Wolf Money(portfolio update for end March 2024)part 2 long post
Lone Wolf Fund(LWF)
Portfolio as at end of March 2024
1.) Cash
3.) Great Eastern Holdings(GEH)
Fairness to minority shareholders should be enshrined in every listed company. The c-suites and the board of directors of any mid to large listed company are very well paid, enjoying a life of abundance and positive social status. With great wealth comes greater moral responsibility. I urge those who are in the position of privilege to be kind to your fellow shareholders. The only question that matters when everyone bow in front of the Great Lord. Have you been a good person during your time on earth? The answer should be a resounding Yes!
Commentary
Lone Wolf Fund had a positive month in March. Portfolio was up 4.5% for the month, thanks to the resurgence in Boustead Singapore shares. The portfolio ytd gain stands at 7.5% (excluded dividend and cash yield). There were realised gains in Ping An, Sinopec and Barrick Gold contributing to the overall portfolio gains. There was a big turnover in portfolio stocks in March. Gone are the foreign companies; in came Great Eastern Holdings. Foreign shares had given LWF’s capital a decent return during the short duration overseas. I was stopped out in all counters due to volatility in their share prices. Maybe I should change my blog to Lone Wolf Trader. 🤔
I will spend most of this month review to talk extensively on Great Eastern Holdings and Boustead Singapore on how they can address their undervalued share price.
Ways to improve shareholders’ value at Great Eastern Holdings and Boustead Singapore Limited
Great Eastern Holdings(GEH)
I bought GEH to show moral support for my friend, Chin Woo, for his effort to gather minorities’ support to table 3 resolutions to improve shareholders’ value at GEH. Shareholders’ activism is rare in Singapore. Many listed companies have taken their minority shareholders for a ride in recent years with cheap privatisation offers and corporate governance issues have gotten more prevalent at least in my perception. Having someone like CW to stand up for minority is a breath of fresh air. His action is commendable, and it has given GEH’s minority shareholders’ hope that their investment could obtain fair value for what it is worth. I admire Chin Woo’s action in making the minority voice heard at GEH. I took it as a personal interest to support his cause. If we don’t support those who speak up for minorities, eventually no one will speak up for our rights. The strong and powerful will roll over the weak in our society.
The three resolutions tabled in my personal opinion are justified and reasonable. If the resolutions are allowed to be voted on. It will be a good start in improving governance and shareholders’ value at the company, strengthening the great of Great Eastern Holdings.
My hope is for the BOD of GEH and OCBC to see this initiative as beneficial to all. The larger thinking is to increase the value pie and everyone comes out a winner. The minority activism is not against interest of OCBC or GEH management. OCBC, being the largest shareholder of GEH with 88.45% holding, stands to benefit greatly with any improvement to GEH’s value. OCBC must and should always focus on its 88.45% stake. A forward-looking bank should create value “Now and Beyond”. Fairness to your customers, your employees and your shareholders should be a cornerstone for any financial institutions. Life is great when one “Reach for Great”(ness), the valuation of Great Eastern is nowhere near great. I hope GEH follows through on their corporate slogan to address the undervaluation. How will customers view funds managed by the insurer with its own share trading at depressed valuations? Food for thoughts.
The esteemed gentlemen on the Board of GEH have a fiduciary duty towards all stakeholders including minority shareholders. I hope the minority action will spur greater shareholders’ activism in Singapore responsibly. The silence minorities need a voice too. I praise SIAS for throwing its weight in support of Chin Woo’s initiative. All parties should come up with an amicable solution to improve the value of GEH shares after decade of mediocre performance.
The undervaluation of GEH is well documented. For the past 20 years, since the first takeover offer by OCBC, the unit hasn’t been realising its full potential. There are a few more options* to improve shareholders’ returns, besides what was mentioned in Chin Woo’s podcast with Ben Paul of Business Times. Below is the link to the podcast.
Chin Woo’s interview with Ben Paul of BT on Great Eastern Holdings.(Podcast)
Sale of Great Eastern Holdings
1.) A sale of Great Eastern can be considered. As an independent company, OCBC could structure a bancassurance deal with the purchaser of GEH similar to what DBS had done in 2015 with Manulife. Just to recap, DBS signed a deal worth $1.6b with Manulife to sell and distribute Manulife products exclusively at their bank branch and network for 15 years, netting DBS $107m annually. I estimate GEH could be worth north of SGD $17b based on the market norm of using embedded value as a key valuation matrix to calculate fair value of insurers. Great Eastern has a leading market position in Singapore and Malaysia, which makes them an attractive acquisition target.
IPO for Great Eastern Malaysia
2.) GEH has grown the Malaysian market organically and through acquisitions to become a sizeable entity. A separate listing of the Malaysian unit can be considered to improve shareholder value for GEH shareholders and OCBC shareholders. Money from the IPO could be used for further acquisitions in Malaysia and expansion to the rest of ASEAN, in process creating value for all stakeholders.
Sale of properties
3.) There are quite a few properties held under Great Eastern Holdings. Some have strategic use but GCB and condo held under books are non core assets in my personal opinion. Some properties held under GEH’s book should be monetised and return to shareholders.
Increase liquidity
4.) Giving GEH share to OCBC shareholders was mentioned in Chin Woo’s initiative. The middle path could be a dividend in specie of 38.45% partial stake in GEH to OCBC shareholders. It increases the float in GEH and OCBC’s continue to retain 50% control of Great Eastern. I am sure all parties will benefit from this arrangement.
Privatisation offer by OCBC
5.) If OCBC’s intention was to privatise GEH, I roughly estimate it would cost OCBC less than $2b (less than 30% of OCBC 2023 earnings) if privatisation was done at the minimum of 1.0x embedded value of $36 per share, a small sum for OCBC which wouldn’t put any stress on the balance sheet. OCBC has the highest Tier 1 ratios of 15.9 among local banks. The takeover could also be funded by OCBC shares issued to GEH shareholders as part of the takeover. It will help to broaden the shareholder base of OCBC. A full control of GEH gives OCBC the freedom and flexibility to chart the path of GEH without the minority distraction. It allows a clearer corporate structure.
Conclusion
The potential cut in interest is a tailwind for GE’s profit and headwind for OCBC’s net interest margin. Having full control of GEH can help to smooth out the bank’s earnings from any drop in interest income. OCBC can stand on a pedestal and claim the moral high ground if a fair offer was given. Imagine the headline “OCBC leads the way in providing minorities with a fair offer for Great Eastern Holdings”. The positive perception towards the bank is unquestionable. Trying to privatise GEH on a lowball offer is not worth risking the good reputation of the bank. It takes decades or even century to build a good reputation. It takes only one incident to destroy it. Fairness should be a natural DNA of any person and more so for any business operating in the business of trust. The return on equity of OCBC pales in comparison against the 2 other local lenders in recent years. The enterprising spirit seem to be loss during the last decade. I hope the new Chair of OCBC can muster enough energy and motivation to rejuvenate the historical lender that were blessed with having visionary leadership under the legendary chairman of Lee Kong Chian and Tan Chin Tuan. Having a clear direction for Great Eastern Holdings listing status is critical to the transformation of this sleeping banking giant that has grown tired over the last few years. With DeFi, Alternative Finance and AI lowering barrier of entry for new entrants. Maintaining status quo on the business should not be a strategy for any forward looking bank. The ambiguity at GEH needs to be sorted out with urgency. I look forward to a rejuvenated OCBC, going about their business with more purpose and clarity under the new leadership of the Chairperson and CEO. Thank you.
As a small shareholder, I am limited to using my keyboard to create awareness, but If you are GEH shareholder who wish to make a difference in supporting Chin Woo’s led minority action, please pm or email him at:
Mobile: 9862 8896
Email: ong.chin.woo@gmail.com
I hope to say hello to all the minority shareholders at the coming AGM on 25 April 2024. I will be in attendance to cover the AGM.
*These are some of my thoughts, not to be view as cardinal truth.
*Commentry not directed at anyone, just a long term observer of the bank, no menace intended
Boustead Singapore(BSL)
Shares of Boustead Singapore have shown signs of improvement. The share was stronger by 9% due to the Chairman’s open market purchase at a range of 88c-92c. Even with the uplift in share prices this month. The share price is still a shade of its former glory. Before 2015, the share price of Boustead SP before the demerger of Boustead Project was trading around $1.25-$1.63, at a p/e of 12-14x vs the current p/e of around 9x. One had to factor in Boustead Project was a much smaller company in 2015 when the demerger occured. Given Boustead Project now has grown significantly larger, the share price of the recombined entity is barely trading above 96c. How did the valuation got depressed to its current level? I have no idea. Below are some of my humble suggestions* on ways to improve shareholders’ value. The BOD of Boustead Singapore should consider any plan within its power to close the valuation gap between stock price and intrinsic value.
Share buyback
1.) Given Boustead substantial cash holdings, share buyback represents a safe way to increase shareholders’ value without undertaking the bigger risk of investing in new business acquisitions. Boustead acquired a healthcare business 6 years ago and has so far failed to generate a consistent profit. I am not nitpicking on Boustead but there is a genuine risk of some acquisitions not turning out well. Besides, BSL trades at a 50% discount to intrinsic value. Buying shares at half its actual worth makes good business sense. A committed amount like a $50m share buyback within a year will send a strong signal of confidence to investors.
Sale of properties
2.) Boustead Singapore has a couple of properties that are ripe for divestment. The sale could free up capital for deployment into higher growth areas of their business and return cash to shareholders.
Increase in dividend payout and one off special dividend
3.) Increasing dividends is the simplest way of improving shareholders’ value. I estimate Boustead Singapore, with the combined of Boustead Project can achieve an annual earnings of 11c-12c per share. A minimum payout ratio of 50% of normal dividend is within the company’s healthy financial situation. Paying an annual dividend of 5.5c-6c(current 4c) can be done without stressing the balance sheet. The company could also offer a one-off special dividend of 15c which costs less than $72m and still have plenty of cash to work with. The company has not deployed cash substantially over the past decade or two. Cash and cash equivalent amount to $300m sit within the kitty even after shelling out on Boustead Project privatisation exercise.
Seeking a listing in an overseas market
4.) There is nothing the company or anyone can do to change the perception of the company’s undervalued shares. It is just the way how the whole world sees our stock market. Only the 3 local banks and a couple of blue chips managed to get the attention of some funds, but most middle and small caps failed to gather enough interest. An overseas listing could help where liquidity is abundant. Overseas listing not restricted to a secondary listing. A listing of a Boustead Reit or its Vietnamese business could be considered.
Sale of business unit if the price is right could be considered
5.) Certain industries, especially in the sector like Oil and Gas, will be under increasing scrutiny by ESG vigilantes. The business environment will get tougher with ever-increasing environmental laws and regulations. It is worth considering an offer if the price is right.
A fair privatisation offer by majority shareholder
6.) I am sure minority shareholders will consider any fair offer to privatise BSL objectively. Our market has failed to reflect the true worth of Boustead Singapore shares and many other undervalued stocks listed on the exchange. It is time for those undervalued companies to take back the initiative by doing their own value unlocking exercise. Only listed companies could create value for themselves in a market that has underserved them. Of course, the Boustead Singapore name is worth preserving as a listed company, given it is one of the oldest companies in continuous operation in Singapore. I have no doubt there are some merits to that notion. The Wong’s family had been calling the shots at the company since three decades ago, and they have been good Stalwarts of the nearly 200-years-old company. I continue to have immense respect for the Chairman. The Boustead’s family had no relation to the current company, preserving the family name of Boustead would be less critical for the Wong family.
The listing cost is too expensive in Singapore. I estimate up to $1.5m yearly is needed to maintain the listing status in SGX for a mid size company. Money going into listing fees, big four auditors, lawyers and directors’ fees etc. Boustead has not raised money in the market during the last couple of decades, a listing status provides no tangible benefit. Sometimes, the best companies are kept private.
*These are some of my thoughts on ways to create more shareholders’ value, please don’t take it as cardinal truth.
Summary
This month’s portfolio movement was unusually large. It reflects my contradicting views on the market outlook. I always purchase shares in a company with an eye for long term investment but the elevated US market might be ripe for a pullback. The pullback can be huge given this bull market is on steroids. I am struggling with my own emotion of taking short term profit and trying to invest for the long term. In this market, a profitable position can quickly turn into huge losses if there is a sudden change in market sentiment. The selling had increased my liquidity. Capital will be available for deployment if the market goes through a correction. My capital after a “vacation” to Hong Kong and the US market, had returned to Singapore, with the purchase of Great Eastern Holdings, the portfolio has once again become a true blue Singaporean portfolio. The US jobs market is weakening. The great resignation that took place a couple of years ago has turned into the great culling of jobs, especially in the tech sector. The weakening jobs market strengthened the Fed’s rate cut narrative. The 3% inflation bogeyman is standing in the way of a rate cut. Bringing down inflation rates from 9% to 3% is the easier part, getting from 3% to 2% is the difficult journey. The Fed is walking on a tight rope, reaching the other end of the rope of a soft landing required all stars to be aligned. God bless 🙏
Tay Swift T-shirt winners
Let me present you the winners of the Taylor Swift T-Shirt giveaway. I had a quick chat with both and asked them about their best idea for their investment dollars.
ZY Ang is a secondary school swiftie. She wanted to go to the concert badly. Unfortunately, she couldn’t get hold of the tickets . I hope the T-shirt will be her consolation. She was together with her mum to collect the T-shirt. Ms. Ong was very much into safe investments like T bills and government bonds as she believed in playing it safe. She offers very sound advice given the high risk-free rate.
The second winner, Mr. Goh is in the stock brokering business. He mentioned his investment in Grand Bank Yachts, a company that specialises in yacht manufacturing. He shared that the company has low p/e and high order books which provide earning visibility for the next 12 to 18 months. One can find hidden gems in the Singapore market without going overseas. Once again congratulations to all the winners.
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Disclaimers
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