Wolf Money(portfolio update for end Aug 2024)part 2 long post
Lone Wolf Fund(LWF)
Portfolio as at end of Aug 2024
1.) Cash
Commentary
Apa Kabar? Greetings from Indonesia. I pre-wrote my portfolio review before my trip to Indonesia, the land of the thousand islands. Do watch out for my upcoming 5 things you need to know about Indonesia.
August month started with the Yen carry trade tantrums. It had an instant impact. Nikkei was down 12.5% in a single day. The biggest one day drop since 1987. The rest of the markets were running for cover. There seems to be some normality coming back to the market after the sell-off, but I can sense the underlying uneasiness in the market. I wouldn’t go into the fine art of predicting the market but I have taken some precautions on my exposure. I am currently on a mix of 40-60 in favour of cash. Lone Wolf Fund was down 1% for the month with ytd unleveraged returns standing at 28%(excluding dividends and cash yield). STI index was down 0.5% for the month. At one point it was down 7.5%. Great fight back by STI!
I sold PT Astra Int’l at close to my purchase price, but I lost out on currency and transaction fees. After I sold the share, the stock goes ballistic, putting on a 12% gains within 2 weeks. Ai yaya. 😕. Wilmar shares were down due to the company going xd. GRAB Holdings was weaker by 3%.
On the US front, certain corporate movements captured my attention, particularly on Starbucks replacing its current CEO with ex-Chipotle’s CEO. Starbucks is operating in the discretionary spending space. When there is a softening of the economy. Some consumers will be switching to cheaper alternatives. Starbucks is under pressure from low-cost producers.
In China, Starbucks biggest market is under intense competition from Luckin Coffee. Their ordering system and lower price are two main competitive advantages of the Chinese coffee chain. Luckin ordering systems are fully automated, no cash payments are involved. It requires the customers to order via app. One obvious benefit is the lowering of staffs count per store in small store format. Even with just a low number gain in efficiency, they will have a big advantage over their competitors in the long run. Luckin sells their coffee at 30% to 50% cheaper than Starbucks($4 vs $6.5). I did a taste test. There is not much taste different to warrant paying a premium price for a Starbucks unless you are a hardcore fan. If customers start waking up their idea why am I paying so much for a Starbucks latte vs a Luckin latte? The incumbent will be in trouble. Once consumers are used to a lower priced alternative, it is very hard for them to go back to the premium version. There are big store spaces and ordering systems legacy issues which Starbucks need to address urgently. Unless the US government ban Luckin from operating in the US with some phoney reasons. The competition is here to stay. One could almost see a Luckin beside a Starbucks store in Singapore. Luckin strategy is to take on Starbucks head on in the cut-throat coffee market. Chinese entrepreneurs are exporting some of their deflation overseas. Cheaper EV, 5G, steel, coffee and Ice-cream. Some US businesses are slow to compete. The standard western playbook to counter the lower price, tariffs. I don’t think more tariffs is the solution. Western economies are likely to experience higher rate of inflation due to restrictions and tariffs on cheaper Chinese made goods. Stagflation is a real possibility. Luckin coffee might be the coffee of choice during stagflation.
Wilmar International
Wilmar did a good turnaround from its poor Q1 result. There was a 27% swing in Q2 results which helped the company produce a 5% increase in profit for the first half of 2024. They guided for stronger 2H. Personally it is very difficult to try to predict the earnings of Wilmar. They are all over the place. One thing for certain, the company continues to pay a high dividend. There are plenty of distractions from all fronts for Wilmar which it has no control over. The ongoing pay dispute with the sugar mill unions in Australia, the poor Chinese economy, Adani Group’s troubles with short seller research, Hindinberg, affecting sentiment towards Adani Wilmar and the cooking oil scandal in China affecting consumer sentiment towards the cooking oil industry etc. Overall, the management did a good job of managing the complexity surrounding their business.
The share price has performed poorly over the past 3 years even with substantial purchases made by the chairman. If I may suggest, it is time for Wilmar to do a corporate review on their non-core assets. Non-strategic assets could be sold and restructured. Some form of value unlocking exercises could be undertaken to improve shareholders’ returns. One of the chatters in the market mentions 20% owned Perennial Holdings is soliciting interest for a potential sale of Capitol Singapore worth $650m. Other potential asset unlocking could be in the form of a stake sale in Adani Wilmar to meet regulatory requirements of a min. 25% float. A potential 13% sale stated by Bloomberg is thought to be worth USD $670m. I felt more could be done to reduce the company’s debt load. The company guided for satisfactory results for the year with improvements to soya bean crushing margin. Downstream food production will be help by lower imput cost due to lower commodities prices. Palm oil margins continued to be weak. Share was marginally down due to the company going xd.
GRAB Holdings
The Q2 result continued their progress towards profitability. The company is ebitda and cash flow positive. Losses for the quarter amounted to USD $53m. Loss for the half year ending 2024 amounted to USD $157m, down from USD $378m. Losses narrowed by 59% compared to last year. During the quarter, they bought USD $34m worth of shares. The company guided for unchanged revenue and ebitda targets. They also predicted a stronger 2H due to more tourists flying into ASEAN for holidays. Shares were down close to 3% for the month. I would like to see more evidence before I commit more capital. Finally, we should all be thankful to those GRAB drivers and those making delivery for providing us a service. It is a tough job to be constantly racing against time and sometimes putting themselves in harms way. God bless.
Singapore Post Ltd
I bought the position recently. The Q1 result shows more than 100% growth. It seems they are getting the Australian business model done correctly. The review of the Australian business will be out between Sept to Dec which may results in some form of monetisations. I hope it will be the earlier part so the poor shareholders of SingPost can pop champagne to celebrate the year end festival. It is time for SingPost to walk the talk. Review after review and more reviews have not resulted in any concrete action on their non-core assets divestment. A big asset sale will prove to the detractors that there is indeed some value in the company. The debt profile requires some attention. Previously, I thought selling the SingPost Centre was a bad idea, but after looking at the books, it might be an idea worth considering. Proceeds from the billion dollar sale can help zeroed the total borrowing of $876m@3.3% borrowing rate(estimate) and the $250m perpetual securities@coupon rate 4.35%. It will decrease SingPost’s interest payable(including preps)by an estimated $42m annually, which is almost the income loss from the property minus the uncertainty of the commercial real estate market. Furthermore, the lease of SPC is winding down. Given the large asset, a deal involving a sales and leaseback could be considered.
Singapore Post have $466m of cash or cash equivalents. Any savvy investors wouldn’t like the use of perps by listed companies to pop up their financial ratio because it falls in between the grey area of debt and equity. If SingPost manages to sell any huge asset for a good amount. The perps should be the first to be cancelled. Maybe it is just me, perps is as good as debt even though there are no obligation for the company to redeem the instrument. The perps is also paying a higher interest in comparison to the interest payable on their corporate loans. The interest expense for perps alone is close to $11m annually. The cancelation of perps will also mean getting S&P off the back. I believe the credit agency was engaged due to the perps. Without perps, there is no need for a credit agency and the cost associated with the rating service. I don’t remember SingPost has any outstanding bonds.
Another way to cut cost is to do away with the 56 post offices which have outlived their usefulness. If there are three staffs including one backend manning each post office, each paid 3k per month, staffs cost alone amount to $6m annually. More than half of the total 56 post offices are on leases. That will cost the company another 33@$10k estimated rental for post offices at around $4m annually. Base on SingPost numbers, post offices generate $25m revenue but $21m in operating losses. It is poor returns for the amount of resources deployed. The reduction in post offices might required imda approval since it is be part of the licensing agreement for general postal service. Staffs could be redeployed into other logistics departments. To make post offices viable, SingPost could have Singapore Pools outlet at every post offices. The post office can incorporate social services where residents can obtain information on workfare, CDC vouchers or any other government initiatives. SingPost could also replaced PO Boxes with lockers for food delivery pick-up. Sky is the limit for SingPost if they can think out of their box.
There are some layers of fats which can be cut at corporate level. With Australia business overwhelmingly contributing more revenues to Singapore Post group, Singapore corporate HQ required an urgent reduction in cost to be in-line with the new reality, Singapore business has gotten much smaller and there is no need for the current corporate structure to exist. Singapore business only contributes a much reduced 12% of the group total revenue. Reorganisation including slimming down headcount is necessary unless SingPost is in business of doing social enterprise with job creation as top of their mission. Creation of employment could only happen if the health of the business allows. Just my observation, from a shareholder point of view. As usual, no malice in my commentary.
Most of Singapore Post’s revenues are generated outside of Singapore with more than 50% coming from Australia. It will be inappropriate to keep the current name. A rebranding exercise should be concurrent with the on-going restructuring. Something like “Samurai Plane Logistics” sounded one up over the competitor, Ninjxxxx. Samurai have a higher social class than Ninjx and planes are faster than Toyota Hiace.🤓
It had been suggested before in the press many years ago, but very few people find consensus in the idea. There is some merits of a Sats and SingPost merger especially Sats doubling down on it own air cargo business by acquiring WFS. Some observers might disagree with the combination, but then again they disagreed with the Sembmarine and Keppel O&M merger previously. No stone should be left un-turned to create a bigger pie for both companies. Sats does not have a strong presence in Australia. A merger could be just a simple share offer by Sats without the huge cash layout. Finding the ratio where both sets of shareholders can agreed is the difficult part.
It takes courage from within the company to preserve the legacy of this 166 years iconic institution which is not always easy. I am confident with the dynamic duo of the Vincents at SingPost doing a better job than their predecessors. I wish the company the best of luck in their transformation. Shares were unchanged for the month.
My research is quite rudimentary, kindly give me a pass if it doesn’t meet the usual analyst’s standard.
Cash
I did a roll-over of my slightly higher interest SSBs to the current lower yielding issue. My SSBs get a fresh 10 years duration amid at a slightly lower yield. It might be a while before we see another SSBs with a 3% coupon.
Summary
I will be taking a short holiday next week. It is the time of the year to visit some nice places and rest my overworked brain. Past records had shown Sept and Oct to be weak months. The year-end rally starts towards the very end of Oct. I am unlikely to deploy more funds into the market unless some yummy durians drop onto my lap, offering me an irresistible bargain. I will focus solely on the positions I have now. God Bless.
Please consider following us on telegram for the latest update on Lone Wolf investor by clicking on the link below. No form filling, no payment required, no collection of data, no data mining, no hard selling, no obligation.
https://t.me/joinchat/oCgkD3sQFRMzMWM1
Disclaimers
All investments is highly speculative in nature and involves substantial risk of loss. We encourage our reader to invest very carefully. We also encourage reader to get personal advice from your professional investment advisor and to make independent investigations before acting on information that we publish. Much of our information is derived directly from information published by companies or submitted to governmental agencies on which we believe are reliable but are without our independent verification. Therefore, we cannot assure you that the information is accurate or complete. We do not in any way whatsoever warrant or guarantee the success of any action you take in reliance on our statements. All information provided are for education only. Buyer beware,do you own due diligence.
Comments
Post a Comment