ShareTradeForum
Wrote by - Vincent Wong
disclaimer: I'm not professional finance advisor so don't believe everything I wrote.
Hey guys, last week good thing happened to my portfolio which is good. My fight against poverty has certainly advanced. In a good mood I decided to write in investingnote again. XD
I intended to reveal my portfolio on regular basis and calculate and conclude the performance on a yearly basis. In addition, I would like to write down my investing method and principle not only to share but to remind myself to follow them(To prevent myself from doing silly thing.).
Just sold AusGroup because its profit margin is thin and it has some risk there before they pay their huge debt maturity in FY19. Therefore the margin of safety at current price is not comparable to what I bought about a month ago.
AEM is still undervalue in my opinion despite the strong rally past few days. The reason is I believe the market is still pricing the company based on the profit generate by HDMT's machine. I however view it bit differently. I think that each machine the company deliver to Intel, they are creating a cash flow machine for themselves. There are 3 reasons why, they are
1)Most of the profit per HDMT sold is going to come from recurring consumables(kits, spares and services) which have higher profit margin.
2)Most of the profit per HDMT sold is going to come from recurring consumables(kits, spares and services) which have higher profit margin.
3)See 1) and 2)
Hopefully the sales orders they stated for this year does not include those consumables. Nevertheless, as they are still ramping up their HTMD production for intel, I think that they will have strong cash flow in the future as the consumables sales slowly build up at the same time.
Intel recently has some problem but I think that HTMD is cost cutting tool instead of some sort of investment, so I think they orders should be fine in foreseeable future.
AEM is very likely to go down because of profit taking, but it is not my game to time it and I hope I'm smart enough not to take profit trying to time the market.
Delong is a vastly undervalue company I think in the long term it is very likely to deliver huge performance.(Long term=3-5 years for me). I once hope that management will give out dividend soon so that market will recognise its value sooner but I've changed my mind. I hope they use the money instead for M&A.
Let me explain the economic and political background advantages first that makes this company attractive before valuation.
Above link is the original policy documents that are in Chinese. One of the original resource.
To makes things easy for you to read, I’m sending another link for the report on china steel sector by DBS bank.
You could download the full report at the end of the webpage. It is really worth reading if you own a steel company.
To make the long story short,
1. China government has effectively and strictly been eliminating IFF steel and cut more capacity than planned. Yes, they really being ruthless and strict this time.
2. They also emphasise that they will do everything to stop capacity to rise again. (I read some news that indicate they will even use satellite to monitor the mills.)
3. They will further eliminate the inefficient and technical sub par steel mill after they are done with those dirty steel mills.
4. They wish to stabilise the industry by enhancing industrial concentration through M&A. They would like to increase the market share of the top 10 biggest steel producer from 35% in 2015 to 60% in 2025. News says they will put in some new policies and test it out in 2018 to encourage and incentives the steel mills to merge.
In my opinion, the China’s government effectively pushing the steel price up globally and at the same time not making the cost of producing steel go up at the same pace. As a result, China steel mills in 2017 enjoy a profitable year although they are still struggling with their debt. (huge debt.)
The efficient and environmental friendly steel companies will slowly take over the less efficient one. The strict environmental policies and stricter bank lending is disadvantage to some but advantage for the few. You only find out who is swimming naked when the tide goes out, those who are wearing nice swimsuit will flex their muscle while other try to find cover.
The consolidation will benefit the whole industry, as the supply, efficiency, and quality of the steel is controlled. One belt one road will open up a lot more opportunities for China’s steel company to expand oversea in continents like Africa, South East Asia, and Middle East if they can deal with their debt in China.
Now, what if I tell you that there is a steel company that is well known among the steel industry in China for its efficiency(2017 industry net profit 4% vs Delong’s 11%. Latest quarter pretax operating margin actually is 23.97%).
and highly regard as one of the best environmental friendly steel mill.(The steel mill receive AAA tourism rating from province government.) The management and owner who is respected and reputable in China.(Ding LiGuo). Recently I saw an article from the Edge in which the Evraz's CEO said that the company fair value is between 4-5 billons USD... for now...
Thank you for the patient to read this far, hahaa
Performance
I started investing almost 2 years ago(march 2016) with almost half of my salary put into my portfolio every month. buying only one stock at that time - Best World. Lazy to calculate the average return each year(will do so in future) so I will just calculate return on invested capital for 2 years. In addition, I will use S&P 500(which is better than STI) as yardstick. and I lazy to calculate dividend, will do so in the future. Lastly I obviously can't show you the evidence so it is ok if you choose not to believe me.
Compounded return of my portfolio since March 2016 = 223.23%(excluding dividend)
Compounded return of s&p since March 2016 = 40.88% (excluding dividend)
I have luckily done well and I regard this as extraordinary and certainly do not expect it to perform at the same rate. the way i structure my portfolio might make me underperform during bull market and hugely underperform during bear market against SP500. However, I believe that in longer term(probably 3 years). I will perform better than average.
