350% in 7 trading days

Since the time when I mentioned about Y-Ventures last week, it had multiplied by 350%. It was about 7 trading days since it hit the bottom at 3.8 cents on 31 March and 1 April 2019. I had mentioned in the article that it probably worth a punt on the stock.

Given that it is a penny stock, the queue in the buy column at that time was very low at 10,000 to 20,000 shares. So, it meant that you could key to buy at a few bits lower than the trading price and, still,  somebody was willing to sell the stock to you. However, when one were to look at the the transaction volume, it was another story. It was comparatively huge, perhaps 1 to 2 million shares showing the market was full of spot sellers willing to short the stock for any ready buyer. For the past one year, the share price has been beaten down and was close to 5% of the peak value by end March/early April. This could be one of the best chance to buy the stock at fire-sale price. It can only happen when the market thinks that the company is on the brink of bankruptcy or is widely expecting a rights issue. The company was listed on the stock exchange fairly recently, of less than 2 years and the stock price has been affected by the fallen crypto-currency joint venture and the accounting fiasco that it experienced last year. 

With the quantity of shares issued at 200 million, it is possible to buy 0.1% of the company with only $8,000 at the share price of 4 cents. (The pre-IPO share quantity was 35 million from which about $7m was raised.) It means that at 4 cents, it is below the pre-IPO price valued at 5 cents. In effect, it is worth the risk to take the plunge. At most, if the company did go bust (touch wood), I would lost a few thousand dollars. The potential upside should be higher than the downside.

It would be good to execute the trade in small tranches, each time by buying 25 000 to 50,000 shares per trade. As we know, the best trades happen when nobody is looking at the stock. This is where custodian account becomes relevant. We need not pay a minimum brokerage of $25 to execute each trade. By doing so, it helps to cluster the buy price to around 4 cents. (I use the word ‘cluster’ because, very often, we do not know exactly know when is the lowest price. Sometimes when we feel that the purchase price is good, it still can drop further. So, to play it conservatively, we buy in smaller tranches once we believe that the share price has dropped to a level that one simply cannot refuse.)      

Fast forward a few days to today. The upside has been extremely sharp. The share price has advanced almost 400% from its bottom at 3.8 cents in a matter of 7 trading days! Perhaps, based on market psychology, it may still have legs going forward as it has started from a very low base. But the rate of increase should taper off as the share price increase. The purchase has been a pure luck as if one had struck a price in a 4-D. The timing was good. Certainly, it cannot be repeated or applied to other stocks easily. This can only happen, perhaps, once in a few years.

So, going forward, where will the stock price be? Well, your guess is just as good as mine. Right now, there is no fundamentals to provide us an idea of the share price, apart from making some wild guess, with some assumptions. That said, I have decided to sell one-third of my holdings. That provides me with some profit and the 2/3 of the quantity purchased at zero cost. With the change of management, hopefully, more good days lie ahead.  At today trading price at 14 to 15 cents, it is still below the IPO price of 22 cents in July 2017. If the new management proved to be good, the share price should advance in the long run.

 Disclaimer – The above pointers are based on the writer’s opinion. They do not serve as an advice or recommendation for readers to buy into or sell out of the mentioned security. Everyone should do his homework before he buys or sells any securities. All investments carry risks.

Brennen has been investing in the stock market for 30 years. He trains occasionally and is a managing partner for BP Wealth Learning Centre. He is the instructor for two online courses on InvestingNote – Value Investing: The Essential Guide and Value Investing: The Ultimate Guide. He is also the author of the book – “Building Wealth Together Through Stocks” which is available in both soft and hardcopy.

Hyflux: Some financial questions

I chanced upon the article on “Hyflux story so far” in BT Weekend, 23-24 March 2019. Given that it had listed the debts raised in the past years, I decided to compile them into a timeline in hope to have a better picture of Hyflux’s current predicament. What really puzzled me was the perpetual raised in 2016. It was stated that the perpetual of $500m was raised to redeem the two tranches of perpetuals raised for institutional and accredited investors. The first was $300m perpetual @5.75% raised in January 2014 and the second was $175m perpetual @4.8% raised in July 2014.

Just purely from a financial management point of view, why was Hyflux willing to raise perpetual at 6% to redeem perpetuals at lower coupon rates. After all, the 4.8% and the 5.75% perpetuals were hardly 2-year and 3-year old respectively when they were redeemed. Why was Hyflux so anxious to redeem those perpetual bonds when the perpetuals were still so recent by any standard.

Without any consideration of the administrative costs involved, the $175m @4.8% and the $300m @5.75% would translate to $8.4 million and $17.25 million annually. Adding these two coupon cost together, it would cost Hyflux $25.65 million annually. Why would Hyflux wanted to raise $500 million @6% just to redeem the two earlier perpetuals. The $500m @6% would have cost Hyflux $30 million annually compare to paying the coupons of two earlier bonds that cost $25.65 million annually. Why did Hyflux willing pay additional fund of $4.35 million per year to new perpetual holders instead of just staying status quo to continue to serve the two institutional perpetual bonds. After all, the bonds are still very new especially when they are also of perpetual status. Are there some non-financial reasons that investors do not know? Wouldn’t the additional $4.35 million very crucial for Hyflux in view that they had been suffering negative cash flows for at least 5 years before Year 2016?

In fact, from financial management point-of-view Hyflux should redeem the $400 million preference shares @6% as by Call Date in April 2018, the coupon would be stepped up to 8%. Based on calculations, the $400 million perpetual coupons would have increased by $8m from $24m to $32m. So, wouldn’t it be more crucial to clear (or redeem) the higher coupon rate first?

All these make no sense to me.

Disclaimer – The above pointers are based on the writer’s opinion. They do not serve as an advice or recommendation for readers to buy into or sell out of the mentioned securities. Everyone should do his homework before he buys or sells any securities. All investments carry risks.

Brennen has been investing in the stock market for 30 years. He trains occasionally and is a managing partner for BP Wealth Learning Centre. He is the instructor for two online courses on InvestingNote – Value Investing: The Essential Guide and Value Investing: The Ultimate Guide. He is also the author of the book – “Building Wealth Together Through Stocks” which is available in both soft and hardcopy.

Who are the winners and losers in the Hyflux saga?

By now, we all know that unsecured bond holders, preference shareholders and ordinary shareholders have to once again take a deep, deep haircut following Hyflux’s re-structuring plan. The proposal (see table below) is still subject to final approval through townhall meetings in the coming weeks.

Just a bit more than 2 years ago, many investors were jumping into the $300m perpetual bond issue band-wagon that was dangling at a whopping 6%. Compare this to the meagre bank deposit interest rate of 1% or less, it was like a god-send. The perpetual bonds were so over-subscribed that it has to be upsized to $500m. Still, I believe, it was oversubscribed such that the company had to carry out an allocation exercise for the subscribers. And, by May 2018, the $400m 6% CPS issued in 2011 would have stepped-up to 8% if no redemption was made. The redemption did not take place and the 8% coupon was not delivered either. In fact, no coupons were made in 2018 as Hyflux applied to seek court-protection to carry out debt-restructuring exercise following its ever-choking cash flow problem under the pile of debts.

For the last few years, Hyflux has been pinning on the hope to sell its loss-making Tuaspring desalination and power plant in order to pay down its pile of debts. But the hope became more and more remote in each passing day. It was mentioned previously that there was an interested local buyer but it appeared that Hyflux was not exactly keen. And by today, it has been established that Hyflux would be selling the company lock, stock and barrel to a consortium between Salim Group and Medco Group, SM International Pte Ltd.

So, who are the real losers in this whole saga? Although it is said in the media that Chairman and CEO, Olivier Lum, will lose all her shares in the company, she is probably not the ultimate loser. After all, she has got back her dues as a CEO and receive many years of dividends. Hyflux had established that cash dividends received by the chairman in the period between 2007 and 2017 was $58m (TODAYonline, 24 Feb 2019). Apart from the dividends, she had also been rewarded with an annual remuneration of between $750k to $1m as an executive. So, over the years, she has gotten back her dues. Perhaps the ones that suffered losses are the minority stakeholders. Many of them are working-class employees and retirees, who can only dream of earning a fraction of that $58m in their lifetime. None of these stakeholders got back what they had invested. The 6% promised yield was simply too mouth-watering compared to deposit interest rate of 1% or less at that time. The general belief for investing in the company was that it was producing a critical resource and would not likely be a let-down. Unfortunately, it failed. Many probably had lost their life-savings. Let’s ask ourselves, if a company were to pay 6% coupon faithfully, in how many years’ time will an investor get back what he had invested? It is 16.6 years not taking into account the value of money. So, base on this fact, none of the investors got back what they had invested as even the 2011 6% CPS issued by the company was less than 10 years. With the current state of affairs, there is really not much these investors can do. There is only so much money on the table for distribution and it falls so far short of the owed amount. Paying more for one group of people would mean less for another group. Certainly, the promised yield should not be the only criterion to get into the investment. (See the free beta-mode course for evaluating engineering companies.) In fact, investors should be well-aware that the higher promise return signifies that the higher possibility of losing their capital. Unfortunately, the high promised yield appeals very much to retirees as a source of passive income.     

In effect, the situation for the 2011 6% CPS was so near-yet-so-far. I was one of them. I had invested $5,000 and, all this while, the trading price has been above par. It was well and good until the last point when the issuer was to decide to redeem the preference share or to let the debt stepped up to 8%. Frankly speaking, I felt ripped off. Unfortunately, the nature of being perpetual gives the right to the issuer not to redeem the bond. What is the purpose of the step-up clause to 8% when it cannot deliver? Then, there are those who rushed to subscribe the 2016 $300m perpetual bond which was later up-sized to $500m. They enjoyed only one coupon distribution in 2017 to date. To a certain extent, it was with luck that I give this tranche a miss because I noticed that fundamentals were deteriorating badly, and the share price was descending fast. But still, if the proposal were to be accepted, I would have lost about 50% of what I invested for the 2011 tranche, not taking into account the value of money. Furthermore, the share distribution will make all the perpetual bond holders end up with odd lots, making it very difficult to buy or sell. Actually, for the perpetual bondholders, there is no way out other than waiting the bond issuer to redeem the bonds. Alternatively, they can sell in the open market, but during such critical times, the market is definitely trading at a deep discount. So, all-in-all, it has been a painful lesson for this group of investors.    

For equity holders, the picture is no better. For many years since 2011, the share price has been falling to reflect the increasing risk. At that time when it was suspended in May 2018, it was probably about 10% the price level of 2011. Unless one, can short the stock with extremely good timing, it is unlikely that one can really gain significantly by trading in Hyflux shares.

The real winner is certainly the SM Investment, a consortium formed from two Indonesian groups, Salim and Medco. They managed to buy opportunistically on the cheap, well below the projects’ book value. Going forward, it would be very dependent on how efficient the consortium is to operate as a group together with the Indonesia operations. Hopefully, they are able to reap sufficient economies of scale to operate efficiently and effectively. This, however, will take time as there are needs to make operational changes once the acquisition is confirmed.

(Lead me to a free beta-mode course on looking at engineering companies.)

Disclaimer – The above pointers are based on the writer’s opinion. They do not serve as an advice or recommendation for readers to buy into or sell out of the mentioned stock when the suspension is lifted. Everyone should do their homework before they buy or sell any securities. All investments carry risks.

Brennen has been investing in the stock market for 30 years. He trains occasionally and is a managing partner for BP Wealth Learning Centre. He is the instructor for two online courses on InvestingNote – Value Investing: The Essential Guide and Value Investing: The Ultimate Guide. He is also the author of the book – “Building Wealth Together Through Stocks” which is available in both soft and hardcopy.

Keppel Corp & SembCorp Marine

The share price of Keppel Corp ended today at $6.42. It has lost about 35%-40% its steady state value of about $10 per share 3-4 years ago.  Everyone knows that the reason for this was due to the collapse of the oil price from more than $100 at around mid-2014 to less than $30 per barrel by January 2016. In fact, traditionally, Keppel share price is closely tied to the price of crude oil. Its arch rival, Sembcorp Marine, another public-listed company on the Singapore Stock Exchange (SGX) also exhibited the same behaviour. When the oil price hit close to $150 per barrel just before the global financial crisis, Keppel share price and Sembcorp Marine went above $14 and $6 respectively. When the oil price crashed during the global financial crisis, the share price of Keppel Corp and Sembcorp Maine went south hitting below $4 and $1.50 respectively. When the oil price went up again to US$90-$100 per barrel between mid-2012 to mid-2014, their share price again swung up. This time, Keppel Corp share price held steadier at around $10, while Sembcorp Marine share price exhibited more volatility as it has other marine related segments that were also going through a very trying period. But when the oil price crashed once again from more than $100 in mid-2014 to less than $30 in January 2016, we again witnessed the crash in the share price of Keppel Corp from above $10 to less than $5 and that of Sembcorp Marine from more than $4 to less than $1.50 per share. At the moment, the oil price is about $45 per barrel and share price of Keppel Corp and Sembcorp Marine have since advanced respectively to above $6 and $1.60 per share. To sum up it up, the stock prices of these two companies bear very close co-relation with the crude oil price even to this very day.

Unfortunately, for Keppel Corp, Sembcorp Marine together with about 20 or so offshore marine related companies, they have no control over the oil price. In other words, these companies are price takers. Their businesses are tied to the price of oil, but they have no influence over it. Then, of course, this begs the next question – when can we expect the oil price to go back to its glory days of more than $100 per barrel? Frankly, I do not know as I do not have a crystal ball to tell the future. It also means that many others out there do not know the answer as well. As I had mentioned in my recent talk organized by InvestingNote recently, in order to be a big winner in stocks we need to be ahead of the others on the winning side of the curve.  This means that we have to look beyond the present situation and make a calculated guess of the future using the present data.  We may be right, we may be wrong but a calculated guess substantiated with some critical metrics and data would help us reduce the risk of being at the wrong side of the curve than not to do any homework at all.


As we know, oil prices, just like prices of any other commodities, depends on its demand and supply.  On the demand side, it takes a huge global demand to push up the price of oil. It can be a long-drawn war or a huge industrialization leap. All these did not take place in the last ten years. Huge oil hoarding can complicate the demand scenario as well, but ultimately there is still a need for real demand in order to push up oil prices over a longer period. Even with the Chinese economy normalizing after the global financial crisis, the oil price did not seem to show any significant change. Right now, we have gone past the industrial age in the last century and entered into the information age. So, it also means that advancement in economies is not driven so much by oil demand.  That said, it does not mean that the total global demand for oil has dropped compared to that of 20-30 years ago. On the contrary, I think global demand could have increased during all these years as more economies with huge population size opened up. What created a ceiling in the oil price lies more likely on the supply side. Over the past 30 years or so, a lot of progress has been made in harnessing alternative energies. That takes a chunk off the demand for fossil fuel.  And unlike 20-30 years ago, when crude oil is extracted either via oil wells onshore or via oil rigs offshore, a new extraction technique has begun to muscle its way into the oil extraction scene. Shale oil extraction, which we have not heard about 20 years ago, is slowly elbowing out the more expensive offshore extraction using oil rigs. In fact, the technological advancement in shale oil extraction has made it gradually cheaper. Just 10 years ago, the break even cost was between $65 and $70 per barrel, and, by now, if the oil price reaches $60 per barrel or even lower, it would have made shale oil a flourishing trade. Franking speaking, oil shale technology is not really a modern technique. The exploration was as early as in the 1980s, but the environmental issues and the low oil price during the 1990s made it temporarily shelved. It was then re-harnessed when the oil price started to climb more than 10 years ago. In fact, this oil extraction technique has made US, the world largest crude oil user, to reverse from a net oil importer to a net oil exporter. This could also be the explanation for the glut situation recently. As such, super oil tankers have to be used to store the crude oil and park offshore in hope of better oil price in the future.


Perhaps, the share prices of Keppel Corp and Sembcorp Marine as well as the peripheral companies may have met their lows recently, it cannot be said that their share price would drastically go up anytime soon. Unless the demand or supply situation changes so drastically beyond our imagination in the foreseeable future, it is difficult to envisage a huge demand for oil rigs. Their share prices may continue oscillate according to the oil price, but big leaps in their share price still depend on the how convincing is the demand is for oil rigs. As a matter of opinion, it may not happen in the next few months or even the next 1-2 years down the road. Hopefully, I am wrong coming from an investor’s point or view, but right from a consumer’s point of view.


Brennen has been investing in the stock market for 27 years. He trains occasionally and is a managing partner for BP Wealth Learning Centre. He is also the author of the book – “Building Wealth Together Through Stocks” which is available in both soft and hardcopy.


Singapore Airlines

It has been known in the investing world that Singapore Airlines suffered a significant operating loss of $138m in the last quarter of its financial year 2016/2017. The overall profit fell to $360m, a drop of 55.2% compared to the last financial year. In fact, the current fate of SIA’s loss was already imminent some years ago.


Let us start by looking at the aviation scene 20 to 30 years ago in the 80s and 90s. During those days, there were no Chinese airlines or gulf airlines vying for almost the same international routes across continents. As a result, airlines like SIA, Cathay Pacific and Swiss Air were able to make their names in the aviation world. Now with airlines from the gulf such as Qatar Airways and Emirates Airlines, the routes that SIA used to fly to Europe or plying between Europe and Australia/New Zealand are immensely under threat. We all know that the fuel cost is the biggest cost driver for airlines. It takes up easily about 30%-40% of the total operating cost. With their cost of fuel almost the same as that of drinking water (maybe exaggerating!) in those oil producing countries, SIA is definitely in a disadvantaged position.  Every single drop of aircraft fuel used by SIA has to be either hedged or buy via the spot market.  Hedging, by itself, is a double edge sword. It can help make or break the bottom-line of the airline.


Next is the competition from the Chinese airlines. With a deep hinterland, an extremely huge population and a leaping economic progress, we can be very sure that the domestic airline industry will advance by leaps and bounds. After all, what will stop them from extending their tentacles into international routes? The experience gained from plying international routes would help improve their services for the domestic routes. In fact, even their compatriot, Cathay Pacific, has not been spared.  For last financial year, Cathay Pacific suffered a loss of HK3billion. And, only just a few days ago, Cathay Pacific divulged plans to let go about 600 staff.


The developments in these two parts of the world have indeed put SIA in a ‘sandwich’ position, eking out SIA’s previous dominance. The profitable stretch from Europe to Australia/New Zealand has to be shared by these competing airlines. In fact, they are not the only ones eyeing these routes. Several airlines in Asean region such as Thai Airways, Malaysian Airlines and the Australian Airlines such Qantas have their interest this profitable stretch as well. That sums up the competitive environment in the premium airline segment.


Then there is also a huge competition from the budget airlines. About 10 to 15 years ago, we did not hear much about budget airlines. But by now, we can almost find one budget airline for every one national carrier. The no-frill segment is indeed another dog-eat-dog sector. During times when there was no budget airline, premium airlines were able to profit significantly when oil prices were at their lows. However, it is no longer the case now. When the oil price is low, we see more budget airline in operation, thus eking out the profits once enjoyed by premium airlines.               

Frankly, if we follow Michael Porter’s theory on competitive advantage, we should realize that SIA’s competitive advantage may be slowly ebbing. Relying on intangible factors, such as services and branding, may not be exactly useful because, given time, good services can be trained and branding can be developed. In other words, the economic moat developed by SIA in the past 20-30 years is in effect weakening.  

On the cost structure, the operating leverage on airline industry is very high. It is tantamount to operating an oil refinery or in exploration/mining industries. Before the company can start to produce the first unit of the product, it has to invest significantly in the fixed cost. Similarly for an airline operation, before it can start to carry the first passenger, there is a need for heavy investments in the upfront. A decent passenger liner would easily cost US$200m. We are not even talking about the B777-300ERs or A380s class, which are north of US$300m. While the high operating leverage forms a barrier for new entries, it also means a huge challenge for an airline to be profitable. To operate a decent fleet, we are pretty sure that the airline cannot escape from not getting into debts even with a huge war-chest. Furthermore, passenger and cargo load factors have to be consistently maintained at  high levels and close to their full capacity to ensure sustainable profitability.


Then we have the changing lifestyles among travelers. Air travel is no longer considered as luxury lifestyles whereby travelers are willing to pay a premium for it. It may be seen as a means of getting from point A to point B on different parts of the world. In fact, there may be people willing to spend more for longer stays or paying more for a more luxurious experience on land than probably on air. When the global economy gets worse, business travel budget gets the cut straight away and travelers downgrade abruptly. When a region is hit by epidemics such as SARS or avian flu, or natural disasters such as earth-quakes or political turmoil, air travels to the affected regions are curtailed immediately.       

Certainly, there are just too many unknowns facing airline industries. It is not an area that we could understand fully as a simple investor. Frankly, as an individual, I like to travel on SIA. At least, I am confident that I will reach my destination safely and on time based on its past travelling records. After all, it is our national carrier. If we do not support it, then who will, right? However, to invest in the stock as an investor is another consideration.

Since the last sale of my final 1000 shares at $12.62 in June 2009, I have yet to make any purchase of SIA shares till now. In fact that sale was a loss for me even though I had profited from earlier trades such as selling at prices between $17.50 and $19.00 per share in 2007. In hindsight, it was a blessing in disguise to have sold the last board lot (previously one board lot was 1,000 shares) considering that the price has fallen below $10 per share today. That said, I am not ready to buy them back considering its dicey future.

Disclaimer – The author is no expert in market research for airlines. The above information is based on his opinion and information that he gather through literatures as an investor. It is also not buy or sell recommendation on the stock.

Brennen has been investing in the stock market for 27 years. He trains occasionally and is a managing partner for BP Wealth Learning Centre. He is also the author of the book – “Building Wealth Together Through Stocks” which is available in both soft and hardcopy. Analyses of some individual stocks can be found in bpwlc.usefedora.com. Registration is free.

Further Readings:



OUE, Capitaland, City Development

During times when there are impending interest rate hikes, the property counters almost always respond with a downward trend. We all know that it is a no-brainer response. In the last few months, we have also been bombarded with pockets of news that there will be three interest rate hikes in the year alone. Certainly, the local interest rates, Swap offer Rate (SOR) and Singapore Interbank Offered Rate (SIBOR) that track the US interest rates will also follow suit. Given that they are the benchmark rates for housing and business loans, it is only a matter of time that the local interest rates will rise as well. Of course, a rising interest rate would not be good for property related companies. But recently, it appeared that the stock prices of many developer property counters were making at least their 12-months high.

Just look at the chart of the several developers.  City development share price closed at $9.48 today, but for the whole of 2016, the share price had been less than $9 per share. As its worst, it was even below $7.00 per share. Similarly, the share price of Capitaland ended today at $3.65, but for the whole of 2016 and even into the last quarter of 2015, the share price did not even pass $3.20. Only on some isolated occasions, the share price went above $3.20 momentarily, but only to drop back below $3.20. In fact, during this period of 15 months or so, it had been so range-bound that one could have made some trading gains by buying below $3.00 and selling at $3.20 earning about 8% to 10% in the process. Same story goes to OUE, it had been staying below $1.80 for the whole of 2016. Today, it ended at $1.96 per share.


Now the question is why are share prices of these counters defying gravity in spite of the fact that there would be likely three interest rate hikes. First, of course, the market tends to react very quickly, often without rationality, to market news – Sell first, then talk later. The news about interest rate hikes is not new. It was conceived as early as in May 2013 when the previous FED chair, Mr Ben Bernanke, first spoken about it although there wasn’t much conviction at that time. For nearly four years, there were a few scares, but in reality, there were only two hikes. But that was good enough to suppress the property stock prices as it was always uncertain when the next interest rate hike would come. While the downward trend remains relatively orderly, nobody wants to buy them for fear of being caught on the wrong side of the curve. Perhaps, it is a matter of undershoot, as mentioned in my book. The general pessimism was further depressed with the local long-drawn property curbs.

However, the recent financial results of these companies seemed to change all that. The generally good results suggested that the situation was probably not as bad as anticipated. Well, as we know, aircraft do not crash on ground. The market started to realize that their 2016 performance justify a higher valuation after all. It is one of the situations that the market can sometimes be very wrong for a long time. But does that mean that share price will continue to be at this level? Well, not quite. As the days draw nearer to a hike, there is a good chance that there will again be a fall in the stock price in anticipation of the hike. That’s why stock prices movement can never be in a straight line. Today’s slight fall may be the beginning of that as there are no more uncertainties from now till the nearest interest rate hike. Meanwhile, enjoy the rising tide.         

Brennen has been investing in the stock market for 27 years. He trains occasionally and is a managing partner for BP Wealth Learning Centre. He is also the author of the book – “Building Wealth Together Through Stocks” which is available in both soft and hardcopy.