Investing in the Cinema Business at Good Value- Orange Sky Golden Harvest

Contributed by: The Big Fat Whale

The cinema business has weathered an unprecedented crisis brought by the pandemic. The massive plunge in patrons to the cinemas has drastically fallen off the cliff with all the measures by governments to contain Covid 19. However, things seem to be picking up with an about-turn to better days with the unwinding of earlier tough measures.

From Singapore's scenario, there is now no safe distance requirement and capacity could go back to 100%. With the pent-up supply where movie companies have held back launches of their blockbusters, the return of the good old days of the cinema business could be on track.

In recent times, the screening of Top Gun (meant to be released in June 2020), Jurassic World Dominion, and the upcoming Minions- The Rise of Gru, would generate the buzz for moviegoers to revisit the cinemas and get things back to normalcy.

Given this backdrop, an investment in the cinema business would be a way to ride this recovery thesis of the sector. Moreover, we have spotted a well-known company that is trading at a deep value which provides a good margin of safety.

 

Deep Value Play

The stock that we are considering would be no other than Orange Sky Golden Harvest which is listed on the Hong Kong Stock Exchange. They are owners of the Golden Village chain of cinemas in Singapore (14 cinemas) and also have exposure to the Hong Kong (10 cinemas) and Taiwan (16 cinemas) cinema industry.

Golden Village is an iconic name in the Singapore Cinema scene with the first multiplex (Numerous cinemas) established in Singapore on 27th May 1992.

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Food Crisis and Protectionism- Boom for the Cold Storage Industry

Contributed by: The Big Fat Whale

The recent ban on exporting live chickens- 3.6 million a month- from Malaysia to Singapore has been unprecedented. It shows the vulnerabilities of the supply chain issues for a country like Singapore which is highly dependent on others for their food and energy sources.

The current situation is due to the cap by the Malaysian government on chicken prices at RM8.90 per kg since Feb 5, 2022, which has led to losses or minuscule margins for the chicken breeders. This has affected the supply of chickens as some would rather not breed given a loss-making situation where costs of breeding have shot up due to the world's inflationary environment.

The government did try to cushion and provided support to the breeders through a subsidy of RM730 million. However, to date, only RM50 million have been paid out.

The ban on Malaysia's export to Singapore could help stabilise the prices of chickens in Malaysia as there is a good possibility that prices the breeders managed to secure from Singapore would be higher than the ceiling price set by the Malaysian government.

However, if prices are not set by market forces, sustainability would be questionable, especially with subsidies not efficiently handed out.

Source: The Straits Time

From the chart above, Malaysia should form the bulk of our live chicken supply due to the geographical and logistical aspects of the supply chain. 

Going forward, with a huge dent in the supply of live chicken stocks, we might have to make do with frozen chicken till the ban eases.

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Investing in the Recovery of the Public Transport Sector- SBS Transit and Transport International

Contributed by: The Big Fat Whale

There seems to be no safe haven in this current economic landscape with runaway inflation and plunging stock prices. Gold could be one asset class to look at and digital gold- Bitcoin- seems more attuned as a speculative venture that mirrors the drop with the once-mighty growth stocks.

Despite the challenging environment, we feel that these 2 stocks should hold well and even be a beneficiary of the current woes. All of us know the prices of oil and the prices of cars in Singapore's case are shooting up. The certificate of entitlement for a car is reaching almost 72k USD in Singapore and that is even before the cost of the car is factored in. In this double whammy scenario, many could be turning to public transport.

In a discussion with a friend, he suggested for those who are used to a car, would rather dine out less so as to enjoy the convenience of having a car.  So we have different sides to the notion of the shift towards public transport. If prices remain sky-high, we believe our thesis could be the more likely scenario.

Moreover, the prices of cabs have also been rising in tandem with inflation. Nowadays, it seems hard to flag a cab and they are usually available only through the different booking platforms. A normal trip could easily top $20 nowadays where it could be in the mid-teens previously.

 

What are the 2 Stocks?

So today we are covering 2 stocks namely, Transport International and SBS Transit. They are looking attractive given the tailwinds towards their business in this current inflationary situation. It is not only recession-proof but an essential industry.

Just a brief overview of their business, both of them are in the transportation business mainly as a provider of public bus services. Transport International is also a property play (Investment Properties make up 35% of the book value- Leading Hong Kong Property Developer, Sun Hung Kai, has a 33% stake in TIH) whereas SBS Transit has the train and commercial segment (Advertisement and Rental of Shops in the Train Stations) from their managing of the North East and Downtown lines in the Singapore MRT network that have 6 lines.

Source: TIH Annual Report 2021- TIH's Property Holdings

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When to Sell Your Stocks?- Return Trip is Terrible

Contributed by: The Big Fat Whale

The bloodshed in the markets especially in the growth and technology sector has made some investors' saneness go overblown, it would further exacerbate the situation if they are on financing or borrowed funds.

As the saying goes:

"The Market moves up like climbing the stairs but comes down in an escalator"

Some of the stocks have done a return trip which is giving back all the great gains and even worse, you are underwater and in deficit. A good example will be one of Ark Investment's favourite stocks, Teladoc.

The feeling of letting go of a 3-4 bagger gain and making a loss is a terribly tough situation to handle emotionally.

 

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Recession Oncoming- Forecasted by the Inverted Yield Curve

Contributed by: The Big Fat Whale

If the financial markets have a crystal ball, it would be everyone's dream to grab hold of it.

Today, we are going to share with you, an indicator that has successfully preceded a recession since 1955 except for once in the mid-1960s. There was an economic slowdown rather than a recession but the forecasting prowess should not be undermined.

Uncannily, the latest inversion was in 2019 that preceded the market crash caused by Covid 19 in March 2020.

Source: JP Morgan Asset Management - For the 2020 recession in April, it took 8 months to recession after the inversion.

On April 1st 2022, the 2 years and 10 years of US Treasuries rate saw an inversion again. It would be foolish to ignore it given their track record of predicting a recession and economic slowdown.

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