Will Country Garden Collapse with their Debt Load?

Contributed By: The Big Fat Whale

Recent headlines from major publications such as Reuters, Bloomberg, CNA etc., have painted a bleak outlook for Country Garden. It seems to point that they would likely default on their debt which could potentially lead to a collapse of the whole company.

Country Garden was the largest real estate company in terms of sales in China last year. They generate 96% of their cashflows from real estate sales.

Headline numbers put them in debt of 196 billion US Dollars (1.4 trillion RMB). There have been also delays in the payment of interest on bonds and postponing the repayment of a key loan.

With the slowing of China's economy coupled with inflationary pressure on construction costs, it has been a tough time for China developers. Country Garden is also not in the most ideal target segment, 60% of their property projects are located in 3rd to 4th-tier cities.

This is the segment where prices have fallen the most and the target buyers have low purchasing power.

We decided to have a look at their financials to have a better sense of the situation. Before we move into the numbers, let's look at the background of Country Garden so we can paint a better narrative of their current predicament.

Background of Country Garden

Yang Guoqiang founded Country Garden in 1992 in Beijiao Town, Foshan City. He built the company from scratch, having previously worked as a farmer and on construction sites.

The company now has interests in property development, construction, fitting and decoration, property management, and hotel operations in a wide variety of global markets.

It was listed on the Stock Exchange of Hong Kong in 2007 with its annual sales exceeding RMB100 billion in 2013. The Company made it to the list of Fortune Global 500 for the first time in 2017.

In 2015, Chinese insurance giant Ping An became the second largest shareholder in Country Garden by acquiring 9.9% of the company for US$800 million.

Forest City Johor Bahru

China made up the bulk of their business with 3125 developments as compared to 31 overseas developments. But what we could relate to when we talk about Country Garden, will be their grandiose Forest City Project that is just across the Causeway in Johor Bahru, Malaysia.

Forest City is meant to be a US$ 100 billion dollars development that was hyped up to be a paradise with turtles and white-sand beaches. To date, only US$ 4.3 billion has been invested and housing less than 10,000 residents. It is a far cry from their 700,000 projection.

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Is ARM IPO Overhyped?

Contributed by: The Big Fat Whale

It has been a while since an IPO has rocked the financial markets. The ARM IPO has been the highlight since its launch last week at the price of $51. At a PE of over 100, is it worth a look at or is it simply overhyped? Let's take a closer look.

Giving some backdrop, Softbank took ARM private in 2016 at a valuation of 32 billion US dollars. Based on their listing IPO price of $51, it gives it a valuation of $54.5 billion dollars. Softbank still owns 90% of the company after this share offering.

The demand has been overwhelming with the IPO shares being ten times oversubscribed but it could be due to only 10% of the company being up for grabs. The first day gain was around 25% with the price touching $64.

 

ARM Business Model

ARM was established in 1990, Arm began as a joint venture between Acorn Computers, Apple Computer, and VLSI Technology. ARM was publicly listed on the London Stock Exchange and the Nasdaq Stock Market from 1998 until 2016 when ARM was taken private by SoftBank Group, our controlling shareholder.

"Our open and flexible business model provides access to high-quality CPU products for a wide range of potential customer types and end markets. We license our products to semiconductor companies, OEMs, and other organizations to design their chips. Our customers license our products for a fee, which gives them access to our designs and enables them to create Arm-based chips. Once a chip has been designed and manufactured with our products, we receive a per-unit royalty on substantially all chips shipped. The royalty has typically been based on a percentage of the ASP of the chip or a fixed fee per unit, and it typically increases as more Arm products are included in the chip. Our business model enables the widest range of customers to access Arm products through an agreement best suited to their particular business needs"

Source: ARM IPO Prospectus

Think of ARM as the architect or designer behind the brain of your smartphone or tablet. They create the blueprint for a type of computer chip called a "processor." This processor is like the brain of your device, handling all the calculations and tasks it needs to perform.

ARM doesn't actually make the physical chips; instead, they license their designs to other companies (like Apple, Samsung, or Qualcomm) who then manufacture the actual chips based on ARM's designs. So they will earn licensing fees for each chip that was produced.

ARM is constantly compared to Nvidia as the two forefront stocks to benefit immensely from the development of the Artificial Intelligence Industry. From what we have read, ARM is more focused on the Central Processing Unit (CPU) whereas Nvidia is focused more on the Graphic Processing Units.

Here are the differences between the two products:

• CPU: CPUs are essential for general computing tasks, running operating systems, office applications, and tasks that require precise calculations and control. They are the primary computing component in most computers.
• GPU: GPUs are essential for graphics-intensive applications, including gaming, video editing, 3D modelling, and scientific simulations. They are also increasingly used for AI and machine learning tasks due to their parallel processing capabilities.

In summary, while both the CPU and GPU are vital components of a computer, they serve different purposes and excel in specific types of tasks. CPUs are versatile and handle general computing tasks, while GPUs are specialized for graphics processing and parallel computing tasks. Many modern computers and devices use both CPUs and GPUs to optimize performance and efficiency for a wide range of applications.

A Publication By The Big Fat Whale

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Golden Village Cinemas as a Value Play?- Revisiting Investment Thesis

Contributed by: The Big Fat Whale

In an earlier article, we have covered Orange Sky Golden Harvest which is listed in Hong Kong. They are the owners of the popular Golden Village cinemas. They also have a presence in Hong Kong and Taiwan. Their latest foray is into China with a 360 theatre in Suzhou that is meant for live performance- it is able to house up to 2700 spectators.

Source: AAStocks

The stock has seen exciting movements after our article, on a quick upsurge to 18 cents in March 2023 from the 6.5 cents level. It has actually reached our target (18 cents) which was highlighted in our report. It was mainly speculative flow as it has since retreated back. The catalyst was mainly due to the newsflow that TVB is getting their stars to do live-stream sales on the Taobao online platform.

This is our recently published book where we touched on how we go about valuing stocks and our insights into the investment world. Authored by a Chartered Financial Analyst, it encompasses 2 decades of experience in the market that is condensed into this book. Hope you can lend support to our website and gain insights into the world of investment by purchasing the Kindle Ebook (Sample Copy) or the Paperback.

Loss More than Doubled

Source: Orange Sky Golden Harvest Announcement

Recently, the company has seen a further drop in prices to a low of 4.6 cents, which could be due to their latest financial results announcement. The headline number is the loss has more than doubled on a half-yearly basis.

However, the loss has more than doubled because there was a non-recurring gain in the first half of 2022 of HK$56.5 million. If we exclude the one-off gain from the disposal of office property, there was actually a 64% reduction in loss. So things are turning better from the numbers itself.

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Is it Time to buy Sea Ltd after a 90% Plunge?

Contributed by: The Big Fat Whale

There has been lots of talk about Sea among investors, especially so, with the almost 90% plunge from its peak at around $350. At its peak with a valuation north of 200 billion US dollars in late 2021, SEA dwarfs the valuation of all 3 Singapore banks combined. 

It has been a tough journey for SEA, as their valuations have taken a hit of close to 90%. With such an attention-grabbing drop, it led to us examine if SEA's current valuation is worth a look at.  SEA was highlighted in our recently published book, where it came to our attention when it was just trading at $10, but it has been a rollercoaster ride since then.

There have been many reports on SEA where they went in-depth on their business model, so we will just highlight their 3 main business which is namely: Ecommerce-Shopee, Digital Entertainment- Gaming(Garena) and Digital Financial Services- Maribank, SeaMoney etc. We will be focusing more on their outlook given what we have read so far and based on our analysis of their financial ratios.

 

Sea Financials

Stock/Price	P/E	P/B	Price/CashFlow	Price/Sales	Debt to Equity	Interest Coverage	Current Ratio	Return on Investment
Sea/37.5	86	3.5	29	1.66	74%	11	1.8	2.46%

Looking at the financial ratios of SEA, it does not seem to be a real bargain from a value investing point of view. P/E of 86 and even the price to cash flow of 28 don't look like a bargain at this juncture. However, they could just be turning around as Shopee was bleeding in the initial stages but has since managed to churn out a profit on an EBITDA basis. Do note that they were on a huge cost-cutting exercise recently which could have led to the profits in the ecommerce division.

This gives us hope that the trend will persist and with the network effect of their platform, better profitability days are ahead. Sea has been profitable on a net income basis over the last 3 quarters.

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Fiverr – Investing in the King of Platform for Freelancers

Contributed by: The Big Fat Whale

It has been a treasure-hunting time for battered growth stocks. After our previous article on Teladoc, this time round we would like to touch on Fiverr. We are trying to shortlist companies that have a proof of concept, a runway for sustainable growth and a sound business model.

Fiverr is a platform that connects freelancers with business owners looking for services in various digital projects, including website design, content writing, and voice-overs. In recent times, even artificial intelligence and data analytics is added to their portfolio of services. Their main competitor would be Upwork and Freelancer.com.

 

Growth of the Freelance Market

According to a report by Growth Market Reports, the online market was valued at USD 5.1 billion in 2022 and is expected to reach USD 18.3 billion, expanding at a CAGR of 15.1% by the end of 2031.

The market growth is attributed to the rising adoption of freelance platforms by established companies around the world increasing the talent pool for businesses and providing secured jobs and payments to freelancers.

Source: Fiverr Investor Deck

There is a huge addressable market for freelance services of 247 billion US dollars just in the US and we have not touched the other parts of the world yet which Fiverr have a foothold on. To put things in perspective, Fiverr's revenue for 2022 is just 337 million US dollars.

 

What is Going Well?

With the world moving more into an open work concept where freelancers and remote working could be part of the human resource set-up. Adding on, the migration of traditional freelancing activity to the online world is just in its infancy with a good growth runway.  The prospect of Fiverr's business model as a platform marketplace for freelancers and employers looks sustainable and viable.

Source: Fiverr Investor Deck

Also, Fiverr has one of the most recognisable brands in the freelance marketplace. Their bigger competitors are Upwork and Freelancer.com. Their growth metrics such as active buyers and spend per buyer have also been on a good upward trajectory. The average spend is 262 dollars which is lower than their main competitors as Fiverr clients are usually acquiring a one-off service rather than on a long-term project basis.

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