Wolf Money(portfolio update for end July 2024)part 2
Lone Wolf Fund(LWF)
Portfolio as at end of July 2024
1.) Cash
Commentary
Our STI broke through the 3400 resistance. The 3400 resistance has been a tripwire for our market since 2018. A stronger effort is needed if the market stands a fighting chance of reaching the 3900 all-time high. The REITs and interest-rate sensitive sector had a good month. Gains could be seen across the board, it goes a long way in recovering the lost ground over the past 3 years. The market was stronger till profit-taking took over the agenda of the market towards the end of the month. The Nasdaq is undergoing some heavy corrections given its fast ascension in the first 6 months of the year. There were clear rotations out of tech into traditional businesses. There is also the unwinding of yen carry trade which cause tech stocks to fall deeper into the red.
China’s GDP has fallen below the national target of 5%. The first quarter numbers came in at 4.7%. The recently concluded third plenum was viewed as uneventful, but there are important pointers to consider. I will summarised using my limited knowledge of the Chinese language. The Chinese government is looking to decouple from the US within the next five years. They are looking at all potential choke points between the 2 countries by building up semiconductor capability to improve their own supply chain. The trades between the US and China had fallen to 14% of all external trades. China major trading partners included the European Union and ASEAN. The number looks set to fall further if Donald Trump follows through on threats on raising tariff to 60% of all Chinese-made goods. The potential 60% tariff will cut Chinese GDP by 2.5 percentage points. It will have a crushing impact on China economically and socially. The Chinese government aim is to build up more trades with more trading blocks around the world to counter US threats. A trade war will be harmful for both parties. Inflation will stay elevated given Trump’s inflationary policies.
On a personal front, we did a refinancing of our property. I started my interest rate cycle a bit differently from others. Having gotten used to paying the higher mortgage rates for a couple of years, the lower rates are a welcoming relief. Interest saved can go into paying for extra enrichment classes for my son. My current rate is at 4.2%. The current fixed rate is around 2.88% for tenure of 2 or 3 years. We have decided on a 3 years term at 2.88% to ensure we wouldn’t have any interest rate shock over the next 3 years. I have no idea where the interest rate is going. I am taking an “insurance” to lock in the lower fixed rate, just in case the rate shoots up again. I am worry interest rate might not drop as much as what a lot of bankers are predicting next year. It might even shoots up again due to US government needing to refinance a lot of their debt coming due in the next couple of years by issuing more debt. As an investors of US debt, one will naturally want a higher yield to compensate for the extraordinary money printing. There is a possibility of commodities induced inflation coming back next year. To summarise, the probability of the 2.88% fixed rate coming down substantially from that level is minimal. I see Singapore’s fixed mortgage rate hovering around the 2.5% rate for a longer time if inflation stays higher for longer. Our current inflation rate is at 2.9%. I always take a contrarian approach if too many people are standing on either side of the equation. Wish me well. God Bless.
PT Astra International Tbk
This purchase was made due to pull and push factors, some factors beyond my control. As a Singapore stock investor for almost all my life, it is with some regrets that I couldn’t find more company in SGX to put my money to work. As for the pull factors of investing in PT Astra Int’l, besides having a good balance sheet. The diversification of the company’s businesses across different industries gives it a steady profit profile. The potential rate cut in the US helps take out some pressure on the Indonesian Rupiah. It gives the Indonesian central bank some leeway to cut interest rates to boost local consumption. The housing and auto industries will benefit greatly from any reduction of interest rate. Astra Int’l is the largest car distributor in Indonesia. One thing which I dislike is the huge exchange rate charged in the range of 190 basis points for one way trade. I am expecting some lousy exchange rate on the Rupiah but never this much. It mean I need to go past a 4 % improvement on the share price to make a profit. Anyway, PT Astra Int’l remains a test case for me right now. I am unlikely to buy more given the horrendous exchange rate. Price was up 2.5% for the month. The company reported a better 2q compare to q1. Net profit was down 9% for 1H 2024. They guided for resiliency in earning due to their diversification. Net cash improved from IDR 29B to IDR 8.1T for first 1H 2024. Share was up 4% after the result.
Wilmar International
The cooking oil scandal, sugar mill strikes in Australia and poor Chinese GDP number. Wilmar International is not short of bad news. With all the bad news, share price was strangely stronger. If we can get a better than expected number from their 1H result in mid Aug. I will be more optimistic. I can’t blame the Chairman for his effort. He has been buying shares in open market almost every other day this month. It is a great show of confidence. 1H24 results will be out on the 13th Aug after trading hours. I am expecting them to maintain the 6c dividend. There were market chatters on a potential sale of a 13% stakes in joint venture Adani Wilmar by Adani Group and Wilmar International to meet the regulatory requirements of meeting a 25% minimum float. The stake sale is rumoured to be around USD 670m. Both parties own a combined shareholding of 88% with both having an equal stake in the JV. Adani Wilmar reported a good Q1 result, turning a profit from last year lost. I hope the results can rub off Wilmar’s result. Wilmar was up slightly for the month.
GRAB Holdings
I bought a small position in Singapore Nasdaq listed, GRAB Holdings Limited, to get me interested in the company. I am not deterred by my previously 50% loss just 2 years ago. I am always looking to buy into tech company comfortable to my risk level. GRAB is probably the closest of any tech company that I can understand given I am generally a low-tech person. I belong to the 80% of mobile phone users using only 20% of the functions of my device. By the way, study has linked to increase depression among young adult on excessive use of mobile phones. For better mental wellness, I restrict my device usage to only investment research and content creation.
GRAB might be close to achieving breakeven and profitability by the next financial year(FY2025) if they don’t blow up their cash on expansion into other loss-making markets or services. It is time for the company to show profit. Operational leverage and network effects are starting to show. First quarter margin was better than expected. They are in a robust financial position to turn a profit. The company has cash or liquidity close to USD 5b with very minimal debt on its balance sheet. GRAB has a USD 500m share buyback program till end of 2025. They have bought shares worth USD 97m at an average price of USD 3.22 in the first quarter.
Given how UBER’s share price has performed since achieving profitability last year, I am sanguine on the prospect of GRAB. UBER market capitalisation is 10 times higher than GRAB(130b vs 13b). I believe there is a fair chance for the valuation gap between the two to narrow when GRAB achieved its first bottomline profit. GRAB operates in markets that have a higher growth rate than UBER. The 10x market capitalisation differential is too wide of a gap in my opinion. The number of UBER’s users is 149m vs 38.5m. The recent improvement in GRAB’s financial numbers can be attributed to more tourists coming to Southeast Asia. ASEAN is seen as a more neutral place to come for a holiday, given we welcome everyone into our sphere regardless of your political affiliation, religion, race, countries etc. Tourism is booming in Southeast Asia. GRAB has a dominant position anywhere from 55% to 75% market share in ride hailing in 8 ASEAN countries. Years ago, GRAB with its kind of market dominance would have been unwelcome or considered monopolistic with anti-trust agency breathing down their neck. The app is quite sticky with tourists coming to South East Asia for a holiday. The constant haggling over the price of the taxi and safety considerations have made GRAB among the top app downloads for tourists. It is similar to having an essential WeChat and Didi app when one travel to China. The management is currently talking to tourism boards in ASEAN to increase their advertisements on their platform.
The main risks of investing in GRAB involved Chinese ride-hailing players coming in aggressively into ASEAN where GRAB has a presence. Poor usage of fund buying businesses that is not complementary to their core business can be another tripwire towards profitability. Other risks include regulations catching up with them.
Their digital banking arm GXS bank is currently loss making. They have a doubtful debt past 90 days of 2% on their loan books. Their credit control is not far from most established banks here. They have a tire up with Fico. Fico provides credit analysis software to assess the credit worthiness of their customers. The opportunity for cross-selling of financial products within the GRAB ecosystem is high. Grab is a different animal now. Just a few years ago, it was a one-trick pony. The current Grab is a combined of UBER, PayPal, Sofi and Sheng Siong. The company is probably a year away from reporting a positive bottomline. I am keen to track the company’s progress more closely with the view of adding more to my initial position if their turnaround has become more reassuring. I hope to keep my confirmation and sunk cost bias at bay by reading the negative news about why the company is not worth my salt. Grab shares were lower, inline with the weakness in tech companies in the US during the course of the month. I have no idea how they can convert their dominance in many of their South East Asian markets into dollars and cents. If I know when they are going to turn a profit, I will be called Mr. Anthony Tan. ๐ In the meantime, I am grabbing a meal. Share was down 5% for the month. GRAB is a different type of animal that I am used to deal with. The company gives me the feeling. ้ๅฏ้, ้ๅธธ้, ๅๅฏๅ, ้ๅธธๅ. If one can understand “The Way” ,one will succeed in understanding GRAB.
Cash
I did a roll over of my lower yield SSBs to the current month. Yield on government securities have lowered across the board. The era of 3% T bills and SBBs is nearing an end.
Summary
Lone Wolf Fund was flat for the month of July. The ytd gain stands at 29%. Wilmar and PT Astra pulling up the fund with GRAB doing the opposite. With better performance by Lone Wolf Fund in the first half, it allows me more ammunition to invest in higher-risk profile companies, although I am still exercising prudence. Gains from previous sales were used for the purchase of a small position in PT Astra Int’l and GRAB in search for better risk reward. The two purchases are my bets on ASEAN economies. ASEAN’s economies are likely to outperform the Chinese economy for at least the next 5 years. Indonesia, the largest economy in Southeast Asia, growth has surpassed that of China. Their recent GDP numbers came in at 5.1%. It is time to GRAB the opportunities in our own backyard. God bless!
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