to $15 million. This barely justifies the price investors now pay for its shares.
But Jade is hardly the exception. Other penny stocks with similar characteristics include Rowsley, Ban Joo and Equation - which are worth more than $200 million each - even though they have businesses not worth shouting about.

And for all the exuberance associated with the giddy run-up in penny stocks, seasoned investors have been getting out of them in droves.
This may signal their discomfort with a market that relies not so much on the fundamentals supporting a company's share price, but rather on rotational plays among certain stocks taking their turns to be in the spotlight.

Businessman Oei Hong Leong, an investor with a history of savvy timing, has recently liquidated his stakes in small-capitalised stocks.
In the past two weeks, he has sold his entire 29.98 per cent stake in Sesdaq-listed China Healthcare, which he has held since 2005. He has also offloaded his 13.2 per cent share in Super Coffeemix Manufacturing, which he has held since 2003.
Unlike the small-time punters who get in and out of stocks daily in the hope of making a fast buck, Mr Oei has been known to hold his investments for years.
In recent years, his picks have included sizeable stakes in NatSteel, Haw Par, BIL and United Industrial Corp.
So the disposal of a stake in a listed company is not a decision he would have taken lightly.
Mr Oei's investing philosophy, similar to that of legendary US investor Warren Buffet, (aC: Serious? Is he really that good?) is to look for neglected companies whose values are waiting to be unlocked.

Besides share sales by savvy investors, there has also been a slew of data showing an increase in foreign fund outflows from Singapore-listed stocks recently.
A Citigroup report on Monday showed that the weekly outflows had doubled to US$7.9 million (S$12 million) last week, from only US$3.9 million the week before.
Admittedly, this is still a small amount, compared with the US$1.1 billion that foreigners had poured into the Singapore stock market since the start of the year.
But what worries market experts is the likelihood of the outflows increasing over the coming months.

And that raises the spectre of large numbers of badly burnt punters if the rally screeches to a halt.
The risks which could stall the market, said one UOB Kay Hian report, could come from anywhere. The brokerage has advised investors to exercise caution when punting heavily on speculative penny stocks.
On Wednesday, punters got a foretaste of what could happen when the runaway penny stock rally was abruptly stopped in its tracks.
Some Sesdaq counters tumbled by as much as 25 per cent from intra-day highs, in a knee-jerk selldown as the market reacted to a government move to raise development charges for new building projects.

The only redeeming factor so far is that brokerages are moving gradually to protect both their clients' interests and their own by imposing trading curbs on some of the most heavily traded speculative counters.

Yesterday, UOB Kay Hian imposed trading curbs on Jade, Ban Joo and Ocuclus, while Kim Eng Securities slapped similar controls on Alantac.
But requiring clients to put up cash upfront for a few stocks may lull many into believing that adequate measures are in place to stop a market bubble from forming.
There is no cause for panic, but retail investors would be well advised to do their homework before jumping in to buy the next hot stock.

This could save them from a scalding experience if market sentiment takes a sudden dive. (aC: I suspect there could be 2 more major corrections which would serve as a prelude to the impending bear runs. I would have expected one of the major correction to have happened today {25 July 07}, given Wall street's 226 points decline, but nothing of that sort happened; The Singapore market's index was rather muted. I think the major correction will happen today or tomorrow if Wall street remains flat or continues to decline even by a little today)

Wednesday, July 18, 2007

Raining Fish

I have decided to take a break from blogging about Investments and talk about something different. I was inspired to blog about the following phenomenon by the movie "Next" (which, by the way, has one of the worst endings in the history of cinematography). But there's a difference in the given explanation (of the phenomenon) between the the movie and the post below. In the former, it was said that water containing fish eggs were actually evaporated into the sky, where they later hatched. I couldn't believe this was possible and decided to Google it.


Unusual objects sometimes fall from the sky, courtesy of waterspouts.

By Susan Cosier (from Scienceline.org)



Just before last New Year’s Eve, Carl and Kathy Hennige of Folsom, California e-mailed their local newspaper to report some strange weather. It was raining fish.

Although it may sound like some sort of mythical event, the Henniges weren’t telling tales. Neither were people in Manna, India, who reported seeing live, pencil-sized fish falling from the sky in July. It can happen, say scientists. The culprit: waterspouts.

Waterspouts, which are essentially tornadoes over water, form when cold air moves over warm water. They churn at speeds up to 200 miles an hour, but dissipate when rain begins to fall from their host cloud. Depending on how fast the winds are whipping, anything that is within about one yard of the surface of the water, including sailboats or fish of different sizes, can be lifted into the air, says Nilton Renno, an atmospheric scientist at the University of Michigan.

A waterspout can sometimes successfully suck small objects like fish out of the water and all the way up into the cloud. Even if the waterspout stops spinning, the fish in the cloud can be carried over land, buffeted up and down and around with the cloud’s winds until its currents no longer keep the flying fish in the atmosphere. It’s like the fish are swimming in the cloud, says Renno. Depending on how far they travel and how high they are taken into the atmosphere, the fish are sometimes dead by the time they rain down. People as far as 100 miles inland have experienced raining fish, he explains.

Fish can also be sucked up from rivers. The Henniges’ condo is just one mile above Lake Natoma and the Nimbus fish hatchery, where they think the fish came from. Carl Hennige writes in an e-mail that there was “an enormous windstorm” just before the fish fell.

Raining fish is not a common weather phenomenon. Fewer than 10 occurrences have been reported in the past year, according to a news search, so local five-day forecasts probably won’t include fish showers. Still, people have reported such events for centuries.

In the early 1900s, Charles Fort, a collector of stories of odd weather happenings, theorized that there was an ocean orbiting the earth that occasionally dropped its creatures onto the planet, writes author Richard Cerveny in his book, Freaks of the Storm.

Now that scientists have advanced technology like Doppler radar, they are less reliant on personal accounts. Fewer people are asked to describe the odd objects they see falling from the sky, says Cerveny, who is also a professor of weather and climate at Arizona State University. Also, people are less likely to report any strange occurrences now than they were 100 years ago. Cerveny explains that today, logical explanations through science are more readily available, so there is less mysticism behind strange weather phenomena. “They tend to sound more kooky now if they report it,” he says. Even though fewer personal accounts of strange weather have not necessarily hurt meteorology, “maybe it has taken away some of the fun of it,” says Cerveny.

Stories of raining fish, frogs or even turtles are an effective teaching tool for Cerveny when he lectures or gives presentations. “Everybody in that kind of a setting loves to hear about odd and unusual weather,” he says. Sometimes after a presentation people pull Cerveny aside, saying, “Well, when I was a kid…”

So keep an eye out, because next time the clouds open up, it may be more than raindrops that keep falling on your head.

Saturday, July 14, 2007

Stock Review - TA on OSIM



The stock suffered a plunge on 26 Apr 07; But with the 3 white soldiers advancing on 5th, 6th and 9th July (on high volume of ~10M no less), this might be a signal of further uptrend for the stock.

There is strong supprt at $0.88/0.885 as shown on 9/2, 26/4 and 9/7, and I expect the stock to advance to $0.95 in the short run (short term resistance).

For the secondary signals - all 3 are uptrend indicators:
(a) MACD is above the Centreline and above the Signal line.
(b) RSI is above 70% mark and its end just turned up.
(c) Stochastic dipped below the 80% mark but its relative distribution (as indicated by the sloping blue line) is still upward trending.

Some recent announcements on SGX:
(a) 26 July - Q2 Results will be out after market close! Most analysts expect this quarter to be a much better one for Osim. (Opening day of the Simpsons Movie too! No relevance though...)
(b) 12 July - Osim announces setting up of retail markets in Middle East markets (i.e. Kuwait, Iran and Oman) by end-2007 (Rich countries but lots of political unrest)
(c) 28 May - Ron Sim bought 500 lots at btw $0.685 - $0.70. Sign of confidence?

Recommendation: Buy during the week of 16 - 20 July with Buy Price of $0.88 and a Target Price of $0.95. Consider selling or pare down your holdings by 26 July if you have no confidence in the upcoming results.

How much can 10 Lots be worth?

I am wondering, if one is able to be alloted 10 lots of RH Energy after balloting for 70 lots, how much would it be worth just 1 day after its listing? Here's the breakdown:

On the day of its listing (11/7/07), without the benefit of hindsight, if one has sold 5 lots at $0.75, it translates easily to a gross profit of $2,150 or a net profit of ~$2,105.

On the 2nd day of trading (12/7/07), again w/o the benefit of hindsight, if one would sell the remaining 5 lots at $0.905, it translates to another cool gross profit of 2,925 or a net profit of ~$2,880.

Thus, total net profit that one could have made from just 2 days of trading is: ~$4,985!!! Or a Net Profit Return of 156% from an initial invest of just $3,201. The conservative stock price surge to $0.905 was 283% over its issue price of $0.32.

For those who think there's nothing, I'm just talking about 10 lots here, mind you...

I had no idea whether speculators would further drive the stock up...

It turns out Rationalism was thrown out of the window that day and they did.

That's what 10 lots would be worth with a HPR of 2 days...

Saturday, July 7, 2007

IPO Review - RH Energy

To Subscribe or Not to Subscribe - That is the question.

And so here I present my fundamental analysis (based on Prospectus dated 2 July 07).

General Info:
Business: Full suite of integrated customised design, engineering, procurement, construction, installation and commissioning services to the oil and gas pipeline and oil companies.
3 Principal activities: (a) Equipment Integration services (contribute to 81% of Revenue)
(b) Manufacture & Procurement services
(c) Consultancy Services
Issue Price: S$0.32

(1) EPS Growth (based on SGD denomination) for past 3 years should be > 25%:
683% from FY2004 - FY2005; and
59.6% from FY2005 - FY2006

(2) Return-on-Equity should be > 30%:
ROE (FY2004): 11.5%;
ROE (FY2005): 47.5%;
ROE (FY2006): 55%
Increasing for the past 3 years.

(3) Current Assets to Current Liabilities Ratio should be > 2
CA/CL (FY2006): 2.15
Company should be able to meet its short term obligations.
Moreoever, there is positive working capital of US$7.9M

(4) Debt-to-Equity Ratio should be less than 1
D/E (FY2006): 0.43

(5) Price-to-Earnings Ratio
Current P/E (based on Issue Price): 10.7X
15X P/E: $0.45 (Target price)

(6) Net Asset Value
NAV (FY2006): 3.92 cents (SGD)
NAV Premium (based on Issue Price): 716%

Issues/Concerns:
(1) Dilution (Pg.43) - Substantial shareholders and Pre-IPO investors paid only 4.95 cents and 11.16 cents per share respectively, so they are sure to sell once the Shares are listed. They are however subjected to a moratorium of 6 months, so that gives us some time for retail investors like us to play around with.
(2) MD&A > FY2006 Revenue VS FY2005 Revenue (Pg.57) - As a result of a strategy change, the Company's contract size decreased in FY2006 while no. of projects more than doubled to 71 (from 33), and this subsequently produced a drop in overall Revenue of 30.8%. However, this also contributed to higher net profits (67% increase) in FY2006 due to higher margins (and lower costs). My concern is: Is this sustainable? The Company doubled its no. of contracts in FY2006, will the Company be able to increase its no. of contracts in FY2007 and beyond (esp. since this strategy is based on quantity rather than contract size per contract)?
(3) Being in the oil industry, RH stock price will undoubtly (but irrationally, to me at least) track the NYMEX sweet crude oil futures which current stands at US$72.81. My take is that as long as prices remain above $70 on its listing day, the stock price will rise.

Recommendation: Subscribe/Buy

Sunday, July 1, 2007

Is the property bubble going to burst anytime soon?

10 years after the Asian financial crisis, Asia's real estate markets are bubbling again, led by Singapore. Given the key role overheated property played in that crisis, it bears asking, to what extent the current exuberance is a cause for concern this time around.

According to the Global Property Guide, Singapore experienced Asia's highest residential property price increases last year, with housing prices rising 9.5% in real terms (although this masks higher percentage increases in prime market segments). Quite likely, it will be a similar story 2007 as well. Real estate markets in China, India, Korea and the Philippines have also witnessed sharp run ups - and in those countries too, prime segments have seen double digit price increases in percentage terms. Indeed, more and more real estate funds and other institutional investors are pouring money into Asian property. Some element of speculative activity is also evident.

How much should we worry about all this? In a study on Asia's real estate markets in April, the IMF took a generally sanguine view - albeit with qualifications. It pointed out that while property prices have been rising more rapidly than inflation, most Asian countries 'are not experiencing unusually rapid housing price hikes'. It noted that in many cases, the increases follow on the heels of extended declines (about eight years, in the case of Singapore). Moreover, housing prices have not risen exceptionally, compared with other asset prices. On average, housing price increases have run ahead of income gains in about half the 12 countries covered, but these average prices might mask affordability problems for some segments of the population.

Apart from income gains, there are other reasons for property price run-ups: the proliferation of mortgage products and a rise in mortgage credit - especially in China and India; higher non-speculative foreign demand for housing and commercial space (which is true in Singapore as well) as well as an element of speculative capital inflows - though less than that in the 1990s.
Given that the run-up in real estate prices represents a rebound after several years of decline or stagnation, it does not, as yet, create cause for concern. The fact that institutional investors are far more active players in Asia's (and particularly Singapore's) property markets this time than they were in the 1990s is also reassuring. They introduce an element of stability and resilience because they have greater financial holding power than individuals, and are less likely to engage in panic selling.

However, having said all that, policymakers and banking regulators across the region need to be vigilant to ensure that lending standards do not become overly relaxed and that housing lenders are adequately provisioned against what the IMF calls 'a reasonable worst-case scenario of falling house prices'. The degree of household indebtedness - particularly in those segments of the population who are vulnerable to income shocks - is also an indicator that bears watching. But as of now, it is difficult to make the case that there are sufficient danger-signs to warrant government intervention in the market with the aim of bringing property prices down.