Avarga (formerly: UPP Holdings)

[fallscushion]

a short writeup on Taiga:
https://fallscushion.wordpress.com/2020/...ved-taiga/

In addition to that, I'd try to guesstimate the full year dividend of Avarga.
Based on Avarga min 40% dividend payout target.
Dividend: 40%* (71%*55M) + 7M = 18.4M
Div/share=S$0.019
Expected dividend in 2020Q4:S$0.012
At current price of S$0.25, dividend yield is over 7.5%

[ksir]

Avarga has been buying back shares substantially in recent days:

Interestingly it has bought back a record amount of shares today and more than doubled its treasury shares.

Average price paid today is also substantially higher than usual at S$0.296.
12-Jan-2021, shares bought 10,000,000.
Cost S$2.96M.

More dividend coming? or something is brewing (as usual haha)?
<remain vested and core>

[fallscushion]

Latest Annual Report, AGM presentation & Q&A provide more clarity on Avarga's essential businesses and strategies.
http://www.avarga.com.sg/results-of-annu...meeting-4/

Webcast for the AGM:
http://www.avarga.com.sg/wp-content/uplo...ording.mp4

Taiga is flowing nicely with the housing tides and the share price is more than doubled since my last post:
From C$1.3 to C$3.0, after the Dividend of C$0.27.

That is simply amazing!

Although it's perhaps a lot of lucks in good timing (of Taiga & Exterior Woods acquisitions), credits should also be given to the Management team for their assessment, strategy and execution.
Big kudos to the Management.

Another rare attribute noted from the current Avarga Management is that they are not in any illusion of extrapolation of the 2020 result or the housing/lumber boom.
They didn't get over-confident hubris on their marvelous 2020 result.
They've instead warned that 2020 result is extraordinary and won't be repeated in years ahead.

At current Taiga price, I've only trimmed down enough to reduce the high exposure of Taiga in my overall portfolio.
I expect 2021-Q1 to be quite decent as well and the path of least resistance of housing trend is up.

But of course I am not in any tiny bit of delusion that the current sky high lumber price will sustain.
The risk of plunging lumber price to Taiga is however not as big as worried.
Their lumber turnover is twice a week (likely overstated due to hiking demand at this moment).
But even normalized, I expect the turnover to be twice a month, which substantially reduce the risk.

Treated woods risk of lumber price plunging is also mostly mitigated as their procurement season is in winter.
Buy materials in Winter (naturally cheaper due to low season), treat and build up inventories.
Sell out the inventories in Spring.
That sounds to me like a natural hedge in lumber price.

[opmi]

the demographics is tailwind for lumber.
US household formation positive for long term

https://thirdave.com/wp-content/uploads/...-TAREX.pdf

[weijian]

the demographics is tailwind for lumber.
US household formation positive for long term

https://thirdave.com/wp-content/uploads/...-TAREX.pdf

Some US demographics shared by a Wealth of Common Sense Ben Carlson to support the demand side. Basically in the coming 10 years, millennials are reaching a stage with the highest probability to settle down with a mortgage, and then baby boomers start to sell their homes in prime locations (which themselves need to be renovated). 

Demographics Are Destiny in the Housing Market

There was a big jump in the 30-39 cohort. There are now 4.5 million more people in their 30s than there were in 2010. If you want to know why there are lines around the block at open houses, this is why.

By far the biggest jump was the number of people 60 and up. Hello baby boomers. There are nearly 20 million more people 60 and up in 2020 than in 2010.

https://awealthofcommonsense.com/2021/06...ng-market/

[fallscushion]

Another bumper quarter for Taiga:
Taiga 2021-Q2

Naturally also flows to Avarga:
Avarga 2021-H1

At price of C$2.61, Taiga Market Cap is C$283M.
Earned net profit of C$87M so far in 2021-H1 (31% of market cap).

For 2.5 years since 2019, they have earned C$184M (65% of market cap).

High tide is tremendously important in cyclical business like Taiga.
Lumber sky high price was insanely high in first half of this year, before plunged over 60%.
They managed to leverage on the high tide, which although obviously not sustainable, is a key in achieving significant return in such business.

Taiga earning should normalize in 2nd half of the year.
With their holding of C$171M lumber inventory in 30-Jun-21, expect to have some inventory loss.
Having said that, with their high inventory turnover, if 2nd half turned out to be negative, it shouldn't be huge.

All in, with current valuation, it is rather valuable (if not as cheap as it was).

OTOH, Avarga valuation is also cheap, since I first purchased it in 2016, they have basically returned over 52% of my cost in dividend.
The return in dividend alone has CAGR of 7.2%
Considering the low interest rate during the period, I'd say the result is satisfactory.

Kudos to the Management in managing the company well.

A side note, Straits Intel-logistic is a rather small investment of Avarga, yet seems to be an interesting business with long runway.
I am looking into it and perhaps will be my another branching out of this Avarga tree. 
Am a happy partner keeping Avarga company.

[zxiank]

Another bumper quarter for Taiga:
Taiga 2021-Q2

Naturally also flows to Avarga:
Avarga 2021-H1

At price of C$2.61, Taiga Market Cap is C$283M.
Earned net profit of C$87M so far in 2021-H1 (31% of market cap).

For 2.5 years since 2019, they have earned C$184M (65% of market cap).

High tide is tremendously important in cyclical business like Taiga.
Lumber sky high price was insanely high in first half of this year, before plunged over 60%.
They managed to leverage on the high tide, which although obviously not sustainable, is a key in achieving significant return in such business.

Taiga earning should normalize in 2nd half of the year.
With their holding of C$171M lumber inventory in 30-Jun-21, expect to have some inventory loss.
Having said that, with their high inventory turnover, if 2nd half turned out to be negative, it shouldn't be huge.

All in, with current valuation, it is rather valuable (if not as cheap as it was).

OTOH, Avarga valuation is also cheap, since I first purchased it in 2016, they have basically returned over 52% of my cost in dividend.
The return in dividend alone has CAGR of 7.2%
Considering the low interest rate during the period, I'd say the result is satisfactory.

Kudos to the Management in managing the company well.

A side note, Straits Intel-logistic is a rather small investment of Avarga, yet seems to be an interesting business with long runway.
I am looking into it and perhaps will be my another branching out of this Avarga tree. 
Am a happy partner keeping Avarga company.

This quarter's results is kind of expected if you look at their competitors.. moving forward will there still be more catalysts to support the share price? Or will this be more of a dividend play?

[weijian]

Lumber prices are all over the place again. Will be interesting to see how Avarga (or Taiga) gets through this volatility.

Update: Framing Lumber Prices Up 75% Year-over-year

Lumber was at $1,160 per 1000 board feet this morning. 

This is down from a peak of $1,733, but up $515 from a year ago.

https://www.calculatedriskblog.com/2022/...-year.html

[fallscushion]

As expected, Taiga reported Loss in 2021-Q3 due to inventory loss as the result of plunged Lumber price.
In 2021-Q4, Lumber price picking up again, better bottom line expected (at least shouldn't have any inventory loss).

Quoted below from Mr Tong in Taiga 2007 AR, to understand the impact of high lumber price to Taiga:
A 4% margin on $200 will generate half the gross profit as compared to a 4% on $400.
Our operating costs generally remain unchanged when we distribute the same unit quantity.

He was quoting the lumber price there.
So how about 4% margin on $1000? 😁

[weijian]

Hi Fallscushion,
I suspect that that is not how it works. Below is a snippet from Taiga's 3Q2021:

Gross margin for the quarter ended September 30, 2021 decreased to $7.6 million from $91.5 million over the same period last year. Gross margin percentage was 1.6% for the three months ended September 30, 2021 compared to 18.3% in the same period last year. This decrease was due to commodity prices falling dramatically during the
quarter.

Based on the difference in the selling price of products vs that of inventory, the gross margin changes accordingly. You can sell at 400 but if your inventory cost was 396, you just get 1%. Conversely, you can sell at 200 but if your inventory cost was 180, your margin is 10%.

Nonetheless, you are right about the "operating leverage". All companies that depend on commodity prices, either prosper or die by those prices.