Portfolio update - 2018 April
Finally April ended. What a relief. Relief not because my portfolio ended up green, but because it finally ended after rounds and rounds of battles. The month of April's fool turned out to be month to fell foolish, at least for me.
So the war started with trade war worry continued and hit the 'imaginary' climax when China announced retaliation on 4th April evening. That was the day the market went into deep fear and sent almost everyone into Kallang River. My portfolio dropped 5% and closed at -4%. To close at -4% at the 4th day of 4th month was indeed a great omen!
Even though US futures were indicating a 2% drop, a lot of stocks dived 5 to 10%! I found these sharp drops nonsensical, as these retracements were much more than retracements when Dow plummeted 1000 points in February. Anyway market is not a rational place, the vacuum of buying interests + stampede of traders getting out of position + deadly second wave attack (the market has already been hit hard on 3rd April) opened the gate for 'shortists' to party during that few sweet hours. (yeah only for that few hours, if they left it overnight, they would be punished heavily by the next day monster rebound gap up)
Although I was also a little shocked by the panic selling, and somewhat painful to see my portfolio value kept dropping, I still calmed myself down to execute my planned strategy: to cut the weak ones (mostly penny) and to add fire-sale bargains. This strategy was a reverse of my previous strategy and I just want to see how it turn out. Of course this is because I am still bullish on my portfolio and I believe trade war is not a real crisis.
Recap of previous battles with correction:
*First correction (2017 Nov - Dec): I cut winning stocks and the results were mixed; mostly due to all boats were lifted high during super bullish January 2018.
*Second correction (2017 Feb): I cut winning stocks and were slapped hard by earnings catalysts of those winning stocks and the continual dropping of my weaker stocks.
Stocks sold:
Overall % change after weightage: -1.2%
Overall % change after weightage: 4.3%
The -14% drop on 4th should be by far the worst 1 day % drop for AEM, and -30% drop in 12 sessions should be also the worst correction AEM has suffered. Although AEM has retraced again for typical sell on news to $6 level after results announcement, I am glad that it is still slightly above my average price. Of course if I am conservative and lock in my gain it would be perfect. But I ain't good at exit. Something that I definitely need to work on. While fighting this battle I can relate deeply with the golden cliche from WB: 'Fearful when others are greedy and greedy when others are fearful'. But the golden question to ask when you are in the eye of the storm is: 'What makes you not fearful when others are?'
Anyway, I might be simply stupid. The first thing that I feel I am foolish is that I was unprepared for earnings of companies to be released this month. I thought it should be next month since the previous quarter results was at end Feb-early Mar, using 3 month interval. Just within one month plus to two months for another quarter result? You must be kidding me. And the best part is this quarter is the only exception. (August to Nov: 3 months; Nov to Feb: 3 months; Feb to April: 2 months; April to Aug: 4 months. ) That's perhaps only shocking to me, as I only started to investing last August, coincidentally and unfortunately.
But the battle at start of the month was only a warm up to the final battles during end of the month. And the battlefield was only on local tech stocks (or manufacturing to be precise) zone. If tech bulls get bullied on the 4th, then they got slaughtered on month end especially on 26th, led by the big brother Venture and spread to other little brothers. The crack all started with Phillip Morris International reported slower growth of IQOS (which is manufactured by Venture), and TSMC trimming full year revenue estimate on weaker smartphone demand has added to the negative sentiment towards the tech stocks. I can't be more amazed by the self-induced localized down-volatility experienced by tech stocks.
If AEM was a battle that I chose and fought relatively well, the following three battles were mostly badly fought.
Battle 1: Not cutting loss for Gloomydale Tech.
After a disappointing earnings results due to forex, gloomydale opened on 24th April at $1.58, down 13 pips or 8.6% from previous close. I thought it was already a huge gap down and unwilling to cut loss at that price, only to be brutally KO / KR day by day. A very costly mistake. A very badly fought battle. Unwilling to cut loss for a weak stock in a weak sentiment is bad. I can't help to but keep grilling myself to take this as important lesson and extract as much non-monetary usefulness from it.
Cruel me: So why did you buy gloomydale in the first place?
Fool me: I thought among tech stocks, it is the laggard and has decent PE and PB close to 1; so despite its previous quarter earnings disappointment due to forex, I bought small portion when they rose from the bottom.
Cruel me: So did you expect they would be hit by forex this quarter also? Isn't that something that you can study and estimate?
Fool me: Yeah but I am lazy to spend the extra efforts for small holding.
Cruel me: Small holding but big loss, which is just nice to cancel out all your hard-fought gains of big holdings.
Fool me: Yeah I didn't expect the holes can burn until so big.
Wise me: Since you have been burnt once, take it with you and don't ever forget this. From this, you should learn that:
- If you can't take care of the stock due to too many positions or too little sizing, just don't buy.
- Kill the stock first before consider buying, you should consider first on the downside (risk) rather than the upside (gain). In this case, your mindful ignorance to the effects of forex and laziness kill yourself. Kill the stock first, or else get killed by the market.
Anyway, come to think of it, I shouldn't be bothered much or feel upset about the landsliding of gloomydale's price, because if I don't hold it in the first place, wouldn't it become a golden chance to load it up cheap? This is just two sides of the same coin, depending on whether you are holding it or not. And given that I am so inclined to bottom fishing, I shouldn't be complaining about all these 'irrational landslides of price'. Because without all these seemingly 'irrationality', I wouldn't be able to gain in the stock market. Of course it is painful if I happens to hold stocks that gone into irrational slide, but that's the game I must learn how to play. Since I like to play one side of the game, I should polish my game skills for the other side. Don't be penny wise pound foolish when fighting this type of battle again.
And there is another important realization. Despises all these extreme price fluctuation, I shall not develop any unfounded bias and emotions about Mr.Market.
- 'Walao, another BB pump and dump' [Not every stock is a tightly controlled stock...]
- 'Damn all those shortists!' [Shortists' time is short too]
- 'Why is the market so irrational!?' [Is market known to be rational?]
- 'Why don't BB come and support the price?' [BB also want to collect cheap cheap ok...]
- 'Crazy la, how can the price drop so much?' [Stock market is for crazy people...]
- 'Price falls so much already so it's very cheap now' [Cheap or not cheap, should be relative to value, not historical price]
Once developed, these biases and emotions could seriously hamper my rationality in turbulent times and forced me to swing with irrational Mr.Market. By agreeing with irrational Mr.Market, I am falling into the following thinking:
- Price is absolutely related to value, and price movement absolutely tracks changes in fundamentals.
- You can beat the market by following the herd, or worse, the panic herd.
Battle 2: Save the big brother - Venture
Ok so the big brother has been smoked down by slower growth of fake smoke (IQOS) and smoke screen article by a cheapskate short-seller. Wary of receiving falling knife and also price didn't fall to my target, I didn't went in 20th when it first fell, but bought my first batch at $23.75 on 24th and $22.76 on 25th, hoping for a good earnings that could trigger a price rebound. As I deemed the % fall has exceeded the possible earnings drop caused by the PMI's earnings miss. Unfortunately despite decent results (slight earning miss from analyst's rosy consensus), the price continued to slide the next day where I missed to buy at the bottom of $20 where it got strong support, but at $21.04; making my average price $22.60.
This was a battle that could have been fought much better, as I noticed that a lot of sharp and experienced traders and investors have fought it better. But how is a question mark. Perhaps be a little bit more patient, because opportunities are plenty in weak environment. But I guess with more battle experiences, I will have better sense. Anyway, the key thing is, this is the price I am comfortable holding it, so I went for it.
Battle 3: Blown myself together with the blown LED - Valuetronics
Alright. This is how not to fight a battle. Focusing too much on the sell down aura around tech stocks, I was surprised by the sudden fall of Valuetronics and took the bait at $0.8; only to be surprised that the fall was due to a real cause: the earning miss from Philips Lighting due to Home business where Valuetronics supplies smart LED to.
Personally I really regret this transaction, or even hate it. No matter how the results will turn out in the future, this is really how not to fight a battle. Shooting without knowing the real enemy and wasting precious bullets. Don't jump onto fire-sale without knowing the source of fire. This is a very straightforward discipline that I have been observing, but unfortunately broke down amidst the tech sell down. There's no smoke without fire.
So following the jaw dropping 17% nosedive on 26th, it slides 8% further on 27th, to close at $0.68. It touched bottom of $0.64 briefly. And I topped up a little more at $0.68. This price is the price I am comfortable holding after accessing the situation. Not $0.80. I could have fought this battle wisely if I have not committed my foolish mistakes first. Nonetheless, this serves as an important lesson for me. I shall never do it again. Just want to emphasize it, there's simply no smoke without fire.
Ok enough whining. Let's have some numbers for my noob analysis. Compiling from all analyst reports and company annoucements:
- Top four customers account for 70% of sales, where Philip Lighting is responsible for 20-25%.
- Valuetronics revenues are contributed by ICE and CE quite evenly. CE businesses consists of Lighting and Consumer Lifestyle. Main customer for Consumer lifestyle is also Philips, but different entity (Philips Consumer Lifestyle). Products of consumer lifestyle is like PCBA for shavers and electric toothbrushes. These part of revenues are more or less stable.
- The main growth in CE business is driven by Lighting where they exited mass LED business in 2016 and started to provide smart LED with IOT features. The new business started to contribute to revenue in 2018Q1 of Valuetronics.
- Table below lists the revenues of Home business of Philip Lighting and CE business of Valuetronics. Philip Lighting just streamlined revenues reporting for each division in this latest quarter (2018Q1) and Home business now is mainly about the smart LED systems; which makes comparing apple to apple possible.
We can see that the smart LED business started to pick up in 2017Q3/2018Q2. And similar growth in both companies beginning from that quarter implied that Philips Home sales directly contributed to the growth of Valuetronics CE.
- So let's assume consumer lifestyle contributes about half of the revenues of CE, before the growth of LED sales, which is about 160 mil HKD.
- In the latest Philips Lightning earnings, its Home division only recorded 92mil EURO sales, which spooked the market and triggered the panic sell. Assuming this would be directly reflected in Valuetronics next quarter earnings, working by proportion, it would only contribute 138mil HKD.
So in total, CE revenues would around 300 mil HKD. Together with projected 400mil from ICE business, Valuetronics would record 700 mil HKD revenues, somewhat 18% less than projected revenues of 850 mil HKD sales (just my estimate figure based on analyst reports with TP of $1.10).
Let's use a more conservative TP of $1.00, and takes 18% off from it which gives a new TP of $0.81. This TP assumes the future sales of smart LED by Philips Home stays at this level. However, from Philips' report, it was stated that the drop of sales was due to an inventory build-up at its trading partners during 4Q17. They expects this issue to linger until 2Q18, before a strong recovery commences in 2H18.
In simpler words, they overstock and oversell it during festive seasons, so now the sales has fallen back to a lower level. The average sales of five quarter is still about 120mil EURO per quarter, which translates to average revenue of
- 180 mil HKD from Philips Lighting
- add 160 mil HKD to form 340mil HKD for CE business
- add 400 mil HKD to form 740mil HKD for Valuetronics, which is about 13% fall of revenues; which gives TP of $0.87.
But that's assuming the smart LED business wouldn't grow, which is a bit unlikely. They may not grow at a rosy CAGR of 20-30%, but maybe 5-10%? That's not an unlikely scenario. So after this temporary speed bump, the growth will resume. At current price of $0.68, that represents 22% of discount to $0.87.
22% of MOS (maybe I shouldn't use the term MOS here since my TP is not based on intrinsic value, but yeah let me abuse the term here) on a growing company on exciting growth drivers (IoT, connectivity) that is zero debt, cash rich (108mil cash vs 291mil market cap as of now), with decent future dividend yield of 5-7% (depending of price), and also proven track record since 2007. I think this is really a good deal.
Other analysts have painted a much rosier picture despite the news, but I am surprised that they didn't cut the TP.
KE expects 10% impact on revenue and only 1.6% impact on EPS as smart LED is a lower-margin product. So my noob analysis on revenues impact are more or less similar, but they have further insights on margin, which provides another layer of MOS, though I think only 1.6% drop of earnings is a bit too ideal.
https://research.sginvestors.io/2018/04/valuetronics-value-sp-maybank-kim-eng-2018-04-27.html
CIMB maintains TP on the basis that market penetration of of smart home lighting is still low especially outside of US.
https://research.sginvestors.io/2018/04/valuetronics-holdings-ltd-cimb-research-2018-04-27.html
Summary:
To facilitate the ammo for battles, I have exited Chip Eng Seng with 3.4% gain and Cityneon without gain; which makes my portfolio now super tech-heavy (50%) with AEM (22% @ avg price 5.93), Venture (11% @ 22.63), Valuetronics (10% @0.76), Memtech (5% @1.53), Sunningdale Tech (3% @don't mention it). It may seem dangerous given the negative sentiments surrounded tech stocks now, which they might suffer further sell down; but I am optimistic about their fundamentals, their growth, and my holding price. When most people avoid tech it may seem foolish for me to double up on tech. Let's see if I turn out to be a real fool or not.
This is the 3rd month I have under-performed the STI or the 3 banks, and the first month my portfolio ended red. My portfolio changed from +3.7% to -1.27%, recorded a 5% drop for the month; while STI advanced 185.96 points to close at 3613.93, posting a strong 5.4% gain. By sinking into red, I know I must have also under-performed a lot of people: smart traders, great trend riders, sharp investors, steady investors that invest into REITS and defensive stocks, and a lot more...
So despite growing knowledge and experience, my money are not growing; unlike where in last year when I was still amateurish but yet making money. That is sort of morale-deflating, but in turbulent times like this, I know I would be killed harder if I were last year's me. So why don't I just exit the market or simply buy good REITS? Because I want to stay in the market to hone my insights on market psychology, and put my ideas, valuation, decision and strategies to test. Through all these battles, I discovered my propensity, weaknesses, unwise decisions, superficial logics and bad habits; which is important.
First thing first, let's kill all the bad habits. Then work on weaknesses (exits, lack of complementary weapon). Then review few months later on these battles on hindsight to see what I could have done better. But one thing seems to be common for all bottom fishing battles are: I could have won much more if I had wait a little longer, and strike a lot harder. Will experience helps?
So the war started with trade war worry continued and hit the 'imaginary' climax when China announced retaliation on 4th April evening. That was the day the market went into deep fear and sent almost everyone into Kallang River. My portfolio dropped 5% and closed at -4%. To close at -4% at the 4th day of 4th month was indeed a great omen!
Even though US futures were indicating a 2% drop, a lot of stocks dived 5 to 10%! I found these sharp drops nonsensical, as these retracements were much more than retracements when Dow plummeted 1000 points in February. Anyway market is not a rational place, the vacuum of buying interests + stampede of traders getting out of position + deadly second wave attack (the market has already been hit hard on 3rd April) opened the gate for 'shortists' to party during that few sweet hours. (yeah only for that few hours, if they left it overnight, they would be punished heavily by the next day monster rebound gap up)
Although I was also a little shocked by the panic selling, and somewhat painful to see my portfolio value kept dropping, I still calmed myself down to execute my planned strategy: to cut the weak ones (mostly penny) and to add fire-sale bargains. This strategy was a reverse of my previous strategy and I just want to see how it turn out. Of course this is because I am still bullish on my portfolio and I believe trade war is not a real crisis.
Recap of previous battles with correction:
*First correction (2017 Nov - Dec): I cut winning stocks and the results were mixed; mostly due to all boats were lifted high during super bullish January 2018.
*Second correction (2017 Feb): I cut winning stocks and were slapped hard by earnings catalysts of those winning stocks and the continual dropping of my weaker stocks.
Stocks sold:
| ( Price sold ) | ( Price at 30th April ) | ( % change ) | |
|---|---|---|---|
| Capital World | 0.073 | 0.065 | -11.0% |
Trendlines
| 0.122 | 0.128 | 4.9% |
China Star Food
| 0.066 | 0.064 | -3.0% |
YZJ
| 1.15 | 1.17 |
1.7%
|
Stocks bought:
| (Price bought - average ) | ( Price at 30th April ) | (% change) | |
|---|---|---|---|
| Alliance Mineral | 0.365 | 0.36 | -1.4% |
| AEM | 6.058 | 6.1 | 0.7% |
| AEM | 5.358 | 6.1 | 13.8% |
With these, I have increased the weightage of AEM from 5% to 20%+, overtaking AMAL as my top holdings. So now my top holdings are really 'AA' stocks, literally and figuratively. The best thing is after I scaled up AEM heavily, they announced a sales order increase THE NEXT DAY! A perfect redemption of previous guidance miss. Simply love their perfect-than-schedule timing. Anyway, to illustrate how ridiculous the sharp fall was on 3rd and 4th of April, I have checked the chart back to last year and put it as comparison (Please zoom in if you can't see the % clearly).
The -14% drop on 4th should be by far the worst 1 day % drop for AEM, and -30% drop in 12 sessions should be also the worst correction AEM has suffered. Although AEM has retraced again for typical sell on news to $6 level after results announcement, I am glad that it is still slightly above my average price. Of course if I am conservative and lock in my gain it would be perfect. But I ain't good at exit. Something that I definitely need to work on. While fighting this battle I can relate deeply with the golden cliche from WB: 'Fearful when others are greedy and greedy when others are fearful'. But the golden question to ask when you are in the eye of the storm is: 'What makes you not fearful when others are?'
But the battle at start of the month was only a warm up to the final battles during end of the month. And the battlefield was only on local tech stocks (or manufacturing to be precise) zone. If tech bulls get bullied on the 4th, then they got slaughtered on month end especially on 26th, led by the big brother Venture and spread to other little brothers. The crack all started with Phillip Morris International reported slower growth of IQOS (which is manufactured by Venture), and TSMC trimming full year revenue estimate on weaker smartphone demand has added to the negative sentiment towards the tech stocks. I can't be more amazed by the self-induced localized down-volatility experienced by tech stocks.
If AEM was a battle that I chose and fought relatively well, the following three battles were mostly badly fought.
Battle 1: Not cutting loss for Gloomydale Tech.
After a disappointing earnings results due to forex, gloomydale opened on 24th April at $1.58, down 13 pips or 8.6% from previous close. I thought it was already a huge gap down and unwilling to cut loss at that price, only to be brutally KO / KR day by day. A very costly mistake. A very badly fought battle. Unwilling to cut loss for a weak stock in a weak sentiment is bad. I can't help to but keep grilling myself to take this as important lesson and extract as much non-monetary usefulness from it.
Cruel me: So why did you buy gloomydale in the first place?
Fool me: I thought among tech stocks, it is the laggard and has decent PE and PB close to 1; so despite its previous quarter earnings disappointment due to forex, I bought small portion when they rose from the bottom.
Cruel me: So did you expect they would be hit by forex this quarter also? Isn't that something that you can study and estimate?
Fool me: Yeah but I am lazy to spend the extra efforts for small holding.
Cruel me: Small holding but big loss, which is just nice to cancel out all your hard-fought gains of big holdings.
Fool me: Yeah I didn't expect the holes can burn until so big.
Wise me: Since you have been burnt once, take it with you and don't ever forget this. From this, you should learn that:
- If you can't take care of the stock due to too many positions or too little sizing, just don't buy.
- Kill the stock first before consider buying, you should consider first on the downside (risk) rather than the upside (gain). In this case, your mindful ignorance to the effects of forex and laziness kill yourself. Kill the stock first, or else get killed by the market.
- It's better to err on the safe side, align with the market sentiment. If the market is bullish, its better to keep winning stocks and let it run; because upside risk is likelier. If the market is weak or bearish or volatile, its better to cut losing stocks and stand the chance to reload at much cheaper price, because downside risk is much more likelier and greater in amplitude. Because when the price is diving, it would be not be supported at fair value. If even retailers want to collect cheap durians, what makes you think BBs would go in and support the price at fair value? Everyone's in the market to seek for profits and hunting for bargains. They will start coming in to support the price if there are 20%, 30%, 40% or much higher % discount to fair value; so that when they collected enough and start pushing the price towards fair price, there are still willing buyers for them to sell to. And each BB have their own estimate of fair value. So perhaps a good entry point would be at least 20% off the lowest TP among analyst reports.
Anyway, come to think of it, I shouldn't be bothered much or feel upset about the landsliding of gloomydale's price, because if I don't hold it in the first place, wouldn't it become a golden chance to load it up cheap? This is just two sides of the same coin, depending on whether you are holding it or not. And given that I am so inclined to bottom fishing, I shouldn't be complaining about all these 'irrational landslides of price'. Because without all these seemingly 'irrationality', I wouldn't be able to gain in the stock market. Of course it is painful if I happens to hold stocks that gone into irrational slide, but that's the game I must learn how to play. Since I like to play one side of the game, I should polish my game skills for the other side. Don't be penny wise pound foolish when fighting this type of battle again.
And there is another important realization. Despises all these extreme price fluctuation, I shall not develop any unfounded bias and emotions about Mr.Market.
- 'Walao, another BB pump and dump' [Not every stock is a tightly controlled stock...]
- 'Damn all those shortists!' [Shortists' time is short too]
- 'Why is the market so irrational!?' [Is market known to be rational?]
- 'Why don't BB come and support the price?' [BB also want to collect cheap cheap ok...]
- 'Crazy la, how can the price drop so much?' [Stock market is for crazy people...]
- 'Price falls so much already so it's very cheap now' [Cheap or not cheap, should be relative to value, not historical price]
Once developed, these biases and emotions could seriously hamper my rationality in turbulent times and forced me to swing with irrational Mr.Market. By agreeing with irrational Mr.Market, I am falling into the following thinking:
- Price is absolutely related to value, and price movement absolutely tracks changes in fundamentals.
- You can beat the market by following the herd, or worse, the panic herd.
Battle 2: Save the big brother - Venture
Ok so the big brother has been smoked down by slower growth of fake smoke (IQOS) and smoke screen article by a cheapskate short-seller. Wary of receiving falling knife and also price didn't fall to my target, I didn't went in 20th when it first fell, but bought my first batch at $23.75 on 24th and $22.76 on 25th, hoping for a good earnings that could trigger a price rebound. As I deemed the % fall has exceeded the possible earnings drop caused by the PMI's earnings miss. Unfortunately despite decent results (slight earning miss from analyst's rosy consensus), the price continued to slide the next day where I missed to buy at the bottom of $20 where it got strong support, but at $21.04; making my average price $22.60.
This was a battle that could have been fought much better, as I noticed that a lot of sharp and experienced traders and investors have fought it better. But how is a question mark. Perhaps be a little bit more patient, because opportunities are plenty in weak environment. But I guess with more battle experiences, I will have better sense. Anyway, the key thing is, this is the price I am comfortable holding it, so I went for it.
Battle 3: Blown myself together with the blown LED - Valuetronics
Alright. This is how not to fight a battle. Focusing too much on the sell down aura around tech stocks, I was surprised by the sudden fall of Valuetronics and took the bait at $0.8; only to be surprised that the fall was due to a real cause: the earning miss from Philips Lighting due to Home business where Valuetronics supplies smart LED to.
Personally I really regret this transaction, or even hate it. No matter how the results will turn out in the future, this is really how not to fight a battle. Shooting without knowing the real enemy and wasting precious bullets. Don't jump onto fire-sale without knowing the source of fire. This is a very straightforward discipline that I have been observing, but unfortunately broke down amidst the tech sell down. There's no smoke without fire.
So following the jaw dropping 17% nosedive on 26th, it slides 8% further on 27th, to close at $0.68. It touched bottom of $0.64 briefly. And I topped up a little more at $0.68. This price is the price I am comfortable holding after accessing the situation. Not $0.80. I could have fought this battle wisely if I have not committed my foolish mistakes first. Nonetheless, this serves as an important lesson for me. I shall never do it again. Just want to emphasize it, there's simply no smoke without fire.
Ok enough whining. Let's have some numbers for my noob analysis. Compiling from all analyst reports and company annoucements:
- Top four customers account for 70% of sales, where Philip Lighting is responsible for 20-25%.
- Valuetronics revenues are contributed by ICE and CE quite evenly. CE businesses consists of Lighting and Consumer Lifestyle. Main customer for Consumer lifestyle is also Philips, but different entity (Philips Consumer Lifestyle). Products of consumer lifestyle is like PCBA for shavers and electric toothbrushes. These part of revenues are more or less stable.
- The main growth in CE business is driven by Lighting where they exited mass LED business in 2016 and started to provide smart LED with IOT features. The new business started to contribute to revenue in 2018Q1 of Valuetronics.
- Table below lists the revenues of Home business of Philip Lighting and CE business of Valuetronics. Philip Lighting just streamlined revenues reporting for each division in this latest quarter (2018Q1) and Home business now is mainly about the smart LED systems; which makes comparing apple to apple possible.
Quarter for Philip
(Valuetronics)
|
2017 Q1
(2017 Q4) |
2017 Q2
(2018 Q1)
|
2017 Q3
(2018 Q2)
|
2017 Q4
(2018 Q3)
|
|---|---|---|---|---|
| Philips Home | 106 mil EURO | 100 mil EURO | 115 mil EURO | 186 mil EURO |
| Valuetronics Consumer Electronics | 320 mil HKD | 316.5mil HKD | 380.4mil HKD | 401mil HKD |
We can see that the smart LED business started to pick up in 2017Q3/2018Q2. And similar growth in both companies beginning from that quarter implied that Philips Home sales directly contributed to the growth of Valuetronics CE.
- So let's assume consumer lifestyle contributes about half of the revenues of CE, before the growth of LED sales, which is about 160 mil HKD.
- In the latest Philips Lightning earnings, its Home division only recorded 92mil EURO sales, which spooked the market and triggered the panic sell. Assuming this would be directly reflected in Valuetronics next quarter earnings, working by proportion, it would only contribute 138mil HKD.
So in total, CE revenues would around 300 mil HKD. Together with projected 400mil from ICE business, Valuetronics would record 700 mil HKD revenues, somewhat 18% less than projected revenues of 850 mil HKD sales (just my estimate figure based on analyst reports with TP of $1.10).
Let's use a more conservative TP of $1.00, and takes 18% off from it which gives a new TP of $0.81. This TP assumes the future sales of smart LED by Philips Home stays at this level. However, from Philips' report, it was stated that the drop of sales was due to an inventory build-up at its trading partners during 4Q17. They expects this issue to linger until 2Q18, before a strong recovery commences in 2H18.
In simpler words, they overstock and oversell it during festive seasons, so now the sales has fallen back to a lower level. The average sales of five quarter is still about 120mil EURO per quarter, which translates to average revenue of
- 180 mil HKD from Philips Lighting
- add 160 mil HKD to form 340mil HKD for CE business
- add 400 mil HKD to form 740mil HKD for Valuetronics, which is about 13% fall of revenues; which gives TP of $0.87.
But that's assuming the smart LED business wouldn't grow, which is a bit unlikely. They may not grow at a rosy CAGR of 20-30%, but maybe 5-10%? That's not an unlikely scenario. So after this temporary speed bump, the growth will resume. At current price of $0.68, that represents 22% of discount to $0.87.
22% of MOS (maybe I shouldn't use the term MOS here since my TP is not based on intrinsic value, but yeah let me abuse the term here) on a growing company on exciting growth drivers (IoT, connectivity) that is zero debt, cash rich (108mil cash vs 291mil market cap as of now), with decent future dividend yield of 5-7% (depending of price), and also proven track record since 2007. I think this is really a good deal.
Other analysts have painted a much rosier picture despite the news, but I am surprised that they didn't cut the TP.
KE expects 10% impact on revenue and only 1.6% impact on EPS as smart LED is a lower-margin product. So my noob analysis on revenues impact are more or less similar, but they have further insights on margin, which provides another layer of MOS, though I think only 1.6% drop of earnings is a bit too ideal.
https://research.sginvestors.io/2018/04/valuetronics-value-sp-maybank-kim-eng-2018-04-27.html
CIMB maintains TP on the basis that market penetration of of smart home lighting is still low especially outside of US.
https://research.sginvestors.io/2018/04/valuetronics-holdings-ltd-cimb-research-2018-04-27.html
Summary:
To facilitate the ammo for battles, I have exited Chip Eng Seng with 3.4% gain and Cityneon without gain; which makes my portfolio now super tech-heavy (50%) with AEM (22% @ avg price 5.93), Venture (11% @ 22.63), Valuetronics (10% @0.76), Memtech (5% @1.53), Sunningdale Tech (3% @don't mention it). It may seem dangerous given the negative sentiments surrounded tech stocks now, which they might suffer further sell down; but I am optimistic about their fundamentals, their growth, and my holding price. When most people avoid tech it may seem foolish for me to double up on tech. Let's see if I turn out to be a real fool or not.
This is the 3rd month I have under-performed the STI or the 3 banks, and the first month my portfolio ended red. My portfolio changed from +3.7% to -1.27%, recorded a 5% drop for the month; while STI advanced 185.96 points to close at 3613.93, posting a strong 5.4% gain. By sinking into red, I know I must have also under-performed a lot of people: smart traders, great trend riders, sharp investors, steady investors that invest into REITS and defensive stocks, and a lot more...
So despite growing knowledge and experience, my money are not growing; unlike where in last year when I was still amateurish but yet making money. That is sort of morale-deflating, but in turbulent times like this, I know I would be killed harder if I were last year's me. So why don't I just exit the market or simply buy good REITS? Because I want to stay in the market to hone my insights on market psychology, and put my ideas, valuation, decision and strategies to test. Through all these battles, I discovered my propensity, weaknesses, unwise decisions, superficial logics and bad habits; which is important.
First thing first, let's kill all the bad habits. Then work on weaknesses (exits, lack of complementary weapon). Then review few months later on these battles on hindsight to see what I could have done better. But one thing seems to be common for all bottom fishing battles are: I could have won much more if I had wait a little longer, and strike a lot harder. Will experience helps?
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