Singapore stocks: Once bitten, twice shy

[Squirrel]

Thought I will chime in here on my belief.

What I think is that if done at a certain proportion, annual pay will never catch up to investment returns after 10-15 years. That’s because investment accumulates and compounds on past savings. While annual pay increases at a standard pace for most. Of course this is if you invest a very significant portion of your wealth.

My view is that one should invest in their employability and increase their take home when young and from there put the money to work in investments. Honestly the investment journey for me is more like a video game and is enjoyable. I don’t think I have ever spent that much time on it like a full time job though.

Throughout the past years of investment, more than 80% of my portfolio are in SG stocks. Personally because this is a less attractive market, it’s actually easier to find an undervalued counter. Though the same can be said of Value traps.

Hi Squirrel! That is exactly what I have been doing, and with some luck, I managed to leave corporate world 9 years ago.

However, I must say that till today, my investment return is still lower than my last pay cheque 9 years ago. But that is ok, as the return is sufficient to meet my life needs.

My portfolio, however, has grown by more than 40% over the last 9 years, which is of course nothing to shout about. So perhaps in another 10 years’ times, and with some luck, my return may be able to meet my last drawn pay.

Great to hear that from a fellow investor.

Incidentally, I am at a crossroad now that you were at 9 years ago. With some luck, I had managed pretty alright over the past 8 years (when I seriously started recording my returns, the 6-7 years before that was a wash but I guess not a waste of time. I want to believe that without those years, I couldn’t have achieved the recent 8 years). I tend to grin when people comment that Singapore is a dead market, because most of my gains are from here, in this boring boring place.

Currently, I am deciding between doing something else or continue with this job albeit at a more relaxed pace. I ain’t that young anymore, and a friend of mine measures life as the number of healthy years left. That’s a pretty scary way to look at it.

To specuvestor’s article, I personally agree that the overall performance in SGX is probably low. However, due to the lack of interest globally, it’s easier to spot hidden gems that are overlooked and thus generate outsized alpha. That’s just my theory.

[dreamybear]

Shdn't active engagement be something the mgmt needs to do to create value for OPMI ? At least Nanoflim (below) is doing it. I think not all SGX listed companies are doing it ? If so, I think it's quite sad for us.

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https://links.sgx.com/FileOpen/NTI%20-%2...eID=759951 (emphasis added below)
" Q : Your share price has been fairly suppressed and subdued over the past year. The Chairman has previously highlighted the need to proactively manage investor relations. However, Shareholders see limited exposure in that regard. Can the Company comment on the action plan going forward?

A : The CFO responded that the Company acknowledges that the share price has been suppressed in the past year. The Company has been working on improving its investor relations. On that front, the Company has made quarterly business updates through SGX announcements and will continue to update the investment community on a timely basis. The CFO shared that the Company had participated in more than 150 one-on-one and group meetings with market participants last year and that they had also taken part in several non-deal roadshows organized by various financial institutions. The Company will continue its active engagements with the investment community. "

[CY09]

In Singapore, its difficult road shows do not realise value. This is because many investors are skeptical having been burned by many OPMI unfriendly founder/family companies

The only way companies can do well in Singapore (outside of the temasek sphere) is to give both dividends and utilise their sharebuyback mandate (close to 9-10%) bought each FY, such tangible actions will result in the relisation of the true value of companies.

In Singapore, investors have been bluffed too much by "sweet talk" till they are too afraid

[Big Toe]

The truth is there is very little that companies can do to improve share price performance. This can be attributed partly to market sentiments towards a sector/country/etc. The company ought to just focus on their core businesses and let the markets decide. Being more transparent helps but not by a lot.

The reward is in the waiting, and in many cases for long periods of time, at some point, valuations will catch up with fundamentals or with its cash flow, how can it not?

And on working for a salary. Or working for oneself. Both are viable as long as one doesnt mind doing what one is doing. Personally I prefer to work for myself, in areas that I have an edge (ie certain industries I have better in depth knowledge and contacts than research analysts. certain commercial properties I have more knowledge than property agents. But for residential properties, my knowledge is "meh" and I have no advantage over others) It is much harder to work for oneself as it requires a much higher level of discipline, managing cash flow is a big challenge, work ALWAYS need to come first before anything else in terms of time, effort and funds.

It is interesting that I have met some capable people whom I think will have a very high chance of succeeding in business but choose not to. And there are many people who over-simplify how to run a business/investment venture and over-estimated their own capabilities.

And I will also say this, it only gets harder, never easier in Singapore.

[weijian]

Shdn't active engagement be something the mgmt needs to do to create value for OPMI ? At least Nanoflim (below) is doing it. I think not all SGX listed companies are doing it ? If so, I think it's quite sad for us.

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For sure, there are different schools of thought. On paper, Mgt "needs" to do what they should to create value for OPMI. But in practice, what are the incentives for them to do that? What more for a Mgt with majority control?

150 1-on-1 or group meetings....and add on the number of roadshows - that is about once in every 2 days. Is that a little too frequent? I hope there is a dedicated and big IR team who is primarily responsible for that. If I am a shareholder of this company, I definitely do not wish the executive team to be distracted by all these PR activities. Their number one focus should always be on the business. When the business is thriving, the IR has an easy job. When the business isn't doing good, no amount of IR will be enough...

[Corgitator]

Shdn't active engagement be something the mgmt needs to do to create value for OPMI ? At least Nanoflim (below) is doing it. I think not all SGX listed companies are doing it ? If so, I think it's quite sad for us.

---------------------

https://links.sgx.com/FileOpen/NTI%20-%2...eID=759951 (emphasis added below)
" Q : Your share price has been fairly suppressed and subdued over the past year. The Chairman has previously highlighted the need to proactively manage investor relations. However, Shareholders see limited exposure in that regard. Can the Company comment on the action plan going forward?

A : The CFO responded that the Company acknowledges that the share price has been suppressed in the past year. The Company has been working on improving its investor relations. On that front, the Company has made quarterly business updates through SGX announcements and will continue to update the investment community on a timely basis. The CFO shared that the Company had participated in more than 150 one-on-one and group meetings with market participants last year and that they had also taken part in several non-deal roadshows organized by various financial institutions. The Company will continue its active engagements with the investment community. "

Value is not created by changing optics, but rather by improving the fundamentals of the business (higher ROIC, growth when ROIC is in excess of WACC etc). Instead of spending time monitoring the stock price and trying to convince others why your company is worth more, it's more productive to spend the time on actually improving your business.

I believe that given time, markets are efficient enough to eventually give the company the valuation it deserves (sure it might take many years, but isn't investing also about patience?). Meanwhile, more tangible ways to create value could be done through capital allocation such as buying back shares when the price is below the management's assessment of intrinsic value. Nanofilm, to their credit, has been doing that. Even better if the management can eat its own cooking and buy some shares using their own personal money.

[dreamybear]

Didn't expect my post to trigger so many responses.

In my view, management mainly focussing on their core businesses, improving the fundamentals of the business is more beneficial for the controlling shareholders. Actually, if that is the sole intent of the controlling shareholders, why be a public listed company ? For OPMI, what we basically want is tangible returns e.g. dividends, higher share price. A financially strong highly profitable company which doesn't create value for minority shareholders is not going to be a good investment for OPMI. But of course, active engagement isn't the only thing, it has to come with as a package - SBB, dividends, insider buying etc.

On markets being efficient enough for valuations to match fundamentals, well, we have heard the investment literature from investment greats. But they are likely referring to the US mkt. Does the voting/weighing machine, irrational Mr Mkt analogy work as well here; to what extent do those apply to the SG market ? Is there sufficient liquidity ?

What is a fair valuation in the SG mkt - can we take reference from the US mkt ?  What wld investment greats e.g. WB, CM, Peter Lynch invest in (from OPMI's perspective) if they were to invest in SG mkt ? Is the operating landscape(market participants, regulations, etc) the same as their home mkt ?

For discussion purposes, does anyone have examples of fundamentals catching up with valuations for SGX listed companies, disregarding external factors like substantial population increase / country economic growth (3rd to 1st) ?

And I also agree - it will only get harder and harder.

[Wildreamz]

..

For discussion purposes, does anyone have examples of fundamentals catching up with valuations for SGX listed companies, disregarding external factors like substantial population increase / country economic growth (3rd to 1st) ?

..

DBS bank stock from late 2015 - early 2016? (I understood the question as valuation catching up with fundamentals)

That said, I think the reverse is also true. Sometimes the market sniff out impending deteriorating fundamentals, before it happens (fundamentals catching up with valuation). 

Using foreign companies as example, from 2020 to present, market sniffed out regulation will cause Alibaba's business to deteriorate, you saw the price crater first, before the fundamentals slow down.

Tesla/AMD was valued highly, before they showed significant earnings/revenue growth, was also another example where fundamentals catching up with valuation.

[Big Toe]

Lets talk a bit about SEA ltd. Will breifly discuss it here as share price of it is irrational, no matter how you look at it.
It peaked in 2021 ard USD300+. Taken as a group, it was just burning piles of cash during that period, even as their gaming division was doing well then. As I write it is trading at USD63, just when it was turning profitable and Forest is upping salaries. There is no rational explanation behind the price movements.

To put it simply, the company did not change much, in fact it changed for the better, cash flow positive.
What has drastically changed is the investor's attitude towards the company. But this is not half as drastic as what happened in the .com era.

Investors can be overly optimistic and investors can be severely depressed. A number of small to mid cap SG stocks can be categorized under "severely depressed". So what happens now? My experience tells me that at some point, most of the company debt is going to be repaid/free cash is going to be reinvested for growth and the cash/ assets at the company is going to become too overwhelming to ignore. At that point the share price is at least going to keep up with this growth.
But this unfolding will take years, there maybe hiccups along the way and that is normal. It is part and parcel of owning part of a business.

[dreamybear]

Thanks for all the replies.

Actually, the context in the course of the discussion and my post is more of fundamentals catching up with undervalued stocks, and not the other way round. I should have been clearer, apologies.

Cld perhaps China Sunsine be an example for discussion ? Why is it trading at such valuations  low P/E, P/B, etc and I think for long periods of time ? Will it one day trade consistently at a higher valuation, e.g. 10x - 15x P/E henceforth ? Wld it have been any different if there were more international investors or if it was listed in other markets like US ?

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Financial Summary 2021 - 25
https://www.chinasunsine.com/wp-content/...3D335A.pdf

Financial Summary 2017 - 21
https://www.chinasunsine.com/wp-content/...88.1.0.pdf