Sinopipe AGM and Experience with S Chips

I have recently went to the AGM of Sinopipe at Lion Industrial Building which is around Paya Lebar area. This counter is one of my "tuition fees" in the equity markets as like many other S-Chips, it is still suspended but at least they do come up with an AGM which I hope it would be a positive signal that it would not be a total write off. The other heavy "tuition fees" in my investment journey is the previous China Enersave which is now called YHM. With the huge dilution from the issue of new shares, it as good as a total write off. You could by now realise that my heavy "tuition fees" are both S Chips (China Enersave is not really a S-Chip but their business are in China) and not surprisingly, I have totally given up hope on this sector. 

Just some background of what led to this investment,  it is in the pipe making business and with China's urbanisation and infrastructure needs, it seems to be a viable good growth industry to be operating. Moreover, their Price Earnings Ratio was just around 5 and with Net Asset Value of 50 cents. So getting it at around 20 plus cents seems like a good proposition with a margin of safety. Furthermore, one of my clients did mention to me that he is using Sinopipe products in Singapore and find the quality is not too bad.

For those who can recall, the S Chips sector was a value investor's paradise, with counters such as China Hongxin trading at below their cash holdings and many meeting Benjamin Graham stringent requirement of having their current asset more than their total liabilities. Also, many have fallen from their lofty highs of 2 dollars plus to their current price level of below 20 cents. During that period, I was also vested in counters such as China Farm and China Paper which I managed to get out in time with profits on hand. 

However, I failed to take into account or did not placed huge emphasis on corporate governance and think this is a situation of at least a "one bagger" opportunity. For Sinopipe, it has given out generous dividend which give me more confidence of the management and their corporate governance structure. It was around 10 percent or 2 cents per share. I was thinking this could be the "Special One" and even the CEO was saying that we should not "Taint all Ships with a Brush". Thinking back, what a Classic!

So my lesson from this is that unless there are really solid institutional investors backing such as GIC or Temasek (China Minzhong), we should avoid S chips as those Top Notch China Companies would try to list in Hong Kong first.

Back to the AGM, the room it was held was sort of a training room. There were around 10 shareholders who attended. As my shares are brought using CPF and am not entitled to attend, so I got a proxy from another investor, Sadly, they did not received the proxy form and so I ended up as an observer and was unable to ask any questions.

I can feel the tension in the air as the shareholders started questioning the directors about the accounting irregularities and the status of their previous CEO who was the cause of the current predicament. Surprisingly, he was still under the director list but as expected, he was not present for the AGM,

I am really stunned that this previous CEO, Chen Lihui, is still conducting business and making deals with his newly formed company. Don't they have laws in china to bring such errant executives to task?

Currently, their new CEO, Dr Pu Weidong, is also one of the biggest shareholder through his investment holding company (Triumpus Capital). So I guess he is trying his very best not to let this investment be a total write off for himself. Their current chairman, Wang Sen, is just 38 years of age which the other directors highlighted that he has the right connections to get things done in China. When i try to google about the companies he is involved in, I don't seem to find anything hmmmm.

With the restated accounts after taking into consideration of the account irregularities, they are making losses for 2010 and heavier losses in  2011. The audited 2012 results will be out by October 2013. Current NAV stands at around 0.12 Sgd from the previous 0.5 Sgd. Ouch!

For those who are interested in the numbers, you can check out their annual reports and learn a lesson or two from "creative accounting": http://www.sgx.com/wps/portal/sgxweb/home/company_disclosure/annual_financial

The current directors plan is to stabilise the ship which should take at least a year and once things are back to normal, they will re-list the company. I certainly hope they are able to do so but chances are slim till I could see they are starting to turn in profits.

I would also like to highlight that that they have actually proposed an  increase in director fees by almost one fold from 100k plus to 200k plus giving the reasons that there are more directors and the transition phase is tedious and time consuming for the directors. Really BS! 

Nonetheless, I wish Dr Pu and his team all the best in turning over this company.

Lee

Art of the Trade

 This is a reprint of "Dancing with Lions" where the author was using an anonymous identity then in 1999. Basically, this book is more on the storytelling rather than teaching you how to trade. I believe the author is coming out of his anonymous identity because he is currently giving seminars to teach people how to trade :).

This is an interesting read if you do not have much expectation as it depicts the life of a commodity broker which is something out of the movie "Boiler Room". It reminds me of the days of the "White House" in Tanjong Pager where all the bucket shops are located.  They will entice people to go for their career talks which promised high hourly pay. Their main motive was of course to persuade you to invest so that they can churn you till you are totally depleted. I have been through the career talk but have never invest as how much can a student looking for a holiday job have?

The book does touched on the emotional side of trading as in how to handle losses and the common risk management concept. Overall, it is not spectacular but could be a book you could bring to a holiday trip. You could finish the book in one to two seating.

Lee

PRIMARY ONE REGISTRATION (UPDATE)

This is an update of the primary one registration status which I have written earlier here. We are so glad that we have managed to get in through Phase 2B without any ballot.

Based on historical records, this was a "given" situation especially if you are staying within 1 km. However, this year the competition is intense and we almost have to go into ballot till someone finally withdraw at the last minute. Thou even if there is a ballot, the probability would be really high but we could end up being the few unlucky ones and we have totally no backup plans. Going into Phase 2C would be really competitive, we are looking at a 2 for 1 situation.

The wait for the result was quite nerve whacking as some of my grassroots friends can't even sleep or even have to take fever medicine during the course of the process. Therefore, we can empathise with those currently waiting for the results for phase 2C and we wish you could be as fortunate as us not to go through  the ballot process. Even if there is a ballot, we wish you lots of luck.

We are just thankful that our efforts have been rewarded.

Lee

Lords Of Finance

I picked up this book from a bookstore in mid valley, Kuala Lumpur during one of our short getaways. Being an avid follower of financial history, I hope this book will be give me a better understanding of the causes for the Great Depression. The Lords that the book are referring to are mainly the central bankers of that era and they are Montagu Norman (U.K.), Benjamin Strong ( U.S.), Hjalmar Schacht (Germany) and Emile Moreau (France).

During those days, they are still on a gold standard and so it restrict the flexibility they will have in implementing policies during extreme scenarios. Moreover, all the european major economies were in debt to the US due to the war expenses. Some countries did break away from the gold standard and they fare better than those who stick on to it.

There are also quantitative easing of their kind during those turbulent period which I guess Bernanke might have learn a trick or two from his predecessors. The book also touched on famous personalities such as Winston Churchill, Maynard Keynes and Andrew Mellon.

Towards the end, the book touched on the eventual formulation of the Bretton Woods Treaty which is a modified and more flexible gold standard which lasted from the 1940s to early 1970s.

For financial history fans, this is a book that will be good for your collection.

Lee

My Take on Buy Term Insurance and Invest the Rest

The "Buy Term and Invest the Rest" concept has been around for many years and it is not something new. The main model behind this concept is to split the protection/insurance needs from your investment for retirement goals needs.

Insurance companies have try to bundle these two needs into investment linked plans whereby you will get protection and at the same time you are invested in unit trusts based on your risk profile. However, the charges such as sales charges and administrative fees could be quite huge relatively to if you do it on your own (Buying term insurance and investing in unit trust on your own). Therefore, it is not surprising that some insurance agents were pushing aggressively for Investment Linked Plans (ILP) to their less savvy clients as commissions are the greatest.

Insurance companies also offered other savings plans such as Endowment and Whole Life Plans whereby the insurance company will be in charge of investing the funds and generating decent returns for the policy holders. Majority of the funds will be usually invested in long term bonds. We will like to look at the track record and payout history of the separate insurance companies to have a gauge which company plans to choose (Thou historical record is not illustrative of future payout but at least it provide some sort of comparison and guidance).

Personally, we do not believe in an extreme buy term and invest the rest concept as we feel endowment and whole life plans adds a good dimension to your overall financial plans. It is a good way to force yourself to save and there is no temptation to dip into your investments for lifestyle needs.

For my own investment and protection needs, this is what we have planned. For protection needs, we have brought the SAF Aviva Group Insurance for both Death and Critical Illness as their premiums are really competitive. Also, we took up some SAF NTUC Group Insurance Plans. We have also taken up a mortgage declining insurance for our home loan with the bank. Not forgetting the usual health care insurance which we used our Medisave to pay for and using cash to pay for the excess waiver.These are basically term insurance.

For my kid's education needs, we have brought endowment plans that are due when they are about to go for their university education. So far Tokio Marine(Previously Asia Life) seems to have the best track record based on our comparison. However, we did diversify our plans and so we are holding policies with Tokio Marine, Manulife and NTUC Income for their education needs.

For my retirement funds goals, I am trying to segregate them into 3 sections.

1) My SRS is used mainly to build up a unit trust portfolio with some SGX listed Exchange Traded Funds as we are not able to invest in US based Exchange Traded Funds using SRS.

2) For my cash holdings, I am using it to build a portfolio of stocks. Also, if an opportunity presents itself, I will use it to pay for another property's down payment.

3) As for my CPF, I am using it mainly to pay off my mortgage and if there are excess, I will do some investments either through unit trust or exchange traded funds.

So hope my plans will work out fine and I will have a great retirement(Still a Long Way) with no worries about my finances.

Lee